<PAGE> 1
Filed Pursuant to RULE 424 (b) (4)
RS No. 333-32979
---------
PROSPECTUS
OFFER FOR ALL OUTSTANDING
9 1/4% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR
9 1/4% SENIOR SUBORDINATED NOTES DUE 2007
CAPSTAR RADIO BROADCASTING PARTNERS, INC.
------------------------
Capstar Radio Broadcasting Partners, Inc. (the "Company") is offering upon
the terms and subject to the conditions set forth in this Prospectus and the
accompanying letter of transmittal (the "Letter of Transmittal") (which together
constitute the "Exchange Offer") to exchange $1,000 principal amount at maturity
of its registered 9 1/4% Senior Subordinated Notes due 2007 (the "New Notes")
for each $1,000 principal amount at maturity of its unregistered 9 1/4% Senior
Subordinated Notes due 2007 (the "Old Notes") of which an aggregate principal
amount of $200,000,000 is outstanding. The form and terms of the New Notes are
identical to the form and terms of the Old Notes except that the offer and sale
of the New Notes have been registered under the Securities Act of 1933 (the
"Securities Act") and the New Notes will not bear any legends restricting their
transfer. The New Notes will evidence the same debt as the Old Notes and will be
issued pursuant to, and entitled to the benefits of, the Notes Indenture (as
defined) governing the Old Notes. The Exchange Offer is being made in order to
satisfy certain contractual obligations of the Company. See "The Exchange Offer"
and "Description of the New Notes." The New Notes and the Old Notes are
sometimes collectively referred to herein as the "Notes."
Interest on the Notes will be payable semi-annually on January 1 and July 1
of each year, commencing on January 1, 1998. The Notes will mature on July 1,
2007. The Notes will be redeemable, in whole or in part, at the option of the
Company, on or after July 1, 2002, at the redemption prices set forth herein,
plus accrued and unpaid interest to the date of redemption. In addition, at any
time before July 1, 2001, the Company may, at its option, redeem up to 25% of
the aggregate principal amount of the Notes originally issued with the net cash
proceeds of one or more Public Equity Offerings (as defined) or Major Asset
Sales (as defined), at the redemption price set forth herein; provided, however,
that after any such redemption there is outstanding at least 75% of the
aggregate principal amount of the Notes originally issued.
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
Notes at a price equal to 101% of the aggregate principal amount, plus accrued
and unpaid interest, to the date of purchase. In addition, prior to July 1,
2002, upon the occurrence of a Change of Control, the Company will have the
option to redeem the Notes in whole but not in part (a "Change of Control
Redemption") at a redemption price equal to 100% of the principal amount
thereof, plus accrued and unpaid interest to the date of redemption, plus the
Applicable Premium (as defined).
The Company is a holding company which conducts, or will conduct,
substantially all of its operations through its subsidiaries, Atlantic Star
Communications, Inc. (formerly named Commodore Holdings, Inc.) ("Atlantic
Star"), Southern Star Communications, Inc. (formerly named Osborn Communications
Corporation) (referred to herein as either "Osborn" or "Southern Star"),
GulfStar Communications, Inc. ("GulfStar"), Central Star Communications, Inc.
("Central Star"), and Pacific Star Communications, Inc. ("Pacific Star"). The
Notes are general unsecured obligations of the Company and rank pari passu in
right of payment with the Existing Notes (as defined) and subordinate in right
of payment to all existing and future Senior Indebtedness (as defined) of the
Company. As of March 31, 1997, on a pro forma basis (i) after giving effect to
the Completed Transactions (as defined), the Financing (as defined) and the
application of the net proceeds therefrom, there would have been (a) no Senior
Indebtedness of the Company outstanding, (b) approximately $70.7 million of
Indebtedness (as
(Continued on next page)
------------------------
FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT
IN THE NEW NOTES, SEE "RISK FACTORS" ON PAGE 17 HEREIN.
------------------------
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.
AUGUST 12, 1997
<PAGE> 2
(Continued from previous page)
defined) of the Company that would have ranked pari passu in right of payment to
the Notes, and (c) approximately $23.1 million of Indebtedness of the Company's
subsidiaries, including current payables, and (ii) after giving further effect
to the Pending Transactions (as defined) and their related financing, there
would have been (a) no Senior Debt of the Company outstanding, (b) approximately
$70.7 million of Indebtedness of the Company that would have ranked pari passu
in right of payment to the Notes, and (c) approximately $26.8 million of
Indebtedness of the Company's subsidiaries, including current payables. All
existing and future Indebtedness of the Company's subsidiaries is, or will be,
structurally senior to the Notes. The Company entered into the Existing Credit
Facility (as defined) in February 1997, the Indebtedness under which is secured
by the assets of the Company's subsidiaries. As of March 31, 1997, no principal
amount was outstanding under the Existing Credit Facility. As of August 6, 1997
(the date on which the Benchmark Acquisition (as defined) was consummated),
$12.2 million in principal amount was outstanding under the Existing Credit
Facility and $21.7 million was available for borrowing thereunder. The Company
expects to amend and restate the Existing Credit Facility in August 1997 to
provide for, among other things, borrowings of up to $200.0 million (the "New
Credit Facility" and together with the Existing Credit Facility, the "Credit
Facilities"). See "Description of Other Indebtedness -- Existing Credit
Facility" and "-- New Credit Facility."
The Exchange Offer will expire at 5:00 p.m., New York City time, September
11, 1997, or such later date and time to which it is extended (the "Expiration
Date").
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer in exchange for Old Notes must acknowledge that it will
deliver a prospectus in connection with any resale of such New 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. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 90 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "The Exchange Offer" and "Plan of
Distribution."
The Old Notes are designated for trading in the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") market. To the extent Old
Notes are tendered and accepted in the Exchange Offer, the principal amount of
outstanding Old Notes will decrease with a resulting decrease in the liquidity
in the market therefor. Following the consummation of the Exchange Offer,
holders of Old Notes who were eligible to participate in the Exchange Offer but
who did not tender their Old Notes will not be entitled to certain rights under
the Registration Rights Agreement (as defined) and such Old Notes will continue
to be subject to certain restrictions on transfer. Accordingly, the liquidity in
the market for the Old Notes could be adversely affected. No assurance can be
given as to the liquidity of the trading market for either the Old Notes or the
New Notes.
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements, including the notes thereto, appearing
in this Prospectus. In June 1997, Capstar Broadcasting Corporation ("Capstar
Broadcasting") acquired all of the issued and outstanding common stock of
Capstar Broadcasting Partners, Inc., the sole stockholder of the Company
("Capstar Partners"), in exchange for common stock of Capstar Broadcasting.
Unless otherwise specified, this Prospectus assumes the consummation of the
Pending Transactions (as defined). As used in this Prospectus, unless otherwise
specified, the "Company" means Capstar Radio Broadcasting Partners, Inc.
(formerly named Commodore Media, Inc. ("Commodore")) and its subsidiaries after
giving effect to the consummation of the Pending Transactions. The Company
conducts, or will conduct, its business through its subsidiaries, Atlantic Star,
Southern Star, GulfStar, Central Star and Pacific Star. Certain capitalized
terms used in this Prospectus are defined herein under the caption "Glossary of
Certain Terms and Market and Industry Data."
THE COMPANY
The Company is the largest radio broadcaster in the United States operating
exclusively in mid-sized markets. The Company owns and operates or provides
services to 155 radio broadcasting stations in 46 mid-sized markets located
throughout the United States. On a pro forma basis after giving effect to the
Pending Transactions, the Company will own and operate or provide services to
233 radio broadcasting stations in 62 mid-sized markets located throughout the
United States. These stations comprise the leading radio group, in terms of
revenue share and/or audience share, in 41 markets. On a pro forma basis after
giving effect to the Completed Transactions (as defined) and the Pending
Transactions and the financing thereof, including the Financing, as if they had
occurred on January 1, 1996, the Company would have had net revenue, EBITDA (as
defined) and a net loss of $296.6 million, $67.5 million and $17.4 million,
respectively, for the twelve-month period ended March 31, 1997, and EBITDA as
adjusted for estimated cost savings of $85.0 million. The Company has entered
into 17 agreements to acquire 85 additional stations, including seven stations
for which the Company currently provides services pursuant to an LMA (as
defined) (the "Pending Acquisitions"), and one agreement to dispose of three FM
stations (the "Pending Transactions").
In February 1996, as a result of the passage of the Telecommunications Act
of 1996 (the "Telecom Act"), radio broadcasting companies were permitted to
increase their ownership of stations within a single market from a maximum of
four to a maximum of between five and eight stations, depending on market size.
More importantly, the Telecom Act also eliminated the national ownership
restriction that generally had limited companies to the ownership of no more
than 40 stations (20 AM and 20 FM) throughout the United States. In order to
capitalize on the opportunities created by the Telecom Act, R. Steven Hicks, an
executive with over 30 years of experience in the radio broadcasting industry,
and Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") formed the Company to
acquire and operate radio station clusters in mid-sized markets. The Company
generally defines mid-sized markets as those Metropolitan Statistical Areas
("MSAs") ranked between 50 and 200, each of which has approximately $10.0
million to $35.0 million in radio advertising revenue.
The Company believes that mid-sized markets represent attractive operating
environments because, as compared to the 50 largest markets in the United
States, they are generally characterized by (i) lower radio station purchase
prices as a multiple of broadcast cash flow, (ii) less sophisticated and
undercapitalized competitors, including both radio and competing advertising
media such as newspaper and television and (iii) less direct format competition
resulting from fewer stations in any given market. The Company believes that the
attractive operating characteristics of mid-sized markets coupled with the
opportunity provided by the Telecom Act to create in-market radio station
cluster groups will enable the Company to achieve substantial revenue growth and
cost efficiencies. As a result, management believes that the Company can
generate broadcast cash flow margins that are comparable to the higher margins
that heretofore were generally achievable only in the top 50 markets.
To effectively and efficiently manage its stations, the Company has
developed a flexible management structure designed to manage a large and growing
portfolio of radio stations throughout the United States. The station portfolio
will be organized into five regions: the Northeast (Atlantic Star), the
Southeast (Southern Star), the Southwest (GulfStar), the Midwest (Central Star)
and the West (Pacific Star), each of which is, or will be, managed by regional
executives in conjunction with general managers in each of the Company's
markets.
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STATION PORTFOLIO
The following table sets forth certain information regarding the Company
and its markets assuming the Pending Transactions have been consummated.
<TABLE>
<CAPTION>
COMPANY COMPANY
STATIONS REVENUE AUDIENCE
MSA --------- SHARE SHARE
MARKET(1) RANK FM AM RANK RANK SOURCE COMPANY(2)
--------- ---- --- --- ------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
NORTHEAST REGION (ATLANTIC STAR)
Allentown-Bethlehem, PA...................... 64 3 3 1 1 Commodore/Patterson
Wilmington, DE............................... 74 1 1 2 2 Commodore
Roanoke, VA.................................. 101 4 1 2 1 Benchmark/Cavalier/WRIS
Worcester, MA................................ 106 1 1 1 1 Knight Quality
Fairfield County, CT......................... 112 4 4 2 2 Commodore
Portsmouth-Dover-Rochester, NH............... 117 2 1 1 2 Knight Quality
Huntington, WV-Ashland, KY................... 139 5 5 1 1 Commodore
Salisbury-Ocean City, MD..................... 153 2 -- 3 4 Benchmark
Manchester, NH............................... 193 1 1 1 2 Knight Quality
Wheeling, WV................................. 213 5 2 1 1 Osborn
Winchester, VA............................... 219 2 1 2 1 Benchmark
Burlington, VT............................... 221 1 -- 2t 5 Knight Quality
Harrisburg-Lebanon-Carlisle, PA.............. 253 1 1 2 2 Patterson
Dover, DE.................................... NA 2 1 1 1 Benchmark
Westchester-Putnam Counties, NY.............. NA 2 1 NA 1 Commodore
Lynchburg, VA................................ NA 3 1 1 1 Benchmark/Cavalier
--- --
Subtotal............................... 39 24
SOUTHEAST REGION (SOUTHERN STAR)
Birmingham, AL............................... 55 2 1 2 3 Ameron
Greenville, SC............................... 59 1 -- 2t 2 Benchmark
Columbia, SC................................. 88 4 2 1 1 Benchmark/Emerald City
Daytona Beach, FL............................ 93 1 -- 1 2 SFX
Melbourne-Titusville-Cocoa, FL............... 96 3 2 1 1 Space Coast
Huntsville, AL............................... 114 4 2 1 1 Osborn/Griffith
Ft. Pierce-Stuart-Vero Beach, FL............. 121 5 1 1 1 Commodore
Pensacola, FL................................ 125 3 -- 1 1 Patterson
Montgomery, AL............................... 142 3 -- 2 2 Benchmark
Savannah, GA................................. 153 4 2 1 1 Patterson
Asheville, NC................................ 179 1 1 1 1 Osborn
Tuscaloosa, AL............................... 212 3 1 1 1 Osborn/Grant
Jackson, TN.................................. 257 2 1 1 1 Osborn
Statesville, NC.............................. NA 1 1 NA NA Benchmark
Gadsden, AL.................................. NA 1 1 NA 1 Osborn
--- --
Subtotal............................... 38 15
SOUTHWEST REGION (GULFSTAR)
Baton Rouge, LA.............................. 81 3 3 1 1 GulfStar
Wichita, KS.................................. 91 2 1 3 3 SFX
Jackson, MS.................................. 118 2 2 2 2 Benchmark
Shreveport, LA............................... 126 1 1 2 3 Benchmark
Beaumont,TX.................................. 127 3 1 1 1 GulfStar
Corpus Christi, TX........................... 128 3 1 1 1 GulfStar
Tyler-Longview, TX........................... 143 4 1 1 1 GulfStar/Noalmark
Killeen, TX.................................. 149 2 -- 1 1 GulfStar
Fayetteville, AR............................. 161 4 -- 1 1 GulfStar/KJEM
Ft. Smith, AR................................ 169 2 1 1 1 GulfStar/Booneville
Lubbock, TX.................................. 171 4 2 1 1 GulfStar/American General
Waco, TX..................................... 190 4 2 1 1 GulfStar
Texarkana, TX................................ 237 3 1 1 1 GulfStar
Lawton, OK................................... 243 2 -- 1 1 KLAW
Lufkin, TX................................... NA 2 -- NA NA GulfStar
Victoria, TX................................. NA 2 -- NA 1 GulfStar
--- --
Subtotal............................... 43 16
MIDWEST REGION (CENTRAL STAR)
Grand Rapids, MI............................. 66 3 1 2 3 Patterson
Des Moines, IA............................... 89 2 1 4 4 Community Pacific
Madison, WI.................................. 120 4 2 1 1 Madison
Springfield, IL.............................. 192 2 1 3 3 Patterson
</TABLE>
2
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<TABLE>
<CAPTION>
COMPANY COMPANY
STATIONS REVENUE AUDIENCE
MSA --------- SHARE SHARE
MARKET(1) RANK FM AM RANK RANK SOURCE COMPANY(2)
--------- ---- --- --- ------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Cedar Rapids, IA............................. 197 2 1 2 1 Quass
Battle Creek-Kalamazoo, MI................... 229 2 2 1 1 Patterson
--- --
Subtotal............................... 15 8
WEST REGION (PACIFIC STAR)
Honolulu, HI................................. 58 4 3 1 1 Patterson
Fresno, CA................................... 65 3 2 2 3 Patterson
Stockton, CA................................. 85 1 1 3 3 Community Pacific
Modesto, CA.................................. 121 1 1 2 2 Community Pacific
Reno, NV..................................... 133 2 1 4 3 Patterson
Anchorage, AK................................ 165 4 2 2 1 Community Pacific/COMCO
Fairbanks, AK................................ NA 2 1 NA 1 COMCO
Farmington, NM............................... NA 3 1 NA NA GulfStar
Yuma, AZ..................................... NA 2 1 NA 1 Commonwealth
--- --
Subtotal............................... 22 13
--- --
Total.................................. 157 76
=== ==
</TABLE>
- ---------------
NA Information not available.
(1) See explanatory notes to this table beginning on page 60 of this Prospectus.
(2) As defined in "The Acquisitions" and/or "Glossary of Certain Terms and
Market and Industry Data."
ACQUISITION STRATEGY
The Company is the leading consolidator of radio stations in mid-sized
markets throughout the United States. Management has achieved this position
through the application of an acquisition strategy that it believes allows the
Company to develop radio station clusters at attractive prices. First, the
Company enters attractive new mid-sized markets by acquiring a leading station
(or a group that owns a leading station) in such market. The Company then
utilizes the initial acquisition as a platform to acquire additional stations
which further enhance the Company's position in such market. Management believes
that once it has established operations in a market with an initial acquisition,
it can acquire additional stations at reasonable prices and, by leveraging its
existing infrastructure, knowledge of and relationships with advertisers and
substantial management experience, improve the operating performance and
financial results of those stations.
OPERATING STRATEGY
The Company's objective is to maximize the broadcast cash flow of each of
its radio station clusters through the application of the following strategies:
Enhance Revenue Growth through Multiple Station Ownership. Management
believes that the ownership of multiple stations in a market allows the Company
to coordinate its programming to appeal to a broad spectrum of listeners. Once
the station cluster has been created, the Company can provide one-stop shopping
to advertisers attempting to reach a wide range of demographic groups.
Simplifying the buying of advertising time for customers encourages increased
advertiser usage thereby enhancing the Company's revenue generating potential.
Broad demographic coverage also allows the Company to compete more effectively
against alternative media, such as newspaper and television, thus potentially
increasing radio's share of the total advertising dollars spent in a given
market.
Create Low Cost Operating Structure. Management believes that it is less
expensive to operate radio stations in mid-sized markets than in large markets
for several reasons. First, because stations in mid-sized markets typically have
less direct format competition, the Company is less reliant on expensive on-air
talent and costly advertising and promotional campaigns to capture listeners.
Second, the ownership of multiple stations within a market allows the Company to
achieve substantial cost savings through the consolidation of facilities,
management, sales and administrative personnel and operating resources (such as
on-air talent, programming and music research) and through the reduction of
redundant corporate expenses. Furthermore, management expects that the Company,
as a result of the large size of its portfolio, combined with the consolidated
purchasing power
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of other portfolio companies of Hicks Muse, will be able to realize substantial
economies of scale in such areas as national representation commissions,
employee benefits, casualty insurance premiums, long distance telephone rates
and other operating expenses. Finally, the incorporation of digital automation
in certain markets allows the Company to operate radio stations at off-peak
hours with minimal human involvement while improving the quality of programming.
Utilize Sophisticated Operating Techniques. Following the acquisition of a
station or station group, the Company seeks to capitalize on management's
extensive large market operating experience by implementing sophisticated
techniques such as advertising inventory management systems, sales training
programs and in-depth music research studies which improve both the efficiency
and profitability of its stations. Prior to the passage of the Telecom Act,
management believes that many operators in mid-sized markets did not generate
sufficient revenue to justify the incurrence of expenditures to develop these
techniques.
Provide Superior Customer Service. The Company believes that advertising
customers in mid-sized markets typically do not have extensive resources to
create and implement advertising campaigns. The Company provides many of its
advertising customers with extensive advertising support which may include (i)
assistance in structuring advertising and promotional campaigns, (ii) creating
and producing customer advertisements and (iii) analyzing the effectiveness of
the customer's media programs. Management believes that this type of superior
customer service attracts new customers to the Company and increases the loyalty
of the Company's existing customers, thereby providing stability to the
Company's revenue, often despite fluctuations in station ratings.
Develop Decentralized Management Structure. The Company has developed
experienced and highly motivated regional and local management teams, derived
primarily from station groups acquired by the Company, and has decentralized
operational decision-making so that these regional and local managers have the
flexibility to develop operating cultures that capitalize on the unique
qualities of each region and market. The Company also relies on local managers
to source additional acquisition opportunities. In addition, in order to
motivate regional management, the Company intends to link compensation to
regional operating performance as well as the combined results of the Company.
MANAGEMENT
R. Steven Hicks, the President and Chief Executive Officer of the Company,
is a 30-year veteran of the radio broadcasting industry (including 18 years as a
station owner) who has owned and operated or managed in excess of 150 radio
stations in large and mid-sized markets throughout the United States. In
addition, in 1993, Mr. Hicks co-founded SFX Broadcasting, Inc., a publicly
traded company ("SFX"), for which he served as Chief Executive Officer for three
years until his resignation in 1996.
The Company has designed a regional organizational structure to manage
effectively its existing station portfolio as well as to accommodate future
in-market or group acquisitions. Each of the Company's regions is, or will be,
headquartered within the region and led by a regional operating executive who
manages, or will manage, the operations of that region's station portfolio and
who oversees, or will oversee, the regional and general managers of the
stations. Each regional operating executive reports to R. Steven Hicks. In
assembling each of the existing regional management teams, the Company has
sought to retain the senior management of many of the station groups that it has
acquired so as to (i) retain and capitalize on the local market experience and
knowledge of these experienced executives and (ii) foster a culture that is
consistent with the unique attributes of each of the local markets acquired.
Furthermore, the Company believes that each of its regional executives possesses
considerable knowledge of its region's other radio broadcasters and is therefore
well situated to identify strategic acquisition candidates.
The Company's regional executive management teams will be compensated based
upon the financial performance of their respective regions and the Company as a
whole with such compensation to be awarded in the form of cash bonuses and stock
options. Management believes that this compensation structure, along with the
ownership interests of management, fosters teamwork and the sharing of the best
practices across regions to maximize the overall financial performance of the
Company.
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<PAGE> 7
Each of the Company's regional executives has extensive experience
operating radio stations in mid-sized markets, as described below.
Northeast Region. The Northeast Region is managed by its president and
chief executive officer, James T. Shea, Jr. Mr. Shea has over 22 years of
experience in the radio broadcasting industry. Mr. Shea's operating knowledge
and strong advertising relationships helped Commodore, prior to its acquisition
by Capstar Partners, become a leading radio group in each of its markets. Pro
forma for the Pending Acquisitions, the Northeast Region will include 63
stations in 16 markets.
Southeast Region. The Southeast Region is being managed on an interim basis
by Frank D. Osborn. Mr. Osborn serves on the Executive Council (as defined) of
the Company and brings more than 19 years of radio industry experience to the
Company. The Company intends to employ a new president and chief executive
officer of the Southeast Region by the end of 1997, so that Mr. Osborn may focus
his attention on his responsibilities as a member of the Executive Council. Pro
forma for the Pending Acquisitions, the Southeast Region will include 53
stations in 15 markets.
Southwest Region. The Southwest Region is managed by its president and
chief executive officer, John D. Cullen. Mr. Cullen has served as president and
chief operating officer of GulfStar since 1996 and brings more than 16 years of
radio industry experience to the Company. Prior to joining GulfStar, Mr. Cullen
served as a regional manager for SFX. Pro forma for the Pending Transactions,
the Southwest Region will include 59 stations in 16 markets.
Midwest Region. The Midwest Region will be managed by Mary K. Quass, the
current president and chief executive officer of Quass Broadcasting Company
("Quass"), who will serve as the Midwest Region's president and chief executive
officer upon consummation of the Quass Acquisition (as defined). Ms. Quass has
more than 19 years experience in the radio broadcasting industry in numerous
roles, including Vice President and General Manager of radio stations KHAK-FM
and KHAK-AM prior to purchasing such radio stations in 1988. The Company expects
to benefit significantly from Ms. Quass' experience and knowledge of the markets
in the Midwest Region. Pro forma for the Pending Acquisitions, the Midwest
Region will include 23 stations in six markets.
West Region. The West Region is managed by its president and chief
executive officer, Dex Allen, who has over 35 years of experience in the radio
broadcasting industry. Mr. Allen has served as the managing member of
Commonwealth Broadcasting of Arizona, L.L.C. ("Commonwealth") since 1984 and is
expected to continue to serve in such position until the consummation of the
Commonwealth Acquisition (as defined). Pro forma for the Pending Acquisitions,
the West Region will include 35 stations in nine markets.
The Company has created an Executive Council, consisting of R. Steven
Hicks, Paul D. Stone, William S. Banowsky, Jr. and other executive officers of
the Company who will serve as managing directors (each a "Managing Director").
The Executive Council will develop and implement the Company's strategy and
corporate culture to enable the Company's regional operating executives to focus
substantially all of their efforts upon operating their stations by relieving
them of many of the business activities that are not directly related to station
operations. The Executive Council, in consultation with the regional operating
executives, is responsible for strategic planning, acquisitions, financial
reporting, facilities consolidation, public service activities, technological
development, network opportunities, national vendor relationships, investor and
government relations, recruiting and training employees, and all other matters
affecting the Company which are not directly related to regional operations. Mr.
Hicks will allocate primary responsibility for each of these areas to
appropriate members of the Executive Council.
The executive officers of the Company who serve as Managing Directors on
the Executive Council are Frank D. Osborn, David J. Benjamin, III, Joseph L.
Mathias, IV and James M. Strawn. Mr. Osborn brings more than 19 years of radio
industry experience, including 13 years as the President and Chief Executive
Officer of Osborn. Mr. Benjamin has 23 years of radio broadcasting experience,
including co-founding and serving as Chairman and Chief Executive Officer of
Community Pacific (as defined) since 1974. Mr. Mathias has managed the
operations of Benchmark (as defined) since 1990 and prior to 1990 held various
positions in the cable television and radio broadcast industry. Mr. Strawn has
31 years of radio industry experience, including two years
5
<PAGE> 8
as an Executive Vice President and Chief Financial Officer of Patterson (as
defined) and 13 years as a radio station owner.
OWNERSHIP
In April 1996, Hicks Muse combined its financial expertise with the
operating experience of R. Steven Hicks to form Capstar Partners. Hicks Muse is
a private investment firm based in Dallas, New York, St. Louis and Mexico City
that specializes in acquisitions, recapitalizations and other principal
investing activities. Since the firm's inception in 1989, affiliates of Hicks
Muse have completed more than 70 transactions having a combined transaction
value exceeding $19.0 billion. In 1994, an affiliate of Hicks Muse made its
first major investment in the radio broadcasting industry when Hicks, Muse, Tate
& Furst Equity Fund II, L.P. founded Chancellor Broadcasting Company
("Chancellor"), a company which owns and operates radio stations exclusively
within the 40 largest MSAs in the United States and which, upon the consummation
of its merger with Evergreen Media Corporation, will be one of the largest
pure-play radio broadcasting companies in the United States based on net
revenues. Hicks, Muse, Tate & Furst Equity Fund III, L.P. ("HM Fund III"), an
affiliate of Hicks Muse, and its affiliates (including Capstar Broadcasting
Partners, L.P. ("Capstar L.P.")) have invested $233.9 million in Common Stock
(as defined) of Capstar Broadcasting, including $86.1 million invested as part
of the Financing. HM Fund III and its affiliates have committed to invest an
additional $50.0 million in Capstar Broadcasting, and Capstar Broadcasting has
committed to issue additional equity to HM Fund III and its affiliates in
exchange therefor.
R. Steven Hicks, the President and Chief Executive Officer of the Company,
has invested $3.1 million in Class C Common Stock, par value $.01 per share
("Class C Common Stock"), of Capstar Broadcasting. Certain other members of the
management of Capstar Broadcasting and its subsidiaries, including certain of
the Company's regional executives and Managing Directors, have invested an
additional $7.2 million in Class A Common Stock, par value $.01 per share
("Class A Common Stock"), of Capstar Broadcasting.
As part of the GulfStar Merger (as defined), GulfStar common stockholders
received Common Stock of Capstar Broadcasting having a deemed value of
approximately $113.0 million. Thomas O. Hicks, chairman and chief executive
officer of Hicks Muse and a director of Capstar Broadcasting and the Company,
beneficially owns 100% of the outstanding capital stock of Capstar Broadcasting
and beneficially owned approximately 87.3% of the voting power of GulfStar
immediately before completion of the GulfStar Merger. In addition, Thomas O.
Hicks and R. Steven Hicks filled two of the four director seats of GulfStar, and
R. Steven Hicks was also the Chief Executive Officer of GulfStar. Certain
members of management of Capstar Broadcasting also received Common Stock of
Capstar Broadcasting in connection with the GulfStar Merger as more fully
described in "The Acquisitions -- GulfStar Transaction."
THE ACQUISITIONS
COMPLETED ACQUISITIONS
Since the purchase by Capstar Partners of Commodore in October 1996 for a
purchase price of $213.6 million ("the Commodore Acquisition"), which was funded
with the proceeds of a $90.0 million equity investment in the Company by HM Fund
III and its affiliates, bank indebtedness of $35.0 million and the assumption of
Commodore's then outstanding indebtedness, the Company has consummated (i) the
purchase of (A) Osborn in February 1997 (the "Osborn Acquisition") for a
purchase price of approximately $118.8 million comprised of $117.0 million paid
in cash, which was funded with the proceeds of an equity investment by Capstar
Partners, and Class A common stock of Capstar Partners having a deemed value of
approximately $1.8 million, (B) substantially all of the assets of EZY Com, Inc.
("EZY"), City Broadcasting Co., Inc. ("City") and Roper Broadcasting, Inc.
("Roper" and, collectively, with EZY and City, "Space Coast") in April 1997
(collectively, the "Space Coast Acquisitions") for an aggregate purchase price
of approximately $12.0 million paid in cash, which was funded with borrowings
under the credit facility dated February 20, 1997 (the "Existing Credit
Facility"), between the Company, as borrower, Capstar Partners and Bankers Trust
Company, (C) substantially all of the assets of Taylor Communications
Corporation ("Taylor") utilized in the operation of
6
<PAGE> 9
Taylor's stations in the Tuscaloosa, Alabama market in April 1997 (the "Osborn
Tuscaloosa Acquisition") for an aggregate purchase price of approximately $1.0
million paid in cash, which was funded with borrowings under the Existing Credit
Facility, (D) all of the outstanding capital stock of Dixie Broadcasting, Inc.
and Radio WBHP, Inc. (collectively, "Mountain Lakes") in May 1997 (the "Osborn
Huntsville Acquisition" and, together with the Osborn Tuscaloosa Acquisition,
the "Osborn Add-on Acquisitions") for a purchase price of approximately $24.5
million comprised of $22.0 million paid in cash, which was funded with
borrowings under the Existing Credit Facility, and two three-year consulting
agreements valued at approximately $2.5 million, (E) GulfStar in July 1997
through the merger of a wholly-owned subsidiary of Capstar Broadcasting with and
into GulfStar (the "GulfStar Merger") and the subsequent contribution of
GulfStar (through Capstar Partners) to the Company (collectively with the
GulfStar Merger, the "GulfStar Transaction"), for a purchase price of
approximately $232.5 million comprised of $119.5 million paid in cash, which was
funded with the proceeds of the Hicks Muse GulfStar Equity Investment (as
defined), the Capstar BT Equity Investment (as defined) and the proceeds of the
Preferred Stock Offering, and Common Stock having a deemed value of
approximately $113.0 million, (F) substantially all of the assets of Community
Pacific Broadcasting Company, L.P. ("Community Pacific") in July 1997 (the
"Community Pacific Acquisition") for a purchase price of approximately $35.0
million paid in cash, which was funded with proceeds from the Capstar Radio
Notes Offering (as defined), (G) substantially all of the assets of Cavalier
Communications, L.P. ("Cavalier") in July 1997 (the "Cavalier Acquisition") for
a purchase price of approximately $8.3 million paid in cash, which was funded
with proceeds from the Capstar Radio Notes Offering, (H) substantially all of
the assets of McForhun, Inc. ("McForhun") in July 1997 (the
"GulfStar -- McForhun Acquisition") for a purchase price of approximately $7.1
million paid in cash, which was funded with proceeds from the Hicks Muse
GulfStar Equity Investment and the Capstar BT Equity Investment, (I)
substantially all of the assets of Livingston Communications, Inc.
("Livingston") in July 1997 (the "GulfStar -- Livingston Acquisition") for a
purchase price of approximately $250,000 paid in cash, which was funded with
proceeds from the Hicks Muse GulfStar Equity Investment and the Capstar BT
Equity Investment and (J) Benchmark Communications Radio Limited Partnership,
L.P. and certain of its subsidiary partnerships (collectively, "Benchmark") in
August 1997 for a purchase price of approximately $176.2 million comprised of
$174.1 million paid in cash, which was funded with proceeds from the Capstar
Radio Notes Offering, the Hicks Muse GulfStar Equity Investment, the Capstar BT
Equity Investment and borrowings under the Existing Credit Facility, and Class A
Common Stock having a deemed value of approximately $2.1 million (the "Benchmark
Acquisition" and together with the Osborn Transactions (as defined), the Space
Coast Acquisitions, the GulfStar Transaction, the Community Pacific Acquisition,
the Cavalier Acquisition, the GulfStar -- McForhun Acquisition and the
GulfStar -- Livingston Acquisition, the "Completed Transactions") and (ii) the
disposition of substantially all of the assets used or held for use in
connection with the operation of the Company's stations in the Port Charlotte
and Ft. Myers, Florida markets in April 1997 for a sale price of $11.0 million
in cash (the "Osborn Ft. Myers Disposition" and together with the Osborn
Acquisition and the Osborn Add-on Acquisitions, the "Osborn Transactions").
PENDING ACQUISITIONS
The Company has agreed, subject to various conditions, to acquire 85 radio
stations (59 FM and 26 AM) in 17 separate transactions. Upon completion of the
Pending Transactions, the Company's portfolio will include a total of 233
stations located in 62 mid-sized markets throughout the United States. The
purchase price of each of the Pending Acquisitions will be paid in cash and/or
Common Stock and is expected to be financed as more fully described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "The Acquisitions."
7
<PAGE> 10
PENDING ACQUISITIONS
<TABLE>
<CAPTION>
ESTIMATED
COMPANY PURCHASE PRICE
STATIONS OF PENDING NUMBER NUMBER
--------- EXPECTED ACQUISITIONS OF NEW OF EXISTING
COMPANY FM AM REGION CLOSING DATE ($ IN MILLIONS) MARKETS MARKETS
- ------------------------------------- --- --- ------------------- -------------- --------------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Emerald City......................... 1 -- Southeast August 1997 9.5 -- 1
Madison.............................. 4 2 Midwest August 1997 38.8 1 --
Grant................................ 1 -- Southeast September 1997 3.2 -- 1
Griffith............................. 3 -- Southeast September 1997 5.4 -- 1
WRIS................................. 1 -- Northeast September 1997 3.1 -- 1
SFX (Exchange)....................... 3 1 Southeast/Southwest October 1997 -- 2 --
Ameron............................... 2 1 Southeast October 1997 31.5 1 --
COMCO................................ 4 2 West October 1997 6.7 1 1
Commonwealth......................... 2 1 West October 1997 5.3 1 --
KLAW................................. 2 -- Southwest November 1997 2.2 1 --
American General..................... 1 -- Southwest November 1997 3.2 -- 1
Booneville........................... 1 -- Southwest December 1997 1.5 -- 1
KJEM................................. 1 -- Southwest December 1997 0.8 -- 1
Knight Quality....................... 5 3 Northeast January 1998 60.0 4 --
Quass................................ 2 1 Midwest January 1998 14.9 1 --
Patterson............................ 25 14 NE/SE/MW/W February 1998 215.0 9 1
Noalmark(1).......................... 1 1 Southwest March 2000 1.4 -- 1
-- -- ------ -- --
Total........................ 59 26 $402.5 21 10
== == ====== == ==
</TABLE>
- ---------------
(1) GulfStar has an option to acquire two stations in the Longview, Texas market
from Noalmark Broadcasting Corp. ("Noalmark") on or before March 6, 2000.
GulfStar currently provides services for such stations pursuant to an LMA
and expects to exercise the option on or before March 6, 2000. See "The
Acquisitions."
The Company has agreed to sell all of the outstanding capital stock of
Bryan Broadcasting Operating Company, a wholly owned subsidiary of GulfStar
("BBOC"). The Company anticipates that such sale will be completed in October
1997 (the "GulfStar -- Bryan Disposition"). BBOC owns and operates three FM
radio stations in Bryan, Texas. See "Certain Transactions -- GulfStar
Transactions."
Consummation of each of the Pending Transactions is subject to numerous
conditions, including approval of the Federal Communications Commission (the
"FCC") and, where applicable, satisfaction of any requirements and any
applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"). Accordingly, the actual date of
consummation of each of the Pending Transactions may vary from the anticipated
closing dates. For further information concerning the Pending Transactions, see
"Risk Factors -- Risks of Acquisition Strategy," "Business," "The Acquisitions"
and "Certain Transactions -- GulfStar Transactions."
THE EXCHANGE OFFER
The Exchange Offer applies to the $200.0 million original aggregate
principal amount of the Old Notes. The form and terms of the New Notes are the
same as the form and terms of the Old Notes except that the offer and sale of
the New Notes has been registered under the Securities Act and, therefore, the
New Notes will not bear legends restricting their transfer. The New Notes will
evidence the same debt as the Old Notes and will be entitled to the benefits of
the Notes Indenture. See "Description of the New Notes."
The Exchange Offer......... $1,000 principal amount at maturity of New Notes in
exchange for each $1,000 principal amount at
maturity of Old Notes. As of the date hereof, Old
Notes representing $200.0 million in aggregate
principal amount were outstanding. The terms of the
New Notes and the Old Notes are substantially
identical.
Based on an interpretation by the staff of the
Securities and Exchange Commission (the
"Commission") set forth in no-action letters issued
to third parties unrelated to the Company, the
Company believes that, with the exceptions
discussed herein, New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by any person receiving the New Notes,
whether
8
<PAGE> 11
or not that person is the holder (other than any
such holder or such other person that is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act), without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that (i) the New Notes are acquired in the ordinary
course of business of that holder or such other
person, (ii) neither the holder nor such other
person is engaging in or intends to engage in a
distribution of the New Notes, and (iii) neither
the holder nor such other person has an arrangement
or understanding with any person to participate in
the distribution of the New Notes. However, the
Company has not sought, and does not intend to
seek, its own no-action letter, and there can be no
assurance that the Commission's staff would make a
similar determination with respect to the Exchange
Offer. See "The Exchange Offer -- Purpose and
Effect." Each broker-dealer that receives New Notes
for its own account in exchange for Old Notes,
where those Old Notes were acquired by the
broker-dealer as a result of its market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of those New Notes. See
"Plan of Distribution."
Registration Rights
Agreement.................. The Old Notes were sold by the Company on June 17,
1997 in a private placement. In connection with the
sale, the Company entered into a Registration
Rights Agreement (the "Registration Rights
Agreement") with BT Securities Corporation and
Credit Suisse First Boston, the initial purchasers
of the Old Notes (the "Initial Purchasers"),
providing for the Exchange Offer. See "The Exchange
Offer -- Purpose and Effect."
Expiration Date............ The Exchange Offer will expire at 5:00 P.M., New
York City time, September 11, 1997, or such later
date and time to which it is extended.
Withdrawal Rights.......... The tender of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Any Old 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.
Conditions to the Exchange
Offer...................... The Exchange Offer is subject to certain customary
conditions, certain of which may be waived by the
Company. See "The Exchange Offer -- Conditions."
Procedures for Tendering
Old Notes.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a copy thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Letter of Transmittal, or the copy, together with
the Old Notes and any other required documentation,
to the Exchange Agent at the address set forth
herein. Persons holding Old Notes through the
Depository Trust Company (the "DTC") and wishing to
accept the Exchange Offer must do so pursuant to
the DTC's Automated Tender Offer Program, by which
each tendering participant (as defined) will agree
to be bound by the Letter of Transmittal. By
executing or agreeing to be bound by the Letter of
Transmittal, each holder will represent to the
Company that, among other things, (i) any New Notes
to be received by it will be acquired in the
ordinary course of its business, (ii) it has no
arrangement
9
<PAGE> 12
with any person to participate in the distribution
of the New Notes and (iii) it is not an
"affiliate," as defined in Rule 405 of the
Securities Act, of the Company, or if it is an
affiliate, it will comply with the registration and
prospectus delivery requirements of the Securities
Act to the extent applicable. If the holder is not
a broker-dealer, it will be required to represent
that it is not engaged in, and does not intend to
engage in, the distribution of the New Notes. If
the holder is a broker-dealer that will receive New
Notes for its own account in exchange for Notes
that were acquired as a result of market-making
activities or other trading activities, it will be
required to acknowledge that it will deliver a
prospectus in connection with any resale of such
New Notes.
Pursuant to the Registration Rights Agreement, the
Company is required to file a registration
statement for a continuous offering pursuant to
Rule 415 under the Securities Act in respect of the
Old Notes if existing Commission interpretations
are changed such that the New Notes received by
holders in the Exchange Offer are not or would not
be, upon receipt, transferable by each such holder
(other than an affiliate of the Company) without
restriction under the Securities Act. See "The
Exchange Offer -- Purpose and Effect."
Acceptance of Old Notes and
Delivery of New Notes.... The Company will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange Offer."
Exchange Agent............. U.S. Trust Company of Texas, N.A., is serving as
Exchange Agent in connection with the Exchange
Offer.
Federal Income Tax
Considerations........... The exchange pursuant to the Exchange Offer will
not be a taxable event for federal income tax
purposes. See "Certain United States Federal Income
Tax Considerations."
Effect of Not Tendering.... Old Notes that are not tendered or that are
tendered but not accepted will, following the
completion of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer
thereof. The Company will have no further
obligation to provide for the registration under
the Securities Act of such Old Notes.
TERMS OF THE NEW NOTES
Securities Offered......... $200.0 million aggregate principal amount of 9 1/4%
Senior Subordinated Notes due 2007.
Maturity Date.............. July 1, 2007.
Interest Rate and Payment
Dates.................... Interest will accrue on the Notes at a rate of
9 1/4% per annum and will be payable semiannually
on each January 1 and July 1, commencing January 1,
1998.
Optional Redemption........ The Notes will be redeemable at the option of the
Company, in whole or in part, at any time and from
time to time on or after July 1, 2002 at the
redemption prices set forth herein, plus accrued
and unpaid interest to the
10
<PAGE> 13
redemption date. In addition, prior to July 1,
2001, the Company, at its option, may use the net
cash proceeds of one or more Public Equity
Offerings or Major Asset Sales to redeem up to 25%
of the aggregate principal amount of the Notes
originally issued at a redemption price equal to
109.25% of the aggregate principal amount of the
Notes to be redeemed plus accrued interest, if any,
thereon to the date of redemption; provided,
however, that after any such redemption, there is
outstanding at least 75% of the original aggregate
principal amount of the Notes originally issued.
See "Description of the New Notes -- Optional
Redemption."
Ranking.................... The Notes will be general unsecured obligations of
the Company and will rank pari passu in right of
payment to the Company's 13 1/4% Senior
Subordinated Notes due 2003 (the "Existing Notes")
and will be subordinated in right of payment to all
existing and future Senior Indebtedness of the
Company. As of March 31, 1997, on a pro forma basis
(i) after giving effect to the Completed
Transactions, the Financing and the application of
the net proceeds therefrom, there would have been
(a) no Senior Indebtedness of the Company
outstanding, (b) approximately $70.7 million of
Indebtedness of the Company that would have ranked
pari passu in right of payment to the Notes, and
(c) approximately $23.1 million of Indebtedness of
the Company's subsidiaries, including current
payables and (ii) after giving further effect to
the Pending Transactions and their related
financing, there would have been (a) no Senior
Indebtedness of the Company outstanding, (b)
approximately $70.7 million of Indebtedness of the
Company that would have ranked pari passu in right
of payment to the Notes, and (c) approximately
$26.8 million of Indebtedness of the Company's
subsidiaries, including current payables. Existing
and future Indebtedness of the Company's
subsidiaries is, or will be, structurally senior to
the New Notes. The Company entered into the
Existing Credit Facility in February 1997, the
Indebtedness under which is secured by the assets
of the Company's subsidiaries. As of March 31,
1997, no principal amount was outstanding under the
Existing Credit Facility. As of August 6, 1997 (the
date on which the Benchmark Acquisition was
consummated), $12.2 million in principal amount was
outstanding under the Existing Credit Facility and
$21.7 million was available for borrowing
thereunder. The Company expects to amend and
restate the Existing Credit Facility in August 1997
to provide for, among other things, borrowings of
up to $200.0 million.
Change of Control.......... Prior to July 1, 2002, upon the occurrence of a
Change of Control, the Company will have the option
to redeem the Notes in whole but not in part at a
redemption price equal to 100% of the principal
amount thereof, together with accrued and unpaid
interest, if any, to the date of redemption plus
the Applicable Premium (as defined). If a Change of
Control occurs after July 1, 2002 or if the Company
does not redeem the Notes as provided in the
immediately preceding sentence, each holder of the
Notes will have the option to require the Company
to redeem all or a portion of such holder's Notes
at a purchase price equal to 101% of the principal
amount, plus accrued and unpaid interest, if any,
thereon to the purchase date. There can be no
assurance that the Company will have the financial
resources necessary to repurchase the Notes upon a
Change of Control or that the Company would be able
to obtain financing for such repurchase on
favorable terms, if at all. In addition, the
Existing Credit Facility restricts the Company's
ability to repurchase the Notes, including pursuant
to a
11
<PAGE> 14
Change of Control Offer (as defined). A Change of
Control would result in a default under the
Existing Credit Facility. In addition, the
indenture governing the Existing Notes (the
"Existing Indenture") requires the repurchase of
the Existing Notes upon a change of control (as
therein defined) of the Company. A "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 Securities Exchange Act of 1934 (the "Exchange
Act") (a "Group") (whether or not otherwise in
compliance with the provisions of the Notes
Indenture), other than to Hicks Muse, any of its
affiliates (excluding Chancellor), officers and
directors or R. Steven Hicks (the "Permitted
Holders"); or (ii) a majority of the Board of
Directors of the Company shall consist of Persons
(as defined) who are not Continuing Directors (as
defined); 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 the Company. Certain transactions,
including recapitalizations or transactions
resulting in a change in ownership or the issuance
of substantial additional indebtedness, would not
constitute a Change of Control for purposes of the
Notes Indenture. See "Risk Factors -- Change of
Control," "Description of Other Indebtedness" and
"Description of the New Notes -- Change of
Control."
Certain Restrictive
Provisions................. The Notes Indenture contains restrictive provisions
that, among other things, limit the ability of the
Company and its subsidiaries to incur additional
Indebtedness, pay dividends or make certain other
restricted payments, sell or swap assets, enter
into certain transactions with affiliates or merge
or consolidate with or sell all or substantially
all of their assets to any other person. See
"Description of the New Notes."
12
<PAGE> 15
THE FINANCING
The Company received proceeds of approximately $191.5 million, net of $8.5
million of the Initial Purchasers' discount and estimated fees and expenses,
from the Company's issuance of $200.0 million in aggregate principal amount of
the Notes, which was consummated on June 17, 1997 (the "Capstar Radio Notes
Offering"). Concurrently with the Capstar Radio Notes Offering, Capstar Partners
received proceeds of $94.8 million, net of $5.2 million of the Initial
Purchasers' discount and estimated fees and expenses, from Capstar Partners'
issuance (the "Preferred Stock Offering") of 1,000,000 shares of its 12% Senior
Exchangeable Preferred Stock, par value $.01 per share (the "Senior Exchangeable
Preferred Stock"). Concurrently with consummation of the GulfStar Merger,
Capstar Broadcasting received $75.0 million from the Hicks Muse GulfStar Equity
Investment and $11.1 million from the Capstar BT Equity Investment, of which
$30.9 million was used by Capstar Broadcasting to redeem preferred stock of
GulfStar (the "Preferred Stock Redemption") and the remaining $55.2 million was
contributed as equity by Capstar Broadcasting through Capstar Partners to the
Company. Capstar Partners has contributed $150.0 million to the Company
(consisting of $44.1 million of the Hicks Muse GulfStar Equity Investment, the
Capstar BT Equity Investment of $11.1 million and $94.8 million in net proceeds
from the Preferred Stock Offering). The Capstar Radio Notes Offering, the
Preferred Stock Offering, the Hicks Muse GulfStar Equity Investment and the
Capstar BT Equity Investment are collectively referred to herein as the
"Financing."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the New Notes.
13
<PAGE> 16
SUMMARY HISTORICAL FINANCIAL DATA
The following table presents summary historical financial data of the
Company for the periods indicated. The following financial information should be
read in conjunction with the Financial Statements of the Company and the related
notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
------- -------- ------- ------- -------- ----------- -----------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenue............................ $17,961 $ 19,798 $26,225 $30,795 $ 42,260 $ 7,416 $ 13,254
Station operating expenses............. 12,713 13,509 16,483 19,033 27,576 5,375 9,689
Depreciation and amortization.......... 1,676 1,129 2,145 1,926 3,193 480 1,721
Corporate expenses..................... 1,602 2,531 2,110 2,051 2,134 466 1,424
Other operating expenses(1)............ -- 1,496 2,180 2,007 13,834 -- --
Operating income (loss)................ 1,970 1,133 3,307 5,778 (4,477) 1,095 420
Interest expense....................... 4,614 4,366 3,152 7,806 11,475 2,452 2,892
Net income (loss)...................... (2,580) (3,782) (527) (2,240) (17,908) (1,436) (3,865)
OTHER DATA:
Broadcast cash flow(2)................. $ 5,248 $ 6,289 $ 9,742 $11,762 $ 14,684 $ 2,041 $ 3,565
Broadcast cash flow margin(2).......... 29.2% 31.8% 37.1% 38.2% 34.7% 27.5% 26.9%
EBITDA(3).............................. $ 3,646 $ 3,758 $ 7,632 $ 9,711 $ 12,550 $ 1,575 $ 2,141
Cash flows related to(4):
Operating activities................. (406) 477 4,061 1,245 (981) 1,891 1,930
Investing activities................. (458) (10,013) (50) (4,408) (46,840) (15,798) (126,003)
Financing activities................. 951 9,377 (2,855) 12,013 41,298 8,103 130,893
Cash interest expense(5)............... 4,408 4,218 2,932 5,132 7,243 1,454 1,942
Capital expenditures................... 371 333 623 321 933 124 887
Deficiency of earnings to fixed
charges(6)........................... 2,998 3,743 918 1,908 17,775 1,409 2,446
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents............................................................................... $ 11,188
Intangible and other assets, net........................................................................ 181,444
Total assets............................................................................................ 262,503
Long-term debt, including current portion............................................................... 70,737
Total stockholders' equity.............................................................................. 150,505
</TABLE>
- ---------------
(1) Other operating expenses consist of separation compensation in 1993 and
long-term incentive compensation under restructured employment agreements
with Commodore's former President and Chief Executive Officer and its
former Chief Operating Officer in 1994 and 1995. In 1996, it consists of
merger related compensation charges in connection with the Commodore
Acquisition. Such expenses are non-cash and/or are not expected to recur.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
(2) Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expenses and other operating expenses. Although
broadcast cash flow is not a measure of performance calculated in
accordance with generally accepted accounting principles ("GAAP"),
management believes that it is useful to an investor in evaluating the
Company because it is a measure widely used in the broadcast industry to
evaluate a radio company's operating performance. See "Glossary of Certain
Terms and Market and Industry Data."
(3) EBITDA consists of operating income before depreciation, amortization and
other operating expenses. Although EBITDA is not a measure of performance
calculated in accordance with GAAP, management believes that it is useful
to an investor in evaluating the Company because it is a measure widely
used in the broadcast industry to evaluate a radio company's operating
performance. See "Glossary of Certain Terms and Market and Industry Data."
(4) Cash flows related to operating activities, investing activities and
financing activities are derived from the related statement of cash flows
and are prepared in accordance with GAAP.
(5) Cash interest expense excludes non-cash amortization of deferred finance
costs and discounts to initial purchasers.
(6) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges, and "fixed charges" consist of
interest, amortization of deferred financing costs and the component of
rental expense believed by management to be representative of the interest
factor thereon. Preferred stock dividends and accretion are included in
fixed charges where appropriate.
14
<PAGE> 17
SUMMARY PRO FORMA FINANCIAL DATA
The following table presents summary pro forma financial data of the
Company as of and for the twelve months ended March 31, 1997. The pro forma
summary operating data reflects adjustments to the summary historical financial
data of the Company to illustrate the effects of the following, as if each had
occurred on January 1, 1996: (i) the Completed Transactions and their related
financing, including the Financing; and (ii) the Pending Transactions and their
related financing, including the foregoing transactions. The pro forma balance
sheet data at March 31, 1997 have been prepared as if any such transaction not
completed by March 31, 1997 occurred on that date. The summary pro forma
financial data are not necessarily indicative of either future results of
operations or the results that would have occurred if those transactions had
been consummated on the indicated dates. The following financial information
should be read in conjunction with the Financial Statements, the Pro Forma
Financial Information and, in each case, the related notes included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
MARCH 31, 1997
-------------------------------
PRO FORMA
FOR COMPLETED
TRANSACTIONS
AND THE
FINANCING PRO FORMA(1)
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING DATA:
Net revenue............................................... $190,475 $ 296,559
Station operating expenses................................ 137,759 214,438
Depreciation and amortization............................. 21,542 36,267
Corporate expenses........................................ 8,862 14,581
Other operating expenses.................................. 22,905 23,255
Operating income.......................................... (593) 8,018
Interest expense.......................................... 29,465 44,341
Net income (loss)......................................... (11,323) (17,409)
OTHER DATA:
Broadcast cash flow(3).................................... $ 52,716 $ 82,121(2)
Broadcast cash flow margin(3)............................. 27.7% 27.7%
EBITDA(4)................................................. $ 43,854 $ 67,540(2)
Cash interest expense(5).................................. 25,317 40,193
Deficiency of earnings to fixed charges(6)................ 10,135 16,221
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................................. $ 7,300 $ --
Intangible and other assets, net.......................... 508,105 908,512
Total assets.............................................. 653,094 1,098,078
Long-term debt, including current portion(7).............. 269,949 455,895
Total stockholders' equity(7)............................. 323,701 535,645
</TABLE>
- ---------------
(1) Gives effect to the Completed Transactions, the Pending Transactions and the
financing of each of the foregoing, including the Financing.
(2) The pro forma financial results exclude the effects of estimated cost
savings resulting from the Completed Transactions and the Pending
Acquisitions. On a pro forma basis, assuming the consummation of such
transactions, including related cost savings as if they had occurred on
January 1, 1996, broadcast cash flow and EBITDA would have been $93.9
million and $85.0 million, respectively, for the twelve-month period ended
March 31, 1997. The Company expects to realize approximately $11.8 million
of estimated cost savings resulting from the elimination of redundant
operating expenses arising from such transactions, including elimination of
certain management positions, the consolidation of facilities and new rates
associated with revised vendor contracts and savings related to automation
of certain station operations. In addition, the Company expects to realize
approximately $5.7 million of cost savings, on a pro forma basis, resulting
from the elimination of certain corporate overhead functions, net of
increased costs associated with the implementation of the Company's
corporate management structure. Corporate cost savings reflect the expected
level of annual corporate expenditures arising from such transactions. The
Company anticipates that corporate expenses will increase upon consummation
of additional acquisitions. There can be no assurances that any operating or
corporate cost savings will be achieved.
(3) Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expenses and other operating expenses. Although
broadcast cash flow is not a measure of performance calculated in accordance
with GAAP, management believes that it is useful to an investor in
evaluating the Company because it is a measure widely used in the broadcast
industry to evaluate a radio company's operating performance. See "Glossary
of Certain Terms and Market and Industry Data."
(4) EBITDA consists of operating income before depreciation, amortization and
other operating expenses. Although EBITDA is not a measure of performance
calculated in accordance with GAAP, management believes that it is useful to
an investor in evaluating the
15
<PAGE> 18
Company because it is a measure widely used in the broadcast industry to
evaluate a radio company's operating performance. See "Glossary of Certain
Terms and Market and Industry Data."
(5) Cash interest expense excludes non-cash amortization of deferred finance
costs, discounts to initial purchasers, and interest on the Notes.
(6) For purposes of this calculation, "earnings" consist of income (loss) before
income taxes and fixed charges, and "fixed charges" consist of interest,
amortization of deferred financing costs and the component of rental expense
believed by management to be representative of the interest factor thereon.
Preferred stock dividends and accretion are included in fixed charges where
appropriate.
(7) The Company anticipates that it will fund the Pending Acquisitions with
indebtedness, rather than capital stock, to the fullest extent then
permitted under the debt incurrence covenants contained in the Certificate
of Designation, the Indentures (as defined) and the Credit Facilities. As a
result, the Company expects the actual amount of indebtedness incurred in
connection with the Pending Acquisitions to exceed the amount assumed for
purposes of the Pro Forma Financial Information. The Company expects to fund
additional amounts needed to consummate the Pending Acquisitions through a
combination of (i) additional debt capacity resulting from cash flow growth
and (ii) an additional $50.0 million equity investment in Capstar
Broadcasting by HM Fund III and its affiliates.
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<PAGE> 19
RISK FACTORS
This Prospectus contains forward-looking statements. The words
"anticipate," "believe," "expect," "plan," "intend," "estimate," "project,"
"will," "could," "may" and similar expressions are intended to identify
forward-looking statements. Such statements reflect the Company's current views
with respect to future events and financial performance and involve risks and
uncertainties, including without limitation the risks described in "Risk
Factors." Should one or more of these risks or uncertainties occur, or should
underlying assumptions prove incorrect, actual results may vary materially and
adversely from those anticipated, believed, expected, planned, intended,
estimated, projected or otherwise indicated. Investors should carefully consider
the following risk factors, in addition to the other information contained in
this Prospectus, before exchanging the Old Notes for New Notes.
RISKS OF ACQUISITION STRATEGY
The Company intends to pursue growth through the acquisition of radio
broadcasting companies, radio station groups and individual radio stations in
mid-sized markets. The Company cannot predict whether it will be successful in
pursuing such acquisition opportunities or what the consequences would be of any
acquisitions. The Company is currently evaluating certain acquisitions; however,
other than as described in "The Acquisitions," the Company currently has no
binding commitments to acquire any specific business or other material assets.
The Company must obtain additional financing to consummate the Pending
Acquisitions and there can be no assurance that such financing will be available
to the Company on terms acceptable to its management or at all. Consummation of
the Pending Acquisitions is subject to various conditions, including FCC and
other regulatory approval. No assurances can be given that any or all of the
Pending Acquisitions will be consummated or that, if completed, they will be
successful. The Company's acquisition strategy involves numerous risks,
including difficulties in the integration of operations and systems and the
management of a large and geographically diverse group of stations, the
diversion of management's attention from other business concerns and the
potential loss of key employees of acquired stations. There can be no assurance
that the Company's management will be able to manage effectively the resulting
business or that such acquisitions will benefit the Company. Depending upon the
nature, size and timing of future acquisitions, the Company may be required to
raise additional financing in addition to the financing necessary to consummate
the Pending Acquisitions. There can be no assurance that such financing will be
permitted under the Certificate of Designation of Capstar Partners that governs
the Senior Exchangeable Preferred Stock (the "Certificate of Designation"), the
indenture to which Capstar Partners is a party governing Capstar Partners'
12 3/4% Senior Discount Notes due 2009 (the "Capstar Partners Notes") (the
"Capstar Indenture"), the indenture to which Capstar Partners will be a party if
the Senior Exchangeable Preferred Stock is exchanged for debentures of Capstar
Partners pursuant to the terms of the Certificate of Designation (the "Capstar
Exchange Indenture" and, together with the Capstar Indenture, the "Capstar
Indentures"), the Existing Indenture, the indenture governing the Notes (the
"Notes Indenture" and, together with the Existing Indenture, the "Company
Indentures" and, together with the Capstar Indentures (the "Indentures"), the
Existing Credit Facility or any other loan agreements to which the Company,
Capstar Partners or Capstar Broadcasting may become a party, including the New
Credit Facility. Moreover, there can be no assurances that such additional
financing will be available to the Company on terms acceptable to its management
or at all. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
SUBSTANTIAL LEVERAGE
The Company has, and after giving effect to the Pending Transactions and
the financing thereof (including the Financing) and the application of the net
proceeds therefrom, will continue to have consolidated indebtedness that is
substantial in relation to its stockholders' equity. As of March 31, 1997, on a
pro forma basis after giving effect to the Completed Transactions and the
related financing thereof (including the Financing) as if each had occurred on
January 1, 1996, the Company would have had outstanding, on a consolidated
basis, long-term indebtedness (including current portions) of approximately
$269.9 million and stockholders' equity of approximately $323.7 million and,
after giving further effect to the Pending Transactions and their related
financing, the Company would have had outstanding, on a consolidated basis,
long-term indebtedness (including current
17
<PAGE> 20
portions) of approximately $455.9 million and stockholders' equity of
approximately $535.6 million. See "Capitalization," "Unaudited Pro Forma
Financial Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." The
Indentures, the Certificate of Designation and the Credit Facilities limit, or
will limit, the incurrence of additional indebtedness by the Company and its
subsidiaries, in each case subject to certain significant exceptions. See
"Description of Capital Stock," "Description of Other Indebtedness" and
"Description of the New Notes."
The level of the Company's indebtedness could have several important
consequences to the holders of the New Notes, including, but not limited to, the
following: (i) a substantial portion of the Company's cash flow from operations
will be dedicated to debt service and will not be available for other purposes;
(ii) the Company's ability to obtain additional financing for working capital,
capital expenditures, acquisitions, general corporate or other purposes may be
impaired in the future; (iii) certain of the Company's borrowings will be at
variable rates of interest (including the borrowings under the Credit
Facilities), which will expose the Company to the risk of increased interest
rates; (iv) the Company's leveraged position and the covenants contained in the
Indentures, the Certificate of Designation and the Credit Facilities could limit
the Company's ability to compete, expand and make capital improvements; and (v)
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. As of
March 31, 1997, none of the Company's indebtedness was subject to variable rates
of interest. See "Description of Capital Stock," "Description of Other
Indebtedness" and "Description of the New Notes."
The Company's ability to satisfy its debt obligations (including the Notes)
will depend upon its future financial and operating performance, which, in turn,
is subject to prevailing economic conditions and financial, business and other
factors, certain of which are beyond its control. If the Company's cash flow and
capital resources are insufficient to fund its debt service obligations, the
Company may be forced to reduce or delay planned expansion and capital
expenditures, sell assets, obtain additional equity capital or restructure its
debt. There can be no assurance that the Company's operating results, cash flow
and capital resources will be sufficient for payment of its indebtedness in the
future. In the absence of such operating results and resources, the Company
could face substantial liquidity problems and might be required to dispose of
material assets or operations to meet its debt service and other obligations,
and there can be no assurance as to the timing of such sales or the proceeds
that the Company could realize therefrom or that such sales can be effected on
terms satisfactory to the Company or at all. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition -- Liquidity and
Capital Resources" and "Description of Other Indebtedness."
LIMITED OPERATING HISTORY; HISTORY OF NET LOSSES; MANAGEMENT OF GROWTH
The Company has grown and expects to continue to grow very rapidly through
acquisitions, which will place significant demands on its administrative,
operational and financial resources. The Company has had a net loss for each
fiscal year since its inception in 1980. There can be no assurance that the
Company will become profitable. For the twelve months ended March 31, 1997, on a
pro forma basis after giving effect to the Completed Transactions and their
related financing, including the Financing, as if each had occurred on January
1, 1996, the Company would have had a net loss of approximately $11.3 million.
The Company's future performance and profitability will depend in part on its
ability to make additional radio station acquisitions in mid-sized markets, to
integrate successfully the operations and systems of acquired radio stations and
radio groups, to hire additional personnel, and to implement necessary
enhancements to its management systems to respond to changes in its business.
The inability of the Company to do any of the foregoing could have a material
adverse effect on the Company. See "Business."
The Company incurred or assumed, and will incur or assume, substantial
indebtedness to finance the Completed Transactions and the Pending Transactions
for which it has, and will continue to have, significant debt service
requirements. In addition, the Company has, and will continue to have,
significant charges for depreciation and amortization expense related to the
fixed assets and intangibles acquired, or to be acquired, in its acquisitions.
Consequently, the Company expects that, for the foreseeable future as it pursues
its acquisition strategy, it will report net losses substantially in excess of
those experienced historically, which will result in decreases in stockholders'
equity.
18
<PAGE> 21
HOLDING COMPANY STRUCTURE; LIMITATIONS ON ACCESS TO CASH FLOW OF THE COMPANY'S
SUBSIDIARIES
The Company conducts its business through its subsidiaries and has no
operations of its own. The sole operating assets of the Company are all of the
shares of capital stock of Southern Star, Atlantic Star, GulfStar, Pacific Star
and Central Star which in turn, directly or indirectly, own the capital stock of
the Company's other operating subsidiaries. Consequently, the Company's sole
source of cash from which to make payments on the Notes will be dividends
distributed or other payments made to it by its subsidiaries. Except as
permitted under the Indentures, the Certificate of Designation, and the Credit
Facilities, the Company's subsidiaries may not incur additional indebtedness.
Furthermore, the Company's subsidiaries are legally distinct from the Company
and have no obligation, contingent or otherwise, to pay amounts due pursuant to
the Notes or to make any funds available for such payments. The ability of the
Company's subsidiaries to make such funds available, whether through dividends
or other distributions, will be subject to applicable corporate and other laws
and regulations and to the terms of agreements to which such subsidiaries are or
become subject. All of the Company's subsidiaries are guarantors of the Existing
Notes and are, or will be, guarantors under the Credit Facilities. Such
subsidiaries also granted, or will grant, security interests in substantially
all of their assets in which a security interest may lawfully be granted to
secure their indebtedness under the Credit Facilities. As a result of these
factors, the Notes are effectively subordinated to all liabilities of the
Company's subsidiaries. As of March 31, 1997, on a pro forma basis after giving
effect to the Completed Transactions and their related financing, including the
Financing, as if each had occurred on January 1, 1996, the total liabilities of
the Company's subsidiaries would have been approximately $59.4 million and,
after giving further effect to the Pending Transactions and their related
financing, the total liabilities of the Company's subsidiaries would have been
approximately $106.5 million. As of March 31, 1997, on a pro forma basis (i)
after giving effect to the Completed Transactions and the Financing and the
application of the net proceeds therefrom, there would have been (a) no Senior
Indebtedness of the Company outstanding, (b) approximately $70.7 million of
Indebtedness of the Company that would have ranked pari passu in right of
payment to the Notes, and (c) approximately $23.1 million of Indebtedness of the
Company's subsidiaries, including current payables, and (ii) after giving
further effect to the Pending Transactions and their related financing, there
would have been (a) no Senior Indebtedness of the Company outstanding, (b)
approximately $70.7 million of Indebtedness of the Company that would have
ranked pari passu in right of payment to the Notes, and (c) approximately $26.8
million of Indebtedness of the Company's subsidiaries, including current
payables. The difference as of March 31, 1997 between total liabilities and
Indebtedness of the Company's subsidiaries is comprised principally of deferred
tax liabilities and noncurrent compensation liabilities.
SUBORDINATION
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the Notes, will be subordinated to the prior
payment in full of all existing and future Senior Indebtedness of the Company.
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 Notes only after all Senior Indebtedness has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on any
or all of the 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 Notes, or purchase, redeem or otherwise retire the
Notes, if a payment default or a non-payment default exists with respect to
certain Senior Indebtedness and, in the case of a non-payment default, if a
payment blockage notice has been received by the trustee. See "Description of
the New Notes."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indentures, the Certificate of Designation and the Credit Facilities
contain, or will contain, certain covenants that restrict, among other things,
the ability of the Company and its subsidiaries to incur additional
indebtedness, issue preferred stock, incur liens, pay dividends or make certain
other restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, merge or consolidate with any other
19
<PAGE> 22
person or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company and its subsidiaries. The Credit
Facilities also require, or will require, the Company and its subsidiaries to
maintain specified financial ratios and to satisfy certain financial condition
tests. The ability of the Company and its subsidiaries to meet those financial
ratios and financial condition tests can be affected by events beyond their
control, and there can be no assurance that the Company and its subsidiaries
will meet those tests. A breach of any of these covenants could result in a
default under the Credit Facilities and/or the Indentures. Upon an event of
default under the Credit Facilities or the Indentures, 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 Existing Notes,
the Company's subsidiaries may be required to repay the Existing Notes pursuant
to the guarantees. In the case of the Credit Facilities, 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 indebtedness
under the Credit Facilities were to be accelerated, there can be no assurance
that the assets of the Company would be sufficient to repay in full and/or
redeem such indebtedness, the Notes and the other indebtedness of the Company,
including the Existing Notes. See "Description of Other Indebtedness" and
"Description of the New Notes."
COMPETITION; BUSINESS RISKS
Radio broadcasting is a highly competitive business. The Company's radio
stations, now owned or to be acquired upon completion of the Pending
Acquisitions, compete for audiences and advertising revenues within their
respective markets directly with other radio stations, as well as with other
media, such as newspapers, magazines, cable television, outdoor advertising and
direct mail. In addition, certain of the Company's stations compete, and in the
future other of the Company's stations may compete, with groups of two or more
stations operated by a single operator. Audience ratings and market shares are
subject to change and any adverse change in a particular market could have a
material adverse effect on the revenue of stations located in that market. While
the Company already competes with other stations with comparable programming
formats in many of its markets, if another radio station in the market were to
convert its programming format to a format similar to one of the Company's
stations, if a new station were to adopt a competitive format, or if an existing
competitor were to strengthen its operations, the Company's stations could
suffer a reduction in ratings and/or advertising revenue and could require
increased promotional and other expenses. The Telecom Act facilitates the entry
of other radio broadcasting companies into the markets in which the Company
operates or may operate in the future. Some of such companies may be larger and
have more financial resources than the Company. Future operations are further
subject to many variables which could have a material adverse effect upon the
Company's financial performance. These variables include economic conditions,
both generally and relative to the radio broadcasting industry; shifts in
population and other demographics; the level of competition for advertising
dollars with other radio stations, television stations and other entertainment
and communications media; fluctuations in operating costs; technological changes
and innovations; changes in labor conditions; and changes in governmental
regulations and policies and actions of federal regulatory bodies, including the
United States Department of Justice ("DOJ"), the Federal Trade Commission (the
"FTC") and the FCC. Although the Company believes that substantially all of its
radio stations, now owned or to be acquired upon completion of the Pending
Acquisitions, are positioned to compete effectively in their respective markets,
there can be no assurance that any such station will be able to maintain or
increase its current audience ratings and advertising revenues. See
"Business -- Competition; Changes in the Broadcasting Industry."
Radio broadcasting is also subject to competition from new media
technologies that are being developed or introduced, such as the delivery of
audio programming by cable television systems and the introduction of digital
audio broadcasting ("DAB"). DAB may deliver by satellite to nationwide and
regional audiences multi-channel, multi-format digital radio services with sound
quality equivalent to compact discs. The Company cannot predict the effect, if
any, that any such new technologies may have on the radio broadcasting industry
or the Company. See "Business -- Competition; Changes in the Broadcasting
Industry."
20
<PAGE> 23
CONTROL OF THE COMPANY; RESTRICTIONS ON CHANGE IN CONTROL
Thomas O. Hicks beneficially owns 100% of the outstanding capital stock of
Capstar Broadcasting through his controlling interest in Hicks Muse and certain
stockholders agreements. See "Certain Transactions." As a result, Thomas O.
Hicks is able to control the vote on the election of the Board of Directors of
Capstar Broadcasting and, therefore, is able to direct the management and
policies of the Company. The interests of Thomas O. Hicks may differ from the
interests of holders of the Notes. See "Management," "Security Ownership of
Certain Beneficial Owners" and "Description of Capital Stock."
The Communications Act and certain regulations of the FCC require the prior
consent of the FCC to any change of control of the Company. See "-- Governmental
Regulation of Broadcasting Industry" and "Business -- Federal Regulation of
Radio Broadcasting."
DEPENDENCE ON KEY PERSONNEL
The Company's business depends upon the continued efforts, abilities and
expertise of its executive officers and other key employees, including R. Steven
Hicks, the Company's Chief Executive Officer and Chairman of the Board. Capstar
Broadcasting has, or will have, employment agreements with several of the
Company's key employees, including R. Steven Hicks, Paul D. Stone, the Company's
Executive Vice President and Chief Financial Officer, and William S. Banowsky,
Jr., the Company's Executive Vice President and General Counsel. Capstar
Broadcasting and its subsidiaries have or will enter into employment agreements
with the presidents and chief executive officers of the Company's five regions
and the Managing Directors of the Company. The Company believes that the loss of
any of these individuals could have a material adverse effect on the Company.
See "Management."
CONFLICT OF INTEREST
Thomas O. Hicks, a director of Capstar Broadcasting and the Company,
beneficially owns 100% of the outstanding capital stock of Capstar Broadcasting.
Thomas O. Hicks is the President and a director of HM2/Chancellor Holdings, Inc.
("HM2/Chancellor"), which through its subsidiaries, including Chancellor, holds
attributable interests in radio stations in various markets in the States of
California, Florida, Minnesota, New York, Ohio, Arizona, Colorado, Georgia,
Pennsylvania and Washington, D.C. and, upon completion of Chancellor's pending
acquisitions and merger with Evergreen Media Corporation, will have attributable
interests in radio stations in four additional states, including Illinois,
Massachusetts, Michigan and Texas. Thomas O. Hicks is also the President, Chief
Executive Officer, Chief Operating Officer and 100% stockholder of HM3/Sunrise,
Inc. ("HM3/Sunrise"), which through subsidiaries owns television stations in
California, New York and Michigan and is seeking to acquire an attributable
interest in a television station in Ohio. Eric C. Neuman is a director of
Capstar Broadcasting, the Vice President and Secretary of HM2/Chancellor, and
the Vice President of HM3/Sunrise. Thomas O. Hicks and Eric C. Neuman may in the
future acquire interests in, manage or otherwise control other radio or
television stations or other entertainment and communications media.
Accordingly, Thomas O. Hicks and Eric C. Neuman will not expend all of their
professional time on behalf of the Company. See "Management" and "Security
Ownership of Certain Beneficial Owners."
Directors and executive officers of Capstar Broadcasting who are also
directors and executive officers of HM2/Chancellor and HM3/Sunrise may have
conflicts of interest with respect to matters potentially or actually involving
or affecting the Company and HM2/Chancellor or HM3/Sunrise, such as
acquisitions, operations, financings and other corporate opportunities that may
be suitable for both Capstar Broadcasting and HM2/Chancellor or HM3/Sunrise. To
the extent that such opportunities arise, such directors and executive officers
may consult with their legal advisors and make determinations with respect to
such opportunities after consideration of a number of factors, including whether
such opportunities are presented to any such director or executive officer in
his capacity as a director or executive officer of Capstar Broadcasting or its
subsidiaries, whether such opportunities are consistent with Capstar
Broadcasting's strategic objectives and whether Capstar Broadcasting will be
able to undertake or benefit from such opportunities. In addition,
determinations may be made by Capstar Broadcasting's Board of Directors, when
appropriate, by a vote of the disinterested directors
21
<PAGE> 24
only. No assurances can be given that such disinterested director approval will
be sought or that any such conflicts will be resolved in favor of the Company.
GOVERNMENTAL REGULATION OF BROADCASTING INDUSTRY
The broadcasting industry is subject to extensive federal regulation that,
among other things, requires approval by the FCC for the issuance, renewal,
transfer of control and assignment of broadcasting station operating licenses
and limits the number of broadcasting properties that the Company may acquire in
any market. Additionally, the Communications Act and FCC rules impose
limitations on alien ownership and voting of the capital stock of the Company.
The Telecom Act creates significant new opportunities for broadcasting companies
but also creates uncertainties as to how the FCC and the courts will enforce and
interpret the Telecom Act.
In addition, the number of radio stations the Company may acquire in any
market is limited by FCC rules and may vary depending upon whether the interests
in other radio stations or certain other media properties of certain individuals
affiliated with the Company are attributable to those individuals under FCC
rules. Moreover, under the FCC's cross-interest policy, the FCC in certain
instances may prohibit one party from acquiring an attributable interest in one
media outlet and a substantial non-attributable economic interest in another
media outlet in the same market, thereby prohibiting a particular acquisition by
the Company.
The FCC generally applies its ownership limits to "attributable" interests
held by an individual, corporation, partnership or other association. The
interests of the Company's officers, directors and majority stockholder are
generally attributable to the Company. Certain of the Company's officers and
directors have attributable broadcast interests, which will limit the number of
radio stations that the Company may acquire or own in any market in which such
officers or directors hold or acquire attributable broadcast interests.
The Company is an indirect wholly-owned subsidiary of Capstar Broadcasting.
Capstar Broadcasting's Certificate of Incorporation restricts the ownership,
voting and transfer of Capstar Broadcasting's capital stock in accordance with
the Communications Act and the rules of the FCC to prohibit ownership of more
than 25% of Capstar Broadcasting's outstanding capital stock, or more than 25%
of the voting rights it represents, by or for the account of Aliens (as defined)
or corporations otherwise subject to domination or control by Aliens. Capstar
Broadcasting's Certificate of Incorporation provides that shares of capital
stock of Capstar Broadcasting determined by Capstar Broadcasting's Board of
Directors to be owned beneficially by an Alien or an entity directly or
indirectly owned by Aliens in whole or in part shall always be subject to
redemption by Capstar Broadcasting by action of its Board of Directors to the
extent necessary, in the judgment of such Board of Directors, to comply with the
Alien ownership restrictions of the Communications Act and the FCC rules and
regulations.
The consummation of radio broadcasting acquisitions requires prior approval
of the FCC with respect to the transfer of control or assignment of the
broadcast licenses of the acquired stations. Certain of the Pending Acquisitions
have not yet received FCC approval. There can be no assurance that the FCC will
approve future acquisitions by the Company (including the Pending Acquisitions).
The consummation of certain acquisitions, including certain of the Pending
Acquisitions, is also subject to applicable waiting periods and possible review
by the DOJ or the FTC under the HSR Act. Since the passage of the Telecom Act,
certain radio broadcasting acquisitions, including the Benchmark Acquisition,
have been the subject of "second requests" for additional information by federal
authorities under the HSR Act. The DOJ's investigation with respect to the
Benchmark Acquisition was closed, however, when the DOJ granted early
termination of the applicable waiting period under the HSR Act in May 1997. The
Company cannot predict the outcome of any specific DOJ or FTC investigation,
which are necessarily very fact specific. See "Business -- Federal Regulation of
Radio Broadcasting."
The Company's business will be dependent upon maintaining its broadcasting
licenses issued by the FCC, which are ordinarily issued for a maximum term of
eight years. Although it is rare for the FCC to deny a license renewal
application, there can be no assurance that the future renewal applications of
the Company will be approved or that such renewals will not include conditions
or qualifications that could adversely affect the Company. Moreover,
governmental regulations and policies may change over time and there can be no
assurance that such changes would not have a material adverse impact upon the
Company. See "Business -- Federal Regulation of Radio Broadcasting."
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<PAGE> 25
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
offer to purchase all outstanding Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
Change of Control Payment Date. 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 of the Notes that the Company might be required to purchase. The
Existing Indenture provides that, upon a change of control (as therein defined)
of the Company, the Company will be required to purchase all of the Existing
Notes then outstanding at a purchase price equal to 101% of their accreted value
(as therein defined), plus accrued interest to the date of repurchase, in the
case of such a purchase prior to May 1, 1998, and thereafter at a purchase price
equal to 101% of the principal amount thereof, plus accrued interest to the date
of repurchase. A change of control (as defined therein) under either Company
Indenture would in all likelihood also constitute a change of control under the
other Indentures and the Certificate of Designation, will constitute an event of
default under the Credit Facilities, and may cause acceleration of other
indebtedness, if any, in which case the Company would be required to repay in
full the Credit Facilities and any other indebtedness before repurchasing the
Notes. Moreover, as of the date of this Prospectus, after giving effect to the
Pending Transactions, the Company would not have sufficient funds available to
purchase all of the outstanding Notes pursuant to a Change of Control Offer. In
the event that the Company were required to purchase the 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. See "Description
of Other Indebtedness" and "Description of the New Notes." In such event, the
Company may be unable to repurchase Notes tendered in response to a Change of
Control Offer.
ABSENCE OF PUBLIC MARKET
The Old Notes are designated for trading in the PORTAL market. There is no
established trading market for the New Notes. The New Notes will not trade on
PORTAL and the Company does not currently intend to list the New Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance as to the development of any market
or the liquidity of any market that may develop for the New Notes. If such a
market were to exist, no assurance can be given as to the trading prices of the
New Notes. Future trading prices of the New Notes will depend on many factors,
including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities.
USE OF PROCEEDS
There will be no cash proceeds to the Company from the Exchange Offer.
23
<PAGE> 26
CAPITALIZATION
The following table sets forth (i) the historical capitalization of the
Company at March 31, 1997, (ii) the unaudited pro forma capitalization of the
Company, after giving effect to the Completed Transactions and the Financing,
and (iii) the unaudited pro forma capitalization of the Company, after giving
effect to the Completed Transactions, the Pending Transactions and, in each
case, the financing of the foregoing transactions, including the Financing, and
the application of the net proceeds therefrom. This table should be read in
conjunction with the Financial Statements, the Pro Forma Financial Information
and, in each case, the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------------
PRO FORMA
FOR
COMPLETED
TRANSACTIONS
AND THE PRO
ACTUAL FINANCING FORMA
-------- ------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents............... $ 11,188 $ 7,300 $ --
======== ======== ========
Long-term debt (including current
maturities):
Credit Facilities(1)............... $ -- $ -- $185,946
9 1/4% Senior Subordinated Notes
due 2007......................... -- 199,212 199,212
13 1/4% Senior Subordinated Notes
due 2003(2)...................... 70,737 70,737 70,737
-------- -------- --------
Total long-term debt.......... 70,737 269,949 455,895
Stockholders' equity(3)(4)(5)......... 150,505 323,701 535,645
-------- -------- --------
Total capitalization.......... $221,242 $593,650 $991,540
======== ======== ========
</TABLE>
- ---------------
(1) Capstar Partners and the Company, as the borrower thereunder, anticipate
amending and restating the Existing Credit Facility in August 1997, which
facility will consist of, among other things, a $200.0 million revolving
loan facility. See "Description of Other Indebtedness -- New Credit
Facility."
(2) The actual amount at March 31, 1997 of approximately $70.7 million includes
unamortized discount of $6.1 million. The Existing Notes bear interest at a
rate of 13 1/4% per annum, of which only 7 1/2% is payable in cash up to May
1, 1998. Beginning on May 1, 1998, the Existing Notes will bear cash
interest at a rate of 13 1/4% per annum until maturity. The original
discount on the Existing Notes will amortize until the Existing Notes reach
their face value of $76.8 million at maturity.
(3) The pro forma capitalization of the Company excludes certain equity
investments made subsequent to March 31, 1997 which were not made in
connection with the transactions given effect in the pro forma financial
statements. These equity investments totaled $3.8 million.
(4) The GulfStar Merger was accounted for at historical cost (on a basis similar
to a pooling of interests) as the Company and GulfStar were under common
control. Immediately subsequent to the GulfStar Merger and the Preferred
Stock Redemption, Capstar Broadcasting contributed the capital stock of
GulfStar to the Company. Additionally, had (i) the Preferred Stock
Redemption, (ii) the GulfStar Transaction and (iii) the repayment and
termination of the GulfStar credit facility occurred at March 31, 1997, the
Company would have incurred (i) a loss on redemption of preferred stock of
$5.4 million, (ii) a charge for estimated merger fees and expense of $3.7
million, and (iii) an extraordinary charge on the early extinguishment of
debt of $2.3 million, respectively.
(5) In connection with the Benchmark Acquisition, Capstar Broadcasting issued
$750,000 of Class C Common Stock to an affiliate of Hicks Muse in
consideration for its agreement to purchase the indebtedness of a subsidiary
(the "Fund III Acquisition Sub") of HM Fund III from the lender upon the
occurrence of certain events, including, among other events, a default by
the borrower. The issuance of Class C Common Stock in connection with such
agreement to purchase resulted in an extraordinary charge in the period in
which the Company consummated the Benchmark Acquisition. Had the Benchmark
Acquisition been consummated at March 31, 1997, the Company would have
recorded an extraordinary charge of approximately $750,000.
24
<PAGE> 27
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information (the "Pro Forma
Financial Information") is based on the audited historical financial statements
of the Company, Osborn, GulfStar, Benchmark, Madison, Community Pacific,
Patterson, Ameron, Knight Quality, Quass and Mountain Lakes and, in each case,
the related notes included elsewhere in this Prospectus.
The pro forma statement of operations for the year ended December 31, 1996,
and for the three months ended March 31, 1997 and 1996 have been prepared to
illustrate the effects of: (i) the Completed Transactions, including the
Financing and (ii) the Pending Transactions and the anticipated financing
thereof, as if each had occurred on January 1, 1996. The pro forma balance sheet
as of March 31, 1997, has been prepared as if any such transaction not yet
consummated on that date had occurred on that date. The Pro Forma Financial
Information and accompanying notes should be read in conjunction with the
financial statements and other financial information included elsewhere herein
pertaining to the Company, Osborn, GulfStar, Benchmark, Madison, Community
Pacific, Patterson, Ameron, Knight Quality, Quass and Mountain Lakes, including
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The unaudited pro forma adjustments are based upon available information
and certain assumptions that the Company believes are reasonable. The Company
anticipates that it will fund the Pending Acquisitions with indebtedness, rather
than capital stock, to the fullest extent then permitted under the debt
incurrence covenants contained, or to be contained, in the Certificate of
Designation, the Indentures and the Credit Facilities. As a result, the Company
expects the actual amount of indebtedness incurred in connection with the
Pending Transactions to exceed the amount in the Pro Forma Financial
Information. The Pro Forma Financial Information is not necessarily indicative
of either future results of operations or the results that might have been
achieved if such transactions had been consummated on the indicated dates.
All acquisitions, except for the GulfStar Transaction, given effect in the
Pro Forma Financial Information are accounted for using the purchase method of
accounting. The aggregate purchase price of each such transaction is allocated
to the tangible and intangible assets and liabilities acquired based upon their
respective fair values. The allocation of the aggregate purchase price reflected
in the Pro Forma Financial Information is preliminary for transactions closed or
to be closed after April 1, 1997. The final allocation of the purchase price is
contingent upon the receipt of final appraisals of the acquired assets and the
revision of other estimates; however, the allocation is not expected to differ
materially from the preliminary allocation. The GulfStar Transaction is
accounted for at historical cost, on a basis similar to a pooling of interests,
as the Company and GulfStar were under common control prior to the GulfStar
Transaction.
For the purpose of the pro forma statement of operations for the year ended
December 31, 1996 and for the three months ended March 31, 1997 and 1996, (i)
"Completed Transactions Combined" collectively refers to the historical results
of operations of the entities and stations acquired or sold in the Completed
Transactions and (ii) "Pending Transactions Combined" collectively refers to the
results of operations of the entities and stations to be acquired or sold in the
Pending Transactions.
For the purpose of the pro forma balance sheet as of March 31, 1997, (i)
"Completed Transactions Combined" collectively refers to the historical balance
sheets of the entities and stations acquired or sold in the Completed
Transactions, excluding the Osborn Acquisition, and (ii) "Pending Transactions
Combined" collectively refers to the historical balance sheets of the entities
and stations to be acquired or sold in the Pending Transactions.
As used in the Pro Forma Financial Information, (i) "Company Combined"
presents unaudited pro forma financial data for the Company (ii) "Pro Forma for
Completed Transactions and the Financing" gives effect to the Completed
Transactions and the financing thereof, including the Financing and (iii) "Pro
Forma" gives effect to each of the foregoing transactions, the Pending
Transactions and the anticipated financing thereof.
25
<PAGE> 28
The following tables present a summary of the Pro Forma Financial
Information included on the following pages.
<TABLE>
<CAPTION>
PRO FORMA FOR COMPLETED TRANSACTIONS AND THE FINANCING
--------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED ------------------ TWELVE MONTHS ENDED
DECEMBER 31, 1996 1996 1997 MARCH 31, 1997
----------------- ------- ------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Net revenue......................... $189,840 $38,852 $39,487 $190,475
Station operating expenses.......... 137,667 30,512 30,604 137,759
Depreciation and amortization....... 21,542 5,385 5,385 21,542
Corporate expenses.................. 8,269 2,087 2,680 8,862
Other operating expenses............ 22,890 2,454 2,469 22,905
Operating income (loss)............. (528) (1,586) (1,651) (593)
Interest expense.................... 29,465 7,368 7,368 29,465
Net income (loss)................... (10,141) (2,203) (3,385) (11,323)
OTHER DATA:
Broadcast cash flow(1).............. $ 52,173 $ 8,340 $ 8,883 $ 52,716
Broadcast cash flow margin(1)....... 27.5% 21.5% 22.5% 27.7%
EBITDA(2)........................... $ 43,904 $ 6,253 $ 6,203 $ 43,854
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED ------------------ TWELVE MONTHS ENDED
DECEMBER 31, 1996 1996 1997 MARCH 31, 1997
----------------- ------- ------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Net revenue........................... $294,531 $61,144 $63,172 $296,559
Station operating expenses............ 214,100 48,760 49,098 214,438
Depreciation and amortization......... 36,267 9,066 9,066 36,267
Corporate expenses.................... 13,430 3,134 4,285 14,581
Other operating expenses.............. 23,002 2,451 2,704 23,255
Operating income (loss)............... 7,732 (2,267) (1,981) 8,018
Interest expense...................... 44,341 11,087 11,087 44,341
Net income (loss)..................... (15,979) (5,932) (7,362) (17,409)
OTHER DATA:
Broadcast cash flow(1)................ $ 80,431 $12,384 $14,074 $ 82,121(3)
Broadcast cash flow margin(1)......... 27.3% 20.3% 22.3% 27.7%
EBITDA(2)............................. $ 67,001 $ 9,250 $ 9,789 $ 67,540(3)
Deficiency of earnings to fixed
charges(4)......................... 14,791 5,932 7,362 16,221
</TABLE>
- ---------------
(1) Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expenses and other operating expenses. Although
broadcast cash flow is not a measure of performance calculated in accordance
with GAAP, management believes that it is useful to an investor in
evaluating the Company because it is a measure widely used in the
broadcasting industry to evaluate a radio company's operating performance.
See "Glossary of Certain Terms and Market and Industry Data."
(2) EBITDA consists of operating income before depreciation, amortization and
other operating expenses. Although EBITDA is not a measure of performance
calculated in accordance with GAAP, management believes that it is useful to
an investor in evaluating the Company because it is a measure widely used in
the broadcasting industry to evaluate a radio company's operating
performance. See "Glossary of Certain Terms and Market and Industry Data."
(3) The pro forma financial results exclude the effects of estimated cost
savings resulting from the Completed Transactions and the Pending
Acquisitions. On a pro forma basis, assuming the consummation of the
aforementioned transactions, including related cost savings as if they had
occurred on January 1, 1996, broadcast cash flow and EBITDA would have been
$93.9 million and $85.0 million, respectively, for the twelve-month period
ended March 31, 1997. The Company expects to realize approximately $11.8
million of estimated cost savings resulting from the elimination of
redundant operating expenses arising from such transactions, including
elimination of certain management positions, the consolidation of facilities
and new rates associated with revised vendor contracts and savings related
to automation of certain station operations. In addition, the Company
expects to realize approximately $5.7 million of cost savings, on a pro
forma basis, resulting from the elimination of certain corporate overhead
functions, net of increased costs associated with the implementation of the
Company's corporate management structure. Corporate cost savings reflect the
expected level of annual corporate expenditures arising from such
transactions. The Company anticipates that corporate expenses will increase
upon consummation of additional acquisitions. There can be no assurances
that any operating or corporate cost savings will be achieved.
(4) For purposes of this calculation, "earnings" consist of income (loss) before
income taxes and fixed charges, and "fixed charges" consist of interest,
amortization of deferred financing costs and the component of rental expense
believed by management to be representative of the interest factor thereon.
Preferred stock dividends and accretion are included in fixed charges where
appropriate.
26
<PAGE> 29
CAPSTAR RADIO BROADCASTING PARTNERS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
ADJUSTMENTS PRO FORMA FOR THE
FOR THE FOR THE PENDING
COMPLETED COMPLETED TRANSACTIONS
COMPLETED TRANSACTIONS TRANSACTIONS PENDING AND THE
THE COMPANY TRANSACTIONS AND THE AND THE TRANSACTIONS RELATED
COMBINED(A) COMBINED(B) FINANCING FINANCING COMBINED(F) FINANCING PRO FORMA
----------- ------------ ------------ ------------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue................ $13,847 $25,640 $ -- $ 39,487 $23,685 $ -- $ 63,172
Station operating
expenses................. 10,354 20,250 -- 30,604 18,494 -- 49,098
Depreciation and
amortization............. 1,721 2,888 776(C) 5,385 2,580 1,101(C) 9,066
Corporate expenses......... 1,424 1,256 -- 2,680 1,605 -- 4,285
Other operating expenses... -- 2,469 -- 2,469 235 -- 2,704
------- ------- -------- -------- ------- -------- --------
Operating income
(loss)................ 348 (1,223) (776) (1,651) 771 (1,101) (1,981)
Interest expense........... 2,892 3,268 1,208(D) 7,368 3,028 691(G) 11,087
Gain (loss) on sale of
assets................... -- 5,348 -- 5,348 6 -- 5,354
Increase in fair value of
redeemable warrants...... -- -- -- -- 5,882 (5,882)(H) --
Other (income) expense..... (26) (260) -- (286) (66) -- (352)
------- ------- -------- -------- ------- -------- --------
Income (loss) before
provision for income
taxes................. (2,518) 1,117 (1,984) (3,385) (8,067) 4,090 (7,362)
Provision (benefit) for
income taxes............. 46 (68) 22(E) -- (2,807) 2,807(E) 0
------- ------- -------- -------- ------- -------- --------
Net income (loss).......... $(2,564) $ 1,185 $ (2,006) $ (3,385) $(5,260) $ 1,283 $ (7,362)
======= ======= ======== ======== ======= ======== ========
Deficiency of earnings to
fixed charges
and preferred stock
dividends and
accretion(J)............. $ 7,362
</TABLE>
See Accompanying Notes to Pro Forma Financial Information.
27
<PAGE> 30
CAPSTAR RADIO BROADCASTING PARTNERS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS ADJUSTMENTS
FOR THE PRO FORMA FOR THE
COMPLETED FOR PENDING
TRANSACTIONS COMPLETED TRANSACTIONS
COMPLETED COMBINATION TRANSACTIONS PENDING AND THE
THE COMPANY TRANSACTIONS AND THE AND THE TRANSACTIONS RELATED
COMBINED(K) COMBINED(M) FINANCING FINANCING COMBINED(O) FINANCING PRO FORMA
----------- ------------ ------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue............... $ 9,103 $29,749 $ -- $38,852 $22,292 $ -- $61,144
Station operating
expenses................ 6,862 23,650 -- 30,512 18,248 -- 48,760
Depreciation and
amortization............ 480 3,372 1,533(C) 5,385 2,039 1,642(C) 9,066
Corporate expenses........ 466 1,621 -- 2,087 1,047 -- 3,134
Other operating (income)
expenses................ -- 273 2,181(M) 2,454 (3) -- 2,451
------- ------- ------- ------- ------- -------- -------
Operating income
(loss)............... 1,295 833 (3,714) (1,586) 961 (1,642) (2,267)
Interest expense.......... 2,452 2,273 2,643(D) 7,368 2,080 1,639(G) 11,087
Gain (loss) on sale of
assets.................. -- 6,876 -- 6,876 530 -- 7,406
Other (income) expense.... 52 73 -- 125 (141) -- (16)
------- ------- ------- ------- ------- -------- -------
Income (loss) before
provision for income
taxes................ (1,209) 5,363 (6,357) (2,203) (448) (3,281) (5,932)
Provision (benefit) for
income taxes............ 27 660 (687)(E) -- 29 (29)(E) --
------- ------- ------- ------- ------- -------- -------
Net income (loss)......... $(1,236) $ 4,703 $(5,670) $(2,203) $ (477) $ (3,252) $ 5,932
======= ======= ======= ======= ======= ======== =======
Deficiency of earnings to
fixed charges and
preferred stock
dividends and
accretion(J)............ $ 5,932
</TABLE>
See Accompanying Notes to Pro Forma Financial Information.
28
<PAGE> 31
CAPSTAR RADIO BROADCASTING PARTNERS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
ADJUSTMENTS PRO FORMA FOR THE
FOR THE FOR PENDING
COMPLETED COMPLETED TRANSACTIONS
COMPLETED TRANSACTIONS TRANSACTIONS PENDING AND THE
THE COMPANY TRANSACTIONS AND THE AND THE TRANSACTIONS RELATED
COMBINED(P) COMBINED(R) FINANCING FINANCING COMBINED(S) FINANCING PRO FORMA
----------- ------------ ------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue............... $ 44,473 $145,367 $ -- $189,840 $104,691 $ -- $294,531
Station operating
expenses................ 29,800 107,867 -- 137,667 76,433 -- 214,100
Depreciation and
amortization............ 3,193 13,610 4,739(C) 21,542 9,654 5,071(C) 36,267
Corporate expenses........ 2,358 5,911 -- 8,269 5,161 -- 13,430
Other operating
expenses................ 13,834 6,875 2,181(M) 22,890 112 -- 23,002
-------- -------- -------- -------- -------- ------- --------
Operating income
(loss)................ (4,712) 11,104 (6,920) (528) 13,331 (5,071) 7,732
Interest expense.......... 11,475 10,639 7,351(D) 29,465 10,169 4,707(G) 44,341
Gain (loss) on sale of
assets.................. -- 23,155 -- 23,155 496 -- 23,651
Increase in fair value of
redeemable warrants..... -- -- -- -- 5,499 (5,499)(H) --
Other (income) expense.... 1,823 292 -- 2,115 (282) -- 1,833
-------- -------- -------- -------- -------- ------- --------
Income (loss) before
provision for income
taxes................. (18,010) 23,328 (14,271) (8,953) (1,559) (4,279) (14,791)
Provision (benefit) for
income taxes............ 133 2,059 (2,192)(E) -- (2,039) 2,039(E) --
-------- -------- -------- -------- -------- ------- --------
Income (loss) before
extraordinary item.... (18,143) 21,269 (12,079) (8,953) 480 (6,318) (14,791)
Extraordinary item, loss
on early extinguishment
of debt................. -- 1,188 -- 1,188 -- -- 1,188
-------- -------- -------- -------- -------- ------- --------
Net income (loss)......... $(18,143) $ 20,081 $(12,079) $(10,141) $ 480 $(6,318) $(15,979)
======== ======== ======== ======== ======== ======= ========
Deficiency of earnings to
fixed charges and
preferred stock
dividends and
accretion (J)........... $ 14,791
</TABLE>
See Accompanying Notes to Pro Forma Financial Information.
29
<PAGE> 32
CAPSTAR RADIO BROADCASTING PARTNERS, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS PRO FORMA
FOR THE FOR
COMPLETED COMPLETED
TRANSACTIONS TRANSACTIONS PENDING
COMPLETED AND THE AND THE TRANSACTIONS
THE COMPANY TRANSACTIONS(S) FINANCING FINANCING COMBINED(DD)
----------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............. $ 11,188 $ 11,123 $ (571)(T) $ 7,300 $ 5,128
(14,440)(U)
Accounts receivable, net.............. 12,258 16,253 (2,648)(T) 25,863 18,202
Prepaid expenses and other............ 16,923 3,250 (699)(T) 19,144 3,213
(330)(V)
-------- -------- -------- -------- --------
Total current assets............ 40,369 30,626 (18,688) 52,307 26,543
Property and equipment, net............. 40,690 38,514 13,478(T) 92,682 33,489
Intangible and other assets, net........ 181,444 152,695 165,434(T) 508,105 160,623
(550)(W)
(396)(T)
11,750(X)
(2,272)(Y)
-------- -------- -------- -------- --------
Total assets.................... $262,503 $221,835 $168,756 $653,094 $220,655
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued
expenses............................ $ 13,335 $ 11,096 $ (1,300)(T) $ 23,131 $ 9,856
Current portion of long-term debt..... -- 16,272 (16,272)(T) -- 9,476
-------- -------- -------- -------- --------
Total current liabilities....... 13,335 27,368 (17,572) 23,131 19,332
Long-term debt, less current
portion(NN)........................... 70,737 125,732 (43,172)(T) 269,949 111,375
(82,560)(Y)
199,212(Z)
60,000(AA)
(60,000)(AA)
Other long-term liabilities............. 27,926 6,047 2,340(T) 36,313 290
-------- -------- -------- -------- --------
Total liabilities............... 111,998 159,147 58,248 329,393 130,997
Redeemable preferred stock.............. -- 23,081 (23,081)(BB) -- 20,747
Redeemable warrants..................... -- -- -- -- 17,803
Stockholders' equity (deficit).......... 150,505 39,607 (37,970)(T) 323,701 51,108
750(AA)
(750)(AA)
179,250(CC)
(2,272)(Y)
(5,419)(BB)
-------- -------- -------- -------- --------
Total liabilities and
stockholders' equity.......... $262,503 $221,835 $168,756 $653,094 $220,655
======== ======== ======== ======== ========
<CAPTION>
ADJUSTMENTS
FOR THE
PENDING
TRANSACTIONS
AND THE
RELATED
FINANCING PRO FORMA
------------ ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............. $ (3,896)(EE) $ --
(8,532)(FF)
Accounts receivable, net.............. (5,724)(EE) 38,017
(324)(GG)
Prepaid expenses and other............ (1,918)(EE) 6,933
(6)(GG)
(13,500)(HH)
--------- ----------
Total current assets............ (33,900) 44,950
Property and equipment, net............. 18,785(EE) 144,616
(340)(GG)
Intangible and other assets, net........ 244,669(EE) 908,512
(435)(GG)
(4,375)(EE)
(75)(II)
--------- ----------
Total assets.................... $ 224,329 $1,098,078
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued
expenses............................ $ (5,945)(EE) $ 26,820
(222)(GG)
Current portion of long-term debt..... (9,476)(JJ) --
--------- ----------
Total current liabilities....... (15,643) 26,820
Long-term debt, less current
portion(NN)........................... (111,375)(JJ) 455,895
185,946(KK)
Other long-term liabilities............. 43,116(EE) 79,718
(1)(GG)
--------- ----------
Total liabilities............... 102,043 562,433
Redeemable preferred stock.............. (20,747)(LL) --
Redeemable warrants..................... (17,803)(LL) --
Stockholders' equity (deficit).......... (51,108)(MM) 535,645
(882)(GG)
221,217(KK)
(8,391)(LL)
--------- ----------
Total liabilities and
stockholders' equity.......... $ 223,429 $1,098,078
========= ==========
</TABLE>
See Accompanying Notes to Pro Forma Financial Information.
30
<PAGE> 33
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
(A) The schedule below gives effect to the historical acquisitions of the
Company consummated prior to March 31, 1997 for the period from January
1, 1997 through March 31, 1997.
THE COMPANY
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
HISTORICAL
ACQUISITIONS THE
THE BY THE COMPANY
COMPANY COMPANY(2) COMBINED
------- ------------ --------
<S> <C> <C> <C>
Net revenue......................................... $13,254 $ 593 $13,847
Station operating expenses.......................... 9,689 665 10,354
Depreciation and amortization....................... 1,721 -- 1,721
Corporate expenses.................................. 1,424 -- 1,424
Other operating expenses............................ -- -- --
------- ------- -------
Operating income................................. 420 (72) 348
Interest expense.................................... 2,892 -- 2,892
Gain (loss) on sale of assets....................... -- -- --
Other (income) expense.............................. (26) -- (26)
------- ------- -------
Income (loss) before provision for income
taxes.......................................... (2,446) (72) (2,518)
Provision (benefit) for income taxes................ 46 -- 46
------- ------- -------
Income (loss) before extraordinary loss.......... (2,492) (72) (2,564)
Extraordinary loss on early extinguishment of
debt............................................. 1,373 (1,373)(3) --
------- ------- -------
Net income (loss)................................ $(3,865) $ 1,301 $(2,564)
======= ======= =======
Deficiency of earnings to fixed charges(1).......... $(2,446)
</TABLE>
- ---------------
(1) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges, and "fixed charges" consist of
interest, amortization of deferred financing costs and the component
of rental expense believed by management to be representative of the
interest factor thereon.
(2) The column gives effect to the LMA fees related to the Community
Pacific Acquisition.
(3) The adjustment reflects the elimination of an extraordinary loss
related to the extinguishment of the Company's former credit facility
in connection with the Osborn Acquisition during the pro forma period.
31
<PAGE> 34
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(B) The schedule below gives effect to the following for the period from
January 1, 1997 through March 31, 1997: (i) the historical acquisitions
and dispositions of the indicated entities consummated prior to March 31,
1997 and (ii) the acquisitions and dispositions of the indicated entities
which were pending at March 31, 1997 and were consummated prior to the
date of this Prospectus.
COMPLETED TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
OTHER
HISTORICAL COMPLETED
HISTORICAL HISTORICAL HISTORICAL COMMUNITY TRANSACTIONS
OSBORN(1) GULFSTAR BENCHMARK PACIFIC COMBINED(2)
---------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Net revenue...................................... $3,577 $10,995 $ 6,444 $1,681 $2,098
Station operating expenses....................... 2,937 7,948 5,338 1,311 1,974
Depreciation and amortization.................... 418 1,001 1,336 350 (217)
Corporate expenses............................... 268 518 265 197 8
Other operating expenses......................... -- 2,469 -- -- --
------ ------- ------- ------ ------
Operating income (loss)........................ (46) (941) (495) (177) 333
Interest expense................................. 385 1,846 937 238 (138)
Gain (loss) on sale of assets.................... 5,348 -- -- -- --
Other (income) expense........................... (212) (36) (61) 2 47
------ ------- ------- ------ ------
Income (loss) before provision for income
taxes....................................... 5,129 (2,751) (1,371) (417) 424
Provision (benefit) for income taxes............. 32 (102) -- -- 2
------ ------- ------- ------ ------
Net income (loss).............................. $5,097 $(2,649) $(1,371) $ (417) $ 422
====== ======= ======= ====== ======
<CAPTION>
ADJUSTMENTS
FOR COMPLETED
HISTORICAL TRANSACTIONS
TRANSACTIONS(3) COMBINED
--------------- ------------
<S> <C> <C>
Net revenue...................................... $845 $25,640
Station operating expenses....................... 742 20,250
Depreciation and amortization.................... -- 2,888
Corporate expenses............................... -- 1,256
Other operating expenses......................... -- 2,469
---- -------
Operating income (loss)........................ 103 (1,223)
Interest expense................................. -- 3,268
Gain (loss) on sale of assets.................... -- 5,348
Other (income) expense........................... -- (260)
---- -------
Income (loss) before provision for income
taxes....................................... 103 1,117
Provision (benefit) for income taxes............. -- (68)
---- -------
Net income (loss).............................. $103 $ 1,185
==== =======
</TABLE>
- ---------------
(1) The column represents the consolidated results of operations of
Osborn from January 1, 1997 through February 20, 1997, the date of
the Osborn Acquisition.
(2) The column represents the historical combined operating results of
the following entities and stations which were acquired or sold prior
to the date of this Prospectus: (i) Stephens Radio, acquired by
GulfStar prior to the GulfStar Transaction; (ii) Space Coast,
Cavalier, McForhun and Livingston, all acquired by the Company; (iii)
WESC-AM/FM and WFNQ-FM, all sold by Benchmark prior to the Benchmark
Acquisition; (iv) WMCZ-FM, WMHS-FM and WZHT-FM, all acquired by
Benchmark prior to the Benchmark Acquisition; (v) the stations
acquired in the Osborn Add-on Acquisitions; and (vi) the stations
sold in the Osborn Ft. Myers Disposition.
(3) The adjustments give effect to the historical operating results
and/or LMA or JSA expense and/or revenue of the following stations
which were acquired prior to March 31, 1997: (i) WYNU-FM and WTXT-FM,
both acquired by Osborn; (ii) WSCQ-FM, WFMX-FM and WSIC-AM, all
acquired by Benchmark; (iii) KTRA-FM, KKFG-FM, KDAG-FM and KCQL-AM,
all acquired by GulfStar; and (iv) the stations acquired in the
Osborn Add-on Acquisitions.
32
<PAGE> 35
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(C) The adjustment reflects (i) a change in depreciation and amortization
resulting from conforming the estimated useful lives of the acquired
stations and (ii) the additional depreciation and amortization expense
resulting from the allocation of the purchase price of the acquired
stations including an increase in property and equipment, FCC licenses,
and intangible assets to their estimated fair market value and the
recording of goodwill associated with the acquisitions. Goodwill and FCC
licenses are being amortized over 40 years.
(D) The adjustment reflects interest expense associated with (i) the Existing
Notes, (ii) the Notes, (iii) the New Credit Facility and (iv) the
amortization of deferred financing fees associated with the Existing
Notes, the Notes and the Credit Facilities, net of interest expense
related to the existing indebtedness of the companies included within the
Completed Transactions Combined and the Company. Deferred financing fees
are amortized over the term of the related debt.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, -----------------
1996 1996 1997
------------ ------- -------
<S> <C> <C> <C>
Existing Notes......................................... $ 8,878 $ 2,220 $ 2,220
Notes.................................................. 18,427 4,607 4,607
-------- ------- -------
Interest expense before amortization of deferred
financing fees....................................... 27,305 6,827 6,827
Amortization of deferred financing fees................ 2,160 541 541
-------- ------- -------
Pro forma interest expense........................... 29,465 7,368 7,368
Historical interest expense for the Company............ (11,475) (2,452) (2,892)
Historical interest expense for the Completed
Transactions Combined................................ (10,639) (2,273) (3,268)
-------- ------- -------
Net adjustment....................................... $ 7,351 $ 2,643 $ 1,208
======== ======= =======
</TABLE>
(E) The adjustment reflects the elimination of historical income tax expense
(benefit) as the Company would have generated a taxable loss during the
pro forma period.
33
<PAGE> 36
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(F) The columns represent the combined income statements for the period from
January 1, 1997 through March 31, 1997 of the acquisitions and
dispositions of the Company which were pending at March 31, 1997 and have
not been consummated as of the date of this Prospectus.
PENDING TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
OTHER
HISTORICAL PENDING PENDING
HISTORICAL HISTORICAL KNIGHT HISTORICAL HISTORICAL TRANSACTIONS TRANSACTIONS
MADISON PATTERSON QUALITY AMERON QUASS COMBINED(1) COMBINED
---------- ---------- ---------- ---------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue.................. $2,028 $10,727 $3,663 $1,856 $921 $4,490 $23,685
Station operating expenses... 1,246 8,319 2,965 1,616 689 3,659 18,494
Depreciation and
amortization............... 376 1,162 206 167 73 596 2,580
Corporate expenses........... 47 1,151 371 -- -- 36 1,605
Other operating expenses..... -- 233 -- -- 2 -- 235
------ ------- ------ ------ ---- ------ -------
Operating income (loss).... 359 (138) 121 73 157 199 771
Interest expense............. 348 1,716 165 218 86 495 3,028
Gain (loss) on sale of
assets..................... -- -- 6 -- -- -- 6
Increase in fair value of
redeemable warrants........ -- 5,882 -- -- -- -- 5,882
Other (income) expense....... -- (3) (36) 5 -- (32) (66)
------ ------- ------ ------ ---- ------ -------
Income (loss) before
provision for income
taxes................... 11 (7,733) (2) (150) 71 (264) (8,067)
Provision (benefit) for
income taxes............... -- (2,861) 24 -- 30 -- (2,807)
------ ------- ------ ------ ---- ------ -------
Net income (loss).......... 11 $(4,872) $ (26) $ (150) $ 41 $ (264) $(5,260)
====== ======= ====== ====== ==== ====== =======
</TABLE>
---------------------
(1) The column represents the historical combined operating results of the
following entities and stations to be acquired or sold subsequent to
the date of this Prospectus: (i) WMEZ-FM, KRDU-AM, KJOI-FM, and
WQFN-FM, all pending acquisitions of Patterson; (ii) Emerald City,
COMCO, Commonwealth, WRIS, Griffith, Grant, the stations to be
acquired in the SFX Exchange, American General, KLAW, KJEM, and
Booneville, all pending acquisitions of the Company; and (iii)
WTAW-FM, KTSR-FM, and KAGG-FM, all pending dispositions of the
Company.
34
<PAGE> 37
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(G) The adjustment reflects interest expense associated with (i) the Existing
Notes, (ii) the Notes, (iii) the New Credit Facility and (iv) the
amortization of deferred financing fees associated with the Existing
Notes, the Notes and the Credit Facilities, all net of interest expense
related to the existing indebtedness of the companies included within the
Pending Transactions Combined and the Company. Deferred financing fees
are amortized over the term of the related debt.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, --------------------
1996 1996 1997
------------ -------- --------
<S> <C> <C> <C>
Existing Notes....................................... $ 8,878 $ 2,220 $ 2,220
Notes................................................ 18,427 4,607 4,607
New Credit Facility at 8.0%.......................... 14,876 3,719 3,719
-------- -------- --------
Interest expense before amortization of deferred
financing
fees............................................... 42,181 10,546 10,546
Amortization of deferred financing fees.............. 2,160 541 541
-------- -------- --------
Pro forma interest expense......................... 44,341 11,087 11,087
Pro forma interest expense for the Completed
Transactions....................................... (29,465) (7,368) (7,368)
Historical interest expense for the Pending
Transactions Combined.............................. (10,169) (2,080) (3,028)
-------- -------- --------
Net adjustment..................................... $ 4,707 $ 1,639 $ 691
======== ======== ========
</TABLE>
(H) The adjustment reflects the elimination of the increase in fair value of
the redeemable warrants as the warrants will be repurchased in connection
with the Patterson Acquisition.
(I) The adjustment reflects the dividends and accretion on the Senior
Exchangeable Preferred Stock.
(J) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges, and "fixed charges" consist of
interest, amortization of deferred financing costs and the component of
rental expense believed by management to be representative of the
interest factor thereon. Preferred stock dividends and accretion are
included in fixed charges where appropriate.
35
<PAGE> 38
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(K) The schedule below gives effect to the historical acquisitions of the
Company consummated prior to March 31, 1997 for the period from January
1, 1996 through March 31, 1996.
THE COMPANY
<TABLE>
<CAPTION>
ADJUSTMENTS FOR
THE HISTORICAL
THE ACQUISITIONS BY THE COMPANY
COMPANY THE COMPANY(2) COMBINED
------- --------------- -----------
<S> <C> <C> <C>
Net revenue...................................... $7,416 $1,687 $ 9,103
Station operating expenses....................... 5,375 1,487 6,862
Depreciation and amortization.................... 480 -- 480
Corporate expenses............................... 466 -- 466
Other operating expenses......................... -- -- --
------- ------ -------
Operating income (loss)........................ 1,095 200 1,295
Interest expense................................. 2,452 -- 2,452
Gain (loss) on sale of assets.................... -- -- --
Other (income) expense........................... 52 -- 52
------- ------ -------
Income (loss) before provision for income
taxes....................................... (1,409) 200 (1,209)
Provision (benefit) for income taxes............. 27 -- 27
------- ------ -------
Net income (loss).............................. $(1,436) $ 200 $(1,236)
======= ====== =======
Deficiency of earnings to fixed charges(1)....... $1,409
</TABLE>
- ---------------
(1) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges, and "fixed charges" consist of
interest, amortization of deferred financing costs and the component
of rental expense believed by management to be representative of the
interest factor thereon.
(2) The column gives effect to the historical operating results and LMA
and JSA revenue and expense of the following stations acquired by the
Company: the stations acquired in the Huntington Acquisition (as
defined), WKHL-FM, WSTC-AM, WAVW-FM, WBBE-FM, WAXE-AM, WAXB-FM,
WZZN-FM and WPUT-AM.
36
<PAGE> 39
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(L) The schedule below gives effect to the following for the period from
January 1, 1996 through March 31, 1996: (i) the historical acquisitions
and dispositions of the indicated entities consummated prior to March 31,
1997; and (ii) the acquisitions and dispositions of the indicated
entities which were pending at March 31, 1997 and were consummated prior
to the date of this Prospectus.
COMPLETED TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
OTHER ADJUSTMENTS
HISTORICAL COMPLETED FOR COMPLETED
HISTORICAL HISTORICAL HISTORICAL COMMUNITY TRANSACTIONS HISTORICAL TRANSACTIONS
OSBORN GULFSTAR BENCHMARK PACIFIC COMBINED(1) TRANSACTIONS(2) COMBINED
---------- ---------- ---------- ---------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue......... $6,852 $4,595 $ 6,217 $2,403 $3,046 $6,636 $29,749
Station operating
expenses.......... 5,868 3,604 4,964 2,025 2,285 4,904 23,650
Depreciation and
amortization...... 1,211 677 1,330 329 (175) -- 3,372
Corporate
expenses.......... 457 171 819 166 8 -- 1,621
Other operating
expenses.......... -- 273 -- -- -- -- 273
------ ------ ------- ------ ------ ------ -------
Operating income
(loss)......... (684) (130) (896) (117) 928 1,732 833
Interest expense.... 635 851 646 216 (75) -- 2,273
Gain (loss) on sale
of assets......... 6,874 -- -- -- 2 -- 6,876
Other (income)
expense........... 93 (4) (58) 50 (8) -- 73
------ ------ ------- ------ ------ ------ -------
Income (loss)
before
provision for
income taxes... 5,462 (977) (1,484) (383) 1,013 1,732 5,363
Provision (benefit)
for income
taxes............. 851 (191) -- -- -- -- 660
------ ------ ------- ------ ------ ------ -------
Net income
(loss)......... $4,611 $ (786) $(1,484) $ (383) $1,013 $1,732 $ 4,703
====== ====== ======= ====== ====== ====== =======
</TABLE>
- ---------------
(1) The column represents the historical combined operating results of
the following entities and stations which were acquired or sold prior
to the date of this Prospectus: (i) Stephens Radio, KWHN-AM, KMAG-FM,
KLLI-FM and KYGL-FM, all acquired by GulfStar prior to the GulfStar
Transaction; (ii) Space Coast, Cavalier, McForhun and Livingston, all
acquired by the Company; (iii) the stations acquired in the Osborn
Add-on Acquisitions; (iv) WESC-AM/FM and WFNQ-FM, all sold by
Benchmark prior to the Benchmark Acquisition; (iv) WMCZ-FM, WMHS-FM
and WZHT-FM, all acquired by Benchmark prior to the Benchmark
Acquisition; and (v) the stations sold in the Osborn Ft. Myers
Disposition.
(2) The adjustments give effect to the historical operating results
and/or LMA or JSA expense and/or revenue of the following stations
which were acquired or sold prior to March 31, 1997: (i) WKWK-FM,
WRIR-FM, WGEW-FM, WEEL-FM, WBBD-AM, WYNU-FM and WTXT-FM, all acquired
by Osborn prior to the Osborn Acquisition; (ii) WWRD-FM, WNDR-AM,
WNTQ-FM, WFXK-FM, WAYV-FM, and WFKS-FM, all sold by Osborn prior to
the Osborn Acquisition; (iii) KRYS-AM/FM, KMXR-FM, KNCN-FM, KEZA-FM,
KKIX-FM, KKZQ-FM, KIIZ-FM, KLFX-FM, KFMX-FM, KKAM-AM, KRLB-FM,
KZII-FM, KFYO-AM, KBRQ-FM, KKTK-AM, WACO-FM, KCKR-FM, KWTX-AM/FM,
KTRA-FM, KKFG-FM, KDAG-FM, and KCQL-AM, all acquired by GulfStar;
(iv) KLTX-AM, sold by GulfStar; (v) WJMI-FM, WOAD-FM, WKXI-FM/AM,
WSCQ-FM, WFMX-FM, WSIC-AM, KRMD-AM/FM and WJMZ-FM, all acquired by
Benchmark; and (vi) WLTY-FM, WTAR-AM and WKOC-FM, all sold by
Benchmark.
(M) The adjustment collectively gives effect to the warrants issued to R.
Steven Hicks in connection with the financing of the Commodore
Acquisition, the Osborn Acquisition and the GulfStar Transaction.
37
<PAGE> 40
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(N) The column represents the combined income statements for the period from
January 1, 1996 through March 31, 1996 of the acquisitions and
dispositions of the Company which were pending at March 31, 1997 and have
not been consummated as of the date of this Prospectus.
PENDING TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL HISTORICAL POINT HISTORICAL KNIGHT HISTORICAL HISTORICAL
MIDCONTINENT COMMUNICATIONS PATTERSON QUALITY AMERON QUASS
------------ ---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue..................... $ 735 $ 950 $6,097 $3,757 $1,602 $894
Station operating expenses...... 794 684 5,144 2,949 1,461 708
Depreciation and amortization... 108 382 522 259 165 69
Corporate expenses.............. -- 52 576 371 -- --
Other operating income.......... -- -- -- -- -- (3)
----- ------ ------ ------ ------ ----
Operating income (loss)....... (167) (168) (145) 178 (24) 120
Interest expense................ -- 260 821 174 221 103
Gain (loss) on sale of assets... -- -- -- 530 -- --
Other (income) expense.......... (17) -- (55) (19) (11) (7)
----- ------ ------ ------ ------ ----
Income (loss) before provision
for income taxes........... (150) (428) (911) 553 (234) 24
Provision (benefit) for income
taxes......................... (51) -- -- 69 -- 11
----- ------ ------ ------ ------ ----
Net income (loss)............. $ (99) $(428) $ (911) $ 484 $ (234) $ 13
===== ====== ====== ====== ====== ====
<CAPTION>
OTHER ADJUSTMENTS
PENDING FOR PENDING
TRANSACTIONS HISTORICAL TRANSACTIONS
COMBINED(1) TRANSACTIONS(2) COMBINED
------------ --------------- ------------
<S> <C> <C> <C>
Net revenue..................... $4,396 $3,861 $22,292
Station operating expenses...... 3,665 2,843 18,248
Depreciation and amortization... 534 -- 2,039
Corporate expenses.............. 48 1,047
Other operating income.......... -- (3)
------ ------ -------
Operating income (loss)....... 149 1,018 961
Interest expense................ 501 2,080
Gain (loss) on sale of assets... -- -- 530
Other (income) expense.......... (32) -- (141)
------ ------ -------
Income (loss) before provision
for income taxes........... (320) 1,018 (448)
Provision (benefit) for income
taxes......................... -- -- 29
------ ------ -------
Net income (loss)............. $ (320) $1,018 $ (477)
====== ====== =======
</TABLE>
- ---------------
(1) The column represents the historical combined operating results of
the following entities and stations to be acquired or sold subsequent
to the date of this Prospectus: (i) WMEZ-FM, KRDU-AM, KJOI-FM, and
WQFN-FM, all pending acquisitions of Patterson; and (ii) Emerald
City, COMCO, Commonwealth, WRIS, Griffith, Grant, the stations to be
acquired in the SFX Exchange, Noalmark, American General, KLAW, KJEM
and Booneville, all pending acquisitions of the Company.
(2) The adjustments give effect to the historical operating results
and/or LMA or JSA expense and/or revenue of the following stations:
WNNK-FM, WTCY-AM, WXBM-FM, WWSF-FM, WSOK-AM, WLVH-FM, WAEV-FM,
KIKI-FM/AM, KKLV-FM, KHVH-AM, WFMB-FM/AM, WCVS-FM, KCBL-AM, KBOS-FM
and KTHT-FM, all purchased by Patterson prior to March 31, 1997.
38
<PAGE> 41
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(O) The schedule below gives effect to the historical acquisitions of the
Company consummated prior to March 31, 1997 for the period from January
1, 1996 through December 31, 1996.
THE COMPANY
<TABLE>
<CAPTION>
ADJUSTMENTS FOR
THE HISTORICAL
THE ACQUISITIONS BY THE COMPANY
COMPANY THE COMPANY(2) COMBINED
-------- --------------- -----------
<S> <C> <C> <C>
Net revenue....................................... $ 42,260 $2,213 $ 44,473
Station operating expenses........................ 27,576 2,224 29,800
Depreciation and amortization..................... 3,193 -- 3,193
Corporate expenses................................ 2,134 224 2,358
Other operating expenses.......................... 13,834 -- 13,834
-------- ------ --------
Operating income (loss)......................... (4,477) (235) (4,712)
Interest expense.................................. 11,475 -- 11,475
Gain (loss) on sale of assets..................... -- -- --
Other (income) expense............................ 1,823 -- 1,823
-------- ------ --------
Income (loss) before provision for income
taxes........................................ (17,775) (235) (18,010)
Provision (benefit) for income taxes.............. 133 -- 133
-------- ------ --------
Net income (loss)............................... $(17,908) $ (235) $(18,143)
======== ====== ========
Deficiency of earnings to fixed charges(1)........ $ 17,775
</TABLE>
- ---------------
(1) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges, and "fixed charges" consist of
interest, amortization of deferred financing costs and the component
of rental expense believed by management to be representative of the
interest factor thereon.
(2) The column gives effect to the historical operating results and LMA or
JSA revenue and expense of the following stations acquired by the
Company: the stations acquired in the Huntington Acquisition, WKHL-FM,
WSTC-AM, WAVW-FM, WBBE-FM, WAXE-AM, WAXB-FM, WZZN-FM and WPUT-AM.
(P) The adjustment reflects the elimination of (i) merger related
compensation expenses and (ii) other expenses related to the Commodore
Acquisition, including costs related to the abandoned initial public
offering of the Company. These expenses were recognized by the Company in
connection with the acquisition.
39
<PAGE> 42
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(Q) The schedule below gives effect to the following for the period from
January 1, 1996 through December 31, 1996: (i) the historical
acquisitions and dispositions of the indicated entities consummated prior
to March 31, 1997, and (ii) the acquisitions and dispositions of the
indicated entities which were pending at March 31, 1997 and were
consummated prior to the date of this Prospectus.
COMPLETED TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
OTHER ADJUSTMENTS
HISTORICAL COMPLETED FOR COMPLETED
HISTORICAL HISTORICAL HISTORICAL COMMUNITY TRANSACTIONS HISTORICAL TRANSACTIONS
OSBORN GULFSTAR BENCHMARK PACIFIC COMBINED(1) TRANSACTIONS(2) COMBINED
---------- ---------- ---------- ---------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue......... $37,215 $32,563 $27,255 $11,199 $12,742 $24,393 $145,367
Station operating
expenses.......... 28,823 24,299 21,253 8,916 8,142 16,434 107,867
Depreciation and
amortization...... 4,756 2,810 5,320 1,416 (692) -- 13,610
Corporate
expenses.......... 1,850 1,923 1,513 760 (135) -- 5,911
Other operating
expenses.......... 1,200 5,432 -- -- 243 -- 6,875
------- ------- ------- ------- ------- ------- --------
Operating income
(loss).......... 586 (1,901) (831) 107 5,184 7,959 11,104
Interest expense.... 2,202 4,604 3,384 933 (484) -- 10,639
Gain (loss) on sale
of assets......... 13,522 -- 9,612 (11) 32 -- 23,155
Other (income)
expense........... 291 829 (679) 8 (157) -- 292
------- ------- ------- ------- ------- ------- --------
Income (loss)
before provision
for income
taxes........... 11,615 (7,334) 6,076 (845) 5,857 7,959 23,328
Provision (benefit)
for income
taxes............. 2,379 (322) -- -- 2 -- 2,059
------- ------- ------- ------- ------- ------- --------
Income (loss)
before
extraordinary
item............ 9,236 (7,012) 6,076 (845) 5,855 7,959 21,269
Extraordinary item,
loss on early
extinguishment of
debt.............. -- 1,188 -- -- -- -- 1,188
------- ------- ------- ------- ------- ------- --------
Net income........ $ 9,236 $(8,200) $ 6,076 $ (845) $ 5,855 $ 7,959 $ 20,081
======= ======= ======= ======= ======= ======= ========
</TABLE>
- ---------------
(1) The column represents the historical combined operating results of
the following entities and stations which were acquired or sold
prior to the date of this Prospectus: (i) Stephens Radio, KWHN-AM,
KMAG-FM, KLLI-FM and KYGL-FM, all acquired by GulfStar prior to
the GulfStar Transaction; (ii) Space Coast, Cavalier, McForhun and
Livingston, all acquired by the Company; (iii) the stations
acquired in the Osborn Add-on Acquisitions; (iv) WESC-AM/FM and
WFNQ-FM, all sold by Benchmark prior to the Benchmark Acquisition;
(v) WMCZ-FM, WMHS-FM and WZHT-FM, all acquired by Benchmark prior
to the Benchmark Acquisition; and (vi) the stations sold in the
Osborn Ft. Myers Disposition.
(2) The adjustments give effect to the historical operating results
and/or LMA or JSA expense and/or revenue of the following stations
which were acquired or sold prior to March 31, 1997: (i) WKWK-FM,
WRIR-FM, WEGW-FM, WEEL-FM, WBBD-AM, WYNU-FM and WTXT-FM, all
acquired by Osborn; (ii) WWRD-FM, WNDR-AM, WNTQ-FM, WFXK-FM,
WAYV-FM, and WFKS-FM, all sold by Osborn; (iii) KRYS-AM/FM,
KMXR-FM, KNCN-FM, KEZA-FM, KKIX-FM, KKZQ-FM, KIIZ-FM, KLFX-FM,
KLTX-FM, KFMX-FM, KKAM-AM, KRLB-FM, KZII-FM, KFYO-AM, KBRQ-FM,
KKTK-AM, WACO-FM, KCKR-FM, KWTX-AM/FM, KTRA-FM, KKFG-FM, KDAG-FM,
and KCQL-AM, all acquired by GulfStar; (iv) KLTX-AM, sold by
GulfStar; (v) WJMI-FM, WOAD-FM, WKXI-FM/AM, WSCQ-FM, WFMX-FM,
WSIC-AM, KRMD-AM/FM and WJMZ-FM, all acquired by Benchmark; and
(vi) WLTY-FM, WTAR-AM and WKOC-FM, all sold by Benchmark.
40
<PAGE> 43
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(R) The column represents the combined income statements for the period from
January 1, 1996 through December 31, 1996 of the acquisitions and
dispositions which were pending at March 31, 1997 and have not been
consummated as of the date of this Prospectus.
PENDING TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL HISTORICAL POINT HISTORICAL KNIGHT HISTORICAL HISTORICAL
MIDCONTINENT COMMUNICATIONS PATTERSON QUALITY AMERON QUASS
------------ ---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue..................... $3,446 $5,601 $41,369 $16,597 $8,131 $4,037
Station operating expenses...... 2,555 3,430 30,225 12,812 5,858 3,273
Depreciation and amortization... 405 1,538 3,537 1,005 663 293
Corporate expenses.............. -- 179 2,624 2,084 -- --
Other operating (income)
expenses...................... -- -- 143 -- -- (31)
------ ------- ------- ------- ------ ------
Operating income (loss)....... 486 454 4,840 696 1,610 502
Interest expense................ -- 1,071 5,052 710 843 428
Gain (loss) on sale of assets... -- -- -- 568 -- --
Increase in fair value of
redeemable warrants........... -- -- 5,499 -- -- --
Other (income) expense.......... (69) (8) (37) (60) 76 (26)
------ ------- ------- ------- ------ ------
Income (loss) before provision
for income taxes........... 555 (609) (5,674) 614 691 100
Provision (benefit) for income
taxes......................... 189 -- (2,344) 77 -- 39
------ ------- ------- ------- ------ ------
Net income (loss)............. $ 366 $ (609) $(3,330) $ 537 $ 691 $ 61
====== ======= ======= ======= ====== ======
<CAPTION>
OTHER ADJUSTMENTS
PENDING FOR PENDING
TRANSACTIONS HISTORICAL TRANSACTIONS
COMBINED(1) TRANSACTIONS(2) COMBINED
------------ --------------- ------------
<S> <C> <C> <C>
Net revenue..................... $18,098 $7,412 $104,691
Station operating expenses...... 13,434 4,846 76,433
Depreciation and amortization... 2,213 -- 9,654
Corporate expenses.............. 274 -- 5,161
Other operating (income)
expenses...................... -- -- 112
------- ------ --------
Operating income (loss)....... 2,177 2,566 13,331
Interest expense................ 2,065 -- 10,169
Gain (loss) on sale of assets... (72) -- 496
Increase in fair value of
redeemable warrants........... -- -- 5,499
Other (income) expense.......... (158) -- (282)
------- ------ --------
Income (loss) before provision
for income taxes........... 198 2,566 (1,559)
Provision (benefit) for income
taxes......................... -- -- (2,039)
------- ------ --------
Net income (loss)............. $ 198 $2,566 $ 480
======= ====== ========
</TABLE>
- ---------------
(1) The column represents the historical combined operating results of
the following entities and stations to be acquired or sold
subsequent to the date of this Prospectus: (i) WMEZ-FM, KRDU-AM,
KJOI-FM, and WQFN-FM, all pending acquisitions of Patterson; (ii)
Emerald City, COMCO, Commonwealth, WRIS, Griffith, Grant, the
stations be acquired in the SFX Exchange, Noalmark, American
General, KLAW, KJEM, and Booneville, all pending acquisitions of the
Company; and (iii) WTAW-AM, KTSR-FM and KAGG-FM, all pending
dispositions of the Company.
(2) The adjustments give effect to the historical operating results
and/or LMA or JSA expense and/or revenue of the following and
stations: WNNK-FM, WTCY-AM, WXBM-FM, WWSF-FM, WSOK-AM, WLVH-FM,
WAEV-FM, KIKI-FM/AM, KKLV-FM, KHVH-AM, WFMB-FM/AM, WCVS-FM, KCBL-AM,
KBOS-FM, and KTHT-FM, all purchased by Patterson prior to March 31,
1997.
41
<PAGE> 44
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(S) The schedule below gives effect to the acquisitions and dispositions of
the companies acquired in the Completed Transactions which were
consummated prior to the date of this Prospectus.
COMPLETED TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
OTHER
HISTORICAL COMPLETED COMPLETED
HISTORICAL HISTORICAL COMMUNITY TRANSACTIONS TRANSACTIONS
GULFSTAR BENCHMARK PACIFIC COMBINED(1) COMBINED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 5,979 $ 4,021 $ 331 $ 792 $ 11,123
Accounts receivable, net......................... 8,232 4,563 745 2,713 16,253
Prepaid expenses and other....................... 1,536 1,232 145 337 3,250
-------- ------- ------- ------- --------
Total current assets..................... 15,747 9,816 1,221 3,842 30,626
Property and equipment, net........................ 17,485 14,055 3,806 3,168 38,514
Intangible and other assets, net................... 84,805 46,221 12,696 8,973 152,695
-------- ------- ------- ------- --------
Total assets............................. $118,037 $70,092 $17,723 $15,983 $221,835
======== ======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued expenses...... $ 4,819 $ 4,112 $ 330 $ 1,835 $ 11,096
Current portion of long-term debt................ 214 14,223 1,438 397 16,272
-------- ------- ------- ------- --------
Total current liabilities................ 5,033 18,335 1,768 2,232 27,368
Long-term debt, less current portion............... 82,346 29,849 8,337 5,200 125,732
Other long-term liabilities........................ 5,940 56 -- 51 6,047
-------- ------- ------- ------- --------
Total liabilities........................ 93,319 48,240 10,105 7,483 159,147
Redeemable preferred stock......................... 23,081 -- -- -- 23,081
Stockholders' equity............................... 1,637 21,852 7,618 8,500 39,607
-------- ------- ------- ------- --------
Total liabilities and stockholders'
equity................................. $118,037 $70,092 $17,723 $15,983 $221,835
======== ======= ======= ======= ========
</TABLE>
- ---------------
(1) The column represents the historical combined balance sheets of (i)
the stations in the Osborn Add-On Acquisitions and the Osborn Ft.
Myers Disposition; (ii) Stephens Radio, KWHN-AM, KMAG-FM, KLLI-FM and
KYGL-FM, all acquired by GulfStar prior to the GulfStar Transaction;
(iii) Space Coast, Cavalier, McForhun and Livingston, all acquired by
the Company; and (iv) WMCZ-FM, WMHS-FM and WZHT-FM all acquired by
Benchmark prior to the Benchmark Acquisition.
42
<PAGE> 45
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(T) The adjustments reflect (i) the assumption of $2,391 in liabilities in
connection with the Completed Transactions, (ii) the acquisition of
GulfStar, which is accounted for at historical cost on a basis similar to
a pooling of interests, and (iii) the elimination of the historical
equity of the Completed Transactions, excluding the equity of GulfStar of
$24,718, and the allocation of the purchase prices, net of the proceeds
from the Osborn Ft. Myers Disposition, of the Completed Transactions to
the assets acquired and liabilities assumed resulting in an adjustment to
property and equipment and FCC licenses to their estimated fair market
values and the recording of goodwill associated with the acquisitions as
follows:
<TABLE>
<CAPTION>
ALLOCATION OF
PURCHASE
PRICES AND CARRYING
GULFSTAR AT VALUE OF
HISTORICAL COMPLETED
COST TRANSACTIONS ADJUSTMENTS
------------- ------------ -----------
<S> <C> <C> <C>
Cash and cash equivalents........................ $ 10,552 $ 11,123 $ (571)
Accounts receivable, net......................... 13,605 16,253 (2,648)
Prepaid expenses and other....................... 2,551 3,250 (699)
Property and equipment, net...................... 51,992 38,514 13,478
Intangible and other assets, net................. 315,461 150,027 165,434
Deferred financing............................... 2,272 2,668 (396)
Accounts payable and other accrued expenses...... (9,796) (11,096) (1,300)
Long-term debt, including the current portion.... (82,560) (142,004) (59,444)
Other long-term liabilities...................... (8,387) (6,047) 2,340
Stockholders' equity............................. (24,718) (62,688) (37,970)
--------
Total purchase prices and deferred financing
charges................................... $270,972
========
</TABLE>
(U) The adjustment reflects the excess cash used in connection with the
Completed Transactions.
(V) The adjustment reflects $330 placed in escrow as security for Benchmark's
obligation to consummate the acquisition of WESC-AM/FM and WFNQ-FM
located in Greenville, South Carolina, and the use of the deposit to pay
a portion of the purchase price in connection with the related
acquisition.
(W) The adjustment reflects $550 placed in escrow as security for the
Company's obligation to consummate the Osborn Huntsville Acquisition
which was subsequently used to pay a portion of the purchase price in
connection with the related acquisition.
(X) The adjustment reflects the estimated deferred financing costs of $7,750
and $4,000 associated with the Offering and the New Credit Facility,
respectively.
(Y) The adjustments reflect the repayment of current borrowings of GulfStar
of $82,560, including repayment of indebtedness under the GulfStar credit
facility, and the write-off of $2,272 of related deferred financing costs
which resulted in an extraordinary charge in the period the repayment was
made.
(Z) The adjustment reflects proceeds of $199,212 from the Capstar Radio Notes
Offering.
43
<PAGE> 46
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(AA) As part of the Benchmark Acquisition, the Fund III Acquisition Sub entered
into a senior credit agreement (the "Acquisition Sub Credit Agreement")
with Bankers Trust Company to borrow up to $62,000, of which approximately
$60,000 of the proceeds were loaned to Benchmark to enable Benchmark to
consummate four separate acquisitions of radio station properties and for
certain other purposes of Benchmark. The Company unconditionally
guaranteed all of the Fund III Acquisition Sub's indebtedness under the
Acquisition Sub Credit Agreement. Simultaneously with the Benchmark
Acquisition, the Fund III Acquisition Sub was merged with a subsidiary of
Capstar Broadcasting and the Acquisition Sub Credit Agreement was repaid
(the "Repayment"). In connection with the Repayment, the Company issued
$750 of Class C Common Stock to HM Fund III in consideration of HM Fund
III's agreement to purchase the obligations owing to Bankers Trust Company
under the Acquisition Sub Credit Agreement and the Company recorded an
extraordinary charge of $750.
The related pro forma adjustments are as follows:
<TABLE>
<S> <C>
Guarantee of loans to Benchmark under the Acquisition Sub
Credit Agreement.......................................... $ 60,000
Repayment of indebtedness under the Acquisition Sub Credit
Agreement in connection with the Benchmark Acquisition.... (60,000)
Issuance of Common Stock in connection with the Company's
guarantee................................................. 750
Extraordinary charge........................................ (750)
</TABLE>
(BB) The adjustment reflects the elimination of the redeemable preferred stock
of GulfStar which was redeemed in connection with the GulfStar
Transaction. GulfStar recognized a loss on the Preferred Stock Redemption
of $5,419 which represents the difference between the carrying value and
the liquidation preference of the preferred stock.
(CC) The adjustment reflects (i) the net proceeds from the Preferred Stock
Offering, (ii) the Hicks Muse GulfStar Equity Investment of $75,000 in
connection with GulfStar Transaction, (iii) the common equity investment
of $2,100 by Joseph L. Mathias, IV, a former partner of Benchmark, in
connection with the Benchmark Acquisition, (iv) the Capstar BT Equity
Investment of $11,100, and (v) the fees and expenses incurred in
connection with the GulfStar Merger, which were expensed in the period in
which the GulfStar Merger was consummated.
44
<PAGE> 47
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(DD) The column represents the combined balance sheets as of March 31, 1997 of
the acquisitions which were pending as of the date of this Prospectus.
PENDING TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
OTHER
PENDING
HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL ACQUISITIONS
MADISON PATTERSON KNIGHT QUALITY AMERON QUASS COMBINED(1)
---------- ---------- -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 348 1,177 $ 2,498 $ 90 $ 55 $ 960
Accounts receivable, net.............. 1,415 8,171 2,631 1,405 536 4,044
Prepaid expenses and other............ 132 1,889 385 206 64 537
------- -------- ------- ------- ------ -------
Total current assets.......... 1,895 11,237 5,514 1,701 655 5,541
Property and equipment, net............. 2,739 19,114 4,784 1,917 1,182 3,753
Intangible and other assets, net........ 12,852 118,088 676 13,006 2,373 13,628
------- -------- ------- ------- ------ -------
Total assets.................. $17,486 148,439 $10,974 $16,624 $4,210 $22,922
======= ======== ======= ======= ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued
expenses........................... $ 790 3,742 $ 1,219 $ 761 $ 169 $ 3,175
Current portion of long-term debt..... 250 -- 848 5,200 250 2,928
------- -------- ------- ------- ------ -------
Total current liabilities..... 1,040 3,742 2,067 5,961 419 6,103
Long-term debt, less current portion.... 13,250 66,500 7,773 4,563 3,418 15,871
Other long-term liabilities............. -- 87 -- -- 203 --
------- -------- ------- ------- ------ -------
Total liabilities............. 14,290 70,329 9,840 10,524 4,040 21,974
Redeemable preferred stock.............. -- 20,747 -- -- -- --
Redeemable warrants..................... -- 17,803 -- -- -- --
Stockholders' equity.................... 3,196 39,560 1,134 6,100 170 948
------- -------- ------- ------- ------ -------
Total liabilities and
stockholders' equity........ $17,486 148,439 $10,974 $16,624 $4,210 $22,922
======= ======== ======= ======= ====== =======
<CAPTION>
PENDING
TRANSACTIONS
COMBINED
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 5,128
Accounts receivable, net.............. 18,202
Prepaid expenses and other............ 3,213
--------
Total current assets.......... 26,543
Property and equipment, net............. 33,489
Intangible and other assets, net........ 160,623
--------
Total assets.................. $220,655
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued
expenses........................... $ 9,856
Current portion of long-term debt..... 9,476
--------
Total current liabilities..... 19,332
Long-term debt, less current portion.... 111,375
Other long-term liabilities............. 290
--------
Total liabilities............. 130,997
Redeemable preferred stock.............. 20,747
Redeemable warrants..................... 17,803
Stockholders' equity.................... 51,108
--------
Total liabilities and
stockholders' equity........ $220,655
========
</TABLE>
- ---------------
(1) The columns represents the historical combined balance sheets of (i)
WMEZ-FM, KRDU-FM, KJOI-FM and WQFN-FM, all pending acquisitions of
Patterson; and (ii) Emerald City, COMCO, Commonwealth, WRIS,
Griffith, Grant, American General, Booneville, Noalmark, KLAW and
KJEM, all pending acquisitions of the Company.
45
<PAGE> 48
(EE) The adjustment reflects (i) the assumption of $2,086 in liabilities in
connection with the Pending Transactions and (ii) the allocation of the
purchase prices of the Pending Transactions to the assets acquired and
liabilities assumed resulting in an adjustment to property and equipment
and FCC licenses to their estimated fair market values and the recording
of goodwill associated with the acquisitions as follows:
<TABLE>
<CAPTION>
CARRYING
ALLOCATION OF VALUE OF
PURCHASE PENDING
PRICES TRANSACTIONS ADJUSTMENTS
------------- ------------ -----------
<S> <C> <C> <C>
Cash and cash equivalents............................ $ 1,232 $ 5,128 $ (3,896)
Accounts receivable, net............................. 12,478 18,202 (5,724)
Prepaid expenses and other........................... 1,295 3,213 (1,918)
Property and equipment, net.......................... 52,274 33,489 18,785
Intangible and other assets, net..................... 400,917 156,248 244,669
Deferred financing................................... -- 4,375 (4,375)
Accounts payable and other accrued expenses.......... (3,911) (9,856) (5,945)
Other long-term liabilities.......................... (43,406) (290) 43,116
--------
Total purchase prices........................... $420,879
========
</TABLE>
(FF) The adjustment reflects the excess cash used in connection with the
Pending Transactions.
(GG) The adjustments reflect the disposition of WTAW-AM, KTSR-FM and KAGG-FM
located in Bryan, Texas.
(HH) The adjustment reflects the elimination of the outstanding loan balance of
$13,500 to Emerald City which will be repaid in connection with the
Emerald City Acquisition.
(II) The adjustment reflects $75 placed in escrow as security for the
Company's obligation to consummate the Emerald City Acquisition, which
will be used to pay a portion of the expenses in connection with the
related acquisition.
(JJ) The adjustment reflects the elimination of the historical debt of the
entities to be acquired in the Pending Transactions of $120,851,
including the current portion of $9,476.
(KK) The adjustments reflect borrowings of $185,946 under the New Credit
Facility with an annual interest rate of 8.0% and an equity contribution
of $221,217, including the commitment by HM Fund III and its affiliates to
invest up to an additional $50,000, in connection with the financing of
the Pending Transactions.
(LL) The adjustment reflects the purchase and subsequent retirement of the
redeemable preferred stock of $20,747 and redeemable warrants of $17,803
in connection with the Patterson Acquisition. As a result of the
redemption, Patterson will recognize a loss of $8,391 which represents the
difference between the carrying value and the liquidation preference on
the preferred stock.
(MM) The adjustment reflects the net effect of the elimination of the historical
equity of the entities to be acquired in the Pending Transactions, based on
the purchase method of accounting, of $51,108.
(NN) The pro forma amounts reflect the effects of the exchange offers for the
Notes, the Existing Notes and the Senior Exchangeable Preferred Stock.
46
<PAGE> 49
SELECTED HISTORICAL FINANCIAL DATA
The following financial information should be read in conjunction with
"Management's Discussion and Analysis of Results of Operations and Financial
Condition," "Business," the Consolidated Financial Statements of the Company and
the related notes thereto, included elsewhere in this Prospectus.
The operating and other data in the following table have been derived from
audited financial statements of the Company for the years ended December 31,
1996, 1995 and 1994 and from unaudited financial statements of the Company for
the three months ended March 31, 1997 and 1996, all of which are included
elsewhere in this Prospectus, and from audited financial statements for the
years ended December 31, 1993 and 1992. The selected balance sheet data in the
following table have been derived from audited financial statements of the
Company as of December 31, 1996 and 1995 which are included elsewhere in this
Prospectus, from audited financial statements of the Company as of December 31,
1994, 1993 and 1992 and from unaudited financial statements of the Company as of
March 31, 1997 and 1996.
In management's opinion, the unaudited financial statements from which such
data have been derived include all adjustments (consisting only of normal,
recurring adjustments) necessary to present fairly, in all material respects,
the results of operations and financial condition of the Company as of and for
the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- ----------- -----------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenue.............................. $ 17,961 $ 19,798 $ 26,225 $ 30,795 $ 42,260 $ 7,416 $ 13,254
Station operating expenses............... 12,713 13,509 16,483 19,033 27,576 5,375 9,689
Depreciation and amortization............ 1,676 1,129 2,145 1,926 3,193 480 1,721
Corporate expenses....................... 1,602 2,531 2,110 2,051 2,134 466 1,424
Other operating expenses(1).............. -- 1,496 2,180 2,007 13,834 -- --
Operating income (loss).................. 1,970 1,133 3,307 5,778 (4,477) 1,095 420
Interest expense......................... 4,614 4,366 3,152 7,806 11,475 2,452 2,892
Net loss................................. (2,580) (3,782) (527) (2,240) (17,908) (1,436) (3,865)
OTHER DATA:
Broadcast cash flow(2)................... $ 5,248 $ 6,289 $ 9,742 $ 11,762 $ 14,684 $ 2,041 $ 3,565
Broadcast cash flow margin(2)............ 29.2% 31.8% 37.1% 38.2% 34.7% 27.5% 26.9%
EBITDA(3)................................ $ 3,646 $ 3,758 $ 7,632 $ 9,711 $ 12,550 $ 1,575 $ 2,141
Cash flows related to(4):
Operating activities................... (406) 477 4,061 1,245 (981) 1,891 1,930
Investing activities................... (458) (10,013) (50) (4,408) (46,840) (15,798) (126,003)
Financing activities................... 951 9,377 (2,855) 12,013 41,298 8,103 130,893
Cash interest expense(5)................. 4,408 4,218 2,932 5,132 7,243 1,454 1,942
Capital expenditures..................... 371 333 623 321 933 124 887
Deficiency of earnings to fixed
charges(6)............................. 2,998 3,743 918 1,908 17,775 1,409 2,446
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................ $ 1,045 $ 887 $ 2,042 $ 10,891 $ 4,368 $ 5,087 $ 11,188
Intangible and other assets, net......... 13,819 22,419 21,096 27,422 67,077 42,748 181,444
Total assets............................. 27,508 36,192 36,283 52,811 95,065 63,211 262,503
Long-term debt, including current
portion................................ 51,934 41,773 36,962 66,261 94,487 74,478 70,737
Redeemable preferred stock............... 5,800 10 8,414 -- -- -- --
Total stockholders' equity............... (28,766) (8,097) (18,038) (18,555) (4,830) (19,991) 150,505
</TABLE>
- ---------------
(1) Other operating expenses consist of separation compensation in 1993 and
long-term incentive compensation under restructured employment agreements
with the Company's former President and Chief Executive Officer and its
former Chief Operating Officer in 1995 and 1994. In 1996, it consists of
merger related compensation charges in connection with the Commodore
Acquisition. Such expenses are non-cash and/or are not expected to recur.
(2) Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expenses and other operating expenses. Although
broadcast cash flow is not a measure of performance calculated in
accordance with GAAP, management believes that it is useful to an investor
in evaluating the Company because it is a measure widely used in the
broadcast industry to evaluate a radio company's operating performance. See
"Glossary of Certain Terms and Market and Industry Data."
(3) EBITDA consists of operating income before depreciation, amortization and
other operating expenses. Although EBITDA is not a measure of performance
calculated in accordance with GAAP, management believes that it is useful
to an investor in evaluating the Company because it is a measure widely
used in the broadcast industry to evaluate a radio company's operating
performance. See "Glossary of Certain Terms and Market and Industry Data."
(4) Cash flows related to operating activities, investing activities and
financing activities are derived from the related statement of cash flows
and are prepared in accordance with GAAP.
(5) Cash interest expense excludes non-cash amortization of deferred finance
costs and discounts to initial purchasers.
(6) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges, and "fixed charges" consist of
interest, amortization of deferred financing costs and the component of
rental expense believed by management to be representative of the interest
factor thereon. Preferred stock dividends and accretion are included in
fixed charges where appropriate.
47
<PAGE> 50
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and related notes thereto of the Company included elsewhere
in this Prospectus. Periodically, the Company may make statements about trends,
future plans and the Company's prospects. Actual results may differ materially
from those described in such forward looking statements based on the risks and
uncertainties facing the Company, including but not limited to, the following:
business conditions and growth in the radio broadcasting industry and the
general economy; competitive factors; changes in interest rates; the failure or
inability to renew one or more of the Company's broadcasting licenses; and the
factors described in "Risk Factors."
A radio broadcast company's revenues are derived primarily from the sale of
time to local and national advertisers. Those revenues are affected by the
advertising rates that a radio station is able to charge and the number of
advertisements that can be broadcast without jeopardizing listener levels (and
resulting ratings). Advertising rates tend to be based upon demand for a
station's advertising inventory and its ability to attract audiences in targeted
demographic groups, as measured principally by Arbitron. Radio stations attempt
to maximize revenues by adjusting advertising rates based upon local market
conditions, controlling advertising inventory and creating demand and audience
ratings.
Seasonal revenue fluctuations are common in the radio broadcasting industry
and are due primarily to fluctuations in advertising expenditures by local and
national advertisers, with revenues typically being lowest in the first quarter
and highest in the second and fourth quarters of each year. A radio station's
operating results in any period also may be affected by the occurrence of
advertising and promotional expenditures that do not produce commensurate
revenues in the period in which the expenditures are made. Because Arbitron
reports audience ratings on a quarterly basis, a radio station's ability to
realize revenues as a result of increased advertising and promotional expenses
and any resulting audience ratings improvements may be delayed for several
months.
Upon completion of the Pending Transactions, the Company will own and
operate or provide services to 233 radio stations serving 62 mid-sized markets.
The Company anticipates that it will consummate the Pending Transactions;
however, the closing of each such transaction is subject to various conditions,
including FCC and other governmental approvals, which are beyond the Company's
control, and the availability of financing to the Company on acceptable terms.
No assurances can be given that regulatory approval will be received, that the
Indentures, the Certificate of Designation, the Credit Facilities or any other
loan agreements to which the Company will be a party will permit additional
financing for the Pending Acquisitions or that such financing will be available
to the Company on acceptable terms. See "Risk Factors -- Risks of Acquisition
Strategy."
The Company incurred or assumed, and will incur or assume, substantial
indebtedness to finance the Completed Transactions and the Pending Acquisitions
for which it has, and will continue to have, significant debt service
requirements. In addition, the Company has, and will continue to have,
significant charges for depreciation and amortization expense related to the
fixed assets and intangibles acquired, or to be acquired, in its acquisitions
and compensation charges in connection with stock option agreements and warrants
issued to certain members of management. See "Certain Transactions."
Consequently, the Company expects that, for the foreseeable future as it pursues
its acquisition strategy, it will report net losses substantially in excess of
those experienced historically, which will result in decreases in stockholders'
equity.
In the following analysis, management discusses broadcast cash flow and
EBITDA. Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expenses and other operating expenses. EBITDA consists
of operating income before depreciation, amortization and other operating
expenses. Although broadcast cash flow and EBITDA are not measures of
performance calculated in accordance with generally accepted accounting
principles ("GAAP"), management believes that they are useful to an investor in
evaluating the Company because they are measures widely used in the broadcast
industry to evaluate a radio company's operating performance. However, broadcast
cash flow and EBITDA should not be considered in isolation or as substitutes for
net income, cash flows from operating activities and other income or cash flow
statement data prepared in accordance with GAAP or as a measure of liquidity or
profitability.
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<PAGE> 51
Combined Results of Operations -- The Company and GulfStar
The GulfStar Transaction was accounted for at historical cost on a basis
similar to a pooling of interests as the Company and GulfStar were under common
control. The following table presents summary supplemental historical combined
financial data of the Company and GulfStar. Management believes that the
aggregate financial information shown below may be helpful in understanding the
past operations of the stations now owned by the Company after the GulfStar
Transaction before exchanging the Old Notes for the New Notes. The following
financial information should be read in conjunction with the consolidated
financial statements of the Company and GulfStar and, in each case, the related
notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------- -------------------------
1994 1995 1996 1996 1997
------- ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Net Revenue........................... $36,059 $46,592 $ 74,823 $12,011 $24,249
Station operating expenses............ 23,144 30,771 51,875 8,979 17,637
Depreciation and amortization......... 2,857 3,060 6,003 1,157 2,722
Corporate expenses.................... 2,449 2,564 4,057 637 1,942
Other operating expenses.............. 2,180 2,007 19,266 273 2,469
Operating income (loss)............... 5,429 8,190 (6,378) 965 (521)
Interest expense...................... 4,117 9,952 16,079 3,303 4,738
Net income (loss)..................... 118 (670) (26,108) (2,223) (6,513)
OTHER DATA:
Broadcast cash flow................... $12,915 $15,821 $ 22,948 $ 3,032 $ 6,612
Broadcast cash flow margin............ 35.8% 34.0% 30.7% 25.2% 27.3%
EBITDA................................ $10,466 $13,257 $ 18,891 $ 2,395 $ 4,670
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net Revenue. Net revenue increased $12.2 million or 101.7% to $24.2 million
for the three months ended March 31, 1997 from $12.0 million for the three
months ended March 31, 1996. Net revenue included from the operations purchased
in connection with the Osborn Acquisition for the period February 21, 1997
through March 31, 1997 comprised $3.7 million of the increase. The inclusion of
revenue from the remaining acquisitions of radio stations and revenue generated
from LMAs and JSAs provided $4.2 million of the increase. For stations owned or
operated for a comparable period in 1997 and 1996, net revenue increased
approximately $4.3 million or 35.8% to $16.3 million for the three months ended
March 31, 1997 from $12.0 million for the same period in 1996.
Station Operating Expenses. Station operating expenses increased $8.6
million or 95.6% to $17.6 million for the three months ended March 31, 1997 from
$9.0 million for the three months ended March 31, 1996. The increase is
primarily attributable to (i) additional operating expenses of the operations
purchased in connection with the Osborn Acquisition of $2.9 million and (ii)
station operating expenses of the radio station acquisitions and the JSAs and
LMAs which contributed $1.2 million of the increase. For stations owned or
operated for a comparable period in 1997 and 1996, station operating expenses
increased approximately $4.5 million or 50% to $13.5 million in 1997 from $9.0
million in 1996.
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased approximately $3.6 million or 120.0% to $6.6 million for the
three months ended March 31, 1997 from $3.0 million for the same period in 1996.
The broadcast cash flow margin was 27.3% for the three months ended March 31,
1997 compared to 25.2% for the same period in 1996. The broadcast cash flow
provided from the Osborn Acquisition accounted for approximately $861,000 of the
increase; the broadcast cash flow margin from these operations was 23.3%. The
inclusion of broadcast cash flows from the remaining acquisitions and LMAs
accounts for approximately $1.2 million of the increase. Excluding the effects
of the acquisitions and LMAs, broadcast cash flow increased approximately $1.5
million or 50.0% to $4.5 million for the three months ended March 31, 1997
49
<PAGE> 52
from $3.0 million for the same period in 1996 and the broadcast cash flow margin
on a same station basis increased to 27.6% from 25.0%.
Corporate Expenses. Corporate expenses increased approximately $1.3 million
or 204.1% to approximately $1.9 million for the three months ended March 31,
1997 from approximately $637,000 for the same period in 1996. This increase was
primarily due to the additional corporate expense associated with Osborn's
operations.
EBITDA. As a result of the factors described above, EBITDA increased
approximately $2.3 million or 95.8% to $4.7 million for the three months ended
March 31, 1997 from $2.4 million for the three months ended March 31, 1996. The
EBITDA margin for the three months ended March 31, 1997 was 19.3% compared to
19.9% for the same period in 1996.
Other Operating Expenses. Depreciation and amortization increased $1.5
million to $2.7 million for the three months ended March 31, 1997 from
approximately $1.2 million for the three months ended March 31, 1996 primarily
due to the various acquisitions consummated during 1996 and 1997. For the three
months ended March 31, 1997, the Company recognized $2.5 million in compensation
charges in connection with outstanding options, compared to $273,000 for the
same period in 1996.
Other (Income) Expense. Interest expense increased approximately $1.4
million or 42.4% to $4.7 million for the three months ended March 31, 1997 from
$3.3 million for the three months ended March 31, 1996 due to interest expense
on $24.7 million of the principal balance of Commodore's senior credit facility
with AT&T Commercial Finance Corporation (the "AT&T Credit Facility"), which was
repaid in full in connection with the Osborn Acquisition and interest expense
under the GulfStar credit facility. The AT&T Credit Facility was repaid upon
consummation of the Osborn Acquisition on February 20, 1997. Interest income
increased 55% to $181,000 as a result of the interest accrual on a loan by the
Company to Emerald City, which will be repaid upon the consummation of the
Emerald City Acquisition. Other expenses, net decreased approximately $112,000
for the three months ended March 31, 1997 compared to the same period in 1996.
The Company realized an extraordinary loss on early retirement of the AT&T
Credit Facility during the three months ended March 31, 1997 of approximately
$1.4 million which is comprised of the write off of unamortized deferred loan
costs of approximately $775,000 and prepayment penalties and fees of
approximately $595,000. Additionally, the benefit for income taxes decreased
$108,000 or 65.9%.
Net Loss. As a result of the factors described above, net loss increased
approximately $4.3 million to $6.5 million for the three months ended March 31,
1997 from $2.2 million for the three months ended March 31, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Revenue. Net revenue increased $28.2 million or 60.5% to $74.8 million
in the year ended December 31, 1996 from $46.6 million in the year ended
December 31, 1995. The inclusion of revenue from the acquisitions of radio
stations and revenue generated from JSAs and LMAs entered into during the years
ended December 31, 1996 and 1995 provided $21.1 million of the increase. For
stations owned and operated for a comparable period in 1996 and 1995, net
revenue improved approximately $7.1 million or 15.2% to $53.7 million in 1996
from $46.6 million in 1995 primarily due to increased ratings and improved
selling efforts.
Station Operating Expenses. Station operating expenses increased $21.1
million or 68.5% to $51.9 million in the year ended December 31, 1996 from $30.8
million during the year ended December 31, 1995. The increase was primarily
attributable to the station operating expenses of the radio station acquisitions
and the JSAs and the LMAs entered into during the years ended December 31, 1996
and 1995, which contributed $13.9 million to the increase. For stations owned
and operated for a comparable period in 1996 and 1995, station operating
expenses increased approximately $7.2 million, or 23.4% to $37.9 million in 1996
from $30.7 million in 1995.
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased $7.1 million or 44.9% to $22.9 million in the year ended
December 31, 1996 from $15.8 million in the year ended December 31, 1995. The
broadcast cash flow margin was 30.7% for the period in 1996 as compared to 34.0%
during the same period in 1995. The inclusion of broadcast cash flow from
acquisitions and LMAs accounted for $4.9 million of the increase. Excluding the
effects of the acquisitions and LMAs, broadcast cash flow increased
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<PAGE> 53
$2.2 million or 13.9% to $18.0 million in 1996 from $15.8 million in 1995 and
the broadcast cash flow margin decreased to 33.5% from 33.9%.
Corporate Expenses. Corporate expenses increased approximately $1.5 million
or 57.7% during 1996 to $4.1 million as a result of higher salary expense for
additional staffing.
EBITDA. As a result of the factors described above, EBITDA increased $5.6
million or 42.1% to $18.9 million in the year ended December 31, 1996 from $13.3
million in the year ended December 31, 1995. The EBITDA margin decreased to
25.2% in 1996 from 28.5% in 1995.
Other Operating Expenses. Depreciation and amortization increased $2.9
million or 93.5% to $6.0 million in 1996 from $3.1 million in 1995 primarily due
to certain radio station acquisitions consummated in 1996 and 1995. In 1996, the
Company recognized $13.8 million in merger related compensation charges in
connection with the Commodore Acquisition, and $5.4 million in compensation
charges related to stock options not associated with the acquisition.
Merger-related long-term incentive compensation expense incurred by the Company
pursuant to the prior employment agreements of Bruce A. Friedman, the former
President and Chief Executive Officer of Commodore, and James T. Shea, Jr., the
former Chief Operating Officer of Commodore, was $2.0 million in 1995.
Other (Income) Expenses. Interest expense increased $6.1 million or 61.0%
to $16.1 million in the year ended December 31, 1996 from $10.0 million during
the same period in 1995 primarily due to the interest expense associated with
the Existing Notes, the GulfStar credit facility, and $24.7 million in
acquisition and working capital funding from the AT&T Credit Facility. Other
expenses, net, increased to $2.6 million in expense for the year ended December
31, 1996 from approximately $2.7 million in income for the period ended December
31, 1995. The increase was primarily due to approximately $525,000 in expenses
associated with the filing of the Company's Registration Statement on Form S-1
with the Commission on May 17, 1996, decreases in gains on asset sales, and $1.4
million of merger related costs and expenses in connection with the Commodore
Acquisition. The Company earned approximately $256,000 in interest income on its
temporary cash investments in 1996, a 39% decrease over the prior year.
Extraordinary loss on extinguishment of debt of approximately $1.2 million was
recorded in 1996, related to the recognition of deferred financing fees
associated with the GulfStar credit facility, compared to $444,000 in 1995 in
connection with the Company's debt restructuring on April 21, 1995.
Additionally, there was a $1.4 million or 116.1% decrease in the provision for
income taxes.
Net Loss. As a result of the factors described above, net loss increased
approximately $25.4 million to $26.1 million for the year ended December 31,
1996 from $670,000 for the year ended December 31, 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Revenue. Net revenue increased approximately $10.5 million or 29.1% to
$46.6 million in 1995 from $36.1 million in 1994. The inclusion of revenue from
the acquisitions of radio stations and revenue generated from JSAs and LMAs
entered into during 1995 provided approximately $5.4 million of the increase.
For stations owned and operated for a comparable period in 1995 and 1994, net
revenue improved approximately $5.1 million or 14.1% to $41.2 million in 1995
from $36.1 million in 1994, primarily due to higher ratings and improved selling
efforts.
Station Operating Expenses. Station operating expenses increased
approximately $7.7 million or 33.3% to $30.8 million in 1995 from $23.1 million
in 1994 partially due to the inclusion of station operating expenses from the
newly acquired radio station and from the JSA and LMA activity in 1995, which
contributed approximately $2.8 million to the increase. For stations owned and
operated for a comparable period in 1995 and 1994, station operating expenses
increased approximately $4.8 million or 20.7% to $28.0 million in 1995 from
$23.2 million in 1994 due to increased selling expenses.
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased approximately $2.9 million or 22.5% to $15.8 million in 1995
from $12.9 million in 1994. The broadcast cash flow margin was 34.0% in 1995 as
compared to 35.8% in 1994. The inclusion of broadcast cash flow from
acquisitions, JSAs and LMAs accounted for $1.8 million of the increase.
Excluding the effects of the
51
<PAGE> 54
acquisitions, broadcast cash flow increased $1.1 million or 8.5% to $14.0
million in 1995 from $12.9 million in 1994 and the broadcast cash flow margin
decreased to 34.0% from 35.8%.
Corporate Expenses. Corporate expenses increased approximately $115,000 or
4.6% to $2.6 million in 1995 from $2.5 million in 1994.
EBITDA. As a result of the factors described above, EBITDA increased
approximately $2.8 million or 26.7% to $13.3 million in the year ended December
31, 1995 from $10.5 million in the year ended December 31, 1994. The EBITDA
margin decreased to 28.5% in 1995 from 29.1% in 1994.
Other Operating Expenses. Depreciation and amortization increased
approximately $203,000 or 7.0% to $3.1 million in 1995 from $2.9 million in 1994
primarily as a result of acquisitions during the period. Long-term incentive
compensation decreased approximately $173,000 or 7.9% to $2.0 million in 1995
from $2.2 million in 1994. The 1995 expense reflects the balance of the
long-term incentive compensation obligations due Bruce A. Friedman and James T.
Shea, Jr. pursuant to their prior employment agreements.
Other (Income) Expenses. Interest expense increased approximately $5.8
million or 141.5% to $9.9 million in 1995 from $4.1 million in 1994. The
increase was due primarily to higher floating rates on the Company's prior
senior credit facilities and the cash interest incurred on the GulfStar credit
facility, and noncash interest on the Existing Notes issued in the
Recapitalization Transactions (as defined) which was partially offset by an
increase in the amortization of the deferred financing charges associated with
the Recapitalization Transactions and the Company's prior credit facilities.
"Recapitalization Transactions" means the completed offering of the Existing
Notes, the net proceeds of which were used to repay indebtedness of the Company
and redeem certain outstanding shares of preferred stock of the Company. Other
income, net, increased approximately $3.1 million or 731.0% to $2.7 million in
income in 1995 from $424,000 in expenses in 1994 primarily due to an increase in
the gain on sale of assets. Additionally, there was an increase of approximately
$402,000 or 52.2% in provision for income taxes and an approximate $444,000 loss
on the early extinguishment of debt in 1995.
Net Loss. As a result of the factors described above, the Company
recognized a net loss of approximately $670,000 in 1995, compared to income of
$118,000 in 1994.
The Company
The following represents the historical results of operations of the
Company for the years ended December 31, 1996, 1995 and 1994, and the three
months ended March 31, 1996 and 1997. The results of operations of the Company
for the three months ended March 31, 1997 include the results of operations from
the Osborn Acquisition from February 20, 1997 to March 31, 1997.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net Revenue. Net revenue increased $5.9 million or 79.7% to $13.3 million
for the three months ended March 31, 1997 from $7.4 million for the three months
ended March 31, 1996. Net revenue included from the operations purchased in
connection with the Osborn Acquisition for the period February 21, 1997 through
March 31, 1997 comprised $3.7 million of the increase. The inclusion of revenue
from the acquisitions of radio stations and revenue generated from LMAs and JSAs
provided $1.9 million of the increase. For stations owned or operated for a
comparable period in 1997 and 1996, net revenue increased approximately
$300,000, or 4.1%, to $7.7 million for the three months ended March 31, 1997
from $7.4 million for the same period in 1996.
Station Operating Expenses. Station operating expenses increased $4.4
million or 83.0% to $9.7 million for the three months ended March 31, 1997 from
$5.3 million for the three months ended March 31, 1996. The increase is
primarily attributable to (i) additional operating expenses of the operations
purchased in connection with the Osborn Acquisition of $2.9 million and (ii)
station operating expenses of the radio station acquisitions and the JSAs and
LMAs which contributed $1.5 million of the increase. For stations owned or
operated for a comparable period in 1997 and 1996, station operating expenses
declined approximately $86,000, or 1.6%, to $5.2 million in 1997 from $5.3
million in 1996 as a result of efficiencies realized from market consolidation.
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<PAGE> 55
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased approximately $1.6 million or 80.0% to $3.6 million for the
three months ended March 31, 1997 from $2.0 million for the same period in 1996.
The broadcast cash flow margin was 27.1% for the three months ended March 31,
1997 compared to 27.5% for the same period in 1996. The broadcast cash flow
provided from the Osborn Acquisition accounted for approximately $861,000 of the
increase; the broadcast cash flow margin from these operations was 23.0%. The
inclusion of broadcast cash flows from the remaining acquisitions and LMAs
accounts for approximately $345,000 of the increase. Excluding the effects of
the acquisitions and LMAs, broadcast cash flow increased approximately $319,000,
or 15.9%, to $2.3 million for the three months ended March 31, 1997 from $2.0
million for the same period in 1996 and the broadcast cash flow margin on a same
station basis increased to 31.4% from 28.0%.
Corporate Expenses. Corporate expenses increased approximately $934,000, or
200.4%, to approximately $1.4 million for the three months ended March 31, 1997
from approximately $466,000 for the same period in 1996. This increase was
primarily due to the additional corporate expense associated with Osborn's
operations.
EBITDA. As a result of the factors described above, EBITDA increased
approximately $566,000 or 31.3% to $2.1 million for the three months ended March
31, 1997 from $1.6 million for the three months ended March 31, 1996. The EBITDA
margin for the three months ended March 31, 1997 was 16.1% compared to 21.2% for
the same period in 1996.
Other Operating Expenses. Depreciation and amortization increased $1.2
million to $1.7 million for the three months ended March 31, 1997 from
approximately $480,000 for the three months ended March 31, 1996 primarily due
to the various acquisitions consummated during 1996 and 1997.
Other (Income) Expense. Interest expense increased approximately $440,000,
or 18.0%, to $2.9 million for the three months ended March 31, 1997 from $2.5
million for the three months ended March 31, 1996 due to interest expense on
$24.7 million of the principal balance of the AT&T Credit Facility. The AT&T
Credit Facility was repaid upon consummation of the Osborn Acquisition on
February 20, 1997. Interest income increased 10.7% to $128,000 as a result of
the interest accrual on the loan to Emerald City. Other expenses, net, decreased
approximately $67,000 for the three months ended March 31, 1997 compared to the
same period in 1996. The Company realized an extraordinary loss on early
retirement of the AT&T Credit Facility during the three months ended March 31,
1997 of approximately $1.4 million which is comprised of the write off of
unamortized deferred loan costs of approximately $775,000 and prepayment
penalties and fees of approximately $595,000.
Net Loss. As a result of the factors described above, net loss increased
approximately $2.4 million to $3.9 million for the three months ended March 31,
1997 from $1.4 million for the three months ended March 31, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Revenue. Net revenue increased $11.5 million or 37.3% to $42.3 million
in the year ended December 31, 1996 from $30.8 million in the year ended
December 31, 1995. The inclusion of revenue from the acquisitions of radio
stations and revenue generated from JSAs and LMAs entered into during the years
ended December 31, 1996 and 1995 provided $10.8 million of the increase. For
stations owned and operated for a comparable period in 1996 and 1995, net
revenue improved approximately $700,000 or 2.4% to $30.0 million in 1996 from
$29.3 million in 1995 primarily due to increased ratings and improved selling
efforts.
Station Operating Expenses. Station operating expenses increased $8.6
million or 44.9% to $27.6 million in the year ended December 31, 1996 from $19.0
million during the year ended December 31, 1995. The increase was primarily
attributable to the station operating expenses of the radio station acquisitions
and the JSAs and the LMAs entered into during the years ended December 31, 1996
and 1995, which contributed $9.0 million to the increase. For stations owned and
operated for a comparable period in 1996 and 1995, station operating expenses
declined approximately $461,000, or 2.2% to $17.6 million in 1996 from $18.0
million in 1995 which reflected more efficient operations.
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased $2.9 million or 24.6% to $14.7 million in the year ended
December 31, 1996 from $11.8 million in the year ended
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<PAGE> 56
December 31, 1995. The inclusion of broadcast cash flow from acquisitions and
LMAs accounted for $1.8 million of the increase. The broadcast cash flow margin
was 34.7% for the period in 1996 as compared to 38.2% during the same period in
1995. Excluding the effects of the acquisitions and LMAs, broadcast cash flow
increased $1.1 million or 9.7% to $12.4 million in 1996 from $11.3 million in
1995 and the broadcast cash flow margin increased to 41.3% from 38.6%.
Corporate Expenses. Corporate expenses increased approximately $83,000 or
4.0% during 1996 to $2.1 million as a result of higher salary expense for
additional staffing.
EBITDA. As a result of the factors described above, EBITDA increased $2.8
million or 29.2% to $12.6 million in the year ended December 31, 1996 from $9.7
million in the year ended December 31, 1995. The EBITDA margin decreased to
29.7% in 1996 from 31.5% in 1995.
Other Operating Expenses. Depreciation and amortization increased $1.3
million or 65.8% to $3.2 million in 1996 from $1.9 million in 1995 primarily due
to certain radio station acquisitions consummated in 1996 and 1995. In 1996, the
Company recognized $13.8 million in merger related compensation charges in
connection with the Commodore Acquisition. Merger-related long-term incentive
compensation expense incurred by the Company pursuant to the prior employment
agreements of Bruce A. Friedman and James T. Shea, Jr. was $2.0 million in 1995.
Other (Income) Expenses. Interest expense increased $3.7 million or 47.0%
to $11.5 million in the year ended December 31, 1996 from $7.8 million during
the same period in 1995 primarily due to the interest expense associated with
the Existing Notes and $24.7 million in acquisition and working capital funding
from the AT&T Credit Facility. Other expenses, net, increased to $2.1 million
for the year ended December 31, 1996 from approximately $49,000 for the period
ended December 31, 1995. The increase was primarily due to approximately
$525,000 in expenses associated with the filing of the Company's Registration
Statement on Form S-1 with the Commission on May 17, 1996, which was
subsequently withdrawn, and $1.4 million of merger related costs and expenses in
connection with the Commodore Acquisition. The Company earned approximately
$256,000 in interest income on its temporary cash investments in 1996, a 39.0%
decrease over the prior year. Extraordinary loss on extinguishment of debt of
approximately $444,000 was recorded in 1995 in connection with the Company's
debt restructuring on April 21, 1995. The Company did not recognize any
extraordinary income or loss items in 1996.
Net Loss. As a result of the factors described above, net loss increased
approximately $15.7 million to $17.9 million for the year ended December 31,
1996 from $2.2 million for the year ended December 31, 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Revenue. Net revenue increased approximately $4.6 million or 17.6% to
$30.8 million in 1995 from $26.2 million in 1994. The inclusion of revenue from
the acquisition and revenue generated from JSAs and LMAs entered into during
1995 provided approximately $1.5 million of the increase. For stations owned and
operated for a comparable period in 1995 and 1994, net revenue improved
approximately $3.1 million or 11.8% to $29.3 million in 1995 from $26.2 million
in 1994, primarily due to higher ratings and improved selling efforts.
Station Operating Expenses. Station operating expenses increased
approximately $2.5 million or 15.2% to $19.0 million in 1995 from $16.5 million
in 1994 partially due to the inclusion of station operating expenses from the
newly acquired radio station and from the JSA and LMA activity in 1995, which
contributed approximately $1.0 million to the increase. For stations owned and
operated for a comparable period in 1995 and 1994, station operating expenses
increased approximately $1.5 million or 9.1% to $18.0 million in 1995 from $16.5
million in 1994 due to increased selling expenses.
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased approximately $2.1 million or 21.6% to $11.8 million in 1995
from $9.7 million in 1994. The broadcast cash flow margin was 38.2% in 1995 as
compared to 37.0% in 1994. The inclusion of broadcast cash flow from
acquisitions, JSAs and LMAs accounted for $500,000 of the increase. Excluding
the effects of the acquisitions, broadcast cash flow increased $1.6 million or
16.5% to $11.3 million in 1995 from $9.7 million in 1994 and the broadcast cash
flow margin increased to 38.6% from 37.0%.
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<PAGE> 57
Corporate Operating Expenses. Corporate expenses decreased approximately
$100,000 or 4.8% to $2.0 million in 1995 from $2.1 million in 1994 as a result
of reduced travel and entertainment expenses.
EBITDA. As a result of the factors described above, EBITDA increased
approximately $2.1 million or 27.6% to $9.7 million in the year ended December
31, 1995 from $7.6 million in the year ended December 31, 1994. The EBITDA
margin increased to 31.5% in 1995 from 29.0% in 1995.
Other Operating Expenses. Depreciation and amortization decreased
approximately $200,000 or 9.5% to $1.9 million in 1995 from $2.1 million in 1994
primarily as a result of the Company fully amortizing certain costs associated
with the acquisition in December 1993. Long-term incentive compensation
decreased approximately $200,000 or 9.1% to $2.0 million in 1995 from $2.2
million in 1994. The 1995 expense reflects the balance of the long-term
incentive compensation obligations due Bruce A. Friedman and James T. Shea, Jr.
pursuant to their prior employment agreements.
Other (Income) Expenses. Interest expense increased approximately $4.6
million or 143.8% to $7.8 million in 1995 from $3.2 million in 1994. The
increase was due primarily to higher floating rates on the Company's prior
senior credit facilities and the cash and noncash interest on the Existing Notes
issued in the Recapitalization Transactions which was partially offset by an
increase in the amortization of the deferred financing charges associated with
the Recapitalization Transactions and the Company's prior credit facilities.
Other income, net, increased approximately $800,000 or 200.0% to $400,000 in
income in 1995 from $400,000 in expenses in 1994 primarily due to a decrease in
the loss on sale of assets. Additionally, there was a decrease of approximately
$200,000 or 66.7% in provision for income taxes and an approximate $400,000 loss
on the early extinguishment of debt in 1995.
Net Loss. As a result of the factors described above, net loss increased
approximately $1.7 million or 340.0% to $2.2 million in 1995 from $500,000 in
1994.
LIQUIDITY AND CAPITAL RESOURCES
Pursuit of the Company's acquisition strategy has required a significant
portion of the Company's capital resources. In February 1997, the Company funded
the $143.7 million purchase price (including transaction costs) for the Osborn
Acquisition and the retirement of existing indebtedness of the Company and
Osborn in connection therewith from (i) $150.3 million of the net proceeds of
the issuance of the Capstar Partners Notes, (ii) a $54.8 million investment in
Common Stock by HM Fund III and its affiliates in connection with the Osborn
Acquisition (the "Hicks Muse Osborn Equity Investment"), (iii) a contribution of
shares of common stock of Osborn to the Company by Frank D. Osborn in exchange
for shares of Common Stock having a deemed value of $1.8 million, and (iv) a
$600,000 investment in Common Stock by certain members of management. In April
and May 1997, the Company funded the purchase price (including transaction
costs) of the Osborn Add-on Acquisitions and the Space Coast Acquisitions
through borrowings under the Existing Credit Facility in the aggregate principal
amount of $35.9 million. In July and August 1997, the Company funded (A) the
GulfStar Merger with $119.5 million in cash from the proceeds of the Hicks Muse
GulfStar Equity Investment, the Preferred Stock Offering and the Capstar BT
Equity Investment, and the issuance of Common Stock having a deemed value of
approximately $113.0 million, (C) the Community Pacific Acquisition with $35.0
million in cash from the proceeds of the Capstar Radio Notes Offering, (D) the
Cavalier Acquisition with $8.3 million in cash from the proceeds of the Capstar
Radio Notes Offering, (E) the GulfStar -- McForhun Acquisition with $7.1 million
in cash from the proceeds of the Hicks Muse GulfStar Equity Investment and the
Capstar BT Equity Investment, (F) the GulfStar -- Livingston Acquisition with
$250,000 in cash from the proceeds of Hicks Muse GulfStar Equity Investment and
the Capstar BT Equity Investment and (G) the Benchmark Acquisition with $174.1
million in cash from the proceeds from the Capstar Radio Notes Offering, the
Hicks Muse GulfStar Equity Investment, the Capstar BT Equity Investment and
borrowings under the Existing Credit Facility, and the issuance of Class A
Common Stock having a deemed value of approximately $2.1 million.
As a result of the financing of its acquisitions, the Company has a
substantial amount of long-term indebtedness, and for the foreseeable future,
the Company will use a large percentage of its cash to make payments under the
Credit Facilities, the Notes and the Existing Notes.
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<PAGE> 58
The Existing Notes are limited in aggregate principal amount to $76.8
million and bear interest at a rate of 13 1/4% per annum, of which only 7 1/2%
is payable in cash up to May 1, 1998. Beginning on May 1, 1998, the Existing
Notes will bear cash interest at a rate of 13 1/4% per annum until maturity. The
Existing Notes require semi-annual cash interest payments on each May 1 and
November 1 of $2.9 million through May 1, 1998, and $5.2 million from November
1, 1998, until maturity. Borrowings under the Existing Credit Facility bear
interest at floating rates and require interest payments on varying dates
depending on the interest rate option selected by the Company. The Existing
Credit Facility consists of a $50.0 million revolving loan facility. As of
August 6, 1997 (the date on which the Benchmark Acquisition was consummated), a
principal balance of $12.2 million was outstanding under the Existing Credit
Facility and approximately $21.7 million would have been available for borrowing
thereunder. The Company expects to enter into the New Credit Facility in August
1997, which will provide for, among other things, borrowings of up to $200.0
million under a revolving credit facility. Borrowings under the New Credit
Facility will bear interest at floating rates and require interest payments on
varying dates depending on the interest rate option selected by the Company. See
"Description of Other Indebtedness."
In addition to debt service, the Company's principal liquidity requirements
will be for working capital and general corporate purposes, including capital
expenditures, which are not expected to be material in amount, and to consummate
the Pending Acquisitions and, as appropriate opportunities arise, to acquire
additional radio stations. The Company intends to fund the $402.5 million
aggregate purchase price for the Pending Acquisitions with borrowings under the
Credit Facilities and a combination of indebtedness of Capstar Broadcasting,
Capstar Partners and/or the Company and/or capital stock of Capstar Broadcasting
or its subsidiaries. See "Unaudited Pro Forma Financial Information." The
Company anticipates that it will fund the Pending Acquisitions with
indebtedness, rather than capital stock, to the fullest extent then permitted
under the debt incurrence covenants contained in the Indentures, the Certificate
of Designation and the Credit Facilities. As a result, the Company expects the
actual amount of indebtedness incurred in connection with the Pending
Acquisitions to exceed the amount reflected in the Pro Forma Financial
Information. See "Description of Capital Stock," "Description of Other
Indebtedness" and "Description of the New Notes." The Company has not determined
the terms of any such indebtedness or capital stock; the Company is, however,
currently negotiating the terms of the New Credit Facility. The Company's
ability to make such borrowings and issue such indebtedness and capital stock
will depend upon many factors, including, but not limited to, the Company's
success in operating and integrating its radio stations and the condition of the
capital markets at the times of consummation of the Pending Acquisitions. No
assurances can be given that such financings can be consummated on terms
considered to be favorable by management or at all.
Management believes that the proceeds from the commitment by Hicks Muse
Fund III and its affiliates to invest an additional $50.0 million in equity of
Capstar Broadcasting (for which Capstar Broadcasting has committed to issue
capital stock in exchange therefor) and cash from operating activities, together
with available revolving credit borrowings under the Credit Facilities, should
be sufficient to permit the Company to fund its operations and meet its
obligations under the agreements governing its existing indebtedness. The
Company may require financing for additional future acquisitions, if any, and
there can be no assurance that it would be able to obtain such financing on
terms considered to be favorable by management. Management evaluates potential
acquisition opportunities on an on-going basis and has had, and continues to
have, preliminary discussions concerning the purchase of additional stations.
The Company expects that in connection with the financing of future
acquisitions, it may consider disposing of stations in its markets. The Company
has no current arrangements to dispose of any of its stations other than (i) the
disposition of station KASH-AM in Anchorage, Alaska before consummation of the
COMCO Acquisition (as defined) and (ii) the exchange of stations WESC-FM,
WFNQ-FM and WESC-AM in Greenville, South Carolina (which were acquired in the
Benchmark Acquisition) for stations KKRD-FM, KRZZ-FM, and KNSS-AM in Wichita,
Kansas, and WGNE-FM in Daytona Beach, Florida (which are owned by SFX). See "The
Acquisitions -- SFX Exchange."
Net cash provided by operating activities was $1.9 million and $1.9 million
for the three-month periods ended March 31, 1997 and 1996, and $1.2 million and
$4.1 million for the years ended December 31, 1995 and 1994, respectively, and
net cash used by operating activities was $1.0 million for the year ended
December 31, 1996. Changes in the Company's net cash provided by operating
activities are primarily the result of the
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Company's completed acquisitions and station operating agreements entered into
during the periods and their effects on income from operations and working
capital requirements.
Net cash used in investing activities was $126.0 million and $15.8 million
for the three-month periods ended March 31, 1997 and 1996, and $46.8 million,
$4.4 million, and $50,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. Net cash provided by financing activities was $130.9 million and
$8.1 million for the three-month periods ended March 31, 1997 and 1996, and
$41.3 million and $12.0 million for the years ended December 31, 1996 and 1995,
respectively, and net cash used by financing activities was $2.9 million in
1994. These cash flows primarily reflect the borrowings, capital contributions
and expenditures for station acquisitions and dispositions.
RECENT PRONOUNCEMENTS
In February 1997, the FASB issued FASB Statement No. 128 "Earnings Per
Share ("SFAS No. 128")" which establishes standards for computing and presenting
earnings per share. SFAS No. 128 is effective for fiscal years beginning after
December 15, 1997. Management does not believe the implementation of SFAS No.
128 will have a material effect on its financial statements.
In February 1997, the FASB issued FASB Statement No. 129 "Disclosure of
Information About Capital Structure" ("SFAS No. 129") which establishes
disclosure requirements for an entity's capital structure. SFAS No. 129 is
effective for fiscal years beginning after December 15, 1997. Management does
not believe the implementation of SFAS No. 129 will have a material effect on
its financial statements.
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997.
EXTRAORDINARY ITEMS
In connection with the Osborn Acquisition the Company repaid the AT&T
Credit Facility. The repayment of the AT&T Credit Facility resulted in the write
off of unamortized deferred financing costs and prepayment penalties in the
amount of $1.4 million, which was reported as an extraordinary item. In
connection with the Preferred Stock Redemption and the repayment and termination
of the GulfStar credit facility, the Company recorded a loss on redemption of
preferred stock and an extraordinary loss on the early extinguishment of debt,
respectively. Had the Preferred Stock Redemption and the repayment and
termination of the GulfStar credit facility occurred on March 31, 1997, the
Company would have recorded a loss on repurchase of preferred stock of
approximately $5.4 million and an extraordinary loss on the early extinguishment
of debt of approximately $2.3 million. In connection with the Benchmark
Acquisition, Capstar Broadcasting issued $750,000 of Class C Common Stock to an
affiliate of Hicks Muse in consideration for its agreement to purchase the
outstanding obligations of Bankers Trust Company under the Acquisition Sub
Credit Agreement upon the occurrence of certain events. The issuance of Class C
Common Stock in connection with the agreement to purchase the outstanding
obligations of Bankers Trust Company under the Acquisition Sub Credit Agreement
resulted in an extraordinary charge in the period in which the Company
consummated the Benchmark Acquisition. Had the Benchmark Acquisition been
consummated at March 31, 1997, the Company would have recorded an extraordinary
charge of approximately $750,000.
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BUSINESS
THE COMPANY
The Company is the largest radio broadcaster in the United States operating
exclusively in mid-sized markets. The Company owns and operates or provides
services to 155 radio broadcasting stations in 46 mid-sized markets located
throughout the United States. On a pro forma basis after giving effect to the
Pending Transactions, the Company will own and operate or provide services to
233 radio broadcasting stations in 62 mid-sized markets located throughout the
United States. These stations comprise the leading radio group, in terms of
revenue share and/or audience share, in 41 markets. On a pro forma basis after
giving effect to the Completed Transactions of the Company and the Pending
Transactions and the financing thereof, including the Financing, as if they had
occurred on January 1, 1996, the Company would have had net revenue, EBITDA (as
defined) and a net loss of $296.6 million, $67.5 million and $17.4 million,
respectively, for the twelve-month period ended March 31, 1997, and EBITDA as
adjusted for estimated cost savings of $85.0 million. The Company has entered
into 17 agreements to acquire 85 additional stations, including seven stations
for which the Company currently provides services pursuant to an LMA, and one
agreement to dispose of three FM stations.
In February 1996, as a result of the passage of the Telecom Act, radio
broadcasting companies were permitted to increase their ownership of stations
within a single market from a maximum of four to a maximum of between five and
eight stations, depending on market size. More importantly, the Telecom Act also
eliminated the national ownership restriction that generally had limited
companies to the ownership of no more than 40 stations (20 AM and 20 FM)
throughout the United States. In order to capitalize on the opportunities
created by the Telecom Act, R. Steven Hicks, an executive with over 30 years of
experience in the radio broadcasting industry, and Hicks Muse formed the Company
to acquire and operate radio station clusters in mid-sized markets. The Company
generally defines mid-sized markets as those MSAs ranked between 50 and 200,
each of which has approximately $10.0 million to $35.0 million in radio
advertising revenue.
The Company believes that mid-sized markets represent attractive operating
environments because, as compared to the 50 largest markets in the United
States, they are generally characterized by (i) lower radio station purchase
prices as a multiple of broadcast cash flow, (ii) less sophisticated and
undercapitalized competitors, including both radio and competing advertising
media such as newspaper and television, and (iii) less direct format competition
resulting from fewer stations in any given market. The Company believes that the
attractive operating characteristics of mid-sized markets coupled with the
opportunity provided by the Telecom Act to create in-market radio station
cluster groups will enable the Company to achieve substantial revenue growth and
cost efficiencies. As a result, management believes that the Company can
generate broadcast cash flow margins that are comparable to the higher margins
that heretofore were generally achievable only in the top 50 markets.
To effectively and efficiently manage its stations, the Company has
developed a flexible management structure designed to manage a large and growing
portfolio of radio stations throughout the United States. The station portfolio
has been, or will be, organized into five regions, the Northeast (Atlantic
Star), the Southeast (Southern Star), the Southwest (GulfStar), the Midwest
(Central Star) and the West (Pacific Star), each of which is, or will be,
managed by regional executives in conjunction with general managers in each of
the Company's markets.
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STATION PORTFOLIO
The following table sets forth certain information regarding the Company
and its markets assuming the Pending Transactions have been consummated.
<TABLE>
<CAPTION>
COMPANY COMPANY
STATIONS REVENUE AUDIENCE
MSA --------- SHARE SHARE
MARKET(1) RANK(2) FM AM RANK(3) RANK(4) SOURCE COMPANY
--------- ------- --- --- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
NORTHEAST REGION (ATLANTIC STAR)
Allentown-Bethlehem, PA(5)(6)...... 64 3 3 1 1 Commodore/Patterson
Wilmington, DE(7).................. 74 1 1 2 2 Commodore
Roanoke, VA(5)..................... 101 4 1 2 1 Benchmark/Cavalier/WRIS
Worcester, MA...................... 106 1 1 1 1 Knight Quality
Fairfield County, CT(8)............ 112 4 4 2 2 Commodore
Portsmouth-Dover-Rochester, NH..... 117 2 1 1 2 Knight Quality
Huntington, WV-Ashland, KY(5)...... 139 5 5 1 1 Commodore
Salisbury-Ocean City, MD........... 153 2 -- 3 4 Benchmark
Manchester, NH..................... 193 1 1 1 2 Knight Quality
Wheeling, WV(5).................... 213 5 2 1 1 Osborn
Winchester, VA..................... 219 2 1 2 1 Benchmark
Burlington, VT..................... 221 1 -- 2t 5 Knight Quality
Harrisburg-Lebanon-Carlisle, PA.... 253 1 1 2 2 Patterson
Dover, DE.......................... NA 2 1 1 1 Benchmark
Westchester-Putnam Counties,
NY(9)............................ NA 2 1 NA 1 Commodore
Lynchburg, VA...................... NA 3 1 1 1 Benchmark/Cavalier
--- --
Subtotal.................... 39 24
SOUTHEAST REGION (SOUTHERN STAR)
Birmingham, AL..................... 55 2 1 2 3 Ameron
Greenville, SC..................... 59 1 -- 2t 2 Benchmark
Columbia, SC....................... 88 4 2 1 1 Benchmark/Emerald City
Daytona Beach, FL.................. 93 1 -- 1 2 SFX
Melbourne-Titusville-Cocoa, FL..... 96 3 2 1 1 Space Coast
Huntsville, AL..................... 114 4 2 1 1 Osborn/Griffith
Ft. Pierce-Stuart-Vero Beach,
FL(5)............................ 121 5 1 1 1 Commodore
Pensacola, FL...................... 125 3 -- 1 1 Patterson
Montgomery, AL..................... 142 3 -- 2 2 Benchmark
Savannah, GA....................... 153 4 2 1 1 Patterson
Asheville, NC...................... 179 1 1 1 1 Osborn
Tuscaloosa, AL(5).................. 212 3 1 1 1 Osborn/Grant
Jackson, TN........................ 257 2 1 1 1 Osborn
Statesville, NC.................... NA 1 1 NA NA Benchmark
Gadsden, AL(10).................... NA 1 1 NA 1 Osborn
--- --
Subtotal.................... 38 15
</TABLE>
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<TABLE>
<CAPTION>
COMPANY COMPANY
STATIONS REVENUE AUDIENCE
MSA --------- SHARE SHARE
MARKET(1) RANK(2) FM AM RANK(3) RANK(4) SOURCE COMPANY
--------- ------- --- --- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
SOUTHWEST REGION (GULFSTAR)
Baton Rouge, LA.................... 81 3 3 1 1 GulfStar/McForhun/Livingston
Wichita, KS........................ 91 2 1 3 3 SFX
Jackson, MS........................ 118 2 2 2 2 Benchmark
Shreveport, LA..................... 126 1 1 2 3 Benchmark
Beaumont, TX....................... 127 3 1 1 1 GulfStar
Corpus Christi, TX................. 128 3 1 1 1 GulfStar
Tyler-Longview, TX(5).............. 143 4 1 1 1 GulfStar/Noalmark
Killeen, TX(5)..................... 149 2 -- 1 1 GulfStar
Fayetteville, AR(5)................ 161 4 -- 1 1 GulfStar/KJEM
Ft. Smith, AR(5)................... 169 2 1 1 1 GulfStar/Booneville
Lubbock, TX........................ 171 4 2 1 1 GulfStar/American General
Waco, TX........................... 190 4 2 1 1 GulfStar
Texarkana, TX...................... 237 3 1 1 1 GulfStar
Lawton, OK(5)...................... 243 2 -- 1 1 KLAW
Lufkin, TX......................... NA 2 -- NA NA GulfStar
Victoria, TX....................... NA 2 -- NA 1 GulfStar
--- --
Subtotal.................... 43 16
MIDWEST REGION (CENTRAL STAR)
Grand Rapids, MI................... 66 3 1 2 3 Patterson
Des Moines, IA..................... 89 2 1 4 4 Community Pacific
Madison, WI........................ 120 4 2 1 1 Madison
Springfield, IL.................... 192 2 1 3 3 Patterson
Cedar Rapids, IA................... 197 2 1 2 1 Quass
Battle Creek-Kalamazoo, MI......... 229 2 2 1 1 Patterson
--- --
Subtotal.................... 15 8
WEST REGION (PACIFIC STAR)
Honolulu, HI....................... 58 4 3 1 1 Patterson
Fresno, CA......................... 65 3 2 2 3 Patterson
Stockton, CA....................... 85 1 1 3 3 Community Pacific
Modesto, CA........................ 121 1 1 2 2 Community Pacific
Reno, NV........................... 133 2 1 4 3 Patterson
Anchorage, AK...................... 165 4 2 2 1 Community Pacific/COMCO
Fairbanks, AK(8)................... NA 2 1 NA 1 COMCO
Farmington, NM..................... NA 3 1 NA NA GulfStar
Yuma, AZ........................... NA 2 1 NA 1 Commonwealth
--- --
Subtotal.................... 22 13
--- --
Total(10)(11)............... 157 76
=== ==
</TABLE>
- ---------------
NA Information not available.
t Tied with another radio station group.
(1) Actual city of license may be different from metropolitan market served.
Market may be different from market definition used under FCC multiple
ownership rules.
(2) MSA rank obtained from Arbitron's Summer 1996 Radio Market Survey Schedule.
(3) Company revenue share rank compiled from data in BIA Publications Radio
Analyzer-BIA's Master Access, Version 1.7 (copyright 1996) (current as of
February 27, 1997), based upon 1996 gross revenue for the indicated
markets.
(4) Company audience share rank obtained from Arbitron's Radio Market Reports,
based on average quarter hour estimates for the last available reporting
period ending either Spring or Fall 1996 for the demographic of persons
ages 25-54, listening Monday through Sunday, 6 a.m. to midnight, except for
the Yuma, Arizona market which was obtained from AccuRatings. To account
for listeners lost to other nearby markets, a radio station's "local"
audience share is derived by comparing the radio station's average quarter
hour share to the total average quarter hour share for all stations whose
signals are heard within the MSA, excluding audience share for listeners
who listen to stations whose signals originate outside the MSA.
(5) The Company provides certain sales and marketing services to stations
WKAP-AM in Allentown-Bethlehem, Pennsylvania, WPAW-FM in Ft.
Pierce-Stuart-Vero Beach, Florida, WEEL-FM in Wheeling, West Virginia,
KLFX-FM in Killeen, Texas and KJEM-FM in
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Fayetteville, Arkansas, pursuant to JSAs. The Company provides certain
sales, programming and marketing services to station WHRD-AM in Huntington,
West Virginia; pending consummation of the Grant Acquisition, to station
WZBQ-FM in Tuscaloosa, Alabama; and pending the consummation of the
respective acquisitions, to stations KKTX-AM and KKTX-FM in Tyler-Longview,
Texas, KZBB-FM in Ft. Smith, Arkansas, KLAW-FM and KZCD-FM in Lawton,
Oklahoma, and WJLM-FM in Roanoke, Virginia pursuant to LMAs. The chart
includes these stations.
(6) The DOJ has raised an issue with the Company regarding the number of radio
stations that the Company will own in the Allentown-Bethlehem, Pennsylvania
area upon completion of the Patterson Acquisition. The Company has begun
discussions with the DOJ to resolve the matter. See "Business -- Federal
Regulation of Radio Broadcasting" and "The Acquisitions -- Patterson
Acquisition."
(7) If the proposed merger of Chancellor and Evergreen Media Corporation is
completed, Thomas O. Hicks, through his control of HM2/Chancellor and the
Company, will have an attributable interest in a total number of radio
stations serving the Wilmington, Delaware market which exceeds FCC multiple
ownership limitations. The FCC could require the Company to divest itself
of radio stations WJBR-FM and WJBR-AM, which serve the Wilmington, Delaware
market. The Company has entered into a binding letter of intent to
contribute the broadcasting licenses of such stations to a newly-formed
company which will be structured to satisfy FCC multiple ownership rules
and cross-interest limitations. While management of the Company believes
that such arrangement will meet FCC multiple ownership rules and
cross-interest limitations as they presently exist, there can be no
assurance that the FCC will act favorably on the proposed contribution or
that the FCC will not amend its rules and policies in an adverse manner.
The Company does not believe that an unfavorable decision by the FCC would
have a material adverse effect on the financial condition of the Company.
(8) Fairfield County, Connecticut is a CSA as defined by Arbitron. The CSA
includes the Arbitron markets of Bridgeport, Stamford-Norwalk and Danbury,
Connecticut with market rankings of 112, 132 and 191, respectively. MSA
rank is listed for the Bridgeport market only. The combined rank for the
CSA has not been estimated. Fairbanks, Alaska is a CSA as defined by
Arbitron, for which audience share rank was obtained from Arbitron's Fall
1996 CSA Market Report.
(9) Westchester-Putnam Counties, New York are a sub-set of the greater New York
City Metropolitan Area, which is ranked as the largest MSA by Arbitron.
(10) Company audience share rank obtained from Arbitron's June 1996 County
Report (for field work performed in 1995) survey, from the County of
Etowah, Alabama which is Gadsden's home county.
(11) The chart does not include (i) station WING-FM in Dayton, Ohio, which is
owned by the Company and for which an unrelated third party, who has an
option to purchase such station, currently provides certain sales,
programming and marketing services pursuant to an LMA, (ii) station KASH-AM
in Anchorage, Alaska, which the Company expects to dispose of before
consummation of the COMCO Acquisition in order to remain in compliance with
the station ownership limitations under the Communications Act, and (iii)
stations WESC-FM, WFNQ-FM, and WESC-AM which will be exchanged for stations
owned by SFX in the SFX Exchange. See "The Acquisitions."
ACQUISITION STRATEGY
The Company is the leading consolidator of radio stations in mid-sized
markets throughout the United States. Management has achieved this position
through the application of an acquisition strategy that it believes allows the
Company to develop radio station clusters at attractive prices. First, the
Company enters attractive new mid-sized markets by acquiring a leading station
(or a group that owns a leading station) in such market. The Company then
utilizes the initial acquisition as a platform to acquire additional stations
which further enhance the Company's position in a given market. Management
believes that once it has established operations in a market with an initial
acquisition, it can acquire additional stations at reasonable prices and, by
leveraging its existing infrastructure, knowledge of and relationships with
advertisers and substantial management experience, improve the operating
performance and financial results of those stations.
OPERATING STRATEGY
The Company's objective is to maximize the broadcast cash flow of each of
its radio station clusters through the application of the following strategies:
Enhance Revenue Growth through Multiple Station Ownership. Management
believes that the ownership of multiple stations in a market allows the Company
to coordinate its programming to appeal to a broad spectrum of listeners. Once
the station cluster has been created, the Company can provide one-stop shopping
to advertisers attempting to reach a wide range of demographic groups.
Simplifying the buying of advertising time for customers encourages increased
advertiser usage thereby enhancing the Company's revenue generating potential.
Broad demographic coverage also allows the Company to compete more effectively
against alternative media, such as newspaper and television, thus potentially
increasing radio's share of the total advertising dollars spent in a given
market.
Create Low Cost Operating Structure. Management believes that it is less
expensive to operate radio stations in mid-sized markets than in large markets
for several reasons. First, because stations in mid-sized markets typically have
less direct format competition, the Company is less reliant on expensive on-air
talent and costly
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advertising and promotional campaigns to capture listeners. Second, the
ownership of multiple stations within a market allows the Company to achieve
substantial cost savings through the consolidation of facilities, management,
sales and administrative personnel operating resources (such as on-air talent,
programming and music research) and through the reduction of redundant corporate
expenses. Furthermore, management expects that the Company, as a result of the
large size of its portfolio, combined with the consolidated purchasing power of
other portfolio companies of Hicks Muse, will be able to realize substantial
economies of scale in such areas as national representation commissions,
employee benefits, casualty insurance premiums, long distance telephone rates
and other operating expenses. Finally, the incorporation of digital automation
in certain markets allows the Company to operate radio stations at off-peak
hours with minimal human involvement while improving the quality of programming.
Utilize Sophisticated Operating Techniques. Following the acquisition of a
station or station group, the Company seeks to capitalize on management's
extensive large market operating experience by implementing sophisticated
techniques such as advertising inventory management systems, sales training
programs and in-depth music research studies which improve both the efficiency
and profitability of its stations. Prior to the passage of the Telecom Act,
management believes that many operators in mid-sized markets did not generate
sufficient revenue to justify the incurrence of expenditures to develop these
techniques.
Provide Superior Customer Service. The Company believes that advertising
customers in mid-sized markets typically do not have extensive resources to
create and implement advertising campaigns. The Company provides many of its
advertising customers with extensive advertising support which may include (i)
assistance in structuring advertising and promotional campaigns, (ii) creating
and producing customer advertisements and (iii) analyzing the effectiveness of
the customer's media programs. Management believes that this type of superior
customer service attracts new customers to the Company and increases the loyalty
of the Company's existing customers, thereby providing stability to the
Company's revenue, often despite fluctuations in station ratings.
Develop Decentralized Management Structure. The Company has developed
experienced and highly motivated regional and local management teams, derived
primarily from station groups acquired by the Company, and has decentralized
decision-making so that these regional and local managers have the flexibility
to develop operating cultures that capitalize on the unique qualities of each
region and market. The Company also relies on local managers to source
additional acquisition opportunities. In addition, in order to motivate regional
management, the Company intends to link compensation to regional operating
performance as well as the combined results of the Company.
MANAGEMENT
R. Steven Hicks, the President and Chief Executive Officer of the Company,
is a 30-year veteran of the radio broadcasting industry (including 18 years as a
station owner) who has owned and operated or managed in excess of 150 radio
stations in large and mid-sized markets throughout the United States. In
addition, in 1993, Mr. Hicks co-founded SFX for which he served as Chief
Executive Officer for three years until his resignation in 1996.
The Company has designed a regional organizational structure to manage
effectively its existing station portfolio as well as to accommodate future
in-market or group acquisitions. Each of the Company's regions is, or will be,
headquartered within the region and led by a regional operating executive who
manages, or will manage, the operations of that region's station portfolio and
who oversees, or will oversee, the regional and general managers of the
stations. Each regional operating executive reports directly to R. Steven Hicks.
In assembling each of the existing regional management teams, the Company has
sought to retain the senior management of many of the station groups that it has
acquired so as to (i) retain and capitalize on the local market experience and
knowledge of these experienced executives and (ii) foster a culture that is
consistent with the unique attributes of each of the local markets acquired.
Furthermore, the Company believes that each of its regional executives possesses
considerable knowledge of its region's competitors and is therefore well
situated to identify strategic acquisition candidates.
The Company's regional executive management teams will be compensated based
upon the financial performance of their respective regions and the Company as a
whole with such compensation to be awarded in
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the form of cash bonuses and stock options. Management believes that this
compensation structure, along with the ownership interests of management,
fosters teamwork and the sharing of the best practices across regions to
maximize the overall financial performance of the Company.
The Company has created an Executive Council, consisting of R. Steven
Hicks, Paul D. Stone, William S. Banowsky, Jr. and other executive officers of
the Company who will serve as Managing Directors. The Executive Council will
develop and implement the Company's strategy and corporate culture and to enable
the Company's regional operating executives to focus substantially all of their
efforts upon operating their stations by relieving them of many of the business
activities that are not directly related to station operations. The Executive
Council, in consultation with the regional operating executives, is responsible
for strategic planning, acquisitions, financial reporting, facilities
consolidation, public service activities, technological development, network
opportunities, national vendor relationships, investor and government relations,
recruiting and training employees, and all other matters affecting the Company
which are not directly related to regional operations. R. Steven Hicks, the
Company's Chief Executive Officer will allocate primary responsibility for each
of these areas to appropriate members of the Executive Council.
The executive officers of the Company who serve, or will serve, as Managing
Directors on the Executive Council are Frank D. Osborn, David J. Benjamin, III,
Joseph C. Mathias, IV, and James M. Strawn. Mr. Osborn brings more than 19 years
of radio industry experience, including 13 years as the President and Chief
Executive Officer of Osborn. Mr. Benjamin has 23 years of radio broadcasting
experience, including co-founding and serving as Chairman and Chief Executive
Officer of Community Pacific since 1974. Mr. Mathias has managed the operations
of Benchmark since 1989 and prior to 1990 held various positions in the cable
television and radio broadcast industry. Mr. Strawn has 31 years of radio
industry experience, including two years as an Executive Vice President and
Chief Financial Officer of Patterson and 13 years as a radio station owner.
OWNERSHIP
In April 1996, Hicks Muse combined its financial expertise with the
operating experience of R. Steven Hicks to form Capstar Partners. In October
1996, Capstar Partners acquired Commodore and Mr. Hicks became the Chief
Executive Officer of the Company. Hicks Muse is a private investment firm based
in Dallas, New York, St. Louis and Mexico City that specializes in acquisitions,
recapitalizations and other principal investing activities. Since the firm's
inception in 1989, affiliates of Hicks Muse have completed more than 70
transactions having a combined transaction value exceeding $19.0 billion. In
1994, an affiliate of Hicks Muse made its first major investment in the radio
broadcasting industry when Hicks, Muse, Tate & Furst Equity Fund II, L.P.
founded Chancellor, a company which owns and operates radio stations exclusively
within the 40 largest MSAs in the United States and which, upon consummation of
its merger with Evergreen Media Corporation, will be one of the largest
pure-play radio broadcasting companies in the United States based on net
revenues. HM Fund III, an affiliate of Hicks Muse, and its affiliates (including
Capstar L.P.) have invested $233.9 million in Common Stock of Capstar
Broadcasting, including $86.1 million invested as part of the Financing. HM Fund
III and its affiliates have committed to invest an additional $50.0 million in
Capstar Broadcasting, and Capstar Broadcasting has committed to issue additional
equity to HM Fund III and its affiliates in exchange therefor.
R. Steven Hicks, the President and Chief Executive Officer of the Company,
has invested $3.1 million in Class C Common Stock. Certain other members of the
management of Capstar Broadcasting and its subsidiaries, including certain of
the Company's regional executives and Managing Directors, have invested an
additional $7.2 million in Class A Common Stock.
As part of the GulfStar Transaction, GulfStar common stockholders received
Common Stock of Capstar Broadcasting having a deemed value of approximately
$113.0 million. Thomas O. Hicks, the Chairman of the Board and Chief Executive
Officer of Hicks Muse and a director of Capstar Broadcasting and the Company,
beneficially owns 100% of the outstanding capital stock of Capstar Broadcasting
and beneficially owned approximately 87.3% of the voting power of GulfStar
immediately before completion of the GulfStar Merger. In addition, Thomas O.
Hicks and R. Steven Hicks filled two of the four director seats of GulfStar, and
R. Steven Hicks was also the Chief Executive Officer of GulfStar. Certain
members of management of Capstar Broadcasting received Common Stock of Capstar
Broadcasting in connection with the GulfStar Merger as more fully described in
"The Acquisitions -- GulfStar Transaction."
63
<PAGE> 66
REGIONAL OPERATING GROUPS
Northeast Region (Atlantic Star)
The Company's portfolio of radio stations in the Northeast Region includes
63 radio stations (39 FM and 24 AM) located in 16 markets in Connecticut,
Delaware, Kentucky, Maryland, Massachusetts, New Hampshire, New York,
Pennsylvania, Vermont, Virginia and West Virginia. The Company has the leading
radio station cluster based on revenue share rank in eight of its 16 markets.
History. The stations owned and operated by the Company, or to which it
provided services before the Commodore Acquisition, formed the basis for the
Northeast Region with 27 stations located in the following Northeast Region
markets: Allentown-Bethlehem, Pennsylvania (four stations); Wilmington, Delaware
(two stations); Fairfield County, Connecticut (eight stations); Huntington, West
Virginia-Ashland, Kentucky (10 stations); and Westchester-Putnam Counties, New
York (three stations). The Company entered each of these five markets with an
initial acquisition of one or two stations during the 1980's. The Company's
portfolio of stations has undergone significant growth during the past two
years, as the management team completed acquisitions of 16 stations in the
Northeast Region markets in 1995 and 1996, especially after the passage of the
Telecom Act in February 1996. As a result of the recent acquisitions of many of
the Northeast Region's stations, management believes that the station clusters
in the original Northeast Region markets have not yet realized the full
potential of their recent consolidations.
In February 1997, the Company completed the Osborn Acquisition which
provided the Northeast Region with an additional seven stations in the Wheeling,
West Virginia market where the Company ranks number one in both revenue and
audience share. In the past year, Osborn purchased four stations and assumed a
JSA with a fifth station in order to add to its two existing radio stations in
the Wheeling, West Virginia market. The stations target a broad demographic
spectrum with five different formats: Country; Adult Contemporary; Adult;
Classic Rock; and Oldies. Southern Star also operates the Country Music Hall and
Jamboree in the Hills, a country music festival, which complement the strong
radio station cluster in Wheeling.
The Benchmark Acquisition enhances the Company's Northeast Region station
portfolio through the addition of 11 stations in five new markets. The Benchmark
Acquisition provided the Company with two stations in Roanoke, Virginia; two
stations in Salisbury-Ocean City, Maryland; three stations in Winchester,
Virginia; three stations in Dover, Delaware; and one station in Lynchburg,
Virginia. The Company expects to realize substantial revenue growth and
economies of scale in the Northeast Region from this acquisition because two of
the new markets are adjacent to one of the original Company markets, as both the
Dover and Salisbury-Ocean City markets are near Wilmington, and the Roanoke and
Lynchburg markets are expected to be combined with five stations purchased in
the Cavalier Acquisition and one station to be purchased in the WRIS
Acquisition. The Patterson Acquisition (as defined) will provide the Company
with two stations in Harrisburg-Lebanon-Carlisle, Pennsylvania, a new market for
the Company. In addition, the Knight Quality Acquisition will provide the
Company with eight stations in four new markets including: Worcester,
Massachusetts (two stations); Portsmouth-Dover-Rochester, New Hampshire (three
stations); Manchester, New Hampshire (two stations); and Burlington, Vermont
(one station).
Management. The Northeast Region is managed by its president and chief
executive officer, James T. Shea, Jr. Mr. Shea has over 22 years of experience
in the radio broadcasting industry. Mr. Shea's operating knowledge and strong
advertising relationships helped Commodore, prior to its acquisition by Capstar
Partners, become a leading radio group in each of its markets. Pro forma for the
Pending Acquisitions, the Northeast Region will include 63 stations in 16
markets.
Markets. Management believes that the station portfolio in the Northeast
Region has significant growth potential from the recent formation of station
clusters in the Northeast Region markets. The 16 markets comprising the
Northeast Region are highlighted by eight markets which rank number one in
revenue share and nine markets which rank number one in audience share. Six of
these markets, Allentown-Bethlehem, Pennsylvania; Worcester, Massachusetts;
Huntington, West Virginia-Ashland, Kentucky; Wheeling, West Virginia; Dover,
Delaware; and Lynchburg, Virginia, rank number one in both revenue and audience
share. The Wheeling, West Virginia market is a good example of the Company's
operating strategy. In the past year, Osborn purchased four stations and assumed
a JSA with a fifth station in order to add to its two existing radio stations.
The stations
64
<PAGE> 67
target a broad demographic spectrum with five different formats: Country, Adult
Contemporary, Adult, Class Rock, and Oldies. Southern Star also operates the
Country Music Hall and Jamboree in the Hills, a country music festival, which
compliment the strong radio station cluster in Wheeling.
In addition, management believes that the recently formed clusters in most
of the other markets in the region should be able to generate substantial cash
flow improvements given the Company's strong station positions. For example, in
Huntington, West Virginia-Ashland, Kentucky, the Company owns or provides
services to ten stations, including six of the ten viable stations in the
market. The Company acquired two of the stations in 1982, entered into LMAs with
eight additional stations in April 1996 and subsequently acquired seven of these
stations in October 1996. The Company believes that this market and the other
markets in the region have not yet realized their full potential with respect to
economies of scale and revenue enhancements.
The following table summarizes certain information relating to the
Company's radio stations in the Northeast Region, assuming consummation of the
Pending Acquisitions.
<TABLE>
<CAPTION>
TARGET COMPANY COMPANY STATION
DEMO- REVENUE AUDIENCE AUDIENCE
MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE SHARE
STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4)
----------------------- -------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLENTOWN-BETHLEHEM, PA.............. 64 1 1
WAEB-AM............................. 1982 Commodore 35+ 6
WAEB-FM............................. 1982 Commodore W18-49 3
WZZO-FM............................. 1993 Commodore M18-49 4
WKAP-AM(5).......................... 1995 Commodore 35+ 8
WEEX-AM(6).......................... 1995 Patterson 35-64 10
WODE-FM(6).......................... 1995 Patterson 35-64 2
WILMINGTON, DE(7).................... 74 2 2
WJBR-AM............................. 1985 Commodore W25-54 5t
WJBR-FM............................. 1985 Commodore 35+ 2
ROANOKE, VA.......................... 101 2 1
WROV-AM............................. 1996 Benchmark 25-54 NA
WROV-FM............................. 1996 Benchmark 18-49 1
WRDJ-FM............................. 1996 Cavalier 35-64 8t
WJJS-FM............................. 1996 Cavalier 18-34 3
WJLM-FM(5).......................... 1969 WRIS 25-54 5
WORCESTER, MA........................ 106 1 1
WTAG-AM............................. 1986 Knight Quality 35-64 4
WSRS-FM............................. 1963 Knight Quality F25-54 2
FAIRFIELD COUNTY, CT(8).............. 112 2 2
WNLK-AM............................. 1989 Commodore 35+ 9t
WEFX-FM............................. 1989 Commodore M18-49 6
WSTC-AM............................. 1996 Commodore 25-54 9t
WKHL-FM............................. 1996 Commodore 25-54 4
WINE-AM............................. 1996 Commodore 25-54 14
WRKI-FM............................. 1996 Commodore M18-49 7
WPUT-AM............................. 1996 Commodore 35+ NA
WAXB-FM............................. 1996 Commodore 25-54 NA
PORTSMOUTH-ROCHESTER, NH............. 117 1 2
WHEB-FM............................. 1965 Knight Quality M25-44 2
WXHT-FM............................. 1994 Knight Quality F25-44 6t
WTMN-AM............................. 1994 Knight Quality M18-50 NA
HUNTINGTON, WV-ASHLAND, KY........... 139 1 1
WTCR-AM............................. 1982 Commodore 25-54 10
WTCR-FM............................. 1982 Commodore 25-54 1
WIRO-AM............................. 1996 Commodore M25-54 14t
WHRD-AM(5).......................... 1996 Commodore M25-54 NA
WZZW-AM............................. 1996 Commodore M25-54 NA
WKEE-AM............................. 1996 Commodore 35+ 12t
WKEE-FM............................. 1996 Commodore 25-54 2
WAMX-FM............................. 1996 Commodore M25-54 5t
WFXN-FM............................. 1996 Commodore M25-54 7
WBVB-FM............................. 1996 Commodore M18-49 8
SALISBURY-OCEAN CITY, MD............. 153 3 4
WWFG-FM............................. 1993 Benchmark 25-54 4
WOSC-FM............................. 1994 Benchmark 18-34 12
<CAPTION>
MARKET AND
STATION CALL LETTERS(1) FORMAT
----------------------- ------
<S> <C>
ALLENTOWN-BETHLEHEM, PA..............
WAEB-AM............................. News/Talk
WAEB-FM............................. Contemporary Hits
WZZO-FM............................. Album Rock
WKAP-AM(5).......................... Middle-of-the-Road
WEEX-AM(6).......................... Country
WODE-FM(6).......................... Oldies
WILMINGTON, DE(7)....................
WJBR-AM............................. Middle-of-the-Road
WJBR-FM............................. Adult Contemporary
ROANOKE, VA..........................
WROV-AM............................. Oldies
WROV-FM............................. Album Rock
WRDJ-FM............................. Oldies
WJJS-FM............................. Contemporary Hits
WJLM-FM(5).......................... Country
WORCESTER, MA........................
WTAG-AM............................. News/Talk/Sports
WSRS-FM............................. Lite Rock
FAIRFIELD COUNTY, CT(8)..............
WNLK-AM............................. News/Talk
WEFX-FM............................. Classic Hits
WSTC-AM............................. News/Talk
WKHL-FM............................. Oldies
WINE-AM............................. News/Talk
WRKI-FM............................. Album Rock
WPUT-AM............................. Country
WAXB-FM............................. Oldies
PORTSMOUTH-ROCHESTER, NH.............
WHEB-FM............................. Album Rock
WXHT-FM............................. Classic Hits
WTMN-AM............................. Sports/Talk
HUNTINGTON, WV-ASHLAND, KY...........
WTCR-AM............................. Classic Country
WTCR-FM............................. Country
WIRO-AM............................. Sports
WHRD-AM(5).......................... Sports
WZZW-AM............................. Sports
WKEE-AM............................. Middle-of-the-Road
WKEE-FM............................. Adult Contemporary
WAMX-FM............................. Modern Rock
WFXN-FM............................. Classic Rock
WBVB-FM............................. Country
SALISBURY-OCEAN CITY, MD.............
WWFG-FM............................. Country
WOSC-FM............................. Contemporary Hits
</TABLE>
65
<PAGE> 68
<TABLE>
<CAPTION>
TARGET COMPANY COMPANY STATION
DEMO- REVENUE AUDIENCE AUDIENCE
MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE SHARE
STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4)
----------------------- -------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
MANCHESTER, NH....................... 193 1 2
WGIR-AM............................. 1961 Knight Quality 35+ 3
WGIR-FM............................. 1965 Knight Quality M25-49 2
WHEELING, WV......................... 213 1 1
WWVA-AM............................. 1987 Osborn 25-54 8t
WOVK-FM............................. 1987 Osborn 25-54 1
WKWK-FM............................. 1996 Osborn 25-54 2
WBBD-AM............................. 1996 Osborn 25-54 8t
WRIR-FM............................. 1996 Osborn 25-54 5
WEGW-FM............................. 1996 Osborn 25-54 4
WEEL-FM(5).......................... 1996 Osborn 25-54 6t
WINCHESTER, VA....................... 219 2 1
WUSQ-FM............................. 1991 Benchmark 25-54 1
WFQX-FM............................. 1994 Benchmark 18-49 4
WNTW-AM............................. 1994 Benchmark 25-54 NA
BURLINGTON, VT....................... 221 2t 5
WEZF-FM............................. 1984 Knight Quality F25-54 2t
HARRISBURG-LEBANON-CARLISLE, PA...... 253 2 2
WTCY-AM............................. 1996 Patterson 35-54 7t
WNNK-FM............................. 1996.. Patterson W25-44 1
DOVER, DE............................ NA 1 1
WDSD-FM............................. 1990 Benchmark 25-54 1
WSRV-FM............................. 1994 Benchmark 25-54 2
WDOV-AM............................. 1990 Benchmark 25-54 NA
WESTCHESTER-PUTNAM COUNTIES,
NY(8)(9)............................ NA NA 1
WFAS-AM............................. 1986 Commodore 35+ NA
WFAS-FM............................. 1986 Commodore W25-54 1
WZZN-FM............................. 1996 Commodore W25-54 NA
LYNCHBURG, VA........................ NA 1 1
WLDJ-FM............................. 1996 Cavalier 35-64 2
WJJX-FM............................. 1996 Cavalier 18-34 4t
WJJS-AM............................. 1996 Cavalier 18-34 8t
WYYD-FM............................. 1995 Benchmark 25-54 1
<CAPTION>
MARKET AND
STATION CALL LETTERS(1) FORMAT
----------------------- ------
<S> <C>
MANCHESTER, NH.......................
WGIR-AM............................. News/Talk/Sports
WGIR-FM............................. Album Rock
WHEELING, WV.........................
WWVA-AM............................. Country
WOVK-FM............................. Country
WKWK-FM............................. Adult Contemporary
WBBD-AM............................. Adult Contemporary
WRIR-FM............................. Classic Rock
WEGW-FM............................. Classic Rock
WEEL-FM(5).......................... Oldies
WINCHESTER, VA.......................
WUSQ-FM............................. Country
WFQX-FM............................. Contemporary Hits
WNTW-AM............................. News/Talk
BURLINGTON, VT.......................
WEZF-FM............................. Adult Contemporary
HARRISBURG-LEBANON-CARLISLE, PA......
WTCY-AM............................. Urban/Adult Contemporary
WNNK-FM............................. Contemporary Hits
DOVER, DE............................
WDSD-FM............................. Country
WSRV-FM............................. Adult Contemporary
WDOV-AM............................. News/Talk
WESTCHESTER-PUTNAM COUNTIES,
NY(8)(9)............................
WFAS-AM............................. News/Talk
WFAS-FM............................. Adult Contemporary
WZZN-FM............................. Classic Rock
LYNCHBURG, VA........................
WLDJ-FM............................. Oldies
WJJX-FM............................. Contemporary Hits
WJJS-AM............................. Contemporary Hits
WYYD-FM............................. Country
</TABLE>
- ---------------
NA Information not available.
t Tied with another radio station.
(1) Actual city of license may be different from metropolitan market served.
Market may be different from market definition used under FCC multiple
ownership rules.
(2) MSA rank obtained from Arbitron's Summer 1996 Radio Market Survey Schedule.
Fairfield County is a CSA as defined by Arbitron. The CSA includes the
Arbitron markets of Bridgeport, Stamford-Norwalk, and Danbury, Connecticut
with market rankings of 112, 132, and 191, respectively. MSA Rank is listed
for the Bridgeport market only. The combined rank for the CSA has not been
estimated.
(3) Company revenue share rank obtained from data in BIA Publications -- Radio
Analyzer, BIA's Master Access, Version 1.7 (copyright 1996) (current as of
February 27, 1997), based upon 1996 gross revenue for the indicated markets.
Rankings for Wilmington, Delaware, Dover, Delaware, Roanoke, Virginia, and
Lynchburg, Virginia markets were determined separately, using the City of
License to determine the split of the market.
(4) Company and station audience share rank obtained from Arbitron's Radio
Market Reports, based on average quarter hour estimates for the reporting
period ending Fall 1996, except for Winchester, Virginia and Wheeling, West
Virginia, which are reported as of Spring 1996 because the markets were not
marked for the Fall 1996 period, for the demographic of persons ages 25-54,
listening Monday through Sunday, 6 a.m. to midnight. To account for
listeners lost to other nearby markets, a radio station's "local" audience
share is derived by comparing the radio station's average quarter hour share
to the total average quarter hour share for all stations whose signals are
heard within the MSA, excluding audience share for listeners who listen to
stations whose signals originate outside the MSA.
(5) The Company provides certain sales and marketing services to stations
WKAP-AM in Allentown, Pennsylvania and WEEL-FM in Wheeling, West Virginia
pursuant to JSAs. The Company provides certain sales, programming and
marketing services to stations WHRD-AM in Huntington, West Virginia and
WJLM-FM in Roanoke, Virginia pursuant to an LMA.
(6) The DOJ has raised an issue with the Company regarding the number of radio
stations that the Company will own in the Allentown-Bethlehem, Pennsylvania
area upon completion of the Patterson Acquisition. The Company has begun
discussions with the DOJ to resolve the matter. See "Business -- Federal
Regulation of Radio Broadcasting" and "The Acquisitions -- Patterson
Acquisition."
(7) If the proposed merger of Chancellor and Evergreen Media Corporation is
completed, Thomas O. Hicks, through his control of HM2/Chancellor and the
Company, will have an attributable interest in a total number of radio
stations serving the Philadelphia, Pennsylvania market which exceeds FCC
multiple ownership limitations. The FCC could require the Company to divest
itself of radio
66
<PAGE> 69
stations WJBR-FM and WJBR-AM, which serve the Wilmington, Delaware market.
The Company entered into a binding letter of intent to contribute the
broadcasting licenses of such stations to a newly-formed company which will
be structured to satisfy FCC multiple ownership rules and cross-interest
limitations. While management of the Company believes that such arrangement
will meet FCC multiple ownership rules and cross-interest limitations as
they presently exist, there can be no assurance that the FCC will act
favorably on the proposed contribution or that the FCC will not amend its
rules and policies in an adverse manner. The Company does not believe that
an unfavorable decision by the FCC would have a material adverse effect on
the financial condition of the Company. See "Risk Factors -- Government
Regulation of Broadcasting Industry" and "-- Federal Regulation of Radio
Broadcasting."
(8) Fairfield County, Connecticut and Westchester-Putnam Counties, New York, CSA
audience share and revenues obtained from Arbitron's Custom Survey Area
Report for the Fall 1996 period.
(9) Westchester-Putnam Counties, New York are sub-sets of the greater New York
City Metropolitan Area, which is ranked as the largest MSA by Arbitron.
Southeast Region (Southern Star)
Upon completion of the Pending Acquisitions, the Company's portfolio of
radio stations in the Southeast Region will include 53 stations (38 FM and 15
AM) located in 15 markets in Alabama, Florida, Georgia, North Carolina, South
Carolina and Tennessee. The Company's stations comprise the leading radio
station group based on revenue share in 10 of the 15 markets.
History. The Osborn Acquisition provided the core of the Southeast Region
with 13 stations located in five markets: Huntsville, Alabama (three stations);
Asheville, North Carolina (two stations); Tuscaloosa, Alabama (three stations);
Jackson, Tennessee (three stations); and Gadsden, Alabama (two stations). The
Company also owns two station clusters in Florida. The Commodore Acquisition
provided the Company with six stations in the Ft. Pierce-Stuart-Vero Beach
market and the Space Coast Acquisitions provided the Company with five stations
in the Melbourne-Titusville-Cocoa market. The Benchmark Acquisition enhances the
Company's Southeast Region station portfolio by providing the Company with 11
stations in the following new markets: Greenville, South Carolina (one station);
Columbia, South Carolina (five stations); Montgomery, Alabama (three stations);
and Statesville, North Carolina (two stations).
The Pending Acquisitions will enhance the Company's Southeast Region
station portfolio through the acquisition of 18 additional stations in four new
markets and three existing markets. The Patterson Acquisition will provide the
Company with station clusters in the following new markets: Savannah, Georgia
(six stations) and Pensacola, Florida (three stations). The SFX Exchange will
provide the Company with one station in Daytona Beach, Florida, which is a new
market for the Company. In addition, the Ameron Acquisition will provide the
Company with three stations in Birmingham, Alabama, a new market for the
Company. The Grant Acquisition will provide a new station in Tuscaloosa,
Alabama, an existing market for the Company. The Griffith Acquisition (three
stations) will enhance the Company's position in the Huntsville, Alabama market.
Finally, the Emerald City Acquisition (one station) will enhance the Company's
position in the Columbia, South Carolina market.
Management. The Southeast Region is being managed on an interim basis by
Frank D. Osborn. Mr. Osborn serves on the Executive Council of the Company and
brings more than 19 years of radio industry experience to the Company. The
Company intends to employ a new president and chief executive officer of the
Southeast Region by the end of 1997, so that Mr. Osborn may focus his attention
on his responsibilities as a member of the Executive Council. Pro forma for the
Pending Acquisitions, the Southeast Region will include 53 stations in 15
markets.
Markets. Management believes that the portfolio of markets in the Southeast
Region has significant consolidation and future add-on acquisition potential,
even though the Company ranks number one in both revenue and audience share in 9
of its 15 markets in the region. The Southeast Region's markets are highlighted
by four six-station clusters, including Columbia, South Carolina; Huntsville,
Alabama; Ft. Pierce-Stuart-Vero Beach, Florida; and Savannah, Georgia. The
Southeast Region illustrates the Company's acquisition strategy as the markets
have been formed through separate acquisitions ranging from one station add-on
acquisitions to multi-station and multi-market acquisitions.
67
<PAGE> 70
The following table summarizes certain information relating to the
Company's radio stations in the Southeast Region, assuming consummation of the
Pending Acquisitions.
<TABLE>
<CAPTION>
TARGET COMPANY COMPANY STATION
DEMO- REVENUE AUDIENCE AUDIENCE
MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE SHARE
CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4)
--------------- -------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BIRMINGHAM, AL................. 55 2 3
WMJJ-FM....................... 1990 Ameron W25-54 3t
WERC-AM....................... 1990 Ameron M35-54 7
WOWC-FM....................... 1994 Ameron 18-44 14t
GREENVILLE, SC................. 59 2t 2
WJMZ-FM....................... 1990 Benchmark 25-54 2
COLUMBIA, SC................... 88 1 1
WCOS-FM....................... 1993 Benchmark 25-54 2
WHKZ-FM....................... 1993 Benchmark 25-54 10
WVOC-AM....................... 1994 Benchmark 35-64 8
WSCQ-FM....................... 1992 Benchmark 25-54 11t
WCOS-AM....................... 1993 Benchmark 25-54 13t
WNOK-FM....................... 1994 Emerald City 25-54 3t
DAYTONA BEACH, FL.............. 93 1 2
WGNE-FM....................... 1996 SFX 25-54 1
MELBOURNE-TITUSVILLE-COCOA, 96 1 1
FL............................
WMMB-AM....................... 1986 City 50+ 5t
WBVD-FM....................... 1986 City 35-64 4
WMMV-AM....................... 1982 EZY 35-64 7t
WLRQ-FM....................... 1982 EZY 25-54 1
WHKR-FM....................... 1989 Roper 25-54 3
HUNTSVILLE, AL................. 114 1 1
WDRM-FM....................... 1974 Osborn 25-54 1
WHOS-AM....................... 1997 Osborn 25-54 NA
WBHP-AM....................... 1997 Osborn 25-54 NA
WTAK-FM....................... 1993 Griffith M25-54 3
WXQW-FM....................... 1995 Griffith 25-54 13t
WWXQ-FM....................... 1994 Griffith 25-54 13t
FT. PIERCE-STUART-VERO BEACH, 121 1 1
FL............................
WZZR-FM....................... 1987 Commodore M18-49 2
WQOL-FM....................... 1995 Commodore 25-54 3t
WPAW-FM(5).................... 1995 Commodore 25-54 7
WBBE-FM....................... 1996 Commodore 25-54 1
WAVW-FM....................... 1996 Commodore 25-54 5t
WAXE-AM....................... 1996 Commodore 35+ 14t
PENSACOLA, FL.................. 125 1 1
WMEZ-FM....................... 1997 Patterson W25-54 3
WXBM-FM....................... 1996 Patterson 25-54 1
WWSF-FM....................... 1996 Patterson 35-54 NA
MONTGOMERY, AL................. 142 2 2
WZHT-FM....................... 1997 Benchmark 25-54 1
WMCZ-FM....................... 1997 Benchmark 25-54 4
WMHS-FM....................... 1997 Benchmark 25-54 NA
SAVANNAH, GA................... 153 1 1
WCHY-AM....................... 1995 Patterson 35-54 NA
WCHY-FM....................... 1995 Patterson 25-54 5
WYKZ-FM....................... 1996 Patterson 25-54 NA
WAEV-FM....................... 1996 Patterson 18-49 2
WSOK-AM....................... 1996 Patterson 25-54 6
WLVH-FM....................... 1996 Patterson 25-54 1
ASHEVILLE, NC.................. 179 1 1
WWNC-AM....................... 1994 Osborn 25-54 3
WKSF-FM....................... 1994 Osborn 25-54 1
TUSCALOOSA, AL................. 212 1 1
WACT-AM....................... 1997 Osborn 25-54 10t
WACT-FM....................... 1997 Osborn 25-54 9
WTXT-FM....................... 1997 Osborn 25-54 1
WZBQ-FM(5).................... 1995 Grant 18-34 2
<CAPTION>
MARKET AND
CALL LETTERS(1) FORMAT
--------------- ------
<S> <C>
BIRMINGHAM, AL.................
WMJJ-FM....................... Adult Contemporary
WERC-AM....................... News/Talk
WOWC-FM....................... Country
GREENVILLE, SC.................
WJMZ-FM....................... Urban
COLUMBIA, SC...................
WCOS-FM....................... Country
WHKZ-FM....................... Country
WVOC-AM....................... News/Talk
WSCQ-FM....................... Adult
WCOS-AM....................... Country
WNOK-FM....................... Contemporary Hits
DAYTONA BEACH, FL..............
WGNE-FM....................... Country
MELBOURNE-TITUSVILLE-COCOA,
FL............................
WMMB-AM....................... Middle-of-the-Road
WBVD-FM....................... Classic Rock
WMMV-AM....................... Middle-of-the-Road
WLRQ-FM....................... Adult Contemporary
WHKR-FM....................... Country
HUNTSVILLE, AL.................
WDRM-FM....................... Country
WHOS-AM....................... Country
WBHP-AM....................... Country
WTAK-FM....................... Classic Rock
WXQW-FM....................... Adult Contemporary
WWXQ-FM....................... Adult Contemporary
FT. PIERCE-STUART-VERO BEACH,
FL............................
WZZR-FM....................... Classic Rock
WQOL-FM....................... Oldies
WPAW-FM(5).................... Country
WBBE-FM....................... Adult Contemporary
WAVW-FM....................... Country
WAXE-AM....................... Financial
PENSACOLA, FL..................
WMEZ-FM....................... Adult Contemporary
WXBM-FM....................... Country
WWSF-FM....................... Oldies
MONTGOMERY, AL.................
WZHT-FM....................... Urban
WMCZ-FM....................... Urban/Adult
Contemporary
WMHS-FM....................... Urban
SAVANNAH, GA...................
WCHY-AM....................... Country
WCHY-FM....................... Country
WYKZ-FM....................... Adult Contemporary
WAEV-FM....................... Adult Contemporary
WSOK-AM....................... Gospel
WLVH-FM....................... Adult Contemporary
ASHEVILLE, NC..................
WWNC-AM....................... Country
WKSF-FM....................... Country
TUSCALOOSA, AL.................
WACT-AM....................... Gospel
WACT-FM....................... Country
WTXT-FM....................... Country
WZBQ-FM(5).................... Contemporary Hits
</TABLE>
68
<PAGE> 71
<TABLE>
<CAPTION>
TARGET COMPANY COMPANY STATION
DEMO- REVENUE AUDIENCE AUDIENCE
MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE SHARE
CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4)
--------------- -------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
JACKSON, TN.................... 257 1 1
WTJS-AM....................... 1986 Osborn 25-54 8t
WTNV-FM....................... 1986 Osborn 25-54 3
WYNU-FM....................... 1986 Osborn 25-54 1
STATESVILLE, NC................ NA NA NA
WFMX-FM....................... 1996 Benchmark 25-54 NA
WSIC-AM....................... 1996 Benchmark 25-54 NA
GADSDEN, AL(6)................. NA NA 1
WAAX-AM....................... 1994 Osborn 25-54 5
WQEN-FM....................... 1994 Osborn 25-54 2
<CAPTION>
MARKET AND
CALL LETTERS(1) FORMAT
--------------- ------
<S> <C>
JACKSON, TN....................
WTJS-AM....................... News/Talk
WTNV-FM....................... Country
WYNU-FM....................... Classic Rock
STATESVILLE, NC................
WFMX-FM....................... Country
WSIC-AM....................... News/Talk
GADSDEN, AL(6).................
WAAX-AM....................... News/Talk
WQEN-FM....................... Adult Contemporary
</TABLE>
- ---------------
NA Information not available.
t Tied with another radio station.
(1) Actual city of license may be different from metropolitan market served.
Market may be different from market definition used under FCC multiple
ownership rules.
(2) MSA rank obtained from Arbitron's Summer 1996 Radio Market Survey Schedule.
The table does not include stations WESC-AM, WESC-FM, and WFNQ-FM in
Greenville, South Carolina, which stations will be sold to SFX in the SFX
Exchange. See "The Acquisitions."
(3) Company revenue share rank obtained from data in BIA Publications-Radio
Analyzer, BIA's MasterAccess, version 1.7 (copyright 1996) (current of
February 27, 1997), based upon 1996 gross revenue for the indicated markets.
(4) Station audience share rank obtained from Arbitron's Radio Market Reports,
based on average quarter hour estimates for the reporting period ending Fall
1996, except for Asheville, North Carolina, Tuscaloosa, Alabama, and
Jackson, Tennessee, which are reported as of Spring 1996 because the markets
were not ranked for the Fall 1996 period, for the demographic of persons
ages 25-54, listening Monday through Sunday, 6 a.m. to midnight. To account
for listeners lost to other nearby markets, a radio station's "local"
audience share is derived by comparing the radio station's average quarter
hour share to the total average quarter hour share for all stations whose
signals are heard within the MSA, excluding audience share for listeners who
listen to stations whose signals originate outside the MSA.
(5) The Company provides certain sales and marketing services to station WPAW-FM
in Ft. Pierce-Stuart-Vero Beach, Florida, pursuant to a JSA, and to station
WZBQ-FM in Tuscaloosa, Alabama, pursuant to an LMA.
(6) Audience share rank obtained from Arbitron's June 1996 County Report (for
field work performed in 1995) survey, from the County of Etowah, Alabama
which is Gadsden's home county.
Southwest Region (GulfStar)
Upon consummation of the Pending Transactions, the Company's portfolio of
radio stations in the Southwest Region will include 59 radio stations (43 FM and
16 AM) located in 16 markets in Arkansas, Kansas, Louisiana, Mississippi,
Oklahoma and Texas. The Company's stations will comprise the leading radio
station group based on revenue share in 11 of its 16 markets.
History. The GulfStar Transaction, in combination with the Pending
Acquisitions of GulfStar, provides the core of the Southwest region with 50
stations located in the following 13 markets: Baton Rouge, Louisiana (six
stations); Beaumont, Texas (four stations); Corpus Christi, Texas (four
stations); Tyler-Longview, Texas (five stations); Fayetteville, Arkansas (four
stations); Fort Smith, Arkansas (three stations); Killeen, Texas (two stations);
Lubbock, Texas (six stations); Texarkana, Texas (four stations); Lawton,
Oklahoma (two stations); Lufkin, Texas (two stations); Victoria, Texas (two
stations); and Waco, Texas (six stations). The Company's stations comprise the
leading radio group based on both ratings and revenue share in 11 of these
markets.
GulfStar's portfolio of stations and markets have undergone significant
growth during 1996 and in 1997. GulfStar has completed acquisitions of 31
stations in 12 markets during this period and currently has five pending
acquisitions for seven stations in one new market and four existing markets.
The Benchmark Acquisition provided the Company with two stations in the
Shreveport, Louisiana market and four stations in the Jackson, Mississippi
market. The SFX Exchange will provide the Company with three stations in the
Wichita, Kansas market.
Management. The Southwest Region is managed by its president and chief
executive officer, John D. Cullen. Mr. Cullen has served as president and chief
operating officer of GulfStar since 1996 and brings more than 16 years of radio
industry experience to the Company. Prior to joining GulfStar, Mr. Cullen served
as a regional manager for SFX. Pro forma for the Pending Transactions, the
Southwest Region will include 59 stations in 16 markets.
69
<PAGE> 72
Markets. Management believes that growth opportunities remain in each of
its markets in the Southeast Region. Management believes that the benefits of
consolidation from GulfStar's completed acquisitions have not yet been fully
realized. Because advertising rates of other media are typically more expensive
than radio, GulfStar can effectively market an attractively priced alternative
medium to non-radio advertisers. The Company currently owns at least one of the
top three radio stations in each of its markets.
The following table summarizes certain information relating to the
Company's radio stations in the Southwest Region, assuming consummation of the
Pending Transactions.
<TABLE>
<CAPTION>
TARGET COMPANY COMPANY STATION
MARKET AND DEMO- REVENUE AUDIENCE AUDIENCE
STATION CALL YEAR SOURCE MSA GRAPHIC SHARE SHARE SHARE
LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4) FORMAT
------------ -------- ---------------- ------- -------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BATON ROUGE, LA........... 81 1 1
WYNK-FM.................. 1995 GulfStar 25-54 1 Country
WYNK-AM.................. 1995 GulfStar 25-54 16t Country
WJBO-AM.................. 1995 GulfStar M 35-64 8 News/Talk/Sports
WLSS-FM.................. 1995 GulfStar W 18-35 6t Contemporary Hits
KRVE-FM.................. 1997 McForhun W 25-54 4 Adult Contemporary
WBIU-AM.................. 1997 Livingston 65+ 16t Christian Country
WICHITA, KS............... 91 3 3
KKRD-FM.................. 1996 SFX 25-54 6 Contemporary Hits
KRZZ-FM.................. 1996 SFX 25-54 3 Classic Rock
KNSS-AM.................. 1996 SFX 35-64 11t News/Talk
JACKSON, MS............... 118 2 2
WJMI-FM.................. 1996 Benchmark 25-54 4 Urban
WOAD-AM.................. 1996 Benchmark 25-54 10t Gospel
WKXI-AM.................. 1996 Benchmark 25-54 20 Urban
WKXI-FM.................. 1996 Benchmark 25-54 14 Adult Contemporary
SHREVEPORT, LA............ 126 2 3
KRMD-FM.................. 1996 Benchmark 25-54 1 Country
KRMD-AM.................. 1996 Benchmark 25-54 14 Country
BEAUMONT, TX.............. 127 1 1
KLVI-AM.................. 1992 GulfStar 30+ 5 News/Talk
KYKR-FM.................. 1992 GulfStar 25-54 2t Country
KKMY-FM.................. 1995 GulfStar 30-54 1 Adult Contemporary
KIOC-FM.................. 1997 GulfStar 18-34 8 Alternative
CORPUS CHRISTI, TX........ 128 1 1
KRYS-FM.................. 1996 GulfStar 25-54 2 Country
KRYS-AM.................. 1996 GulfStar 25-54 22 Country
KMXR-FM.................. 1996 GulfStar W 20-45 7 Adult Contemporary
KNCN-FM.................. 1997 GulfStar M 18-44 8 Album Rock
TYLER-LONGVIEW, TX........ 143 1 1
KNUE-FM.................. 1994 GulfStar 25-54 1 Country
KISX-FM.................. 1996 GulfStar 18-34 2 Adult Contemporary
KTYL-FM.................. 1996 GulfStar W 30-54 5 Adult Contemporary
KKTX-AM(5)............... Pending Noalmark M 30-49 NA Classic Rock
KKTX-FM(5)............... Pending Noalmark M 30-49 6t Classic Rock
KILLEEN, TX............... 149 1 1
KIIZ-FM.................. 1996 GulfStar 25-54 1 Urban
KLFX-FM(6)............... 1996 GulfStar 18-34 5 Rock
FAYETTEVILLE, AR.......... 161 1 1
KEZA-FM.................. 1996 GulfStar 25-54 2 Adult Contemporary
KKIX-FM.................. 1997 GulfStar 25-54 1 Country
KKZQ-FM.................. 1997 GulfStar 25-54 4 Classic Rock
KJEM-FM(5)............... Pending KJEM 35-64 13t Adult Standards
</TABLE>
70
<PAGE> 73
<TABLE>
<CAPTION>
TARGET COMPANY COMPANY STATION
MARKET AND DEMO- REVENUE AUDIENCE AUDIENCE
STATION CALL YEAR SOURCE MSA GRAPHIC SHARE SHARE SHARE
LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4) FORMAT
------------ -------- ---------------- ------- -------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FT. SMITH, AR............. 169 1 1
KWHN-AM.................. 1997 GulfStar 35-64 8 News/Talk
KMAG-FM.................. 1997 GulfStar 25-49 2 Country
KZBB-FM(5)............... Pending Booneville 25-54 5t Album Rock
LUBBOCK, TX............... 171 1 1
KFMX-FM.................. 1996 GulfStar M 18-34 4 Album Rock
KKAM-AM.................. 1996 GulfStar 18+ 12t Talk
KZII-FM.................. 1997 GulfStar 12-34 2 Contemporary Hits
KFYO-AM.................. 1997 GulfStar 35+ 9 News/Talk/Sports
KCRM-FM.................. 1996 GulfStar W 18-49 7t Adult Contemporary
KKCL-FM.................. Pending American General 35-64 3 Oldies
WACO, TX.................. 190 1 1
KBRQ-FM.................. 1996 GulfStar M 25-54 2t Classic Rock
KKTK-AM.................. 1996 GulfStar M 18-49 6 Classic Rock
WACO-FM.................. 1996 GulfStar 25-54 1 Country
KCKR-FM.................. 1996 GulfStar 18-49 4 Country
KWTX-FM.................. 1996 GulfStar W 25-54 2t Contemporary Hits
KWTX-AM.................. 1996 GulfStar 25-54 7 News/Talk
TEXARKANA, TX............. 237 1 1
KKYR-AM.................. 1994 GulfStar 25-54 NA Country
KKYR-FM.................. 1994 GulfStar 25-54 1 Country
KLLI-FM.................. 1997 GulfStar 18-49 3 Country
KYGL-FM.................. 1997 GulfStar 35-49 4 Classic Rock
LAWTON, OK................ 243 1 1
KLAW-FM(5)............... Pending KLAW 25-54 1 Country
KZCD-FM(5)............... Pending KLAW M25-54 2t Rock
LUFKIN, TX................ NA NA NA
KYKS-FM.................. 1993 GulfStar 12+ NA Country
KAFX-FM.................. 1996 GulfStar 18-49 NA Adult Contemporary
VICTORIA, TX.............. NA NA 1
KIXS-FM.................. 1993 GulfStar 25-54 2 Country
KLUB-FM.................. 1996 GulfStar 25-49 3 Classic Rock
</TABLE>
- ---------------
NA Information not available.
t Tied with another station.
(1) Actual city of license may be different from metropolitan market served.
Market may be different from market definition used under FCC multiple
ownership rules.
(2) MSA rank obtained from Arbitron's Summer 1996 Radio Market Survey Schedule.
(3) Company revenue share rank compiled from data in BIA Publications Radio
Analyzer-BIA's Master Access, Version 1.7 (copyright 1996) (current as of
February 27, 1997), based upon 1996 gross revenue for the indicated markets.
(4) Company and station audience share rank obtained from Arbitron's Radio
Market Reports, based on average quarter hour estimates for the last
available reporting period ending either Spring or Fall 1996 for the
demographic of persons ages 25-54, listening Monday through Sunday, 6:00
a.m. to midnight. To account for listeners lost to other nearby markets, a
radio station's "local" audience share is derived by comparing the radio
station's average quarter hour share to the total average quarter hour share
for all stations whose signals are heard within the MSA, excluding audience
share for listeners who listen to stations whose signals originate outside
the MSA.
(5) Pending the consummation of the respective Pending Acquisitions, the Company
provides certain sales, programming and marketing services pursuant to LMAs
to stations KKTX-FM and KKTX-AM in Tyler-Longview, Texas; KJEM-FM in
Fayetteville, Arkansas; KZBB-FM in Ft. Smith, Arkansas; and KLAW-FM and
KZCD-FM in Lawton, Oklahoma.
(6) The Company provides certain sales and marketing services to station KLFX-FM
in Killeen, Texas, pursuant to a JSA.
Midwest Region (Central Star)
Upon consummation of the Pending Acquisitions, the Company's portfolio of
radio stations in the Midwest Region will include 23 radio stations (15 FM and 8
AM) located in six markets in Illinois, Iowa, Michigan and Wisconsin. The
Company's stations will comprise the leading radio station group based on
revenue share rank in two of these markets.
71
<PAGE> 74
History. The Community Pacific Acquisition provided the Company with three
stations in the Des Moines, Iowa market. The Midwest Region will be enhanced
through the completion of three Pending Acquisitions: Patterson (11 stations);
Quass (three stations); and Madison (six stations). The Patterson Acquisition
will provide the Company with four stations in the Battle Creek-Kalamazoo,
Michigan market, four stations in the Grand Rapids, Michigan market, and three
stations in the Springfield, Illinois market. The Quass Acquisition will provide
the Company with three stations in the Cedar Rapids, Iowa market. In addition,
the Madison Acquisition will provide the Company with six stations in the
Madison, Wisconsin market. As a group, the stations to be acquired in the
Madison Acquisition are ranked number one in market revenue and audience share.
Management. The Midwest Region is being managed on an interim basis by Dex
Allen, who also serves as the president and chief executive officer of the West
Region. See "-- Regional Operating Groups -- West Region." The Midwest Region
will be managed by Mary K. Quass, the current president and chief executive
officer of Quass, who will serve as the Midwest Region's president and chief
executive officer upon consummation of the Quass Acquisition. Ms. Quass has more
than 19 years experience in the radio broadcasting industry in numerous roles,
including Vice President and General Manager of radio stations KHAK-FM and
KHAK-AM prior to Ms. Quass purchasing such radio stations in 1988. Pro forma for
the Pending Acquisitions, the Midwest Region will include 23 stations in six
markets.
Markets. Although the Company's station clusters in the Midwest Region have
leading positions based on audience share in three of the six markets,
management believes that substantial opportunity exists to improve the
profitability of these clusters by acquiring additional stations in each of
these markets. For example, in the Des Moines, Iowa market, the Company operates
two FM stations and one AM station. Both FM stations serve the Adult 25-54
demographic, one of which is programmed as an album-oriented rock station and
the other as a country station. The Company intends to pursue acquisitions of
additional stations in the Des Moines, Iowa market in order to capitalize on its
existing infrastructure and market presence and to enhance the financial
performance of the station cluster. Management intends to pursue such add-on
acquisitions in each of the markets in the Midwest Region. The Midwest Region is
highlighted by the Madison, Wisconsin market which ranks number one in both
revenue and audience share.
The following table summarizes certain information relating to the
Company's radio stations in the Midwest Region, assuming consummation of the
Pending Acquisitions.
<TABLE>
<CAPTION>
COMPANY COMPANY STATION
TARGET REVENUE AUDIENCE AUDIENCE
MARKET AND YEAR SOURCE MSA DEMOGRAPHIC SHARE SHARE SHARE
STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4)
----------------------- -------- ------- ------- ----------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
GRAND RAPIDS, MI............ 66 2 3
WGRD-FM.................... 1996 Patterson 18-34 6
WRCV-AM.................... 1996 Patterson 35+ NA
WLHT-FM.................... 1996 Patterson 25-54 3
WQFN-FM.................... Pending Patterson F25-54 14
DES MOINES, IA.............. 89 4 4
KHKI-FM.................... 1995 Community Pacific 25-54 7
KGGO-FM.................... 1995 Community Pacific 25-54 5
KDMI-AM.................... 1995 Community Pacific NA NA
MADISON, WI................. 120 1 1
WIBA-AM.................... 1995 Madison 35-64 8t
WIBA-FM.................... 1995 Madison 25-54 4
WMAD-FM.................... 1995 Madison 18-34 5
WTSO-AM.................... 1997 Madison 35-64 14
WZEE-FM.................... 1997 Madison 18-49 2
WMLI-FM.................... 1997 Madison 35-64 13
SPRINGFIELD, IL............. 192 3 3
WFMB-AM.................... 1996 Patterson M35-64 9
WFMB-FM.................... 1996 Patterson 25-54 4
WCVS-FM.................... 1996 Patterson 25-54 12
<CAPTION>
MARKET AND
STATION CALL LETTERS(1) FORMAT
----------------------- ------
<S> <C>
GRAND RAPIDS, MI............
WGRD-FM.................... Modern Rock
WRCV-AM.................... Country
WLHT-FM.................... Adult Contemporary
WQFN-FM.................... Easy
DES MOINES, IA..............
KHKI-FM.................... Country
KGGO-FM.................... Album Rock
KDMI-AM.................... Religion
MADISON, WI.................
WIBA-AM.................... News/Talk
WIBA-FM.................... Classic Rock
WMAD-FM.................... Modern Rock
WTSO-AM.................... News/Talk
WZEE-FM.................... Adult Contemporary
WMLI-FM.................... Soft Hits
SPRINGFIELD, IL.............
WFMB-AM.................... News/Talk/Sports
WFMB-FM.................... Country
WCVS-FM.................... 70's Oldies
</TABLE>
72
<PAGE> 75
<TABLE>
<CAPTION>
COMPANY COMPANY STATION
TARGET REVENUE AUDIENCE AUDIENCE
MARKET AND YEAR SOURCE MSA DEMOGRAPHIC SHARE SHARE SHARE
STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4)
----------------------- -------- ------- ------- ----------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CEDAR RAPIDS, IA............ 197 2 1
KHAK-FM.................... 1988 Quass 25-54 1
KDAT-FM.................... 1995 Quass 25-54 2
KTOF-AM.................... 1988 Quass 25-54 9t
BATTLE CREEK/KALAMAZOO,
MI......................... 229 1 1
WBCK-AM.................... 1996 Patterson 35-64 2
WBXX-FM.................... 1996 Patterson 25-54 1
WRCC-AM.................... 1996 Patterson 45+ 4
WWKN-FM.................... 1996 Patterson 35-64 NA
<CAPTION>
MARKET AND
STATION CALL LETTERS(1) FORMAT
----------------------- ------
<S> <C>
CEDAR RAPIDS, IA............
KHAK-FM.................... Country
KDAT-FM.................... Soft Rock
KTOF-AM.................... Christian
Contemporary
BATTLE CREEK/KALAMAZOO,
MI.........................
WBCK-AM.................... News/Talk
WBXX-FM.................... Adult Contemporary
WRCC-AM.................... Adult Standards
WWKN-FM.................... Oldies
</TABLE>
- ---------------
NA Information not available.
t Tied with another station.
(1) Actual city of license may be different from metropolitan market served.
Market may be different from market definition used under FCC multiple
ownership rules.
(2) MSA rank obtained from Arbitron's Summer 1996 Radio Market Survey Schedule.
The table does not include station WING-FM in Dayton, Ohio, which station is
owned by the Company and for which an unrelated third party, who has an
option to purchase such station, currently provides certain sales,
programming and marketing services pursuant to a LMA.
(3) Company revenue share rank obtained from data in BIA Publication-Radio
Analyzer, BIA's MasterAccess, version 1.7 (copyright 1996) (currently as of
February 27, 1997), based upon 1996 gross revenue for the indicated markets.
(4) Company and station audience rank share obtained from Arbitron's Radio
Market Reports, based on average quarter hour estimates for the reporting
period ending either Spring or Fall 1996, for the demographic of persons
ages 25-54, listening Monday through Sunday, 6:00 a.m. to midnight. To
account for listeners lost to other nearby markets, a radio station's
"local" audience is derived by comparing the radio station's average quarter
hour share to the total average quarter hour share for all stations whose
signals are heard within the MSA, excluding audience share for listeners who
listen to stations whose signals originate outside the MSA.
West Region (Pacific Star)
Upon consummation of the Pending Acquisitions, the Company will own and
operate or provide services to 35 radio stations (22 FM and 13 AM) in the West
Region. These stations are located in nine markets in Alaska, Arizona,
California, Hawaii, Nevada and New Mexico. The Company's stations will comprise
the leading radio station cluster based on revenue share in one of these
markets.
History. The GulfStar Transaction provided the Company with four stations
in the Farmington, New Mexico market. In addition, the Community Pacific
Acquisition provided the Company with seven stations in the following three
markets: Stockton, California (two stations); Modesto, California (two
stations); and Anchorage, Alaska (three stations). The West Region will be
enhanced through the completion of three pending acquisitions: COMCO (six
stations); Commonwealth (three stations); and Patterson (15 stations). The COMCO
Acquisition will provide the Company with three stations in the Fairbanks,
Alaska market. In Anchorage, Alaska, the Company will create a six-station
cluster combining three stations from the COMCO Acquisition and three stations
from the Community Pacific Acquisition. This cluster will provide the Company
with the number one and number two rankings in audience share and revenue share,
respectively. All of the stations to be acquired as part of the Commonwealth
Acquisition are located in Yuma, Arizona. In addition, the Patterson Acquisition
will enhance the Company's West Region station portfolio with three new markets,
including Honolulu, Hawaii (seven stations), Fresno, California (five stations)
and Reno, Nevada (three stations).
Management. The West Region is managed by its president and chief executive
officer, Dex Allen, who has over 35 years of experience in the radio
broadcasting industry. Mr. Allen has served as the managing member of
Commonwealth since 1984 and is expected to continue to serve in such position
until the consummation of the Commonwealth Acquisition. Pro forma for the
Pending Acquisitions, the West Region will include 35 stations in nine markets.
Markets. Management believes that the West Region has significant growth
potential and the current markets have substantial consolidation and add-on
capabilities. Management hopes to replicate its success in Honolulu, Hawaii,
where the Company holds the number one revenue share and number one audience
share ranks in the market. The seven stations target a broad demographic
spectrum with five different formats: Adult
73
<PAGE> 76
Contemporary, Jazz, Classic Rock, Contemporary Hits and News/Talk. Another
strong radio cluster will be formed upon consummation of two Pending
Acquisitions. The Community Pacific Acquisition and the COMCO Acquisition will
bring a six-station cluster together in Anchorage, Alaska which when combined
will form the number two radio station group in terms of revenue share and the
number one group in terms of audience share. The Company believes that both of
these markets and the other West Region markets have not fully realized the
benefits of economies of scale or revenue enhancements associated with station
consolidation. The Company expects to build on its success in Honolulu, which
ranks number one in revenue share and audience share, through continued
consolidation and economies of scale in its existing portfolio in the West
Region.
The following table summarizes certain information relating to the
Company's radio stations in the West Region, assuming consummation of the
Pending Acquisitions.
<TABLE>
<CAPTION>
COMPANY COMPANY STATION
MARKET AND TARGET REVENUE AUDIENCE AUDIENCE
STATION CALL YEAR SOURCE MSA DEMOGRAPHIC SHARE SHARE SHARE
LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4) FORMAT
------------ -------- ----------------- ------- ----------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HONOLULU, HI......... 58 1 1
KSSK-AM............ 1995 Patterson 25-54 3 Adult Contemporary
KSSK-FM............ 1995 Patterson 25-54 1 Adult Contemporary
KUCD-FM............ 1995 Patterson 35-54 12 Jazz
KHVH-AM............ 1996 Patterson 35-64 11 News/Talk
KKLV-FM............ 1996 Patterson M 35-54 8 Classic Rock
KIKI-AM............ 1996 Patterson 18-34 NA Contemporary Hits
KIKI-FM............ 1996 Patterson 18-34 4 Contemporary Hits
FRESNO, CA........... 65 2 3
KBOS-FM............ 1996 Patterson 18-34 3 Contemporary Hits
KCBL-AM............ 1996 Patterson M 18-49 NA Sports
KRZR-FM............ 1995 Patterson M 18-49 8 Album Rock
KRDU-AM............ Pending Patterson NA NA Religion
KJOI-FM............ Pending Patterson 25-54 7 Adult Contemporary
STOCKTON, CA......... 85 3 3
KVFX-FM............ 1994 Community Pacific 18-49 4 Classic Rock
KJAX-AM............ 1996 Community Pacific 35-64 6 Talk
MODESTO, CA.......... 121 2 2
KJSN-FM............ 1982 Community Pacific 25-54 3 Adult Contemporary
KFIV-AM............ 1982 Community Pacific 35-64 7t Talk
RENO, NV............. 133 4 3
KRNO-FM............ 1996 Patterson 25-54 3 Adult Contemporary
KWNZ-FM............ 1996 Patterson 18-34 2 Contemporary Hits
KCBN-AM............ 1996 Patterson 35-64 19t Middle of the Road
ANCHORAGE, AK(5)..... 165 2 1
KBFX-FM............ 1993 Community Pacific 18-49 7 Classic Rock
KASH-FM............ 1985 Community Pacific 25-54 1t Country
KENI-AM............ 1995 Community Pacific 25-54 3t News/Talk
KYAK-AM............ 1993 COMCO 25-54 13t Adult Contemporary
KGOT-FM............ 1993 COMCO 25-54 4 Contemporary Hits
KYMG-FM............ 1984 COMCO 25-54 5 Adult Contemporary
FAIRBANKS, AK(6)..... NA NA 1
KIAK-FM............ 1993 COMCO 25-54 1 Country
KIAK-AM............ 1993 COMCO 25-54 7 News/Talk
KAKQ-FM............ 1994 COMCO 25-54 2t Adult Contemporary
FARMINGTON, NM....... NA NA
KKFG-FM............ 1997 GulfStar NA 25-54 NA Country
KDAG-FM............ 1997 GulfStar M 25-54 NA Classic Rock
KCQL-AM............ 1997 GulfStar 35+ NA Oldies
KTRA-FM............ 1997 GulfStar 18-49 NA Country
YUMA, AZ............. NA NA 1
KYJT-FM............ 1986 Commonwealth 25-49 1 Classic Hits
KTTI-FM............ 1995 Commonwealth 25-54 2 Country
KBLU-AM............ 1995 Commonwealth 35-64 8t Oldies
</TABLE>
- ---------------
NA Information not available.
t Tied with another radio station.
(1) Actual city of license may be different from metropolitan market served.
Market may be different from market definition used under FCC multiple
ownership rules.
(2) MSA rank obtained from Arbitron's Summer 1996 Radio Market Survey Schedule.
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(3) Company revenue share rank obtained from data in BIA Publications-Radio
Analyzer, BIA's MasterAccess, version 1.7, 1996 (current as of February 27,
1997), based upon 1996 gross revenue for the indicated markets.
(4) Company audience share rank obtained from Arbitron's Radio Market Reports,
based on average quarter hour estimates for the reporting period ending Fall
1996, for the demographic of persons ages 25-54, listening Monday through
Sunday, 6 a.m. to midnight, except for the Yuma, Arizona market which was
obtained from AccuRatings. To account for listeners lost to other nearby
markets, a radio station's "local" audience share is derived by comparing
the radio station's average quarter hour share to the total average quarter
hour share for all stations whose signals are heard within the MSA,
excluding audience share for listeners who listen to stations whose signals
originate outside the MSA.
(5) The table does not include station KASH-AM in Anchorage, Alaska. The Company
expects to dispose of station KASH-AM before consummation of the COMCO
Acquisition in order to remain in compliance with the station ownership
limitations under the Communications Act.
(6) Fairbanks, Alaska is a CSA as defined by Arbitron. Audience share and
audience share rank obtained from Arbitron's Fall 1996 CSA Market Report.
OTHER BUSINESSES
The Company operates several country music-related entertainment businesses
in Wheeling, West Virginia. The Company enhances and capitalizes on the strong
ratings of its country music stations by integrating its radio stations with its
Capitol Music Hall, a 2,500-seat theater that hosts approximately 100 music,
comedy and dramatic performances each year, and Jamboree in the Hills, an annual
outdoor festival featuring 20 or more country music stars held on a 200-acre
site owned by the Company outside of Wheeling. The Company also distributes
programmed music, primarily Muzak, in the Atlanta, Macon and Albany, Georgia and
Ft. Myers, Florida markets. As the exclusive Muzak franchisee in these markets,
the Company provides subscribers with commercial-free Muzak programming ranging
from traditional background music to newer formats including country and soft
rock. The Company also sells, leases and installs the equipment required to
receive the programming via satellite and other media and also designs, sells
and installs sound, closed-circuit video and security systems and equipment in
locations such as offices, schools, hospitals, shopping malls and stadiums. In
addition, the Company is an authorized distributor of the Rauland-Borg line of
communications equipment for schools and hospitals in various markets.
INDUSTRY OVERVIEW
Radio stations generate the majority of their revenue from the sale of
advertising time to local and national spot advertisers and national network
advertisers. Radio serves primarily as a medium for local advertising. During
the past decade (1985-1995), local advertising revenue as a percentage of total
radio advertising revenue in a given market has ranged from approximately 75% to
80%. The growth in total radio advertising revenue tends to be fairly stable and
has generally grown at a rate faster than the Gross National Product (the
"GNP"). With the exception of 1991, when total radio advertising revenue fell by
approximately 3.1% compared to the prior year, advertising revenue has risen in
each of the past 15 years more rapidly than either inflation or the GNP. Total
advertising revenue in 1995 of $11.5 billion, which represents a 7.6% increase
over 1994, as reported by the Radio Advertising Bureau ("RAB"), was its highest
level in the industry's history.
Radio is considered an efficient means of reaching specifically identified
demographic groups. Stations are typically classified by their on-air format,
such as country, adult contemporary, oldies or news/talk. A station's format and
style of presentation enable it to target certain demographic and psychographic
groups. By capturing a specific listening audience share of a market's radio
audience, with particular concentration in a targeted demographic group, a
station is able to market its broadcasting time to advertisers seeking to reach
a specific audience. Advertisers and stations utilize data published by audience
measuring services, such as Arbitron, to estimate how many people within
particular geographical markets and demographic groups listen to specific
stations.
Stations determine the number of advertisements broadcast hourly that will
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 local sales staff generates the majority of its local and
regional advertising sales through direct solicitations of local advertising
agencies and businesses. To generate national advertising sales, a station will
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engage a firm that specializes in soliciting radio advertising sales on a
national level. National sales representatives obtain advertising principally
from advertising agencies located outside the station's market and receive
commissions based on the revenue from the advertising obtained. The Company has
entered into a national advertising agreement with Katz Communications, Inc., a
national advertising firm.
According to the RAB's Radio Marketing Guide and Fact Book for Advertisers,
1997, radio reaches approximately 95.1% of all Americans over the age of 12 each
week. More than one-half of all radio listening is done outside the home, in
contrast to other advertising mediums, and four out of five adults are reached
by car radio each week. The average listener spends approximately three hours
and 20 minutes per day listening to radio. The highest portion of radio
listenership occurs during the morning, particularly between the time a listener
wakes up and the time the listener reaches work. This "morning drive time"
period reaches more than 82.5% of people over 12 years of age and, as a result,
radio advertising sold during this period achieves premium advertising rates.
Radio listeners have gradually shifted over the years from AM (amplitude
modulation) to FM (frequency modulation) stations. FM reception, as compared to
AM, is generally clearer and provides greater tonal range and higher fidelity.
FM's listener share is now in excess of 75%, despite the fact that the number of
AM and FM commercial stations in the United States is approximately equal.
COMPETITION; CHANGES IN BROADCASTING INDUSTRY
The radio broadcasting industry is highly competitive. The success of each
of the Company's stations depends largely upon its audience ratings and its
share of the overall advertising revenue within its market. The Company's
stations compete for listeners and advertising revenue directly with other radio
stations within their respective markets. Radio stations compete for listeners
primarily on the basis of program content that appeals to a particular
demographic group. By building a strong listener base consisting of a specific
demographic group in each of its markets, the Company is able to attract
advertisers seeking to reach those listeners.
Factors that are material to a radio station's competitive position include
management experience, the station's local audience rank in its market,
transmitter power, assigned frequency, audience characteristics, local program
acceptance and the number and characteristics of other radio stations in the
market area. The Company attempts to improve its competitive position with
promotional campaigns aimed at the demographic groups targeted by its stations
and by sales efforts designed to attract advertisers. Recent changes in the
FCC's policies and rules permit increased ownership and operation of multiple
local radio stations. Management believes that radio stations that elect to take
advantage of joint arrangements such as LMAs or JSAs may in certain
circumstances have lower operating costs and may be able to offer advertisers
more attractive rates and services. Although the Company currently operates
several multiple station groups and intends to pursue the creation of additional
multiple station groups, the Company's competitors in certain markets include
operators of multiple stations or operators who already have entered into LMAs
or JSAs.
The radio broadcasting industry is highly competitive, although some
barriers to entry exist. The operation of a radio broadcast station requires a
license from the FCC and the number of radio stations that can operate in a
given market is limited by the availability of FM and AM radio frequencies
allotted by the FCC to communities in that market, as well as by the FCC's
multiple ownership rules that regulate the number of stations that may be owned
and controlled by a single entity. See "-- Federal Regulation of Radio
Broadcasting."
The Company's stations also compete for advertising revenue with other
media, including broadcast television, cable television, newspapers, magazines,
direct mail, coupons and billboard advertising. In addition, the radio
broadcasting industry is subject to competition from new media technologies that
are being developed or introduced, such as the delivery of audio programming by
cable television systems, by satellite and by DAB. DAB may deliver by satellite
to nationwide and regional audiences, multi-channel, multi-format, digital radio
services with sound quality equivalent to compact discs. The delivery of
information through the presently unregulated Internet also could create a new
form of competition. The radio broadcasting industry historically has grown
despite the introduction of new technologies for the delivery of entertainment
and information, such as television broadcasting, cable television, audio tapes
and compact disks. A growing population and greater availability of radios,
particularly car and portable radios, have contributed to this growth. There can
be no
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assurance, however, that the development or introduction in the future of any
new media technology will not have an adverse effect on the radio broadcasting
industry.
The FCC has allocated spectrum for a new technology, digital audio radio
services ("DARS"), to deliver audio programming. The FCC has adopted licensing
and operating rules for DARS and in April 1997 awarded two licenses for this
service. DARS may provide a medium for the delivery by satellite or terrestrial
means of multiple new audio programming formats to local and/or national
audiences. Digital technology also may be used in the future by terrestrial
radio broadcast stations either on existing or alternate broadcasting
frequencies, and the FCC has stated that it will consider making changes to its
rules to permit AM and FM radio stations to offer digital sound following
industry analysis of technical standards. In addition, the FCC has authorized an
additional 100 kHz of bandwidth for the AM band and has allotted frequencies in
this new band to certain existing AM station licensees that applied for
migration to the expanded AM band prior to the FCC's cut-off date, subject to
the requirement that such licensees apply to the FCC to implement operations on
their expanded band frequencies. At the end of a transition period, those
licensees will be required to return to the FCC either the license for their
existing AM band station or the license for the expanded AM band station.
The Company cannot predict what other matters might be considered in the
future by the FCC, nor can it assess in advance what impact, if any, the
implementation of any of these proposals or changes might have on its business.
The Company employs a number of on-air personalities and generally enters
into employment agreements with certain of these personalities to protect its
interests in those relationships that it believes to be valuable. The loss of
certain of these personalities could result in a short-term loss of audience
share, but the Company does not believe that any such loss would have a material
adverse effect on the Company.
FEDERAL REGULATION OF RADIO BROADCASTING
The ownership, operation and sale of radio stations are subject to the
jurisdiction of the FCC, which acts under authority granted by the
Communications Act. Among other things, the FCC assigns frequency bands for
broadcasting; determines the particular frequencies, locations and operating
power of stations; issues, renews, revokes and modifies station licenses;
determines whether to approve changes in ownership or control of station
licenses; regulates equipment used by stations; and adopts and implements
regulations and policies that directly affect the ownership, operation and
employment practices of stations. The FCC has the power to impose penalties for
violation of its rules or the Communications Act.
The following is a brief summary of certain provisions of the
Communications Act and of specific FCC regulations 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 stations.
FCC Licenses. Radio stations operate pursuant to broadcasting licenses that
are ordinarily granted by the FCC for maximum terms of eight years and are
subject to renewal upon application to the FCC. The FCC licenses for the
Company's stations are held by certain of the Company's subsidiaries. During
certain periods when renewal applications are pending, petitions to deny license
renewals can be filed by interested parties, including members of the public.
Historically, the Company's management has not experienced any material
difficulty in renewing any licenses for stations under its control. The FCC is
required to hold hearings on a station's renewal application if a substantial or
material question of fact exists as to whether (i) the station has served the
public interest, convenience and necessity, (ii) there have been serious
violations by the licensee of the Communications Act or the FCC rules thereunder
or (iii) there have been other violations by the licensee of the Communications
Act or the FCC rules thereunder that, taken together, constitute a pattern of
abuse. Historically, FCC licenses have generally been renewed. The Company has
no reason to believe that its licenses will not be renewed in the ordinary
course, although there can be no assurance to that effect. The non-renewal of
one or more of the Company's licenses could have a material adverse effect on
the Company.
The FCC classifies each AM and FM station. An AM station operates on either
a clear channel, regional channel or local channel. A clear channel is one on
which AM stations are assigned to serve wide areas. Clear
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channel AM stations are classified as either: Class A stations, which operate on
an unlimited time basis and are designated to render primary and secondary
service over an extended area; Class B stations, which operate on an unlimited
time basis and are designed to render service only over a primary service area;
and Class D stations, which operate either during daytime hours only, during
limited times only or on an unlimited time basis with low nighttime power. A
regional channel is one on which Class B and Class D AM stations may operate and
serve primarily a principal center of population and the rural areas contiguous
to it. A local channel is one on which AM stations operate on an unlimited time
basis and serve primarily a community and the suburban and rural areas
immediately contiguous thereto. Class C AM stations operate on a local channel
and are designed to render service only over a primary service area that may be
reduced as a consequence of interference.
The minimum and maximum facilities requirements for an FM station are
determined by its class. FM class designations depend upon the geographic zone
in which the transmitter of the FM station is located. In general, commercial FM
stations are classified as follows, in order of increasing power and antenna
height: Class A, B1, C3, B, C2, C1 and C.
The table in Annex A hereto sets forth the market, FCC license
classification and frequency of each of the Company's stations (including those
with which the Company has or will have a JSA or LMA), assuming the consummation
of the Pending Acquisitions, and the date on which each station's FCC license
expires. Each of the Company's AM stations is a regional channel station other
than WSTC-AM, WFAS-AM, WIRO-AM, WBBD-AM, WBHP-AM, WMMB-AM, KRMD-AM, WSIC-AM,
WCOS-AM, WROV-AM, KCBL-AM, KCQL-AM, WFMB-AM, WRCC-AM, WKXI-AM, KWTX-AM, KKTX-AM,
WTCY-AM, WEEX-AM, KKAM-AM, KNSS-AM, and KCBN-AM which are local channel
stations, and WINE-AM, WPUT-AM, WKEE-AM, WWVA-AM, WHOS-AM, WESC-AM, KYAK-AM,
WTSO-AM, KHVH-AM, KENI-AM, KIKI-AM, KRDU-AM, KFYO-AM, WBIU-AM and WNTW-AM which
are clear channel stations.
Ownership Matters. The Communications Act prohibits the assignment of a
broadcast license or the transfer of control of a broadcast licensee without the
prior approval of the FCC. In determining whether to grant such approval, the
FCC considers a number of factors pertaining to the licensee, including
compliance with the various rules limiting common ownership of media properties,
the "character" of the licensee and those persons holding "attributable"
interests therein, and compliance with the Communications Act's limitations on
alien ownership as well as compliance with other FCC policies, including FCC
equal employment opportunity requirements.
A transfer of control of a corporation controlling a broadcast license may
occur in various ways. For example, a transfer of control occurs if an
individual stockholder gains or loses "affirmative" or "negative" control of
such corporation through issuance, redemption or conversion of stock.
"Affirmative" control would consist of control of more than 50% of such
corporation's outstanding voting power and "negative" control would consist of
control of exactly 50% of such voting power. To obtain the FCC's prior consent
to assign or transfer control of a broadcast license, appropriate applications
must be filed with the FCC. If the application involves a "substantial change"
in ownership or control, the application must be placed on public notice for a
period of approximately 30 days during which petitions to deny the application
may be filed by interested parties, including members of the public. If the
application does not involve a "substantial change" in ownership or control, it
is a "pro forma" application. The "pro forma" application is nevertheless
subject to having informal objections filed against it. If the FCC grants an
assignment or transfer application, interested parties have approximately 30
days from public notice of the grant to seek reconsideration of that grant.
Generally, parties that do not file initial petitions to deny or informal
objections against the application face a high hurdle in seeking reconsideration
of the grant. The FCC normally has approximately an additional ten days to set
aside such grant on its own motion. When passing on an assignment or transfer
application, the FCC is prohibited from considering whether the public interest
might be served by an assignment or transfer of the broadcast license to any
party other than the assignee or transferee specified in the application.
In response to the Telecom Act, the FCC amended its multiple ownership
rules to eliminate the national limits on ownership of AM and FM stations.
Additionally, it established new local ownership rules that use a sliding scale
of permissible ownership, depending on market size. In radio markets with 45 or
more commercial radio stations, a licensee may own up to eight stations, no more
than five of which can be in a single radio service (i.e., no more than five AM
or five FM). In radio markets with 30 to 44 commercial radio stations, a
licensee may
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own up to seven stations, no more than four of which can be in a single radio
service. In radio markets having 15 to 29 commercial radio stations, a licensee
may own up to six radio stations, no more than four of which can be in a single
radio service. Finally, in radio markets having 14 or fewer commercial radio
stations, a licensee may own up to five radio stations, no more than three of
which can be in the same service; provided that the licensee may not own more
than one half of the radio stations in the market. FCC ownership rules continue
to permit an entity to own one FM and one AM station in a local market
regardless of market size.
The Communications Act and FCC rules also prohibit the common ownership,
operation or control of a radio broadcast station and a television broadcast
station serving the same geographic market (subject to a waiver of such
prohibition if certain conditions are satisfied) and of a radio broadcast
station and a daily newspaper serving the same geographic market. Under these
rules, absent waivers, the Company would not be permitted to acquire any daily
newspaper or television broadcast station (other than low-power television) in
any geographic market in which it now owns radio broadcast properties. On
October 1, 1996, the FCC commenced a proceeding to explore possible revisions of
its policies concerning waiver of the newspaper/radio cross-ownership
restrictions.
The FCC generally applies its ownership limits to "attributable" interests
held by an individual, corporation, partnership or other association. In the
case of corporations holding, or through subsidiaries controlling, broadcast
licenses, the interests of officers, directors and those who, 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 and bank trust departments that are passive investors) are generally
attributable.
Thomas O. Hicks, a director of the Company, is the President and a director
of HM2/Chancellor, which through Chancellor holds attributable interests in
radio stations in various markets in the States of California, Florida,
Minnesota, New York, Ohio, Arizona, Colorado, Georgia, Pennsylvania, as well as
in Washington, D.C. Upon completion of Chancellor's pending merger with
Evergreen Media Corporation, Chancellor will also hold attributable interests in
various markets in the additional states of Illinois, Massachusetts, Michigan
and Texas. Thomas O. Hicks is also the President, Chief Executive Officer and
Chief Operating Officer and 100% stockholder of HM3/Sunrise, which through STC
Broadcasting, Inc. owns television stations in California, New York and Michigan
and is seeking to acquire an attributable interest in a television station in
Ohio. Eric C. Neuman is a director of the Company, the Vice President and
Secretary of HM2/Chancellor, and the Vice President of HM3/Sunrise.
In determining whether the Company is in compliance with the local
ownership limits on AM and FM stations, the FCC will consider the Company's AM
and FM holdings as well as the attributable broadcast interests of the Company's
officers, directors and attributable stockholders. Accordingly, the attributable
broadcast interests of the Company's officers and directors described in the
preceding paragraph will limit the number of radio stations the Company may
acquire or own in any market in which such officers or directors hold or acquire
attributable broadcast interests. In addition, the Company's officers and
directors may from time to time hold various nonattributable interests in media
properties.
Under its "cross-interest" policy, the FCC considers certain "meaningful"
relationships among competing media outlets in the same market, even if the
ownership rules do not specifically prohibit the relationship. Under the
cross-interest policy, the FCC in certain instances may prohibit one party from
acquiring an attributable interest in one media outlet and a substantial
non-attributable economic interest in another media outlet in the same market.
Under this policy, the FCC may consider significant equity interests combined
with an attributable interest in a media outlet in the same market, joint
ventures, and common key employees among competitors. The cross-interest policy
does not necessarily prohibit all of these interests, but requires that the FCC
consider whether, in a particular market, the "meaningful" relationships between
competitors could have a significant adverse effect upon economic competition
and program diversity. Heretofore, the FCC has not applied its cross-interest
policy to LMAs and JSAs between broadcast stations. In its ongoing rulemaking
proceeding concerning the attribution rules described below, the FCC has sought
comment on, among other things, (i) whether the cross-interest policy should be
applied only in smaller markets and (ii) whether non-equity financial
relationships such as debt, when combined with multiple business
interrelationships such as LMAs and JSAs, raise concerns under the
cross-interest policy.
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If the proposed merger of Chancellor and Evergreen Media Corporation is
completed, Thomas O. Hicks, through his control of HM2/Chancellor and the
Company, will have an attributable interest in a total number of radio stations
serving the Philadelphia, Pennsylvania market which exceeds FCC multiple
ownership limitations. The FCC could require the Company to divest itself of
radio stations WJBR-FM and WJBR-AM, which serve the Wilmington, Delaware market.
The Company has entered into a binding letter of intent to contribute the
broadcasting licenses of such stations to a newly-formed company which will be
structured to satisfy FCC multiple ownership rules and cross-interest
limitations. While management of the Company believes that such arrangement will
meet FCC multiple ownership rules and cross-interest limitations as they
presently exist, there can be no assurance that the FCC will act favorably on
the proposed contribution or that the FCC will not amend its rules and policies
in an adverse manner. The Company does not believe that an unfavorable decision
by the FCC would have a material adverse effect on the financial condition of
the Company.
The Communications Act prohibits the issuance of broadcast licenses to, or
the holding of broadcast licenses by, any corporation of which more than 20% of
the capital stock is owned of record or voted by non-U.S. citizens or their
representatives or by a foreign government or a representative thereof, or by
any corporation organized under the laws of a foreign country (collectively,
"Aliens"). The Communications Act also authorizes the FCC, if the FCC determines
that it would be in the public interest, to prohibit the issuance of a broadcast
license to, or the holding of a broadcast license by, any corporation directly
or indirectly controlled by any other corporation of which more than 25% of the
capital stock is owned of record or voted by Aliens. The Company has been
advised that the FCC staff has interpreted this provision to require a public
interest finding in favor of such a grant or holding before a broadcast license
may be granted to or held by any such corporation and has made such a finding
only in limited circumstances generally involving licenses other than broadcast
licenses. The FCC has issued interpretations of existing law (i) under which
these restrictions in modified form apply to other forms of business
organizations, including partnerships and (ii) indicating how alien interests in
a company that are held directly through intermediate entities should be
considered in determining whether that company is in compliance with these alien
ownership restrictions. As a result of these provisions, the licenses granted to
the radio station subsidiaries of the Company by the FCC could be revoked if,
among other restrictions imposed by the FCC, more than 25% of the Company's
stock were directly or indirectly owned or voted by Aliens. The Company is an
indirect wholly-owned subsidiary of Capstar Broadcasting. Accordingly, Capstar
Broadcasting's Certificate of Incorporation restricts the ownership, voting and
transfer of Capstar Broadcasting's capital stock in accordance with the
Communications Act and the rules of the FCC, and prohibits ownership of more
than 25% of Capstar Broadcasting's outstanding capital stock (or more than 25%
of the voting rights it represents) by or for the account of Aliens or
corporations otherwise subject to domination or control by Aliens. The
Certificate of Incorporation authorizes Capstar Broadcasting's Board of
Directors to adopt such provisions as it deems necessary to enforce these
prohibitions. In addition, the Certificate of Incorporation provides that shares
of capital stock of Capstar Broadcasting determined by Capstar Broadcasting's
Board of Directors to be owned beneficially by an Alien or an entity directly or
indirectly owned by Aliens in whole or in part shall always be subject to
redemption by Capstar Broadcasting by action of the Board of Directors to the
extent necessary, in the judgment of the Board of Directors, to comply with
these alien ownership restrictions.
Local Marketing Agreements. Over the past few years, a number of radio
stations have entered into what have commonly been referred to as local
marketing agreements or LMAs. While these agreements may take varying forms,
under a typical LMA, separately owned and licensed radio stations agree to enter
into cooperative arrangements of varying sorts, subject to compliance with the
requirements of antitrust laws and with the FCC's rules and policies. Under
these arrangements, separately-owned stations could agree to function
cooperatively in programming, advertising sales and similar matters, subject to
the requirement that the licensee of each station maintain independent control
over the programming and operations of its own station. One typical type of LMA
is a programming agreement between two separately-owned radio stations serving 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. Such arrangements are
an extension of the concept of "time brokerage" agreements, under which a
licensee of a station sells blocks of time on its station to an entity or
entities that program the blocks of time and sell their own commercial
advertising announcements during the time periods in question.
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The FCC has specifically revised its "cross-interest" policy to make that
policy inapplicable to time brokerage arrangements. Furthermore, the staff of
the FCC's Mass Media Bureau has held that LMAs are not contrary to the
Communications Act provided that the licensee of the station that is being
substantially programmed by another entity maintains complete responsibility
for, and control over, programming and operations of its broadcast station and
assures compliance with applicable FCC rules and policies.
The FCC's multiple ownership rules specifically permit radio station LMAs
to continue to be entered into and implemented, but provide that a licensee or a
radio station that brokers more than 15% of the weekly broadcast time on another
station serving the same market will be considered to have an attributable
ownership interest in the brokered station for purposes of the FCC's multiple
ownership rules. As a result, in a market where it owns a radio station, the
Company would not be permitted to enter into an LMA with another local radio
station in the same market that it could not own under the revised local
ownership rules, unless the Company's programming constituted 15% or less of the
other local station's programming time on a weekly basis. The 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) through
a time brokerage or LMA arrangement where the brokered and brokering stations
which it owns or programs serve substantially the same area. Such 25%
simulcasting limitation also applies to commonly owned stations in the same
broadcast service that serve substantially the same area.
Joint Sales Agreements. Over the past few years, a number of radio stations
have entered into cooperative arrangements commonly known as joint sales
agreements or JSAs. While these agreements may take varying forms, under the
typical JSA, a station licensee obtains, for a fee, the right to sell
substantially all of the commercial advertising on a separately-owned and
licensed station in the same market. The typical JSA also customarily involves
the provision by the selling licensee of certain sales, accounting and "back
office" services to the station whose advertising is being sold. The typical JSA
is distinct from an LMA in that a JSA normally does not involve programming.
The FCC has determined that issues of joint advertising sales should be
left to enforcement by antitrust authorities, and therefore does not generally
regulate joint sales practices between stations. Currently, stations for which a
licensee sells time under a JSA are not deemed by the FCC to be attributable
interests of that licensee. However, in connection with its ongoing rulemaking
proceeding concerning the attribution rules, the FCC is considering whether JSAs
should be considered attributable interests or within the scope of the FCC's
cross-interest policy, particularly when JSAs contain provisions for the supply
of programming services and/or other elements typically associated with LMAs. If
JSAs become attributable interests as a result of changes in the FCC rules, the
Company may be required to terminate any JSA it might have with a radio station
which the Company could not own under the FCC's multiple ownership rules.
Programming and Operation. The Communications Act requires broadcasters to
serve the "public interest." The FCC gradually has 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 issues of the station's community 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 renewal applications of a licensee, although listener
complaints may be filed at any time and generally may be considered by the FCC
at any time. Stations also must pay regulatory and application fees and follow
various rules promulgated under the Communications Act that regulate, among
other things, political advertising, sponsorship identifications, the
advertisement of contests and lotteries, obscene and indecent broadcasts, and
technical operations, including limits on radio frequency radiation. In
addition, licensees must develop and implement affirmative action programs
designed to promote equal employment opportunities and must submit reports to
the FCC with respect to these matters on an annual basis and in connection with
a renewal application.
Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant of
"short term" (less than the full term) license renewal or, for particularly
egregious violations, the denial of a license renewal application or the
revocation of a license.
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Proposed and Recent Changes. The FCC has a pending rulemaking proceeding
that seeks, among other things, comment on whether the FCC should modify its
radio and television broadcast ownership "attribution" rules by (i) raising the
basic benchmark for attributing ownership in a corporate licensee from 5% to 10%
of the licensee's outstanding voting power, (ii) increasing from 10% to 20% of
the licensee's outstanding voting power the attribution benchmark for "passive
investors" in corporate licensees, (iii) attributing certain minority
stockholdings in corporations with a single majority shareholder and (iv)
attributing certain LMA, JSA, debt or non-voting stock interests that have
heretofore been non-attributable.
Moreover, Congress and the FCC have under consideration, and in the future
may consider and adopt, new laws, regulations and policies regarding a wide
variety of matters that could affect, directly or indirectly, the operation,
ownership and profitability of the Company's radio stations, result in the loss
of audience share and advertising revenues for the Company's radio stations, and
affect the ability of the Company to acquire additional radio stations or to
finance those acquisitions. Such matters may include spectrum use or other fees
on FCC licenses; foreign ownership of broadcast licenses; revisions to the FCC's
equal employment opportunity rules and rules relating to political broadcasting;
technical and frequency allocation matters; 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 attribution policies; new
technologies such as DAB; and proposals to auction the right to use the radio
broadcast spectrum to the highest bidder.
The Company cannot predict what other matters might be considered in the
future by the FCC or Congress, 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. In addition to the risks associated with the
acquisition of radio stations, the Company is also aware of the possibility that
certain acquisitions it proposes to make may be investigated by the FTC or the
DOJ, which are the agencies responsible for enforcing the federal antitrust
laws. The agencies have recently investigated several radio station acquisitions
where an operator proposed to acquire new stations in its existing markets,
including the Benchmark Acquisition and the Patterson Acquisition. The DOJ's
investigation with respect to the Benchmark Acquisition was closed, however,
when the DOJ granted early termination of the applicable waiting period under
the HSR Act in May 1997. The Company cannot predict the outcome of any specific
DOJ or FTC investigation, which are necessarily very fact specific. Any decision
by the FTC or the DOJ to challenge a proposed acquisition could affect the
ability of the Company to consummate the acquisition or to consummate it on the
proposed terms.
For an acquisition meeting certain size thresholds, the HSR Act and the
rules promulgated thereunder require the parties to file Notification and Report
Forms with the FTC and the DOJ and to observe specified waiting period
requirements before consummating the acquisition. During the initial 30-day
period after the filing, the agencies decide which of them will investigate the
transaction. If the investigating agency determines that the transaction does
not raise significant antitrust issues, then it will either terminate the
waiting period or allow it to expire after the initial 30 days. On the other
hand, if the agency determines that the transaction requires a more detailed
investigation, then at the conclusion of the initial 30 day period, it will
issue a formal request for additional information ("Second Request"). The
issuance of a Second Request extends the waiting period until the twentieth
calendar day after the date of substantial compliance by all parties to the
acquisition. Thereafter, such waiting period may only be extended by court order
or with the consent of the parties. In practice, complying with a Second Request
can take a significant amount of time. In addition, if the investigating agency
raises substantive issues in connection with a proposed transaction, then the
parties frequently engage in lengthy discussions or negotiations with the
investigating agency concerning possible means of addressing those issues,
including but not limited to persuading the agency that the proposed acquisition
would not violate the antitrust laws, restructuring the proposed acquisition,
divestiture of other assets of one or more parties, or abandonment of the
transaction. Such discussions and negotiations can be time-consuming, and the
parties may agree to delay consummation of the acquisition during their
pendency.
At any time before or after the consummation of a proposed acquisition, the
FTC or the DOJ could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
acquisition or seeking divestiture of the business acquired or other assets of
the Company. Acquisitions
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that are not required to be reported under the HSR Act may be investigated by
the FTC or the DOJ under the antitrust laws before or after consummation. In
addition, private parties may under certain circumstances bring legal action to
challenge an acquisition under the antitrust laws.
The Company does not believe that any Pending Acquisition will be adversely
affected in any material respect by review under the HSR Act. The Company has
received early termination of the applicable waiting period under the HSR Act in
regard to the Ameron Acquisition. The Company has filed, or intends to file, a
Notification and Report Form with the DOJ and the FTC with respect to each of
the Patterson Acquisition and the SFX Exchange. No other Pending Acquisition is
subject to the HSR Act. The DOJ has raised an issue with the Company regarding
the number of radio stations that the Company will own in the
Allentown-Bethlehem, Pennsylvania area upon completion of the Patterson
Acquisition and has issued a Second Request in connection therewith. The Company
has begun discussions with the DOJ to resolve the matter. See "The
Acquisitions -- Patterson Acquisition."
As part of its increased scrutiny of radio station acquisitions, the DOJ
has stated publicly that it believes that LMAs, JSAs 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.
EMPLOYEES
At March 31, 1997, the Company had a staff of 600 full-time employees and
242 part-time employees. If the Osborn Add-on Transactions, the Space Coast
Acquisitions, the GulfStar Transaction, the Community Pacific Acquisition, the
Cavalier Acquisition, the Benchmark Acquisition, the GulfStar -- McForhun
Acquisition and the GulfStar -- Livingston Acquisition had been consummated as
of March 31, 1997, the Company would have had a staff of approximately 1,662
full-time employees and 679 part-time employees as of such date. There are no
collective bargaining agreements between the Company and its employees. The
Company does have, however, one union member employed in connection with its
Muzak franchise in Atlanta, Georgia, and is negotiating a collective bargaining
agreement with the American Federation of Television and Radio Artists of
America ("AFTRA") which represents the on-air performance staff of WFAS-AM/FM in
Westchester County, New York for collective bargaining purposes. WFAS-AM/FM has
approximately nine employees that would be represented by AFTRA. The Company
believes that its relations with its employees are good.
SEASONALITY
Seasonal revenue fluctuations are common in the radio broadcasting industry
and are due primarily to fluctuations in advertising expenditures by retailers.
The Company's revenues and broadcast cash flows are typically lowest in the
first quarter and highest in the second and fourth quarters.
PROPERTIES AND FACILITIES
The types of properties required to support each of the Company's radio
stations include offices, studios and transmitter/antenna sites. A station's
studios are generally housed with its offices in downtown or business districts.
The transmitter/antenna sites generally are located so as to provide maximum
market coverage.
The Company owns transmitter and antenna sites in Gadsden and Tuscaloosa,
Alabama; Norwalk and Brookfield, Connecticut; Wilmington and Dover, Delaware;
Ft. Pierce, Melbourne, Port St. Lucie and Vero Beach, Florida; Catlettsburg,
Kentucky; Hartsdale and Brewster, New York; Asheville and Statesville, North
Carolina; Dayton, Ohio; Whitehall, Pennsylvania; Jackson, Tennessee; Huntington
and Wheeling, West Virginia; Des Moines, Iowa; and Manteca, California. The
Company also leases transmitter and antenna sites in Tuscaloosa, Alabama;
Stamford, Connecticut; Bethany Beach, Delaware; Indian River County, Cocoa and
Vero Beach, Florida; Asheville and Cool Springs, North Carolina; Bridgeport and
Dayton, Ohio; Washington Township and Bethlehem, Pennsylvania; Huntington,
Milton and Cabell County and Wheeling, West Virginia; Pawling and Bedford, New
York; Anchorage, Alaska; Modesto and Stockton, California; and Des Moines, Iowa.
The Company typically leases studio and office space, although it owns its
facilities in Gadsden and Tuscaloosa, Alabama; Brookfield, Connecticut; Port St.
Lucie and Ft. Pierce, Florida; Catlettsburg, Kentucky; Hartsdale and
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Patterson, New York; Asheville, North Carolina; Jackson, Tennessee; Huntington
and Wheeling, West Virginia; Des Moines, Iowa; Anchorage, Alaska; and Monterey,
Modesto and Stockton, California.
In addition, as a result of the completion of the GulfStar Transaction, the
Community Pacific Acquisition, the Cavalier Acquisition, the Benchmark
Acquisition, the GulfStar -- McForhun Acquisition and the GulfStar -- Livingston
Acquisition, the Company also owns transmitter and antenna sites in Ft. Smith,
Arkansas; Denham Springs, Louisiana; Jackson, Mississippi; Farmington, New
Mexico; Columbia, Garrison and Greenville, South Carolina; Waco, Beaumont,
Lubbock, Corpus Christi, Texarkana, and Victoria, Texas; and Amherst County,
Bedford County, Roanoke and Winchester, Virginia. The Company also leases
transmitter and antenna sites in Ft. Smith and Fayetteville, Arkansas; Baton
Rouge, Caddo Parish, Denham Springs and Greenwell Springs, Louisiana; Jackson
and Pelahatchi, Mississippi; Farmington, New Mexico; Waco, Beaumont, Killeen,
Lubbock, Corpus Christi, Lufkin, Orange City, Tyler, Victoria, and Texarkana,
Texas; and Boonea Mill and Winchester, Virginia. The Company owns or leases
studio and office space in Ft. Smith and Fayetteville, Arkansas; Dover,
Delaware; Denham Springs, Shreveport and Baton Rouge, Louisiana; Columbia and
Greenville, South Carolina; Beaumont, Killeen, Lubbock, Lufkin, Waco, Tyler,
Corpus Christi, Victoria, and Texarkana, Texas; and Roanoke, Virginia.
The Company generally considers its facilities to be suitable and of
adequate size for its current and intended purposes. The Company does not
anticipate any difficulties in renewing any facility leases or in leasing
additional space, if required.
The Company owns substantially all of its other equipment, consisting
principally of transmitting antennae, transmitters, studio equipment and general
office equipment. The towers, antennae and other transmission equipment used by
the Company's stations are generally in good condition, although opportunities
to upgrade facilities are continuously reviewed.
The principal executive offices of the Company are located at 600 Congress
Avenue, Suite 1400, Austin, Texas 78701. The telephone number of the Company at
that address is (512) 404-6840.
LITIGATION
The Company is involved in litigation from time to time in the ordinary
course of its business. In management's opinion, the litigation in which the
Company is currently involved, individually and in the aggregate, is not
material to the Company's financial condition or results of operations.
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THE ACQUISITIONS
The Company owns and operates or provides services to 155 radio stations in
46 mid-sized markets. As part of the Company's overall strategy to capitalize on
the opportunities created by the Telecom Act, the Company has entered into 17
agreements to acquire or assume agreements to provide services to 85 additional
stations in 31 mid-sized markets (including seven stations in five markets for
which the Company currently provides services pursuant to an LMA) and, upon
completion of the Pending Transactions, the Company will own and operate or
provide services to 233 radio stations in 62 mid-sized markets located
throughout the United States. Any such acquisition agreements pursuant to which
Capstar Broadcasting or any subsidiary of Capstar Broadcasting (other than the
Company) is a party will be assigned or contributed to the Company upon or prior
to consummation of the acquisition. The Company must obtain additional financing
to consummate the Pending Acquisitions and there can be no assurance that such
financing will be available to the Company on terms acceptable to its management
or at all. The consummation of the Pending Acquisitions is subject to various
conditions, including FCC and other regulatory approval. No assurances can be
given that any or all of the Pending Acquisitions will be consummated or that,
if completed, they will be successful.
GULFSTAR TRANSACTION
In July 1997, Capstar Broadcasting, CBC -- GulfStar Merger Sub, Inc., a
wholly-owned subsidiary of Capstar Broadcasting ("MergeCo"), merged with
GulfStar, pursuant to which (i) the separate existence of GulfStar ceased, (ii)
MergeCo survived as a wholly-owned subsidiary of Capstar Broadcasting and was
renamed "GulfStar Communications, Inc.," (iii) each issued and outstanding share
of MergeCo capital stock remained outstanding after the GulfStar Merger, (iv)
each share of common stock of GulfStar outstanding immediately prior to the
effective time (the "Effective Time") of the GulfStar Merger was converted into
the right to receive a number of shares of Common Stock as more fully described
hereinafter, and (v) each share of preferred stock of GulfStar outstanding
immediately prior to the Effective Time was converted into the right to receive
an amount in cash equal to its liquidation preference, including accumulated
dividends, immediately prior to the GulfStar Merger, which amount equalled $29.4
million in the aggregate for all outstanding shares of preferred stock. Pursuant
to the terms of the GulfStar Merger, each share of GulfStar's common stock, par
value $.01 per share ("GulfStar Common Stock"), and GulfStar's Class A Common
Stock, par value $.01 per share ("GulfStar Class A Stock"), was converted into
the right to receive 1,187.947 shares of Class A Common Stock and each share of
GulfStar's Class B Common Stock, par value $.01 per share ("GulfStar Class B
Stock"), and Class C Common Stock, par value $.01 per share ("GulfStar Class C
Stock"), was converted into the right to receive 1,187.947 shares of Class B
Common Stock, par value $.01 per share ("Class B Common Stock"), of Capstar
Broadcasting and Class C Common Stock, respectively, provided that each share of
GulfStar Class A Stock and each share of GulfStar Class C Stock held by R.
Steven Hicks or Thomas O. Hicks was converted into the right to receive
1,187.947 shares of Class C Common Stock of Capstar Broadcasting. Immediately
prior to the Effective Time, BT Capital Partners, Inc. ("BT Capital"), an
affiliate of BT Securities Corporation (an initial purchaser in the Preferred
Stock Offering and the Capstar Radio Notes Offering), exercised a warrant
previously issued by GulfStar to BT Capital, and upon such exercise received
8,098 shares of GulfStar Class B Stock. At the Effective Time, Capstar
Broadcasting assumed GulfStar's obligations under two option agreements (the
"Assumed Options") pursuant to which, subject to certain terms and conditions,
GulfStar was obligated to issue an aggregate of 1,000 shares of GulfStar Common
Stock to two employees of GulfStar. The Assumed Options are deemed to be options
to acquire an aggregate of 1,187.947 shares of Class A Common Stock at an
exercise price of $0.71 per share. Upon completion of the GulfStar Merger,
Capstar Broadcasting and the stockholders of GulfStar, except R. Steven Hicks,
entered into the GulfStar Stockholders Agreement. See "Certain
Transactions -- Stockholders Agreements."
The conversion ratio was calculated by the parties based on the relative
value of Capstar Broadcasting and GulfStar principally determined by utilizing
projected broadcast cash flows for the fiscal year ending December 31, 1998.
Thomas O. Hicks, a director of Capstar Broadcasting and the Company,
beneficially owns 100% of the outstanding capital stock of Capstar Broadcasting
and beneficially owned 87.3% of the voting power of GulfStar. In addition,
Thomas O. Hicks and R. Steven Hicks, Chairman of the Board and Chief Executive
Officer, filled
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two of the four director seats of GulfStar, and R. Steven Hicks was also the
Chief Executive Officer of GulfStar. Upon completion of the GulfStar Merger, R.
Steven Hicks became entitled to receive 11,879,470 shares of Class C Common
Stock, Thomas O. Hicks became entitled to receive 12,000,641 shares and
34,368,495 shares of Class B Common Stock and Class C Common Stock,
respectively, Eric C. Neuman, Paul D. Stone, Lawrence D. Stuart, Jr. and John D.
Cullen became entitled to receive 2,500,628 shares, 2,271,355 shares, 637,928
shares, and 3,292,989 shares, respectively, of Class A Common Stock, and BT
Capital became entitled to receive 9,619,995 shares of Class B Common Stock.
In July 1997, the advisory committee of HM Fund III approved the terms of
the GulfStar Merger.
Upon completion of the GulfStar Merger, Capstar Broadcasting contributed
GulfStar through Capstar Partners to the Company in exchange for common stock of
Capstar Partners and the Company, respectively, and as a result, GulfStar became
a wholly owned subsidiary of the Company.
AMERON ACQUISITION
On April 24, 1997, the Company agreed to acquire substantially all of the
assets of Ameron Broadcasting, Inc. ("Ameron") used or held for use in the
operation of radio stations WOWC-FM, WMJJ-FM and WERC-AM, which serve the
Birmingham, Alabama market (the "Ameron Acquisition"). The purchase price of the
Ameron Acquisition will be approximately $31.5 million payable in cash. In May
1997, the Company and Ameron filed an application with the FCC for approval to
transfer control of such radio stations to the Company, and in July 1997 the DOJ
granted early termination of the applicable waiting period under the HSR Act.
The Company anticipates that the Ameron Acquisition will be consummated in
October 1997.
Under the terms of the acquisition agreement, which was entered into by
Capstar Acquisition Company, Inc., a subsidiary of the Company ("Capstar
Acquisition Co."), the acquisition agreement may be terminated by Ameron prior
to consummation of the asset purchase under various circumstances, including a
material breach of any representation, warranty, covenant or agreement by
Capstar Acquisition Co. If the acquisition agreement is terminated due to a
material breach of any representation, warranty, covenant or agreement by
Capstar Acquisition Co., then Ameron will be entitled to liquidated damages in
the amount of $1,000,000 as Ameron's exclusive remedy. Capstar Acquisition Co.
has secured its obligation to consummate the asset purchase by placing $1.0
million in cash into escrow. See "Description of Other Indebtedness -- Letters
of Credit."
In a related transaction, the Company agreed on May 5, 1997, to assume from
Sharepoint Management, Inc. ("Sharepoint") certain construction permits issued
to Sharepoint by the FCC to construct and operate a new FM Broadcast Station in
Columbiana, Alabama (the "Permit Agreement"). Since Sharepoint is controlled by
the president of Ameron, Ameron has agreed in an amendment to the acquisition
agreement dated May 9, 1997 to reduce the purchase price to be paid under the
acquisition agreement on a dollar-for-dollar basis by the amount of the purchase
price to be paid under the Permit Agreement, which is expected to be $75,000.
The Company and Ameron have also agreed in an amendment to the acquisition
agreement that the Company has the right to extend the closing thereunder in
exchange for increasing the purchase price payable thereunder by $65,000.
COMCO ACQUISITION
On February 3, 1997, the Company agreed to acquire substantially all of the
assets of COMCO Broadcasting, Inc. ("COMCO") (the "COMCO Acquisition"). The
purchase price of the COMCO Acquisition will equal approximately $6.7 million
payable in cash. COMCO owns and operates six radio stations (four FM and two AM)
in the Anchorage and Fairbanks, Alaska markets. The Company and COMCO filed an
application with the FCC for approval to transfer control of such radio stations
to the Company in February 1997. No filing under the HSR Act is required. The
Company anticipates that the COMCO Acquisition will be consummated in October
1997.
Under the terms of the agreement, which was entered into by Pacific Star, a
wholly-owned subsidiary of the Company, the acquisition agreement may be
terminated by COMCO prior to consummation of the asset purchase under various
circumstances, including a material breach of any representation, warranty,
covenant or agreement by Pacific Star. If the acquisition agreement is
terminated due to a material breach of any representation,
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warranty, covenant or agreement by Pacific Star, then COMCO will be entitled to
liquidated damages in the amount of $335,000 as COMCO's exclusive remedy.
Pacific Star has secured its obligation to consummate the asset purchase by
placing into escrow a letter of credit in the amount of $335,000. See
"Description of Other Indebtedness -- Letters of Credit."
Upon consummation of the COMCO Acquisition, the Company would own and
operate seven radio stations (four FM and three AM) in the Anchorage, Alaska
market, which number exceeds the multiple station ownership limitations under
the Communications Act. Accordingly, the Company will dispose of radio station
KASH-AM in Anchorage, Alaska, which was acquired in the Community Pacific
Acquisition, before the COMCO Acquisition is consummated. The Company will be in
compliance with the ownership limitations of the Communications Act in the
Anchorage, Alaska market once it disposes of KASH-AM.
COMMONWEALTH ACQUISITION
On January 27, 1997, the Company agreed to acquire substantially all of the
assets of Commonwealth Broadcasting of Arizona, L.L.C. ("Commonwealth") (the
"Commonwealth Acquisition"). The purchase price of the Commonwealth Acquisition
will equal approximately $5.3 million payable in cash. Commonwealth owns and
operates three radio stations (two FM and one AM) in Yuma, Arizona. No filing
under the HSR Act is required, and the FCC approved the Commonwealth Acquisition
in April 1997. The Company anticipates that the Commonwealth Acquisition will be
consummated in October 1997.
Under the terms of the acquisition agreement, which was entered into by
Pacific Star, the acquisition agreement may be terminated by Commonwealth prior
to consummation of the asset purchase under various circumstances, including a
material breach of any representation, warranty, covenant or agreement by
Pacific Star. If the acquisition agreement is terminated due to a material
breach of any representation, warranty, covenant or agreement by Pacific Star,
then Commonwealth will be entitled to liquidated damages in the amount of
$262,500 as Commonwealth's exclusive remedy. Pacific Star has secured its
obligation to consummate the asset purchase by placing into escrow a letter of
credit in the amount of $262,500. See "Description of Other
Indebtedness -- Letters of Credit."
EMERALD CITY ACQUISITION
On March 10, 1997, the Company agreed to acquire substantially all of the
assets of Emerald City Radio Partners, L.P. ("Emerald City") (the "Emerald City
Acquisition") used or useful in the operations of Emerald City's three radio
stations (two FM and one AM) in the Columbia, South Carolina market. The Company
has agreed to assign the right of WNOK Acquisition Company, Inc., a subsidiary
of the Company ("WNOK Acquisition Co."), to acquire two of Emerald City's radio
stations (WOIC-AM and WMFX-FM) on or before the date on which the Company
acquires Emerald City's third radio station (WNOK-FM) to Clear Channel Radio
Inc. The purchase price of the Emerald City Acquisition will equal approximately
$14.9 million payable in cash, of which approximately $9.5 million has been
allocated to station WNOK-FM and will be payable by the Company. The FCC
approved the Emerald City Acquisition in June 1997. No filing under the HSR Act
is required. The Company anticipates that the Emerald City Acquisition will be
consummated in August 1997.
Under the terms of the agreement, which was entered into by WNOK
Acquisition Company, Inc., a subsidiary of the Company ("WNOK Acquisition Co."),
the acquisition agreement may be terminated by Emerald City prior to
consummation of the asset purchase under various circumstances, including a
material breach of any representation, warranty, covenant or agreement by WNOK
Acquisition, Co. If the acquisition agreement is terminated due to a material
breach of any representation, warranty, covenant or agreement by WNOK
Acquisition Co., then Emerald City will be entitled to liquidated damages in the
amount of $500,000 as Emerald City's exclusive remedy. WNOK Acquisition Co. has
secured its obligation to consummate the asset purchase by placing into escrow
cash in the amount of $75,000 and has agreed that $425,000 of the loan described
below will be forgiven if Emerald City becomes entitled to liquidated damages.
In connection with the Emerald City Acquisition, the Company has loaned
Emerald City approximately $13.5 million, the proceeds of which were used by
Emerald City (i) to pay matured indebtedness of Emerald City to Clear Channel
Radio, Inc. in the amount of approximately $13.3 million, including principal
and interest, and
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(ii) for other business purposes in the amount of approximately $200,000. The
loan matures on the earlier to occur of (i) October 31, 1997, (ii) the closing
of the Emerald City Acquisition or (iii) within 75 days after the termination of
the acquisition agreement with WNOK Acquisition Co.
GRANT ACQUISITION
On June 20, 1997, the Company agreed to acquire substantially all of the
assets of Grant used or held for use in the operation of radio station WZBQ-FM
which serves the Tuscaloosa, Alabama market (the "Grant Acquisition"). The
purchase price of the Grant Acquisition will equal approximately $3.2 million
payable in cash. The Company and Grant filed an application in July 1997 with
the FCC for approval to transfer control of such radio station to the Company.
No filing under the HSR Act is required. The Company anticipates that the Grant
Acquisition will be consummated in September 1997.
Under the terms of the acquisition agreement, which was entered into by
Capstar Acquisition Co., the acquisition agreement may be terminated by Grant
prior to consummation of the asset purchase under various circumstances,
including a material breach of any representation, warranty, covenant or
agreement by Capstar Acquisition Co. If the acquisition agreement is terminated
due to a material breach of any representation, warranty, covenant or agreement
by Capstar Acquisition Co., then Grant will be entitled to liquidated damages in
the amount of $160,000 as Grant's exclusive remedy. Capstar Acquisition Co. has
secured its obligation to consummate the asset purchase by placing the sum of
$160,000 in cash into escrow.
GRIFFITH ACQUISITION
On May 22, 1997, the Company agreed to acquire substantially all of the
assets of Griffith Broadcasting, Inc. ("Griffith") used or held for use in the
operation of stations WTAK-FM, WXQW-FM and WWXQ-FM, which serve the Huntsville,
Alabama market (the "Griffith Acquisition"). The purchase price of the Griffith
Acquisition will equal approximately $5.4 million payable in cash. In June 1997,
the Company and Griffith filed an application with the FCC for approval to
transfer control of such radio stations to the Company. No filing under the HSR
Act is required. The Company anticipates that the Griffith Acquisition will be
consummated in September 1997.
Under the terms of the acquisition agreement, which was entered into by
Capstar Acquisition Co., the acquisition agreement may be terminated by Griffith
prior to consummation of the asset purchase under various circumstances,
including a material breach of any representation, warranty, covenant or
agreement by Capstar Acquisition Co. If the acquisition agreement is terminated
due to a material breach of any representation, warranty, covenant or agreement
by Capstar Acquisition Co., then Griffith will be entitled to liquidated damages
in the amount of $250,000 as Griffith's exclusive remedy. Capstar Acquisition
Co. has secured its obligation to consummate the asset purchase by placing into
escrow a letter of credit in the amount of $250,000. See "Description of Other
Indebtedness -- Letters of Credit."
GULFSTAR -- AMERICAN GENERAL ACQUISITION
On June 6, 1997, GulfStar agreed to acquire substantially all of the assets
of American General Media of Texas, Inc. ("American General") used or held for
use in the operation of radio station KKCL-FM which serves the Lubbock, Texas
market (the "GulfStar -- American General Acquisition"). The purchase price of
the GulfStar -- American General Acquisition will equal approximately $3.2
million payable in cash. GulfStar and American General filed an application with
the FCC in June 1997 for approval to transfer control of the radio station to
GulfStar. No filing under the HSR Act is required. The Company anticipates that
the GulfStar -- American General Acquisition will be consummated in November
1997.
Under the terms of the acquisition agreement, which was entered into by
GulfStar Communications Lubbock, Inc., a subsidiary of GulfStar
("GulfStar -- Lubbock"), the acquisition agreement may be terminated by American
General prior to consummation of the asset purchase if all conditions to
GulfStar -- Lubbock's obligation to consummate the asset purchase (including the
condition that all of American General's representations and warranties are true
and correct and that American General has performed, satisfied and complied with
all of its covenants, agreements and conditions in the acquisition agreement)
are satisfied and GulfStar --
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Lubbock nevertheless fails to consummate the asset purchase. If the acquisition
agreement is terminated by American General due to GulfStar -- Lubbock's failure
to consummate the asset purchase even though all conditions to
GulfStar -- Lubbock's obligation to consummate the asset purchase are satisfied,
American General will be entitled to liquidated damages in the amount of
$160,000. GulfStar -- Lubbock has secured its obligation to consummate the asset
purchase by placing into escrow cash in the amount of $160,000.
GULFSTAR -- BOONEVILLE ACQUISITION
On June 1, 1997, GulfStar agreed to acquire substantially all of the assets
of Booneville Broadcasting Company and Arklahoma Communications Company
(collectively, "Booneville") used or held for use in the operation of radio
station KZBB-FM, which serves the Ft. Smith, Arkansas market (the
"GulfStar -- Booneville Acquisition"). The purchase price of the
GulfStar -- Booneville Acquisition will equal approximately $1.5 million payable
in cash. GulfStar and Booneville filed an application with the FCC in June 1997
for approval to transfer control of the radio station to GulfStar. No filing
under the HSR Act is required. GulfStar and Booneville entered into an LMA in
connection with KZBB-FM pursuant to which GulfStar provides certain sales,
programming and marketing services for the station. The Company anticipates that
the GulfStar -- Booneville Acquisition will be consummated in December 1997.
Under the terms of the acquisition agreement, which was entered into by
GulfStar Communications Arkansas, Inc., a subsidiary of GulfStar
("GulfStar -- Arkansas"), the acquisition agreement may be terminated by
Booneville prior to consummation of the asset purchase if all conditions to
GulfStar -- Arkansas' obligation to consummate the asset purchase (including the
condition that all of Booneville's representations and warranties are true and
correct and that Booneville has performed, satisfied and complied with all of
its covenants, agreements and conditions in the acquisition agreement) are
satisfied and GulfStar -- Arkansas nevertheless fails to consummate the asset
purchase. If the acquisition agreement is terminated by Booneville due to
GulfStar -- Arkansas' failure to consummate the asset purchase even though all
conditions to GulfStar -- Arkansas' obligation to consummate the asset purchase
are satisfied, Booneville will be entitled to liquidated damages in the amount
of $500,000. GulfStar -- Arkansas has secured its obligations to consummate the
asset purchase by placing into escrow cash in the amount of $500,000.
GulfStar -- Arkansas and Booneville entered into an LMA in connection with
KZBB-FM pursuant to which GulfStar provides certain sales, programming and
marketing services for KZBB-FM.
GULFSTAR -- KJEM ACQUISITION OPTION
On June 18, 1997, GulfStar acquired an option to acquire substantially all
of the assets of KJEM used or held for use in the operation of radio station
KJEM-FM which serves the Fayetteville, Arkansas market (the "GulfStar -- KJEM
Acquisition Option"). The purchase price of the KJEM-FM assets will equal
approximately $1,750,000 payable in cash, of which $750,000 (the "Option
Payment") was paid in cash on the date of the agreement. In most circumstances,
the Option Payment is not refundable. GulfStar may exercise its option, in its
sole discretion, on or before the first anniversary date of the agreement.
GulfStar and KJEM filed an application with the FCC in July 1997 for approval to
transfer control of the radio station to GulfStar. GulfStar and KJEM entered
into an LMA in connection with KJEM-FM pursuant to which GulfStar provides
certain sales, programming and marketing services for the station.
Under the terms of the option agreement, which was entered into by
GulfStar -- Arkansas, the asset purchase contemplated by the option agreement
may be terminated by KJEM prior to consummation of the asset purchase if all
conditions to GulfStar -- Arkansas' obligation to consummate the asset purchase
(including the condition that all of KJEM's representations and warranties are
true and correct and that KJEM has performed, satisfied and complied with all of
its covenants, agreements and conditions in the acquisition agreement) are
satisfied and GulfStar -- Arkansas nevertheless fails to consummate the asset
purchase If such asset purchase is terminated by KJEM due to
GulfStar -- Arkansas' failure to consummate the asset purchase even though all
conditions to GulfStar -- Arkansas' obligation to consummate the asset purchase
are satisfied, KJEM, will be entitled to liquidated damages in the amount of the
Option Payment.
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GULFSTAR -- KLAW ACQUISITION
On June 1, 1997, GulfStar agreed to acquire substantially all of the assets
of KLAW Broadcasting, Inc., ("KLAW") used or held for use in the operation of
radio stations KLAW-FM and KZCD-FM, which serve the Lawton, Oklahoma market (the
"GulfStar -- KLAW Acquisition"). The purchase price of the GulfStar -- KLAW
Acquisition will equal approximately $2.2 million payable in cash. GulfStar and
the sellers filed an application with the FCC in June 1997 for approval to
transfer control of the radio station to GulfStar. No filing under the HSR Act
is required. GulfStar and KLAW entered into an LMA in connection with KLAW-FM
and KZCD-FM pursuant to which GulfStar provides certain sales, programming and
marketing services for the stations. The Company anticipates that the
GulfStar -- KLAW Acquisition will be consummated in November 1997.
Under the terms of the acquisition agreement, which was entered into by
GulfStar, the acquisition agreement may be terminated by KLAW prior to
consummation of the asset purchase if all conditions to GulfStar's obligation to
consummate the asset purchase (including the condition that all of KLAW's
representations and warranties are true and correct and that KLAW has performed,
satisfied and complied with all of its covenants, agreements and conditions in
the acquisition agreement) are satisfied and GulfStar fails to consummate the
asset purchase. If the acquisition agreement is terminated by KLAW due to
GulfStar's failure to consummate the asset purchase even though all conditions
to GulfStar's obligation to consummate the asset purchase are satisfied, KLAW
will be entitled to liquidated damages in the amount of $110,000. GulfStar has
secured its obligations to consummate the asset purchase by placing into escrow
cash in the amount of $110,000.
GULFSTAR -- NOALMARK ACQUISITION
On March 5, 1997, GulfStar acquired an option to acquire substantially all
of the assets of Noalmark Broadcasting Corporation ("Noalmark") used or held for
use in the operation of radio stations KKTX-FM and KKTX-AM, which serve the
Longview, Texas market (the "GulfStar -- Noalmark Acquisition Option"). The
purchase price of the Noalmark assets will equal approximately $2.4 million
payable in cash, of which $1.0 million (the "KKTX Option Payment") was paid in
cash by GulfStar on the date of the agreement. In most circumstances, the KKTX
Option Payment is not refundable. GulfStar may exercise its option, in its sole
discretion, on or before March 2000. GulfStar and Noalmark entered into an LMA
in connection with KKTX-FM and KKTX-AM pursuant to which GulfStar provides
certain sales, programming and marketing services for the stations.
Under the terms of the option agreement, which was entered into by
GulfStar, the asset purchase contemplated by the option agreement may be
terminated by Noalmark prior to consummation of the asset purchase if all
conditions to GulfStar's obligation to consummate the asset purchase (including
the condition that all of Noalmark's representations and warranties are true and
correct and that Noalmark has performed, satisfied and complied with all of its
covenants, agreements and conditions in the acquisition agreement) are satisfied
and GulfStar nevertheless fails to consummate the asset purchase. If such asset
purchase is terminated by Noalmark due to GulfStar's failure to consummate the
asset purchase even though all conditions to GulfStar's obligation to consummate
the asset purchase are satisfied, Noalmark will be entitled to liquidated
damages in the amount of the KKTX Option Payment.
KNIGHT QUALITY ACQUISITION
On June 18, 1997, the Company agreed to acquire substantially all of the
assets of Knight Quality (the "Knight Quality Acquisition"). The purchase price
of the Knight Quality Acquisition will equal approximately $60.0 million payable
in cash. Knight Quality owns and operates eight radio stations (five FM and
three AM) in five markets located in Worcester, Massachusetts, Manchester, New
Hampshire, Burlington, Vermont, Portsmouth, New Hampshire, and York Center,
Maine. The Company and Knight Quality filed an application with the FCC for
approval to transfer control of such radio stations to the Company in July 1997.
No filing under the HSR Act is required. The Company anticipates that the Knight
Quality Acquisition will be consummated in January 1998.
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<PAGE> 93
Under the terms of the three acquisition agreements by Capstar Acquisition
Co. relating to the Knight Quality Acquisition, each acquisition agreement may
be terminated by Knight Quality prior to consummation of the asset purchase
under various circumstances, including, but not limited to, a material breach of
any representation, warranty, covenant or agreement, by Capstar Acquisition Co.
The closing of the transactions contemplated by each of the acquisition
agreements is conditioned upon the closing of the two other acquisition
agreements. If the acquisition agreements are terminated due to a material
breach of any representation, warranty, covenant or agreement by Capstar
Acquisition Co., then Knight Quality will be entitled to liquidated damages in
the aggregate amount of $3.0 million as Knight Quality's exclusive remedy.
Capstar Acquisition Co. has secured its obligation to consummate the Knight
Quality Acquisition by placing into escrow letters of credit in the aggregate
amount of $3.0 million. See "Description of Other Indebtedness -- Letters of
Credit."
MADISON ACQUISITION
On January 27, 1997, agreed to acquire substantially all of the assets of
Madison (the "Madison Acquisition"). The purchase price of the Madison
Acquisition will equal approximately $38.8 million payable in cash. Madison owns
and operates six radio stations (four FM and two AM) in Madison, Wisconsin. The
applicable waiting period under the HSR Act terminated on March 11, 1997, and
the FCC approved the Madison Acquisition in 1997. The Company anticipates that
the Madison Acquisition will be consummated in August 1997.
Under the terms of the acquisition agreement, which was entered into by
Point Madison Acquisition Company, Inc., a subsidiary of the Company ("Madison
Acquisition Co."), the acquisition agreement may be terminated by Madison prior
to consummation of the asset purchase under various circumstances, including a
material breach of any representation, warranty, covenant or agreement by
Madison Acquisition Co. If the acquisition agreement is terminated due to a
material breach of any representation, warranty, covenant or agreement by
Madison Acquisition Co., then Madison will be entitled to liquidated damages in
the amount of $3.2 million as Madison's exclusive remedy. Madison Acquisition
Co. has secured its obligation to consummate the asset purchase by placing into
escrow a letter of credit in the amount of $3.2 million. See 'Description of
Other Indebtedness -- Letters of Credit."
PATTERSON ACQUISITION
On June 12, 1997, the Company agreed to acquire all of the outstanding
preferred stock, common stock and common stock equivalents of Patterson
Broadcasting, Inc. ("Patterson") (the "Patterson Acquisition"). The purchase
price of the Patterson Acquisition will equal approximately $215.0 million
payable in cash. Patterson will own and operate or provide services to 39 radio
stations (25 FM and 14 AM) in the Savannah, Georgia, Allentown and Harrisburg,
Pennsylvania, Fresno, California, Honolulu, Hawaii, Battle Creek and Grand
Rapids, Michigan, Reno, Nevada, Springfield, Illinois, and Pensacola, Florida
markets. The Company and Patterson filed in May 1997 (i) an application with the
FCC for approval to transfer control of such radio stations to the Company and
(ii) a Notification and Report Form with the DOJ and the FTC. The Company
anticipates that the Patterson Acquisition will be consummated in February 1998.
Under the terms of the purchase agreement, which was entered into by
Capstar Acquisition Co., the purchase agreement may be terminated by Patterson
prior to consummation of the stock purchase under various circumstances,
including a material breach of any representation, warranty, covenant or
agreement by Capstar Acquisition Co. If the purchase agreement is terminated due
to a material breach of any representation, warranty, covenant or agreement by
Capstar Acquisition Co., then Patterson will be entitled to liquidated damages
in the amount of $10.0 million as Patterson's exclusive remedy. Capstar
Acquisition Co. will secure its obligation to consummate the stock purchase by
placing into escrow a letter of credit in the amount of $10.0 million. See
"Description of Other Indebtedness -- Letters of Credit."
The DOJ has raised an issue with the Company regarding the number of radio
stations that the Company will own in the Allentown-Bethlehem, Pennsylvania area
upon completion of the Patterson Acquisition. The Company has recently begun
discussions with the DOJ to resolve the matter. See "Business -- Federal
Regulation of Radio Broadcasting."
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On January 29, 1997, Patterson agreed to acquire substantially all of the
assets of WMEZ, Inc. ("WMEZ") used or held for use in the operation of radio
station WMEZ-FM, which serves the Pensacola, Florida market. The purchase price
of the WMEZ assets will equal approximately $7.0 million payable by Patterson in
cash. The FCC granted approval for the acquisition in May 1997. No filing under
the HSR Act is required. The Company expects such acquisition to be completed by
Patterson prior to completion of the Patterson Acquisition.
In August 1997, Patterson acquired all of the outstanding common stock of
Radio Dinuba Company ("Dinuba"), which owns and operates radio stations KJOI-FM
and KRDU-AM serving the Fresno, California market. The purchase price equaled
approximately $5.3 million payable in cash. No filing under the HSR Act was
required.
On May 5, 1997, Patterson agreed to acquire substantially all of the assets
of William E. Kuiper, Jr. ("Kuiper") used or held for use in the operation of
radio station WQFN-FM, which serves the Grand Rapids, Michigan market. The
purchase price of the Kuiper assets will equal approximately $1.9 million
payable in cash. FCC approval is pending. No filing under the HSR Act is
required. The Company expects such acquisition to be completed by Patterson
prior to completion of the Patterson Acquisition.
If any of the pending acquisitions of Patterson is not completed or is
otherwise terminated prior to completion of the Patterson Acquisition, then the
purchase price for the Patterson Acquisition will be reduced by an amount to be
agreed to by the parties to the Patterson Acquisition.
QUASS ACQUISITION
On June 9, 1997, the Company agreed to acquire all of the outstanding
common stock of Quass Broadcasting Company ("Quass") (the "Quass Acquisition").
The purchase price of the Quass Acquisition will equal approximately $14.9
million payable in cash. Quass owns and operates three radio stations (two FM
and one AM) in the Cedar Rapids, Iowa market. The Company and Quass filed an
application with the FCC in July 1997 for approval to transfer control of such
radio stations to the Company. No filing under the HSR Act is required. The
Company anticipates that the Quass Acquisition will be consummated in January
1998.
Under the terms of the purchase agreement, which was entered into by
Capstar Acquisition Co., the purchase agreement may be terminated by Quass prior
to consummation of the acquisition under various circumstances, including a
material breach of any representation, warranty, covenant or agreement by
Capstar Acquisition Co. If the purchase agreement is terminated due to a
material breach of any representation, warranty, covenant or agreement by
Capstar Acquisition Co., then Quass and Quass' stockholders will be entitled to
liquidated damages in the amount of $750,000 as their exclusive remedy. Capstar
Acquisition Co. has secured its obligation to consummate the acquisition by
placing into escrow a letter of credit in the amount of $750,000. See
"Description of Other Indebtedness -- Letters of Credit."
Concurrently with the execution of the Quass stock purchase agreement, Mary
K. Quass, the majority stockholder of Quass, purchased 909,091 shares of common
stock of the Company, which will be subsequently exchanged for shares of Class A
Common Stock, for an aggregate purchase price of $1.0 million. Substantially all
of the purchase price was paid through the issuance of a promissory note by Mary
K. Quass to the Company, which obligation is secured by a pledge of the shares.
See "Certain Transactions -- Indebtedness of Management." Also concurrently with
the execution of the Quass stock purchase agreement, Mary K. Quass and Capstar
Acquisition Co. entered into a consulting agreement pursuant to which she agreed
to provide consulting services to Capstar Acquisition Co. on an hourly basis as
requested.
SFX EXCHANGE
On May 23, 1997, the Company agreed to exchange substantially all of the
assets used or useful in the Company's operation of three radio stations (two FM
and one AM) in the Greenville, South Carolina market for substantially all of
the assets used or useful in SFX's operation of four radio stations (three FM
and one AM) in Wichita, Kansas and Daytona Beach, Florida (the "SFX Exchange").
The three stations to be exchanged by the Company were acquired in the Benchmark
Acquisition.
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<PAGE> 95
The Company and SFX intend to file in August 1997 (i) an application with
the FCC for approval to transfer control of the radio stations and (ii) a
Notification and Report Form with the DOJ and the FTC. The Company anticipates
that the SFX Exchange will be consummated in October 1997.
Under the terms of the exchange agreement, which was entered into by
Capstar Acquisition Co., the exchange may be terminated by either party prior to
consummation of the exchange agreement under various circumstances, including a
material breach of any representation, warranty, covenant or agreement by the
other party. If the exchange agreement is terminated due to a material breach of
any representation, warranty, covenant or agreement by a party, then the other
party will be entitled to liquidated damages in the amount of $2.0 million as
such party's exclusive remedy. In addition, either party may terminate the
exchange agreement in its sole and absolute discretion, if within 20 days after
receipt of the agreement's underlying schedules (which were not required to be
provided at the time the agreement was entered into), either party is not
satisfied with the information contained in the schedules provided by the other
party.
R. Steven Hicks is a party to an agreement with SFX, which, among other
things, prohibited Mr. Hicks, the Company and any affiliate of Hicks Muse in
which Mr. Hicks had an ownership interest or to which Mr. Hicks acted as an
advisor from competing with, owning any direct or indirect interest in or
providing any services to any person which was in the business of owning or
operating one or more radio stations licensed or having a transmitter site
within any county in the MSA of certain specified SFX markets. Such
noncompetition provisions were terminated concurrently with the Company entering
into the exchange agreement without regard to whether the SFX Exchange is
actually consummated.
WRIS ACQUISITION
On April 11, 1997, the Company agreed to acquire substantially all of the
assets of WRIS, Inc. ("WRIS") used or held for use in the operation of station
WJLM-FM in Salem, Virginia (the "WRIS Acquisition"). The purchase price of the
WRIS Acquisition will equal approximately $3.1 million payable in cash. In April
1997, the Company and WRIS filed an application with the FCC for approval to
transfer control of such radio station to the Company. No filing under the HSR
Act is required. The Company anticipates that the WRIS Acquisition will be
consummated in September 1997.
Under the terms of the acquisition agreement, which was entered into by
Capstar Acquisition Co., the acquisition agreement may be terminated by WRIS
prior to consummation of the asset purchase under various circumstances,
including a material breach of any representation, warranty, covenant or
agreement by Capstar Acquisition Co. If the acquisition agreement is terminated
due to a material breach of any representation, warranty, covenant or agreement
by Capstar Acquisition Co., then WRIS will be entitled to liquidated damages in
the amount of $150,000 as WRIS's exclusive remedy. Capstar Acquisition Co. has
secured its obligation to consummate the asset purchase by placing into escrow a
letter of credit in the amount of $150,000. See "Description of Other
Indebtedness -- Letters of Credit."
OTHER POSSIBLE ACQUISITIONS
The Company has entered into six separate nonbinding letters of intent to
acquire and/or exchange substantially all of the assets of the respective
potential sellers used or useful in the operations of each seller's radio
stations, each of which is subject to various conditions, including the ability
of the Company to enter into a definitive agreement to acquire such assets. No
assurances can be given that definitive agreements will be entered into to
acquire such assets or that such acquisitions will be consummated. As part of
the Company's ongoing acquisition strategy, the Company is continually
evaluating certain other potential acquisition opportunities. See "Risk
Factors -- Risks of Acquisition Strategy."
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MANAGEMENT
The directors and executive officers of the Company are listed below. Each
of the directors will hold office until the next annual meeting of stockholders
and until his successor has been duly elected and qualified. Executive officers
are generally elected annually by the Board of Directors to serve, subject to
the discretion of the Board of Directors, until their successors are appointed.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
R. Steven Hicks............................ 47 Chairman of the Board, President, Chief Execu-
tive Officer and Director
William S. Banowsky, Jr.................... 36 Executive Vice President, General Counsel and
Secretary
Paul D. Stone.............................. 36 Executive Vice President and Chief Financial
Officer
Frank D. Osborn............................ 50 Acting President and Chief Executive Officer of
Southern Star (Southeast Region) and Managing
Director
James T. Shea, Jr.......................... 43 President and Chief Executive Officer of
Atlantic Star (Northeast Region)
John D. Cullen............................. 43 President and Chief Executive Officer of Gulf-
Star (Southwest Region)
Dex Allen.................................. 54 President and Chief Executive Officer of Pacific
Star (West Region)
Mary K. Quass(1)........................... 47 President and Chief Executive Officer of Central
Star (Midwest Region)
David J. Benjamin, III..................... 50 Managing Director
Joseph L. Mathias, IV...................... 32 Managing Director
James M. Strawn(2)......................... 55 Managing Director
Thomas O. Hicks............................ 51 Director
Eric C. Neuman............................. 53 Director
Lawrence D. Stuart, Jr..................... 53 Director
</TABLE>
- ---------------
(1) Mary K. Quass will become the president and chief executive officer of the
Midwest Region upon consummation of the Quass Acquisition.
(2) James M. Strawn will become a Managing Director of the Company upon
consummation of the Patterson Acquisition.
R. Steven Hicks has served as the Chairman of the Board, Chief Executive
Officer and as a director of the Company since October 1996 and as President
since June 1997. Mr. Hicks has served as the Chairman of the Board, President,
Chief Executive Officer and as a director of Capstar Broadcasting and Capstar
Partners since May 1997 and October 1996, respectively. Mr. Hicks has also
served as Chairman of the Board of GulfStar since January 1987 and Chief
Executive Officer of GulfStar from January 1987 to July 1997. From November 1993
to May 1996, he was President and Chief Executive Officer of SFX, a
publicly-traded radio broadcasting company. Mr. Hicks is a 30-year veteran of
the radio broadcasting industry, including 18 years as a station owner. Mr.
Hicks is the brother of Thomas O. Hicks.
William S. Banowsky, Jr. has served as Executive Vice President, General
Counsel and Secretary since June 1997. Mr. Banowsky served as Vice President of
the Company from February to May 1997. Mr. Banowsky has served as an Executive
Vice President and the General Counsel of Capstar Broadcasting and of Capstar
Partners since May 1997 and January 1997, respectively. Mr. Banowsky was an
attorney with Snell, Banowsky & Trent, P.C., Dallas, Texas, for six years before
joining Capstar Partners. Prior to that time, he was an attorney for Johnson &
Gibbs, P.C., Dallas, Texas, for four years.
Paul D. Stone has served as Chief Financial Officer and as an Executive
Vice President of the Company since June 1997. Mr. Stone served as Vice
President of the Company from February to May 1997. Mr. Stone has served as an
Executive Vice President and the Chief Financial Officer of Capstar Broadcasting
and of Capstar
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Partners since May and January 1997, respectively. Mr. Stone was an Executive
Vice President and the Chief Financial Officer of GulfStar from April 1996 until
January 1997 at which time Mr. Stone resigned from such positions. Prior to
January 1997, Mr. Stone was Vice President and Controller of Hicks Muse for six
years. He is a Certified Public Accountant.
Frank D. Osborn serves as the acting President and Chief Executive Officer
of Southern Star and as a Managing Director of the Company. Mr. Osborn served as
President and Chief Executive Officer of Osborn from Osborn's inception in 1984
until June 1997. He is Chairman of the Board of Fairmont Communications and is a
member of the Board of Directors of Northstar Television Group. From 1983 to
1985, Osborn served as Senior Vice President/Radio for Price Communications
Corporation. From 1981 to 1983, Mr. Osborn served as Vice President and General
Manager of WYNY, NBC's New York FM radio station, and was Vice President of
Finance and Administration of NBC Radio from 1977 to 1981.
James T. Shea, Jr. is the President and Chief Executive Officer of Atlantic
Star and has served in such position since June 1997. He previously served as
President of the Company from October 1996 to June 1997. Prior to serving as
President of Commodore, Mr. Shea served as Chief Operating Officer of Commodore
from January 1995 to October 1996. Mr. Shea joined Commodore as the President of
its MidAtlantic Region in March 1992. He joined Wilks-Schwartz as Vice
President, General Manager, and Partner of WKRZ, Wilkes Barre, Pennsylvania in
1980, and became Vice President, General Manager and Partner of WQQQ/WEEX,
Allentown, Pennsylvania in 1984, was promoted to Executive Vice President and
Partner in 1986 and served in such capacity until 1992.
John D. Cullen has served as the President and Chief Executive Officer of
GulfStar since consummation of the GulfStar Transaction in July 1997. From March
1996 to June 1997, Mr. Cullen served as the President and Chief Operating
Officer of GulfStar. From 1992 to February 1996, Mr. Cullen served as a regional
manager of SFX's radio stations in the Greenville-Spartanburg, Raleigh-Durham,
Charlotte and Greensboro-Winston-Salem markets. Mr. Cullen is a 16-year veteran
of the radio broadcasting industry.
Dex Allen serves as the President and Chief Executive Officer of Pacific
Star. Mr. Allen has served as the managing member of Commonwealth since 1984.
Prior to 1984, Mr. Allen was Vice President/General Manager of KOGO-AM and
KPRI-FM in San Diego, California and the Sales Manager of KCBQ-AM in San Diego,
California. Mr. Allen is a 29-year veteran of the radio broadcasting industry,
including 12 years as a station owner.
Mary K. Quass has been the President and Chief Executive Officer of Quass
since 1988. From 1982 to 1988, Ms. Quass served as Vice President/General
Manager of stations KHAK-AM and KHAK-FM in Cedar Rapids, Iowa. Ms. Quass is a
19-year veteran of the radio broadcasting industry, including nine years as a
station owner. Upon consummation of the Quass Acquisition, Ms. Quass will serve
as the President and Chief Executive Officer of Central Star.
David J. Benjamin, III has served as a Managing Director of the Company
since consummation of the Community Pacific Acquisition in July 1997. From 1992
to July 1997, Mr. Benjamin served as the President and Chief Executive Officer
of Community Pacific. Prior to such time, he co-founded and served since 1974 as
Chairman and Chief Executive Officer of Community Pacific's predecessor,
Community Pacific Broadcasting Corporation, which positions he held since 1974.
Mr. Benjamin is a former President of the Oregon Association of Broadcasters and
a former board member of the National Association of Broadcasters.
Joseph L. Mathias, IV has served as a Managing Director of the Company
since consummation of the Benchmark Acquisition in July 1997. From January 1997
to July 1997, Mr. Mathias serves as a general partner of Benchmark, during which
time Mr. Mathias managed the operations of Benchmark. Prior to such time, he
held various positions in the cable television and radio broadcasting
industries. Mr. Mathias is a seven-year veteran of the radio broadcasting
industry.
James M. Strawn has served as an Executive Vice President and the Chief
Financial Officer of Patterson since 1995. From 1988 to 1995, Mr. Strawn served
as an executive vice president for Summit Communications, and from 1984 to 1988,
Mr. Strawn served as an Executive Vice President and the Chief Financial Officer
of DKM Broadcasting. Mr. Strawn served in various positions with Cox
Communications, including regional
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controller and assistant controller for the broadcast corporate staff, from 1966
to 1984. Mr. Strawn is a 31-year veteran of the radio broadcasting industry,
including 13 years as a station owner. Upon consummation of the Patterson
Acquisition, Mr. Strawn will serve as a Managing Director of the Company.
Thomas O. Hicks has been a director of the Company and Capstar Partners
since October 1996. Thomas O. Hicks has been a director of Capstar Broadcasting
since May 1997. Thomas O. Hicks has been Chairman and Chief Executive Officer of
Hicks Muse since co-founding the firm in 1989. Prior to forming Hicks Muse,
Thomas O. Hicks co-founded Hicks & Haas Incorporated in 1983 and served as its
Co-Chairman and Co-Chief Executive Officer through 1989. Thomas O. Hicks also
serves as a director of Chancellor Broadcasting Company, Berg Electronics Corp.,
Sybron International Corporation and Neodata Corporation. Thomas O. Hicks is the
brother of R. Steven Hicks.
Eric C. Neuman has served as a director of the Company since October 1996.
Mr. Neuman served as a Vice President from October 1996 to May 1997. Mr. Neuman
has served as a director of Capstar Broadcasting and Capstar Partners since May
1997 and October 1996, respectively, and as an Executive Vice President from
October 1996 to June 1997 of Capstar Partners. Mr. Neuman has served as an
officer of Hicks Muse since 1993 and as a Senior Vice President thereof since
1996. Before joining Hicks Muse, Mr. Neuman served for eight years as Managing
General Partner of Communications Partners, Ltd., a Dallas-based private
investment firm. Mr. Neuman has served as a director of Chancellor Broadcasting
Company since 1996.
Lawrence D. Stuart, Jr. has served as a director of the Company and Capstar
Partners since January 1997. Mr. Stuart has been a director of Capstar
Broadcasting since May 1997. Mr. Stuart has been a Managing Director and
Principal of Hicks Muse since 1995. Prior to joining Hicks Muse, Mr. Stuart
served for over 20 years as the principal outside legal counsel for the
investment firms and portfolio companies led by Thomas O. Hicks. From 1989 to
1995, Mr. Stuart was the Managing Partner of the Dallas office of Weil, Gotshal
& Manges (a Limited Liability Partnership including Professional Corporations).
Upon completion of the Patterson Acquisition, James W. Wesley, Jr. will
become the Chairman of the Board of Capstar Broadcasting. Mr. Wesley has been
President and Chief Executive Officer of Patterson since it was founded in 1995.
From 1988 to 1995, Mr. Wesley served as President of Summit Communications based
in Winston-Salem, North Carolina. Prior to 1988, Mr. Wesley spent 33 years in
various positions, including President of Cox Communications in Atlanta,
Georgia. Mr. Wesley is a 42-year veteran of the radio broadcasting industry.
BOARD COMMITTEES
The Company does not have any committees of its Board of Directors. In June
1997, Capstar Broadcasting's Board of Directors established an Audit Committee
and a Compensation Committee, and in July 1997, Capstar Broadcasting's Board of
Directors established an Executive Committee. The Audit Committee's functions
include recommending to the Board of Directors of Capstar Broadcasting the
engagement of Capstar Broadcasting's independent public accountants, reviewing
with such accountants the plans for and the results and scope of their auditing
engagement and certain other matters relating to their services provided to
Capstar Broadcasting, including the independence of such accountants. The
Compensation Committee determines the compensation of executive officers and
administers the Capstar Broadcasting Stock Option Plan (as defined) and the
Stock Purchase Plan (as defined). The Executive Committee is authorized and
empowered to approve one or more agreements of the Company to acquire radio
broadcasting stations and their related assets, or persons which own and operate
or provide services to radio broadcasting stations, up to an aggregate purchase
price of $100.0 million. Lawrence D. Stuart, Jr., Eric C. Neuman and R. Gerald
Turner, a director of Capstar Broadcasting, serve on the Audit Committee. Thomas
O. Hicks, Mr. Stuart and Mr. Turner serve on the Compensation Committee. R.
Steven Hicks, Eric C. Neuman and Lawrence D. Stuart, Jr. serve on the Executive
Committee.
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EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid or accrued in 1996, 1995 and 1994 to the Chief Executive Officers of the
Company and the other most highly compensated executive officers of the Company
for services rendered during the three fiscal years ended December 31, 1996 (the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- ----------------------- ----------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($) AWARDS($) SARS(#) PAYOUTS($) SATION($)
------------------ ---- --------- -------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. Steven Hicks(1)................ 1996 -- -- -- -- -- -- --
Chief Executive Officer 1995 -- -- -- -- -- -- --
(since October 16, 1996) 1994 -- -- -- -- -- -- --
Bruce A. Friedman................. 1996 207,812 -- 389,178(2) -- -- 739,000 3,412,495(3)
President and Chief 1995 242,361 144,500 4,477 -- -- 1,796,000 --
Executive Officer 1994 200,000 300,000 6,428 -- -- 1,750,000 --
(to October 16, 1996)
James T. Shea, Jr................. 1996 262,500 -- 6,000 -- 720,880 170,000 3,412,495(3)
President 1995 242,361 144,500 22,839 -- -- 183,000 --
(October 16, 1996 to June 1997) 1994 200,000 184,000 1,582 -- -- 430,000 --
James J. Sullivan................. 1996 163,333 -- 5,006 -- -- -- 1,409,530(3)
Chief Financial Officer 1995 146,944 91,000 1,935 -- -- -- --
(to March 31, 1997) 1994 11,667 -- -- -- -- -- --
Frank D. Osborn................... 1996 387,000 300,000 -- -- -- -- 1,778,375(4)
President and Chief Executive 1995 378,490 300,000 -- -- 35,000 -- 16,000(4)
Officer of Southern Star 1994 366,995 100,000 -- -- -- -- 116,000(4)
Scott J. Bacherman(5)............. 1996 175,300 -- -- -- -- -- 1,075,875(3)
1995 175,885 70,000 -- -- -- -- --
1994 138,000 20,000 -- -- -- -- --
Jay Sterin(5)..................... 1996 170,000 -- -- -- -- -- 850,060(3)
1995 168,000 40,000 -- -- -- -- --
1994 138,000 20,000 -- -- -- -- --
</TABLE>
- ---------------
(1) R. Steven Hicks did not receive compensation from the Company during 1996.
Mr. Hicks did, however, receive compensation in the amount of $135,400 from
Capstar Partners during 1996 for his services as President and Chief
Executive Officer of Capstar Partners.
(2) Includes approximately $375,000 paid to Bruce A. Friedman in connection with
the Commodore Acquisition in settlement of Commodore's future obligations to
Mr. Friedman under the terms of his employment agreement.
(3) Represents for each executive officer the amount paid in connection with the
Commodore Acquisition in settlement of such executive officer's outstanding
options to purchase shares of common stock of Commodore. See "-- Benefit
Plans-- 1995 Stock Option Plan."
(4) Frank D. Osborn became an executive officer of the Company upon consummation
of the Osborn Acquisition in February 1997. Mr. Osborn's employment
agreement with Osborn prior to the Osborn Acquisition provided that Osborn
pay $16,000 annually into a retirement benefit arrangement for Mr. Osborn.
Mr. Osborn elected to have such amount deposited into Osborn's Non-Qualified
Deferred Compensation Plan. In 1996, Mr. Osborn also received $1,746,875 in
compensation from the exercise of non-qualified stock options granted by
Osborn and $15,500 from the exercise of incentive stock options granted by
Osborn. In 1994, Mr. Osborn also received $100,000 to compensate him for
salary increases that accrued under his previous employment agreement which
would have expired in May 1995.
(5) Scott J. Bacherman and Jay Sterin were executive officers of the Company
until consummation of the Commodore Acquisition. Mr. Bacherman and Mr.
Sterin continue to have duties similar to their duties prior to the
Commodore Acquisition.
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OPTION GRANTS IN 1996
The following table sets forth certain information concerning stock option
grants during the year ended December 31, 1996 to the Named Executive Officers
pursuant to the Company's 1995 Stock Option Plan ("1995 Option Plan"), the
Capstar Partners 1996 Stock Option Plan (which plan has been terminated and
replaced with the Capstar Broadcasting Stock Option Plan (as defined)) and the
Capstar Partners 1996 Stock Purchase Plan which plan has been terminated in
1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
PERCENT POTENTIAL REALIZABLE VALUE AT
NUMBER OF OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES PRICE EXPIRATION ------------------------------
NAME GRANTED(#) IN 1996(%) PER SHARE DATE 5%($) 10%($)
---- ---------- ---------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
R. Steven Hicks...... 9,300,000(2) 100% $ 1.00 10-16-06 $15,748,720 $24,121,805
Bruce A. Friedman.... 7,608(3) 21.46% $45.00 -- -- --
James T. Shea, Jr.... 7,608(3) 21.46% $45.00 -- -- --
720,880(4) 18.20% $ 1.00 11-26-06 $ 1,174,238 $ 1,869,777
350,000(5) 8.84% $ 1.00 12-26-06 $ 570,113 $ 907,810
James J. Sullivan.... 4,249(3) 11.98% $45.00 -- -- --
720,880(4) 18.20% $ 1.00 11-26-06 $ 1,174,238 $ 1,869,777
150,000(5) 3.79% $ 1.00 12-26-06 $ 244,334 $ 389,061
Frank D. Osborn...... -- -- -- -- -- --
Scott J. Bacherman... -- -- -- -- -- --
243,600(4) 6.15% $ 1.00 11-26-06 $ 396,799 $ 631,836
100,000(5) 2.52% $ 1.00 12-26-06 $ 162,889 $ 259,374
Jay Sterin........... 1,398(3) 3.94% $45.00 -- -- --
294,700(4) 7.44% $ 1.00 11-26-06 $ 480,035 $ 764,376
250,000(5) 6.31% $ 1.00 12-26-06 $ 407,224 $ 648,436
</TABLE>
- ---------------
(1) The assumed rates are compounded annually for the full terms of the options
and warrants.
(2) See "Certain Transactions -- Warrants."
(3) In connection with the Commodore Acquisition, all outstanding option shares
were settled for consideration equal to $140 per share minus the exercise
price per share, less any applicable withholding taxes.
(4) Represents options granted pursuant to the Capstar Broadcasting Stock Option
Plan. See "Benefit Plans."
(5) Represents stock purchase rights granted pursuant to the Capstar Partners
1996 Stock Purchase Plan which plan has been terminated.
OPTION EXERCISES IN 1996
The following table sets forth certain information (i) with respect to the
number of shares of common stock of Commodore or Capstar Partners (or of Osborn
in the case of Frank D. Osborn) issued upon the exercise of options by the Named
Executive Officers during the fiscal year ended December 31, 1996 and (ii) with
respect to the unexercised options granted under the Company's 1995 Stock Option
Plan (the "1995 Option Plan") or the Capstar Partners 1996 Stock Option Plan (or
Osborn's option plan in the case of Frank D. Osborn) held by the Named Executive
Officers at December 31, 1996.
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AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT
SHARES AT DECEMBER 31, 1996 DECEMBER 31, 1996
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. Steven Hicks...... -- -- 7,440,000(1) $1,860,000(1) $9,895,200(2) $2,473,800(2)
Bruce A.
Friedman(3)........ 35,921 3,412,495 -- -- -- --
James T. Shea,
Jr.(3)............. 35,921 3,412,495 -- -- -- --
-- -- -- 720,880(4) -- 958,770(2)
350,000(5) -- -- -- -- --
James J.
Sullivan(3)........ 15,574 1,479,530 -- -- -- --
-- -- -- 720,880(4) -- 958,770(2)
150,000(5) -- -- -- -- --
Frank D. Osborn(6)... 174,167 1,762,375 9,667 23,333 76,273(6) 184,097(6)
Scott J.
Bacherman(3)....... 11,325 1,075,875 -- -- -- --
-- -- -- 243,600(4) -- 323,988(2)
100,000(5) -- -- -- -- --
Jay Sterin(3)........ 8,948 850,060 -- -- -- --
-- -- -- 294,700(4) -- 391,951(2)
250,000 -- -- -- -- --
</TABLE>
- ---------------
(1) See "Certain Transactions -- Warrants."
(2) There is no public market for the Common Stock. Based on the per share price
of the Hicks Muse GulfStar Equity Investment of $1.33.
(3) In connection with the Commodore Acquisition, all outstanding option shares
were settled for consideration equal to $140 per share minus the exercise
price per share, less any applicable withholding taxes.
(4) Represents options granted pursuant to the Capstar Broadcasting Stock Option
Plan. See "Benefit Plans."
(5) Represents stock purchase rights granted pursuant to the Capstar Partners
1996 Stock Purchase Plan which plan has been terminated.
(6) Reflects options to acquire shares of common stock of Osborn. The value
realized on shares of common stock acquired on exercise of such options
reflects an exercise price of $14.75 per share. The value of unexercised
in-the-money options reflects gains on outstanding options based on the
December 31, 1996 closing trade price of the common stock of Osborn of
$14.89. In connection with the Osborn Acquisition, all outstanding shares of
common stock of Osborn were canceled in exchange for $15.375 per share and
all outstanding options were settled for consideration equal to $15.375 per
share minus the exercise price per share, less any applicable withholding
taxes.
EMPLOYMENT AGREEMENTS
R. Steven Hicks Employment Agreement. Capstar Broadcasting has entered into
an employment agreement with R. Steven Hicks pursuant to which Mr. Hicks serves
as Chairman, President and Chief Executive Officer of Capstar Broadcasting. Mr.
Hicks' employment agreement terminates on December 31, 2001, and will be
automatically renewed for successive one-year terms unless Mr. Hicks or Capstar
Broadcasting gives the other party written notice of his or its intention not to
renew the employment agreement at least six months prior to the date the
employment agreement would otherwise expire (but no more than 12 months prior to
such expiration date). Mr. Hicks' base salary is $250,000 per year and is
subject to annual increases at least equal to five percent of the then current
annual base salary. He is also entitled to receive such annual performance
bonuses as Capstar Broadcasting's Board of Directors may determine. Further, Mr.
Hicks is entitled to receive stock options to purchase shares of Class A Common
Stock. If Capstar Broadcasting terminates Mr. Hicks' employment for cause or Mr.
Hicks terminates his employment for other than good reason, Capstar Broadcasting
must pay Mr. Hicks all accrued obligations and other benefits earned prior to
the date of termination. If Capstar Broadcasting terminates Mr. Hicks'
employment agreement other than for cause or Mr. Hicks terminates his employment
agreement for good reason, Mr. Hicks' employment agreement provides for (A) a
lump sum payment of (x) two times Mr. Hicks' then current annual salary and (y)
any accrued obligations and other benefits earned prior to the date of
termination and (B) unless the Board of Directors of Capstar Broadcasting
determines that Mr. Hicks has not satisfactorily performed his obligations and
duties under the agreement, the immediate vesting of all stock options between
Capstar Broadcasting and Mr. Hicks and the right to exercise those options until
the earlier of (x) the expiration date of those options or (y) the 90th day
after Mr. Hicks' termination. Mr. Hicks has entered
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<PAGE> 102
into a substantially similar employment agreement with GulfStar. Upon completion
of the GulfStar Transaction, Mr. Hicks' employment agreement with GulfStar will
terminate and his employment agreement with Capstar Broadcasting will be amended
to increase Mr. Hicks' current base salary to $500,000.
William S. Banowsky, Jr. Employment Agreement. Capstar Broadcasting has
entered into an employment agreement with William S. Banowsky, Jr. pursuant to
which Mr. Banowsky serves as an Executive Vice President and the General Counsel
of Capstar Broadcasting. Mr. Banowsky's employment agreement terminates on
December 31, 2001, and will be renewed automatically for successive one-year
terms unless Mr. Banowsky or Capstar Broadcasting gives the other party written
notice of his or its intention not to renew the employment agreement at least
six months prior to the date the employment agreement would otherwise expire
(but not more than 12 months prior to such expiration date). Mr. Banowsky's
current base salary is $200,000 per year, subject to annual increases at least
equal to five percent of the then current annual base salary. Mr. Banowsky is
also entitled to receive such annual bonuses as Capstar Broadcasting's Board of
Directors may determine. Further, Mr. Banowsky is entitled to receive stock
options to purchase shares of Class A Common Stock. If Capstar Broadcasting
terminates Mr. Banowsky's employment for cause or Mr. Banowsky terminates his
employment for other than good reason, Capstar Broadcasting must pay Mr.
Banowsky all accrued obligations and other benefits earned prior to the date of
termination. If Capstar Broadcasting terminates Mr. Banowsky's employment
agreement other than for cause or Mr. Banowsky terminates his employment
agreement for good reason, Mr. Banowsky's employment agreement provides for (A)
a lump sum payment of (x) two times Mr. Banowsky's then current annual salary
and (y) any accrued obligations and other benefits earned prior to the date of
termination and (B) unless the Board of Directors of Capstar Broadcasting
determines that Mr. Banowsky has not satisfactorily performed his obligations
and duties under the agreement, the immediate vesting of all stock options
between Capstar Broadcasting and Mr. Banowsky and the right to exercise those
options until the earlier of (x) the expiration date of those options or (y) the
90th day after Mr. Banowsky's termination.
Paul D. Stone Employment Agreement. Capstar Broadcasting has entered into
an employment agreement with Paul D. Stone pursuant to which Mr. Stone serves as
an Executive Vice President and the Chief Financial Officer of Capstar
Broadcasting. Mr. Stone's employment agreement terminates on December 31, 2001,
and will be renewed automatically for successive one year terms unless Mr. Stone
or Capstar Broadcasting gives the other party written notice of his or its
intention not to renew the employment agreement at least six months prior to the
date the employment agreement would otherwise expire (but no more than 12 months
prior to such expiration date). Mr. Stone's base salary is $200,000 per year,
subject to annual increases at least equal to five percent of the then current
annual base salary. Mr. Stone is also entitled to receive such annual bonuses as
Capstar Broadcasting's Board of Directors may determine. Further, Mr. Stone is
entitled to receive stock options to purchase shares of Class A Common Stock. If
Capstar Broadcasting terminates Mr. Stone's employment for cause or Mr. Stone
terminates his employment for other than good reason, Capstar Broadcasting must
pay Mr. Stone all accrued obligations and other benefits earned prior to the
date of termination. If Capstar Broadcasting terminates Mr. Stone's employment
agreement other than for cause or Mr. Stone terminates his employment agreement
for good reason, Mr. Stone's employment agreement provides for (A) a lump sum
payment of (x) two times Mr. Stone's then current annual salary and (y) any
accrued obligations and other benefits earned prior to the date of termination
and (B) unless the Board of Directors of Capstar Broadcasting determines that
Mr. Stone has not satisfactorily performed his obligations and duties under the
agreement, the immediate vesting of all stock options between Capstar
Broadcasting and Mr. Stone and the right to exercise those options until the
earlier of (x) the expiration date of those options or (y) the 90th day after
Mr. Stone's termination.
Frank D. Osborn Employment Agreement. Southern Star has entered into an
employment agreement with Frank D. Osborn pursuant to which Mr. Osborn was
employed to serve as the President and Chief Executive Officer of Southern Star.
Mr. Osborn's employment agreement terminates on the fifth anniversary of the
consummation of the Osborn Acquisition. Mr. Osborn's base salary is $375,000,
and commencing on January 1, 1998, and on each subsequent January 1, his base
salary will be adjusted to reflect the annual increase in the Consumer Price
Index during the preceding year. In addition, Mr. Osborn is entitled to a
guaranteed bonus of $25,000 per month for a period of 60 months after February
20, 1997 and an annual bonus as determined by the Southern Star's Board of
Directors. If Mr. Osborn's employment is terminated by Southern Star for cause
or by
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<PAGE> 103
Mr. Osborn for other than good reason, Southern Star is obligated to pay all
accrued obligations and other benefits to Mr. Osborn. If the employment
agreement is terminated by Southern Star other than for cause or disability or
by Mr. Osborn for good reason, Mr. Osborn's employment agreement provides for
(A) a lump sum payment of any accrued obligations and other benefits earned
prior to the date of termination, (B) the payment in regular installments of (x)
if the remainder of the employment period is 24 months or less, Mr. Osborn's
then current annual base salary for the remainder of the employment period, (y)
if the remainder of the employment period is more than 24 months but less than
36 months, twice the sum of Mr. Osborn's then current salary, plus Mr. Osborn's
then current salary for the remainder of the employment period after 24 months
have expired from the termination date, or (z) if the remainder of the
employment period is more than 36 months, twice the sum of Mr. Osborn's then
current salary plus Mr. Osborn's then current salary for a period of 12 months
after 24 months have expired from the termination date, (C) the payment of the
guaranteed bonus as if Mr. Osborn's employment had not been terminated and (D)
unless the Board of Directors of Southern Star determines that Mr. Osborn has
not satisfactorily performed his obligations and duties under the agreement, the
immediate vesting of all stock options between Southern Star and Mr. Osborn and
the right to exercise those options until the earlier of (x) the expiration date
of those options or (y) the 90th day after Mr. Osborn's termination. Mr. Osborn
is also entitled to participate in Southern Star's employee medical benefit plan
for 24 months following termination unless Southern Star fails to achieve 60% of
its annual budget for operating profit for the last calendar year ended prior to
termination. In that case, Mr. Osborn is entitled to participate in such plan
for 12 months following termination. The Company expects that Mr. Osborn's
employment agreement will be amended and restated to reflect, among other
things, Capstar Broadcasting and the Company as parties thereto, Mr. Osborn's
current position as a Managing Director of the Company and that Mr. Osborn is
serving on an interim basis as the President and Chief Executive Officer of
Southern Star.
James T. Shea, Jr. Employment Agreement. Capstar Partners and the Company
have entered into an employment agreement with James T. Shea, Jr. pursuant to
which Mr. Shea was employed to serve as the President of the Company. Mr. Shea's
employment agreement terminates on April 30, 1999. Mr. Shea's base salary is
$275,625, which increases at the beginning of each calendar year by an amount
which shall not be less than five percent of his then current base salary. Mr.
Shea is also entitled to receive annual bonuses as the Board of Directors of the
Company may determine, provided that the bonus shall not be less than $150,000.
In addition, the employment agreement provides for an automobile allowance,
participation in the retirement, savings, and welfare benefit plans of the
Company and a life insurance policy of $650,000. If the Company terminates Mr.
Shea's employment for cause, the Company is obligated to pay Mr. Shea's then
accrued base salary, reimbursable expenses, and any other compensation then due
and owing. In addition, the Company must continue to fund Mr. Shea's life
insurance policy. If the employment agreement is terminated due to death or
disability, without cause or by Mr. Shea for good reason, Mr. Shea will be
entitled to (i) the continuation of his annual base salary, as then in effect,
for a period equal to (A) if the termination date occurs after April 21, 1998
but prior to April 30, 1999, a 12-month period commencing on the termination
date or (B) if the termination date occurs on or prior to April 21, 1998, the
lesser of (x) a 24-month period commencing on the termination date and (y) the
period starting on the termination date and ending on April 30, 1999, (ii) a pro
rata amount of his annual bonus, (iii) any annual base salary and annual bonus
then accrued but not yet paid, (iv) the continuation of his welfare benefits for
a period equal to (A) if the termination date occurs after April 21, 1998 but
prior to April 30, 1999, a 12-month period commencing on the termination date or
(B) if the termination date occurs on or prior to April 21, 1998, the lesser of
(x) a 24-month period commencing on the termination date and (y) the period
starting on the termination date and ending on April 30, 1999, (v) the
continuation of his life insurance policy, (vi) any other compensation and
benefits as may be provided in accordance with the terms and provisions of any
applicable plans and programs, (vii) reimbursement for certain expenses incurred
as of the termination date but not yet paid as of the date of termination and
(viii) any other rights afforded to him under other written agreements between
Mr. Shea and Capstar Partners. The Company expects that Mr. Shea's employment
agreement will be replaced with an employment agreement with Atlantic Star,
Capstar Broadcasting and the Company to reflect, among other things, Mr. Shea's
new position as President and Chief Executive Officer of Atlantic Star.
John D. Cullen Employment Agreement. GulfStar has entered into an
employment agreement with John D. Cullen pursuant to which Mr. Cullen serves as
the President and Chief Operating Officer of GulfStar.
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<PAGE> 104
Mr. Cullen's employment agreement terminates on March 31, 2001 unless sooner
terminated in accordance with the terms of the employment agreement. Mr.
Cullen's base salary for fiscal year ending April 1998 is $160,000 with
incremental $10,000 increases for each fiscal year thereafter during the term of
the employment agreement. Mr. Cullen is also entitled to receive annual bonuses
of at least $35,000 if GulfStar achieves certain annual broadcast cash flow
projections established by the board of directors of GulfStar. If GulfStar
terminates Mr. Cullen's employment for cause (as defined in the employment
agreement) or Mr. Cullen resigns (and GulfStar has not breached the employment
agreement), GulfStar must pay Mr. Cullen all accrued obligations and other
benefits earned prior to the date of termination. If GulfStar terminates Mr.
Cullen's employment without cause or Mr. Cullen terminates his employment due to
a material breach of the employment agreement by GulfStar (which breach is not
cured within 30 days after receipt of notice of breach), then GulfStar must pay
Mr. Cullen his current salary (in equal monthly installments), plus a pro rata
portion of any bonuses that would otherwise have been payable to Mr. Cullen. The
Company expects that Mr. Cullen's employment agreement will be amended and
restated to reflect, among other things, Capstar Broadcasting as a party thereto
and Mr. Cullen's new position as the President and Chief Executive Officer of
GulfStar.
Dex Allen Employment Agreement. Pacific Star has entered into an employment
agreement with Dex Allen pursuant to which (i) Mr. Allen was employed to serve
as President and Chief Operating Officer of Pacific Star, (ii) Mr. Allen's term
of employment is five years, provided that on the fifth anniversary and on each
anniversary thereafter, Mr. Allen's employment period shall automatically be
extended for one additional year unless Mr. Allen or Pacific Star gives the
other party written notice of his or its intention not to renew the employment
agreement at least six months prior to such anniversary (but no more than 12
months prior to such anniversary), (iii) Mr. Allen will receive a base salary of
$150,000 during his first year of employment, which will increase to $200,000
per year thereafter, subject to further annual increases at least equal to the
percentage increase, if any, in the Consumer Price Index during the preceding
calendar year, and (iv) Mr. Allen is entitled to receive an annual bonus of at
least $50,000 per year if certain financial goals, as determined by Pacific
Star's Board of Directors, are achieved. Pacific Star and Mr. Allen also agreed
that (i) if Pacific Star terminates Mr. Allen's employment for cause or Mr.
Allen terminates his employment for other than good reason, Pacific Star will
only be obligated to make a lump sum payment to Mr. Allen of any accrued
obligations of Pacific Star to Mr. Allen, including Mr. Allen's salary earned or
accrued through the date of his termination, and (ii) if Pacific Star terminates
Mr. Allen's employment other than for cause or disability or Mr. Allen
terminates his employment for good reason, Mr. Allen's employment agreement
provides for (A) a severance payment of Mr. Allen's then current base salary in
regular installments for a one year period, (B) a lump sum payment of any
accrued obligations and other benefits earned prior to the date of termination,
and (C) unless the Board of Directors of Pacific Star determines that Mr. Allen
has not satisfactorily performed his obligations and duties under the agreement,
the immediate vesting of all stock options between Capstar Broadcasting and Mr.
Allen and the right to exercise those options until the earlier of (x) the
expiration date of those options or (y) the 90th day after Mr. Allen's
termination. The Company expects that Mr. Allen's employment agreement will be
amended and restated to reflect, among other things, Capstar Broadcasting as a
party thereto and Mr. Allen's new position as the President and Chief Executive
Officer of Pacific Star.
Mary K. Quass Employment Agreement. Upon consummation of the Quass
Acquisition, Central Star and Capstar Broadcasting will enter into an employment
agreement with Mary K. Quass pursuant to which Ms. Quass will serve as the
President and Chief Executive Officer of Central Star. Ms. Quass' employment
agreement will terminate on the fifth anniversary of the consummation of the
Quass Acquisition. Ms. Quass' base salary will be $200,000, subject to annual
increases at least equal to the percentage increase, if any, in the Consumer
Price Index during the preceding calendar year. Ms. Quass is also entitled to
receive an annual performance bonus if certain financial goals, as determined by
the Board of Directors of Central Star, are achieved. Further, if revenues and
net income for a fiscal year of the Midwest Region equal or exceed the targets
for such revenues and net income as set forth in the Midwest Region's budget,
then, Ms. Quass will be awarded an annual bonus in the amount of at least
$50,000 with respect to such fiscal year. In addition, Ms. Quass will be
entitled to receive stock options to purchase Class A Common Stock. If Central
Star terminates Ms. Quass' employment for cause or Ms. Quass terminates her
employment for other than good reason, Central Star will pay to Ms. Quass her
accrued obligations and investments through the date of termination. If Central
Star terminates Ms. Quass' employment without cause or Ms. Quass terminates her
employment for good reason, Ms. Quass' employment agreement will
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<PAGE> 105
provide for (A) a lump sum cash payment equal to any accrued obligations of
Central Star to Ms. Quass, (B) a payment in regular installments of Ms. Quass'
then current salary for the one-year period commencing from the date of
termination (the "Severance Period"), (C) continued medical, dental and life
insurance coverage at the expense of Central Star until the earlier of (x) the
expiration of the Severance Period or (y) the date Ms. Quass has commenced new
employment and has thereby become eligible for comparable medical benefits, and
(D) unless the Board of Directors of Capstar Broadcasting determines that Ms.
Quass has not satisfactorily performed her obligations and duties under the
agreement, the immediate vesting of all stock options between Capstar
Broadcasting and Ms. Quass and the right to exercise those options until the
earlier of (x) the expiration date of such stock options or (y) the 90th day
after Ms. Quass' termination.
David J. Benjamin, III Employment Agreement. The Company and Capstar
Broadcasting entered into an employment agreement with David J. Benjamin, III
pursuant to which Mr. Benjamin serves as a Managing Director of the Company. Mr.
Benjamin's employment agreement will terminate on the fifth anniversary of the
consummation of the Community Pacific Acquisition. The employment agreement will
automatically be renewed for successive one-year terms unless Mr. Benjamin or
the Company gives written notice of his or its intention not to renew the
agreement at least six months (but no more than 12 months) prior to the date the
agreement would otherwise expire. Mr. Benjamin's base salary is $200,000,
subject to annual increases at least equal to the percentage increase, if any,
in the Consumer Price Index during the preceding calendar year. Mr. Benjamin is
entitled to receive an annual bonus of $50,000 per year if certain financial
goals, as determined by the Board of Directors of the Company, are achieved. In
addition, Mr. Benjamin is entitled to receive stock options to purchase shares
of Class A Common Stock. If the Company terminates Mr. Benjamin's employment for
cause or Mr. Benjamin terminates his employment for other than good reason, the
Company is not obligated to make any further salary payments to Mr. Benjamin
except those earned prior to the date of termination. If the Company terminates
Mr. Benjamin's employment without cause or Mr. Benjamin terminates his
employment for good reason, Mr. Benjamin's employment agreement provides for (A)
a lump sum payment equal to any accrued obligations of the Company to Mr.
Benjamin, (B) in regular installments of (x) if the remainder of the employment
period is less than 24 months, Mr. Benjamin's then annual salary for the
remainder of the employment period, (y) if the remainder of the employment
period is more than 24 but less than 36 months, the sum of two times Mr.
Benjamin's then annual salary plus his annual salary for a period of 12 months
after 24 months have expired from the date of his termination, or (z) if the
remainder of the employment period is greater than 36 months, the sum of two
times Mr. Benjamin's then annual salary plus his annual salary for a period of
12 months after 24 months have expired from the date of his termination and (C)
the payment of his bonus as if the termination did not occur and (D) unless the
Board of Directors of the Company determines that Mr. Benjamin has not
satisfactorily performed his obligations and duties under the agreement, the
immediate vesting of all stock options between the Company and Mr. Benjamin and
the right to exercise those options until the earlier of (x) the expiration date
of those options or (y) the 90th day after Mr. Benjamin's termination. If Mr.
Benjamin's employment is terminated due to death or disability, the Company will
pay all accrued obligations and investments, guaranteed bonuses and other
benefits for 12 months after the termination date.
Joseph L. Mathias IV Employment Agreement. Upon consummation of the
Benchmark Acquisition, the Company and Capstar Broadcasting entered into an
employment agreement pursuant to which Mr. Mathias serves as a Managing Director
of the Company. Mr. Mathias' employment agreement will terminate on the third
anniversary of the consummation of the Benchmark Acquisition. Mr. Mathias' base
salary is $200,000, subject to annual increases at the discretion of the Board
of Directors of the Company. In addition, Mr. Mathias is entitled to receive
stock options to purchase Class A Common Stock. If the Company terminates Mr.
Mathias' employment for cause or Mr. Mathias terminates his employment for other
than good reason, the Company will pay to Mr. Mathias his accrued obligations
and investments through the date of termination. If the Company terminates Mr.
Mathias' employment without cause or Mr. Mathias terminates his employment for
good reason, Mr. Mathias' employment agreement provides for (A) a lump sum cash
payment equal to any accrued obligations of the Company to Mr. Mathias, (B) a
payment in regular installments of Mr. Mathias' then current salary for the
remainder of the employment period (the "Severance Period"), and (C) continued
medical, dental, and life insurance coverage at the expense of the Company until
the earlier of (x) the expiration of the Severance Period or (y) the date Mr.
Mathias has commenced new employment and has thereby become eligible for
comparable medical benefits.
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James M. Strawn Employment Agreement. Upon consummation of the Patterson
Acquisition, the Company and Capstar Broadcasting will enter into an employment
agreement pursuant to which Mr. Strawn will serve as a Managing Director of the
Company. Mr. Strawn's employment agreement will terminate on the fifth
anniversary of the consummation of the Patterson Acquisition. Mr. Strawn's base
salary will be $200,000, subject to annual increases at least equal to the
percentage increase, if any, in the Consumer Price Index during the preceding
year. Mr. Strawn will also be entitled to receive an annual performance bonus,
as determined by the Board of Directors of the Company. In addition, Mr. Strawn
will be entitled to receive stock options to purchase Class A Common Stock. If
the Company terminates Mr. Strawn's employment for cause or Mr. Strawn
terminates his employment for other than good reason, the Company will pay to
Mr. Strawn his accrued obligations and investments through the date of
termination. If the Company terminates Mr. Strawn's employment without cause or
Mr. Strawn terminates his employment for good reason, Mr. Strawn's employment
agreement will provide for (A) a lump sum cash payment equal to any accrued
obligations of the Company to Mr. Strawn, (B) a payment in regular installments
of Mr. Strawn's then current salary for a two-year period from the date of
termination (the "Severance Period"), (C) continued medical, dental, and life
insurance coverage at the expense of the Company until the earlier of (x) the
expiration of the Severance Period or (y) the date Mr. Strawn has commenced new
employment and has thereby become eligible for comparable medical benefits and
(D) unless the Board of Directors of the Company determines that Mr. Strawn has
not satisfactorily performed his obligations and duties under the agreement, the
immediate vesting of all stock options between Capstar Broadcasting and Mr.
Strawn and the right to exercise those options until the earlier of (x) the
expiration date of those options or (y) the 90th day after Mr. Strawn's
termination. If Mr. Strawn's employment is terminated due to disability, the
Company shall pay all accrued obligations and investments, and a payment in
regular installments of Mr. Strawn's then current salary for six months after
the termination date.
James W. Wesley Employment Agreement. Upon consummation of the Patterson
Acquisition, Capstar Broadcasting will enter into an employment agreement
pursuant to which Mr. Wesley will serve as Chairman of the Board of Capstar
Broadcasting. Mr. Wesley's employment agreement will terminate on the fifth
anniversary of the consummation of the Patterson Acquisition. Mr. Wesley's base
salary will be $300,000, subject to annual increases at least equal to the
percentage increase, if any, in the Consumer Price Index during the preceding
calendar year. Mr. Wesley is also entitled to receive an annual performance
bonus, as determined by the Board of Directors of the Company. In addition, Mr.
Wesley is entitled to receive stock options to purchase Class A Common Stock. If
Capstar Broadcasting terminates Mr. Wesley's employment for cause or Mr. Wesley
terminates his employment for other than good reason, Capstar Broadcasting will
pay to Mr. Wesley his accrued obligations and investments through the date of
termination. If Capstar Broadcasting terminates Mr. Wesley's employment without
cause or Mr. Wesley terminates his employment for good reason, Mr. Wesley's
employment agreement provides for (A) a lump sum cash payment equal to any
accrued obligations of Capstar Broadcasting to Mr. Wesley, (B) a payment in
regular installments of Mr. Wesley's then current salary for the remainder of a
two year period from the date of termination (the "Severance Period"), (C)
continued medical, dental, and life insurance coverage at the expense of Capstar
Broadcasting until the earlier of (x) the expiration of the Severance Period or
(y) the date Mr. Wesley has commenced new employment and has thereby become
eligible for comparable medical benefits and (D) unless the Board of Directors
of Capstar Broadcasting determines that Mr. Wesley has not satisfactorily
performed his obligations and duties under the agreement, the immediate vesting
of all stock options between Capstar Broadcasting and Mr. Wesley and the right
to exercise those options until the earlier of (x) the expiration date of those
options or (y) the 90th day after Mr. Wesley's termination. If Mr. Wesley's
employment is terminated due to disability, Capstar Broadcasting shall pay all
accrued obligations and investments and a payment in regular installments of Mr.
Wesley's then current salary for a period of six months from the date of
termination.
BENEFIT PLANS
1995 Stock Option Plan
The Company's 1995 Option Plan became effective on April 21, 1995. The
Company does not expect to grant any options under the 1995 Option Plan to
purchase shares of common stock of the Company in the future. The Company
anticipates that Capstar Broadcasting will grant options to purchase shares of
Common Stock
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under Capstar Broadcasting's 1997 Stock Option Plan (the "Capstar Broadcasting
Stock Option Plan") to attract and retain qualified personnel and to provide
additional incentives to executive and other key employees of the Company. In
connection with the Commodore Acquisition, all outstanding options to purchase
shares of the Company's common stock under the 1995 Option Plan were settled for
consideration equal to $140 per share minus the exercise price per share, less
any applicable withholding taxes.
Capstar Broadcasting Stock Option Plan
Capstar Broadcasting's 1997 Stock Option Plan (the "Capstar Broadcasting
Stock Option Plan") gives certain individuals and key employees of Capstar
Broadcasting and any parent corporation or subsidiary corporation thereof (such
parent and subsidiary corporations are referred to as "Related Entities") who
are responsible for the continued growth of Capstar Broadcasting an opportunity
to acquire a proprietary interest in Capstar Broadcasting, and thus to create in
such persons an increased interest in and a greater concern for the welfare of
Capstar Broadcasting and any Related Entities. The Capstar Broadcasting Stock
Option Plan provides for the grant of options to acquire up to 9,000,000 shares
of Class A Common Stock. Grants of stock options with respect to 6,801,710
shares of Class A Common Stock have been made under the Capstar Broadcasting
Stock Option Plan.
The Capstar Broadcasting Stock Option Plan is administered by Capstar
Broadcasting's Compensation Committee, which is currently comprised of Thomas O.
Hicks, Lawrence D. Stuart, Jr. and R. Gerald Turner. The Compensation Committee
has authority, subject to the terms of the Capstar Broadcasting Stock Option
Plan (including the formula grant provisions and the provisions relating to
incentive stock options contained therein), to determine when and to whom to
make grants or awards under the Capstar Broadcasting Stock Option Plan, the
number of shares to be covered by the grants or awards, the types and terms of
the grants and awards, and in the case of grants of stock options, the exercise
price of stock options. Moreover, the Compensation Committee will have the
authority, subject to the provisions of the Capstar Broadcasting Stock Option
Plan, to establish such rules and regulations as it deems necessary for the
proper administration of the Capstar Broadcasting Stock Option Plan and to make
such determinations and interpretations and to take such action in connection
with the Capstar Broadcasting Stock Option Plan and any grants and awards
thereunder as it deems necessary or advisable. The Compensation Committee's
determinations and interpretations under the Capstar Broadcasting Stock Option
Plan are final, binding and conclusive on all participants and need not be
uniform and may be made by the Compensation Committee selectively among persons
who receive, or are eligible to receive, grants and awards under the Capstar
Broadcasting Stock Option Plan.
Grants of "incentive stock options" within the meaning of section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") and non-qualified
stock options (options which do not qualify under section 422 of the Code) may
be made under the Capstar Broadcasting Stock Option Plan to key employees.
Grants of non-qualified stock options may be made to eligible non-employees (as
defined in the Stock Option Plan). No incentive stock option may be granted
pursuant to the Capstar Broadcasting Stock Option Plan after October 16, 2006.
The exercise price per share of Class A Common Stock under each option is
fixed by the Compensation Committee at the time of grant and must equal at least
100% of the fair market value (as defined in the Stock Option Plan) of a share
of Class A Common Stock on the date of grant; provided, however, that the
exercise price of an incentive stock option granted to a person who, at the time
of grant, owns shares of Capstar Broadcasting or any Related Entity which
possess more than 10% of the total combined voting power of all classes of stock
of Capstar Broadcasting or of any Related Entity may not be less than 110% of
the fair market value of a share of Class A Common Stock on the date of grant.
No option is exercisable after the expiration of ten years from the date of
grant, unless, as to any non-qualified stock option, otherwise expressly
provided in the option agreement; provided, however, that no incentive stock
option granted to a person who, at the time of grant, owns stock of Capstar
Broadcasting, or any Related Entity, possessing more than 10% of the total
combined voting power of all classes of stock of Capstar Broadcasting, or any
Related Entity, is exercisable after the expiration of five years from the date
of grant.
In the event of a change of control or sale of Capstar Broadcasting, all
outstanding stock options may, subject to the sole discretion of the
Compensation Committee, become exercisable in full at such time or times as
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the Compensation Committee may determine. Each stock option accelerated by the
Compensation Committee would terminate on such date (not later than the stated
exercise date) as the Compensation Committee determines.
Unless an option or other agreement provides otherwise, upon the date of
death of an optionee (or upon the termination of an optionee because of such
optionee's disability), the person who acquires the right to exercise the option
of such optionee (or the optionee in the case of disability) must exercise such
option within 180 days after the date of death (or termination in the case of
disability), unless a longer period is expressly provided in such incentive
stock option or a shorter period is established by the Compensation Committee,
but in no event after the expiration date of such option. Following an
optionee's termination of employment for cause, all stock options held by such
optionee will immediately be canceled as of the date of termination of
employment. Following an optionee's termination of employment for other than
cause, such optionee must exercise his stock option within 30 days after the
date of such termination, unless a longer period is expressly provided in such
stock option or a shorter period is established by the Compensation Committee,
provided that no incentive stock option shall be exercisable more than three
months after such termination.
The option exercise price may be paid in cash or, in the discretion of the
Compensation Committee, by the delivery of shares of Class A Common Stock then
owned by the participant, or by a combination of these methods. Also, in the
discretion of the Compensation Committee, payment may also be made by delivering
a properly executed exercise notice to Capstar Broadcasting together with a copy
of irrevocable instructions to a broker to deliver promptly to Capstar
Broadcasting the amount of sale or loan proceeds to pay the exercise price.
Except as otherwise expressly provided in any non-qualified stock option,
stock options may be transferred by a participant only by will or by the laws of
descent and distribution and may be exercised only by the participant during his
lifetime.
If an optionee's employment is terminated for any reason or a change of
control occurs, Capstar Broadcasting, or its designee, may purchase the
remaining options and/or shares of Class A Common Stock held by such optionee at
a price per share equal to fair market value. Prior to the transfer by an
optionee of any shares of Class A Common Stock issued to such optionee upon
exercise of a stock option, Capstar Broadcasting or its designee has the right
to acquire such shares of Class A Common Stock on the same terms and conditions
as the proposed transfer.
Stock Purchase Plan
Capstar Broadcasting's 1997 Stock Purchase Plan (the "Stock Purchase Plan")
gives certain key employees of Capstar Broadcasting and any Related Entities who
are expected to contribute materially to the success of Capstar Broadcasting and
any Related Entities an opportunity to acquire a proprietary interest in Capstar
Broadcasting, and thus to retain such persons and create in such persons an
increased interest in and a greater concern for the welfare of Capstar
Broadcasting and any Related Entities. The Stock Purchase Plan provides for the
grant of stock purchase rights to acquire up to shares of Class A Common Stock.
To date, grants of stock purchase rights with respect to 980,000 shares of Class
A Common Stock have been made under the Stock Purchase Plan, all of which have
been exercised.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not currently have a compensation committee. During 1996,
the Board of Directors established the compensation of the Company's executive
officers, the members of which, at the time that compensation decisions were
made, were Bruce A. Friedman (the Company's former President and Chief Executive
Officer), Susan L. Burden (the Company's former Secretary and Treasurer) and
Daniel H. Stern.
COMPENSATION OF DIRECTORS
Directors of the Company do not presently receive compensation for their
services as directors. Directors of the Company are entitled to reimbursement of
their reasonable out-of-pocket expenses in connection with their travel to and
attendance at meetings of the Board of Directors or committees thereof.
In 1996, each non-employee director of the Company received $1,000 for each
Board meeting which they attended. In addition, Daniel H. Stern, a non-employee
director, received 1,053 Option Shares during 1996 (with
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a net value of $100,035) for his services as a director of the Company until Mr.
Stern's resignation on October 16, 1996 in connection with the Commodore
Acquisition.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that no director of the
Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of his 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) in respect of
certain unlawful dividend payments or stock redemptions or purchases or (iv) for
any transaction from which the director derived an improper personal benefit.
The effect of these provisions is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of fiduciary duty as a
director (including breaches resulting from grossly negligent behavior), except
in the situations described above.
Capstar Broadcasting has entered into indemnification agreements with each
of its directors and executive officers under which Capstar Broadcasting has
agreed to indemnify the director or officer to the fullest extent permitted by
law and to advance expenses, if the director or officer becomes a party to or
witness or other participant in any threatened, pending or completed action,
suit or proceeding (a "Claim") by reason of any occurrence related to the fact
that the person is or was a director, officer, employee, agent or fiduciary of
Capstar Broadcasting or a subsidiary of Capstar Broadcasting or another entity
at Capstar Broadcasting request (an "Indemnifiable Event"), unless a reviewing
party (either outside counsel or a committee appointed by the Board of
Directors) determines that the person would not be entitled to indemnification
under applicable law. In addition, if a change in control or a potential change
in control of Capstar Broadcasting occurs and if the person indemnified so
requests, Capstar Broadcasting will establish a trust for the benefit of the
indemnitee and fund the trust in an amount sufficient to satisfy all expenses
reasonably anticipated at the time of the request to be incurred in connection
with any Claim relating to an Indemnifiable Event. The reviewing party will
determine the amount deposited in the trust. An indemnitee's rights under the
indemnification agreement are not exclusive of any other rights under the
Capstar Broadcasting's Certificate of Incorporation or By-laws or applicable
law.
The Company believes that these provisions and agreements will assist the
Company in attracting and retaining qualified individuals to serve as directors
and officers.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below gives effect to the acquisition by Capstar Broadcasting of
all of the issued and outstanding common stock of the Company, the Completed
Transactions and the Financing and sets forth, as if each of the foregoing had
occurred on March 31, 1997, (i) the number and percentage of outstanding shares
of each class of the capital stock of Capstar Broadcasting that are beneficially
owned by (a) each person or group beneficially owning five percent or more of
any class of the capital stock of Capstar Broadcasting, (b) each director of
Capstar Broadcasting, (c) each Named Executive Officer, (d) each executive
officer of Capstar Broadcasting, and (e) all directors and executive officers of
the Company and Capstar Broadcasting as a group and (ii) the combined percentage
of all classes of the capital stock of Capstar Broadcasting that are
beneficially owned by each of such person or group of persons. Except as noted
below, each individual or entity named below is believed to have sole investment
and voting power with respect to all the shares of capital stock reflected
below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
COMMON STOCK COMMON STOCK(1) COMMON STOCK(2)
-------------------- -------------------- ---------------------
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT PERCENT OF PERCENTAGE
OF OF OF OF OF OF ECONOMIC OF VOTING
NAME OF BENEFICIAL OWNER SHARES CLASS SHARES CLASS SHARES CLASS INTEREST POWER
------------------------ ---------- ------- ---------- ------- ----------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capstar Broadcasting Partners,
L.P.(3)......................... -- -- -- -- 178,775,505 78.4% 59.1% 77.5%
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Capstar BT Partners, L.P.(3)...... -- -- 26,559,261 55.1% -- -- 8.8% --
200 Crescent Court, Suite 1600
Dallas, Texas 75201
BT Capital Partners, Inc.(3)...... -- -- 9,619,995 20.0% -- -- 3.2% --
200 Crescent Court, Suite 1600
Dallas, Texas 75201
William R. Hicks(3)............... 3,639,870 13.8% -- -- -- -- 1.2% *
2700 E. Bypass, Suite 5000
College Station, Texas 77845
D. Geoff Armstrong(3)............. 2,969,867 11.3% -- -- -- -- 1.0% *
600 Congress Avenue, Suite 1400
Austin, Texas 78701
Capstar Boston Partners,
L.L.C.(3)....................... 2,727,272 10.4% -- -- -- -- * *
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Dex Allen(3)...................... 363,636 1.4% -- -- -- -- * *
Scott J. Bacherman(3)............. 100,000 * -- -- -- -- * *
William S. Banowsky, Jr.(3)....... 500,000 1.9% -- -- -- -- * *
David J. Benjamin, III(3)......... 363,636 1.4% -- -- -- -- * *
John D. Cullen(3)................. 3,292,989 12.5% -- -- -- -- 1.1% *
R. Steven Hicks(4)................ -- -- -- -- 25,449,986 10.7% 8.1% 10.6%
Thomas O. Hicks(5)................ 26,337,243 100.0% 48,179,897 100.0% 238,593,985 100.0% 15.4% 100.0%
Joseph L. Mathias, IV(3).......... 1,615,385 6.1% -- -- -- -- -- --
Eric C. Neuman(3)................. 2,500,628 9.5% -- -- -- -- * *
Frank D. Osborn(3)................ 1,636,361 6.2% -- -- -- -- * *
Mary K. Quass(3).................. 909,091 3.5% -- -- -- -- * *
James T. Shea, Jr.(3)............. 350,000 1.3% -- -- -- -- * *
Jay Sterin(3)..................... 250,000 1.0% -- -- -- -- * *
Paul D. Stone(3).................. 2,271,355 8.6% -- -- -- -- * *
James M. Strawn................... -- -- -- -- -- -- -- --
Lawrence D. Stuart, Jr.(3)........ 637,928 2.4% -- -- -- -- * *
James W. Wesley, Jr............... -- -- -- -- -- -- -- --
R. Gerald Turner.................. -- -- -- -- -- -- -- --
All directors and executive
officers of the Company and
Capstar Broadcasting as a group
(18 persons).................... 26,337,243 100.0% 48,179,897 100.0% 238,593,985 100.0% 100.0% 100.0%
</TABLE>
- ---------------
* Less than one percent.
(1) The holders of shares of Class B Common Stock, par value $.01 per share, of
Capstar Broadcasting ("Class B Common Stock" and, together with the Class A
Common Stock and Class C Common Stock, the "Common Stock") are not entitled
to vote, except as required by law. The shares of Class B Common Stock are
convertible in whole but not in part, at the option of the holder or holders
thereof, into the same number of shares of Class A Common Stock, subject to
certain conditions. See "Description of Capital Stock."
(2) The holders of the Class C Common Stock are entitled to vote with the
holders of the Class A Common Stock on all matters submitted to a vote of
stockholders of the Company, except after an IPO (as defined) with respect
to the election of Class A Directors (as defined), certain "going private"
transactions and as otherwise required by law and except under the
circumstances described under "Description
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of Capital Stock." Each share of Class C Common Stock is entitled to ten
votes per share on all matters submitted to a vote of stockholders. See
"Description of Capital Stock."
(3) Such shares are subject to a stockholders agreement as described in "Certain
Transactions -- Stockholders Agreements."
(4) The number of shares of Class C Common Stock includes (i) 100,000 shares
owned of record by R. Steven Hicks' children, (ii) 7,440,000 shares
purchasable by R. Steven Hicks pursuant to the terms of the Warrant, (iii)
2,042,546 shares purchasable by R. Steven Hicks pursuant to the terms of the
Second Warrant, and (iv) 987,970 shares purchasable by R. Steven Hicks
pursuant to the terms of the Third Warrant (as defined). See "Certain
Transactions -- Stockholders Agreements -- Affiliate Stockholders Agreement"
and "-- Warrants." R. Steven Hicks has voting rights to the shares owned by
his children under the terms of the Affiliate Stockholders Agreement (as
defined). R. Steven Hicks disclaims beneficial ownership of the shares of
Common Stock not owned by him of record. The shares owned of record by R.
Steven Hicks and his children are subject to a voting agreement as described
in "Certain Transactions -- Stockholders Agreements -- Affiliate
Stockholders Agreement."
(5) The number of shares of Class A Common Stock is comprised of (i) 2,727,272
shares owned of record by Capstar Boston Partners, L.L.C., which shares are
subject to a voting agreement as described in "Certain
Transactions -- Stockholders Agreements -- Affiliate Stockholders
Agreement," (ii) 6,368,109 shares owned of record by parties to the
Management Stockholders Agreement (as defined), which shares are subject to
a voting agreement as described in "Certain Transactions -- Stockholders
Agreements -- Management Stockholders Agreement" and (iii) 17,241,862 shares
owned of record by parties to the GulfStar Stockholders Agreement (as
defined), which shares are subject to a voting agreement as described in
"Certain Transactions -- Stockholders Agreements -- GulfStar Stockholders
Agreement." The number of shares of Class B Common Stock is comprised of (i)
the 26,559,261 shares owned of record by Capstar BT Partners, L.P., which
shares are subject to the Affiliate Stockholders Agreement as described in
"Certain Transactions -- Stockholders Agreements -- Affiliate Stockholders
Agreement" and (ii) 21,620,636 shares owned of record by parties to the
GulfStar Stockholders Agreement (as defined), which shares are subject to a
voting agreement as described in "Certain Transactions -- Stockholders
Agreements -- GulfStar Stockholders Agreement." The number of shares of
Class C Common Stock includes (i) 100,000 shares owned of record by R.
Steven Hicks' children, which shares are subject to a voting agreement as
described in "Certain Transactions -- Stockholders Agreements -- Affiliate
Stockholders Agreement," (ii) 14,879,470 shares owned of record by R. Steven
Hicks, and 7,440,000 shares, 2,042,546 shares and 987,970 shares purchasable
by R. Steven Hicks pursuant to the terms of the Warrant, the Second Warrant
and the Third Warrant, respectively, which shares are subject to a voting
agreement as described in "Certain Transactions -- Stockholders
Agreements -- Affiliate Stockholders Agreement," (iii) 178,775,505 shares
owned of record by Capstar L.P., of which the ultimate general partner is an
entity controlled by Thomas O. Hicks, and (iv) 34,368,495 shares owned of
record by parties to the GulfStar Stockholders Agreement (as defined), which
shares are subject to a voting agreement as described in "Certain
Transactions -- Stockholders Agreements -- GulfStar Stockholders Agreement."
Hicks Muse is a party to the Affiliate Stockholders Agreement, the
Management Stockholders Agreement and the GulfStar Stockholders Agreement,
which agreements require the parties to such agreements to vote their shares
(i) in favor of the election to Capstar Broadcasting's Board of Directors of
such individuals as may be designated by Hicks Muse and its affiliates
(including Capstar L.P.) and (ii) on other matters as the holders of a
majority of the voting power of the outstanding shares of Common Stock vote
on such matters. Thomas O. Hicks is the controlling stockholder of Hicks
Muse and serves as its Chairman of the Board, President, Chief Executive
Officer, Chief Operating Officer and Secretary. Accordingly, Thomas O. Hicks
may be deemed to be the beneficial owner of all of the Common Stock subject
to the Affiliate Stockholders Agreement, the Management Stockholders
Agreement and the GulfStar Stockholders Agreement. Thomas O. Hicks disclaims
beneficial ownership of the shares of Common Stock not owned by him of
record.
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CERTAIN TRANSACTIONS
MONITORING AND OVERSIGHT AGREEMENTS
Capstar Broadcasting Monitoring and Oversight Agreement. Capstar
Broadcasting has entered into a monitoring and oversight agreement (the "Capstar
Broadcasting Monitoring and Oversight Agreement") with Hicks Muse & Co.
Partners, L.P. ("Hicks Muse Partners"). Pursuant thereto, Capstar Broadcasting
has agreed to pay to Hicks Muse Partners an annual fee of $100,000 for ongoing
financial oversight and monitoring services. The annual fee is adjustable upward
or downward at the end of each fiscal year to an amount equal to 0.2% of the
budgeted consolidated annual net sales of Capstar Broadcasting for the
then-current fiscal year; provided, that such fee shall at no time be less than
$100,000 per year. Notwithstanding the calculation of the annual fee in the
preceding two sentences, the annual fee will be reduced by the amount previously
paid for such period by the Company under the Monitoring and Oversight Agreement
(as defined), and as a result, no annual fee is expected to be required to be
paid in 1997. Hicks Muse Partners is also entitled to reimbursement for any
out-of-pocket expenses incurred by it in connection with rendering services
under the Capstar Broadcasting Monitoring and Oversight Agreement. In addition,
Capstar Broadcasting has agreed to indemnify Hicks Muse Partners, its affiliates
and shareholders, and their respective directors, officers, agents, employees
and affiliates 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 Capstar Broadcasting Monitoring and
Oversight Agreement. Hicks Muse Partners has reserved the right to seek an
increase in the amount of its annual fee based on the increased scope of Capstar
Broadcasting's operations. Any such increase will be subject to the approval of
the Board of Directors of Capstar Broadcasting, including a majority of the
disinterested directors, based on the exercise of their independent judgment.
The Capstar Broadcasting Monitoring and Oversight Agreement makes available
on an ongoing basis the resources of Hicks Muse Partners concerning a variety of
financial matters. The services that have been and will continue to be provided
by Hicks Muse Partners could not otherwise be obtained by Capstar Broadcasting
without the addition of personnel or the engagement of outside professional
advisors. The Capstar Broadcasting Monitoring and Oversight Agreement expires on
the earlier to occur of (i) July 1, 2007 or (ii) the date on which HM Fund III
and its affiliates cease to own beneficially, directly or indirectly, any
securities of Capstar Broadcasting or its successors.
Monitoring and Oversight Agreement. The Company has entered into a
monitoring and oversight agreement (the "Monitoring and Oversight Agreement")
with Hicks Muse Partners. Pursuant thereto, the Company has agreed to pay to
Hicks Muse Partners an annual fee of $100,000 for ongoing financial oversight
and monitoring services. The annual fee is adjustable upward or downward at the
end of each fiscal year to an amount equal to 0.2% of the budgeted consolidated
annual net sales of the Company for the then-current fiscal year; provided, that
such fee shall at no time be less than $100,000 per year. The annual fee in 1997
is estimated to be $278,000. The Monitoring and Oversight Agreement expires on
the earlier to occur of (i) October 16, 2006 or (ii) the date on which HM Fund
III and its affiliates cease to own beneficially, directly or indirectly, any
securities of the Company or its successors. The remainder of the terms of the
Monitoring and Oversight Agreement are substantially similar to the terms of the
Capstar Broadcasting Monitoring and Oversight Agreement.
FINANCIAL ADVISORY AGREEMENTS
Capstar Broadcasting Financial Advisory Agreement. Capstar Broadcasting is
a party to a financial advisory agreement (the "Capstar Broadcasting Financial
Advisory Agreement") with Hicks Muse Partners. Pursuant to the Capstar
Broadcasting Financial Advisory Agreement, Hicks Muse Partners is entitled to
receive a fee equal to 1.5% of the transaction value (as defined in the Capstar
Broadcasting Financial Advisory Agreement) for each add-on transaction (as
defined) in which Capstar Broadcasting or any of its subsidiaries is involved.
Hicks Muse Partners is also entitled to reimbursement for any out-of-pocket
expenses incurred by it in connection with rendering services under the Capstar
Broadcasting Financial Advisory Agreement. The term "transaction value" means
the total value of any add-on transaction, including, without limitation, the
aggregate amount of the funds required to complete the add-on transaction
(excluding any fees payable pursuant to the Capstar Broadcasting
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Financial Advisory Agreement, but including the amount of any indebtedness,
preferred stock or similar items assumed or remaining outstanding). The term
"add-on transaction" means any future proposal for a tender offer, acquisition,
sale, merger, exchange offer, recapitalization, restructuring, or other similar
transaction directly or indirectly involving Capstar Broadcasting or any of its
subsidiaries, excluding the Company and its direct and indirect subsidiaries,
and any other person or entity. In addition, Capstar Broadcasting has agreed to
indemnify Hicks Muse Partners, its affiliates and partners, and their respective
directors, officers, agents, employees and affiliates 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 Capstar Broadcasting Financial Advisory Agreement.
Pursuant to the Capstar Broadcasting Financial Advisory Agreement, Hicks
Muse Partners provides investment banking, financial advisory and other similar
services with respect to the add-on transactions in which Capstar Broadcasting
is involved. Such transactions require additional attention beyond that required
to monitor and advise Capstar Broadcasting on an ongoing basis and accordingly
Capstar Broadcasting pays separate Capstar Broadcasting advisory fees with
respect to such matters in addition to those paid in connection with the
Monitoring and Oversight Agreement. The services that have been and will
continue to be provided by Hicks Muse Partners could not otherwise be obtained
by Capstar Broadcasting without the addition of personnel or the engagement of
outside professional advisors. The Capstar Broadcasting Financial Advisory
Agreement will terminate concurrently with the termination of the Capstar
Broadcasting Monitoring and Oversight Agreement.
Financial Advisory Agreement. The Company is a party to a financial
advisory agreement (the "Capstar Financial Advisory Agreement") with Hicks Muse
Partners. The terms of the Financial Advisory Agreement are substantially
similar to the terms of the Capstar Broadcasting Financial Advisory Agreement.
The Company has paid Hicks Muse Partners financial advisory fees of
approximately $12.4 million since the Company's inception in October 1996.
STOCKHOLDERS AGREEMENTS
Affiliate Stockholders Agreement. R. Steven Hicks, five of his children,
Capstar BT Partners, L.P., Capstar Boston Partners, L.L.C. and Capstar L.P. (the
"Affiliate Stockholders") have entered into the Affiliate Stockholders Agreement
with Capstar Broadcasting and Hicks Muse that provides, among other things, that
the Affiliate Stockholders may require Capstar Broadcasting, subject to certain
registration volume limitations, to effect up to three demand registrations of
their Common Stock under the Securities Act at any time after consummation of a
qualified IPO (as defined in the Affiliate Stockholders Agreement). The
Affiliate Stockholders Agreement also provides that in the event Capstar
Broadcasting proposes to register any shares of its Common Stock under the
Securities Act, whether or not for its own account, the Affiliate Stockholders
will be entitled, with certain exceptions, to include their shares of Common
Stock in such registration.
The Affiliate Stockholders Agreement also requires the Affiliate
Stockholders, subject to certain conditions, to vote their shares (i) in favor
of the election to Capstar Broadcasting's Board of Directors of such individuals
as may be designated by Hicks Muse and its affiliates (including Capstar L.P.)
and (ii) on other matters as the holders of a majority of the voting power of
the outstanding shares of Common Stock vote on such matters. If certain
conditions are met, including Mr. Hicks serving as the President and Chief
Executive Officer of Capstar Broadcasting or holding not less than 3% of the
fully-diluted Common Stock of Capstar Broadcasting, the Affiliate Stockholders
Agreement provides that Mr. Hicks shall be one of such designees to serve on
Capstar Broadcasting's Board of Directors.
The Affiliate Stockholders Agreement provides that, in connection with any
transfer of Capstar Broadcasting's securities held by Hicks Muse and its
affiliates (which would constitute a "sale" thereof within the meaning of the
Securities Act) representing more than 50% of the shares of Common Stock then
held by Hicks Muse and its affiliates, Hicks Muse and its affiliates have the
right to require the Affiliate Stockholders to also transfer a portion of their
shares of Common Stock. If Hicks Muse and its affiliates desire to effect a sale
of more than 50% of the shares of Common Stock then held by Hicks Muse and its
affiliates, such stockholders may "tag along" and sell a portion of their shares
of Common Stock on the same terms.
Prior to the transfer of any securities subject to the Affiliate
Stockholders Agreement by any stockholder other than an affiliate of Hicks Muse,
Hicks Muse has the right to acquire such securities on the same terms and
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conditions as the proposed transfer. If R. Steven Hicks is no longer an officer,
director or employee of Capstar Broadcasting or any of its subsidiaries or a
change of control (as defined in the Affiliate Stockholders Agreement) occurs,
Capstar Broadcasting has the option to purchase all or any portion of Capstar
Broadcasting's securities held by Mr. Hicks and his children. The Affiliate
Stockholders Agreement provides that (i) R. Steven Hicks shall retain the voting
rights of any securities (subject to such agreement) which he transfers,
conveys, assigns or hypothecates to an affiliate or any of his family members
and (ii) Mr. Hicks may not transfer, convey, assign or hypothecate any of his
securities (subject to the Affiliate Stockholders Agreement) to an affiliate or
any family member of Mr. Hicks unless such affiliate or family member joins in
the Affiliate Stockholders Agreement.
Subject to certain exceptions, if Capstar Broadcasting proposes to issue or
sell any shares of Common Stock to Hicks Muse or any of its affiliates, Mr.
Hicks has the right to purchase a pro rata share of such shares of Common Stock.
Mr. Hicks waived his preemptive right to acquire additional shares of Common
Stock in connection with the Financing. Mr. Hicks is entitled to receive, for no
additional consideration, a warrant to acquire additional shares of Class C
Common Stock (determined as provided in the Affiliate Stockholders Agreement) if
Hicks Muse or any of its affiliates otherwise acquires additional shares of
Common Stock. In connection with the Hicks Muse GulfStar Equity Investment, Mr.
Hicks received a warrant to purchase 3,231,203 shares of Class C Common Stock
(the "Third Warrant"). See "-- Warrants" and "-- Management and Affiliate Equity
Investments."
Management Stockholders Agreement. Certain employees of Capstar
Broadcasting and its subsidiaries have entered into the Management Stockholders
Agreement (the "Management Stockholders Agreement") with Capstar Broadcasting
and Hicks Muse that provides, among other things, that in the event Capstar
Broadcasting proposes to register any shares of its Common Stock under the
Securities Act, whether or not for its own account, the stockholders that are
parties to the Management Stockholders Agreement will be entitled, with certain
exceptions, to include their shares of Common Stock in such registration. The
Management Stockholders Agreement also requires the parties thereto to vote
their shares in favor of the election to Capstar Broadcasting's Board of
Directors of such individuals as may be designated by Hicks Muse and its
affiliates.
The Management Stockholders Agreement provides that, in connection with any
transfer of Capstar Broadcasting's securities held by Hicks Muse and its
affiliates (which would constitute a "sale" thereof within the meaning of the
Securities Act) representing more than 50% of the shares of Common Stock then
held by Hicks Muse and its affiliates, Hicks Muse and its affiliates have the
right to require the stockholders subject to the Management Stockholders
Agreement also to transfer a portion of their shares of Common Stock. If Hicks
Muse and its affiliates desire to effect a sale of more than 50% of the shares
of Common Stock then held by Hicks Muse and its affiliates, such stockholders
may "tag along" and sell a portion of their shares of Common Stock on the same
terms.
Prior to the transfer of any securities subject to the Management
Stockholders Agreement by any stockholder other than an affiliate of Hicks Muse,
Hicks Muse has the right to acquire such securities on the same terms and
conditions as the proposed transferee. If at any time a stockholder subject to
the Management Stockholders Agreement is no longer an officer, director or
employee of Capstar Broadcasting or any of its subsidiaries or a change of
control (as defined in the Management Stockholders Agreement) of Capstar
Broadcasting occurs, Capstar Broadcasting has the option to purchase all or any
portion of Capstar Broadcasting's securities held by such stockholder.
GulfStar Stockholders Agreement. Upon completion of the GulfStar
Transaction, the stockholders of GulfStar (other than R. Steven Hicks) (the
"GulfStar Stockholders") entered into the GulfStar Stockholders Agreement with
Capstar Broadcasting and Hicks Muse that provides, among other things, that the
GulfStar Stockholders may require Capstar Broadcasting, subject to certain
registration volume limitations, to effect up to three demand registrations of
their Common Stock under the Securities Act one year following the consummation
of a Qualified IPO (as defined in the GulfStar Stockholders Agreement). The
GulfStar Stockholders Agreement also provides that in the event Capstar
Broadcasting proposes to register any shares of its Common Stock under the
Securities Act, whether or not for its own account, the GulfStar Stockholders
will be entitled, with certain exceptions, to include their shares of Common
Stock in such registration.
The GulfStar Stockholders Agreement also requires the GulfStar
Stockholders, subject to certain conditions, to vote their shares (i) in favor
of the election to Capstar Broadcasting's Board of Directors of such individuals
as
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may be designated by Hicks Muse and its affiliates (including Capstar L.P.) and
(ii) on other matters as the holders of a majority of the voting power of the
outstanding shares of Common Stock vote on such matters.
The GulfStar Stockholders Agreement provides that, in connection with any
transfer of Capstar Broadcasting's securities held by Hicks Muse and its
affiliates (which would constitute a "sale" thereof within the meaning of the
Securities Act) representing more than 50% of the shares of Common Stock then
held by Hicks Muse and its affiliates, Hicks Muse and its affiliates have the
right to require the GulfStar Stockholders to also transfer a portion of their
shares of Common Stock. If Hicks Muse and its affiliates desire to effect a sale
of more than 50% of the shares of Common Stock then held by Hicks Muse and its
affiliates, such stockholders may "tag along" and sell a portion of their shares
of Common Stock on the same terms.
Prior to the transfer of any securities subject to the GulfStar
Stockholders Agreement by any stockholder other than an affiliate of Hicks Muse,
Hicks Muse has the right to acquire such securities on the same terms and
conditions as the proposed transferee. The GulfStar Stockholders Agreement
provides that (i) a GulfStar Stockholder shall retain the voting rights of any
securities (subject to such agreement) which he transfers, conveys, assigns or
hypothecates to an affiliate or any of his family members and (ii) a GulfStar
Stockholder may not transfer, convey, assign or hypothecate any of his
securities (subject to the GulfStar Stockholders Agreement) to an affiliate or
any family member of such GulfStar Stockholder unless such affiliate or family
member joins in the GulfStar Stockholders Agreement.
REGISTRATION RIGHTS AGREEMENT
Frank D. Osborn is a party to a registration rights agreement with Capstar
Broadcasting which provides, among other things, that Mr. Osborn may require
Capstar Broadcasting to effect a demand registration of his Common Stock under
the Securities Act at any time within 30 days after the tenth anniversary of the
date of the registration rights agreement. Mr. Osborn's right to demand a
registration will terminate upon the first to occur of a qualified IPO or a
change of control (both as defined in the registration rights agreement). After
receipt of a demand for registration of Common Stock by Mr. Osborn pursuant to
the registration rights agreement, Capstar Broadcasting has the option to
purchase all of the shares of Common Stock, then held by Mr. Osborn for a 30-day
period, at appraised value (as defined in the registration rights agreement).
WARRANTS
On October 16, 1996, the Company issued a warrant (the "Warrant") to R.
Steven Hicks, which has been assumed by Capstar Broadcasting. Pursuant to the
terms of the Warrant, Mr. Hicks is entitled to purchase 7,440,000 shares of
Class C Common Stock at any time or from time to time and, upon the fulfillment
of a certain triggering event, may purchase an additional 1,860,000 shares of
Class C Common Stock. The exercise price of the Warrant is equal to a per share
price of $1.00 as increased by an annual rate of interest equal to 8% per year
commencing as of October 16, 1996. The term "triggering event" means the date
upon which distributions equal to an internal rate of return of at least 30%,
calculated in accordance with generally accepted financial practice, on the
initial investment of Capstar L.P. of $90.0 million in the Company (which
investment was made on October 16, 1996) have been made to Hicks Muse and its
affiliates and its and their respective officers, directors and employees (and
members of their respective families (other than Mr. Hicks) and trusts for the
primary benefit of those family members). See "-- Management and Affiliate
Equity Investments." The Warrant will terminate on October 16, 2006. The Warrant
and the shares of Class C Common Stock issuable thereunder are subject to the
Affiliate Stockholders Agreement.
Under the terms of the Affiliate Stockholders Agreement, the Company issued
a new warrant (the "Second Warrant") to Mr. Hicks upon completion of the Hicks
Muse Osborn Equity Investment, which has been assumed by Capstar Broadcasting.
Pursuant to the terms of the Second Warrant, Mr. Hicks is entitled to purchase
2,042,546 shares of Class C Common Stock at any time or from time to time and,
upon the fulfillment of the triggering event (which is based on Capstar L.P.'s
$34.8 million investment in the Company made on February 20, 1997), may purchase
an additional 510,636 shares of Class C Common Stock. See "-- Management and
Affiliate Equity Investments." The exercise price of the Second Warrant is equal
to a per share price of $1.10 per share as increased by an annual rate of
interest equal to 8.0% per year commencing as of February 20, 1997. The Second
Warrant will terminate ten years from the date of grant. The remaining terms of
the Second Warrant are substantially similar to the terms of the Warrant.
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Under the terms of the Affiliate Stockholders Agreement, Capstar
Broadcasting issued a new warrant (the "Third Warrant" and together with the
Warrant and the Second Warrant, the "Warrants") to Mr. Hicks upon completion of
the Hicks Muse GulfStar Equity Investment. Pursuant to the terms of the Third
Warrant, Mr. Hicks is entitled to purchase 987,970 shares of Class C Common
Stock at any time or from time to time and, upon the fulfillment of the
triggering event (which is based on Capstar L.P.'s $75.0 million investment in
Capstar Broadcasting), may purchase an additional 2,243,233 shares of Class C
Common Stock. See "-- Management and Affiliate Equity Investments." The exercise
price of the Third Warrant is equal to a per share price of $1.33 per share as
increased by an annual rate of interest equal to 8% per year commencing as of
the date of the consummation of the GulfStar Transaction. The Third Warrant will
terminate 10 years from the date of grant. The remaining terms of the Third
Warrant are substantially similar to the terms of the Warrant.
MANAGEMENT AND AFFILIATE EQUITY INVESTMENTS
HM Fund III and its affiliates (through Capstar L.P.) have invested $233.9
million in the Common Stock, including $90.0 million for 90,000,000 shares of
Class C Common Stock in connection with the Commodore Acquisition, $34.8 million
for 31,634,527 shares of Class C Common Stock in connection with the Hicks Muse
Osborn Equity Investment, and $75.0 million for 56,390,977 shares of Class C
Common Stock in connection with the GulfStar Transaction (the "Hicks Muse
GulfStar Equity Investment"), and equity investments by Capstar BT Partners,
L.P. and Capstar Boston Partners, L.L.C. (each of which is an affiliate of HM
Fund III). HM Fund III and its affiliates have committed to invest up to an
additional $50.0 million in equity of Capstar Broadcasting and Capstar
Broadcasting has committed to issue additional equity to Capstar Broadcasting in
exchange therefor. In connection with the Osborn Acquisition, Capstar BT
Partners, L.P., an entity controlled by Hicks Muse, invested $20.0 million for
18,181,818 shares of Class B Common Stock and, in connection with the Hicks Muse
GulfStar Equity Investment and upon exercise of its preemptive rights under the
Affiliate Stockholders Agreement, Capstar BT Partners, L.P. invested an
additional $11.1 million for 8,377,443 shares of Class B Common Stock (the
"Capstar BT Equity Investment"). Capstar BT Partners, L.P. may exercise its
preemptive rights under the Affiliate Stockholders Agreement in connection with
HM Fund III's purchase of an additional $50.0 million of Common Stock pursuant
to its commitment to purchase such shares. Capstar Boston Partners, L.L.C., an
entity controlled by Hicks Muse, has invested $3.0 million for 2,727,272 shares
of Class A Common Stock.
R. Steven Hicks, the President and Chief Executive Officer of the Company,
has invested $3.1 million for 3,100,000 shares of Class C Common Stock. James T.
Shea, Jr., the chief executive officer of the Northeast Region, has invested
$350,000 for 350,000 shares of Class A Common Stock. In connection with the
Osborn Acquisition, Frank D. Osborn, the former President and Chief Executive
Officer of Osborn contributed certain shares of common stock of Osborn to the
Company in exchange for 1,636,361 shares of common stock of the Company having a
deemed value of $1.8 million (which shares have been exchanged for an equal
number of shares of Class A Common Stock). David J. Benjamin, who will serve as
a Managing Director and Dex Allen, who serves as the president and chief
executive officer of the West Region, have each invested $400,000 for 363,636
shares of Class A Common Stock. Mary K. Quass, who will serve as the president
and chief executive officer of the Midwest Region upon consummation of the Quass
Acquisition, has invested $1.0 million for 909,091 shares of Class A Common
Stock. In connection with the Benchmark Acquisition, Joseph L. Mathias IV,
received 1,615,385 shares of Class A Common Stock having a deemed value of $2.0
million in consideration of part of his ownership interest in Benchmark. The
number of shares received by Mr. Mathias may change pending completion of
certain post-closing purchase price adjustments in connection with the Benchmark
Acquisition. Certain other members of Capstar Broadcasting's management have
invested approximately $1.1 million for 1,130,000 shares of Class A Common
Stock.
INDEBTEDNESS OF MANAGEMENT
In connection with his employment, Dex Allen, the president and chief
executive officer of the West Region, purchased 363,636 shares of common stock
of the Company, which were subsequently exchanged for shares of Class A Common
Stock, in exchange for $200,000 in cash and a promissory note payable to the
Company in the principal amount of $200,000. The note is secured by the Class A
Common Stock purchased by Mr. Allen and
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bears interest at a rate of 9% per annum with interest payable monthly and
principal payable at maturity. The note will mature and be payable on the first
to occur of (i) October 31, 1997 or (ii) consummation of the Commonwealth
Acquisition. Such shares are subject to the Management Stockholders Agreement.
See "-- Stockholders Agreements."
David J. Benjamin, III who serves as a Managing Director, purchased 363,636
shares of common stock of the Company, which were subsequently exchanged for
shares of Class A Common Stock, in exchange for $3,636 in cash and a promissory
note payable to the Company in the principal amount of $400,000, which was
repaid in connection with the Community Pacific Acquisition. The note was
secured by the Class A Common Stock purchased by Mr. Benjamin and bore interest
at a rate of 9% per annum with principal and interest payments due at maturity.
Such shares are subject to the Management Stockholders Agreement. See
"-- Stockholders Agreements."
Mary K. Quass, who will serve as the president and chief executive officer
of the Midwest Region upon consummation of the Quass Acquisition, purchased
909,091 shares of common stock of the Company, which were subsequently exchanged
for shares of Class A Common Stock, in exchange for cash in the amount of $9,091
and a promissory note payable to the Company in the principal amount of
$990,909. The note is secured by the Class A Common Stock purchased by Ms. Quass
and bears interest at a rate of 9% per annum with principal and interest
payments due at maturity. The note will mature and be payable on the first to
occur of (i) April 30, 1998 or (ii) consummation of the Quass Acquisition.
Capstar Broadcasting will have the right to repurchase Ms. Quass' shares of
Class A Common Stock (by forgiveness of the note) if (i) the Quass Acquisition
is not closed by April 30, 1998 or (ii) the acquisition agreement therefor is
terminated. Such shares are subject to the Management Stockholders Agreement.
See "-- Stockholders Agreements."
Each of Eric C. Neuman, Paul D. Stone, and John D. Cullen, who are members
of management of GulfStar, acquired shares of common stock of GulfStar in
exchange for non-recourse promissory notes payable and recourse promissory notes
payable to GulfStar in aggregate principal amounts of approximately $114,000,
$428,000, and $856,000, respectively. The notes were secured by the common stock
of GulfStar purchased by such persons, and upon completion of the GulfStar
Merger, will be secured by the Common Stock issued in exchange therefor. The
note of Eric C. Neuman bears interest at a rate of 9% per annum and the notes of
Paul D. Stone and John D. Cullen bear interest at 7.6% per annum, each with
principal and interest payments payable annually in arrears. Each of the notes
matures 10 years after the date of the note.
R. Gerald Turner, a director of Capstar Broadcasting, intends to acquire
75,188 shares of Class A Common Stock in exchange for a non-recourse promissory
note payable to Capstar Broadcasting in the principal amount of $75,000 and a
recourse note payable to Capstar Broadcasting in the principal amount of
$25,000. The notes, which will mature on the fifth anniversary thereof, will be
secured by the shares of Class A Common Stock purchased by Mr. Turner and bear
interest at a rate of 8.25% per annum with quarterly interest payments and
principal payable at maturity. Such shares will be subject to the Management
Stockholders Agreement. See "-- Stockholders Agreements."
GULFSTAR TRANSACTIONS
On April 16, 1996, GulfStar acquired all of the outstanding capital stock
of Sonance Communications, Inc. ("Sonance") in exchange for 542 shares of
GulfStar Class C Stock, 1,626 shares of GulfStar Class A Stock and approximately
$619,000 of cash. Total consideration for the acquisition, including acquisition
costs, was approximately $8,692,000, including assumed liabilities of
$7,627,000. Sonance's controlling stockholder is William R. Hicks, brother of
Thomas O. Hicks and R. Steven Hicks. Thomas O. Hicks was the majority
stockholder of GulfStar and Sonance. The primary assets of Sonance include
stations KKAM-AM, KFMX-FM, KIIZ-FM, KLTX-FM, WTAW-AM and KTSR-FM.
In 1996, GulfStar recorded a charge of approximately $771,000 in connection
with the write-off of a receivable from Sonance Midland, Inc. ("Sonance
Midland"). Before its sale to an unrelated third party, Sonance Midland was
owned by Thomas O. Hicks and William R. Hicks, brother of Thomas O. Hicks and R.
Steven Hicks. Sonance Midland owed GulfStar $771,000 in connection with advances
for working capital. During 1996,
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Sonance Midland was sold by William R. Hicks to a unrelated third party.
Concurrently with the sale, GulfStar wrote-off the receivable from Sonance
Midland.
Capstar Broadcasting has agreed to acquire an aggregate of 1,187,947 shares
of Class A Common Stock from William R. Hicks and Ben D. Downs for an aggregate
purchase price of $765,000 payable in cash. In connection therewith, Capstar
Broadcasting has agreed to sell (the "GulfStar -- Bryan Disposition") all of the
outstanding capital stock of BBOC, an indirect wholly-owned subsidiary of
Capstar Broadcasting that was acquired in the GulfStar Transaction, to William
R. Hicks and Ben D. Downs in exchange for cash proceeds in the amount of
$580,000. BBOC owns and operates radio stations WTAW-FM, KTSR-FM and KAGG-FM in
Bryan, Texas. FCC approval is pending. The Company anticipates that the
GulfStar -- Bryan Disposition will be completed in October 1997, and,
accordingly, Common Stock of Capstar Broadcasting (received by William R. Hicks
and Ben D. Downs in connection with the GulfStar Merger) will be exchanged for
the capital stock of BBOC.
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DESCRIPTION OF CAPITAL STOCK
THE COMPANY
The Company's authorized capital stock will consist of 500,000,000 shares
of common stock, par value $.01 ("Company Common Stock"), of which 475,874,792
shares were issued and outstanding and owned by Capstar Partners upon completion
of the Completed Transactions.
CAPSTAR PARTNERS
Capstar Partners' authorized capital stock consists of (i) 300,000,000
shares of Class A common stock, par value $.01 per share, of which 279,632,180
shares were issued and outstanding upon completion of the Completed
Transactions, (ii) 50,000,000 shares of Class B common stock, par value $.01 per
share, none of which were issued and outstanding upon completion of the
Completed Transactions, and (iii) 10,000,000 shares of preferred stock, par
value $.01 per share, of which 1,000,000 shares were issued and outstanding as
Senior Exchangeable Preferred Stock upon completion of the Completed
Transactions. Capstar Broadcasting owns all of Capstar Partners' outstanding
Common Stock.
Preferred Stock
Capstar Partners is authorized to issue 10,000,000 shares of preferred
stock. The Board of Directors of Capstar Partners, in its sole discretion, may
designate and issue one or more series of preferred stock from the authorized
and unissued shares of preferred stock. Subject to limitations imposed by law or
Capstar Partners' Certificate of Incorporation, the Board of Directors of
Capstar Partners is empowered to determine the designation of and the number of
shares constituting a series of preferred stock, the dividend rate for the
series, the terms and conditions of any voting and conversion rights for the
series, the amounts payable on the series upon redemption or upon the
liquidation, dissolution or winding-up of Capstar Partners, the provisions of
any sinking fund for the redemption or purchase of shares of any series, and the
preferences and relative rights among the series of preferred stock. Such
rights, preferences, privileges and limitations could adversely effect the
rights of holders of common stock. Capstar Partners' outstanding preferred stock
consists solely of the Senior Exchangeable Preferred Stock.
Capstar Partners will offer to exchange another series of senior
exchangeable preferred stock ("New Senior Exchangeable Preferred Stock") for the
outstanding shares of Senior Exchangeable Preferred Stock. The terms of the New
Senior Exchangeable Preferred Stock will be identical in all material respects
to the Senior Exchangeable Preferred Stock, except that the New Senior
Exchangeable Preferred Stock will have been registered under the Securities Act
and, therefore, will not bear legends restricting its transfer. The Senior
Exchangeable Preferred Stock and the New Senior Exchangeable Preferred Stock are
collectively referred to herein as the "Senior Exchangeable Preferred Stock."
The following description of the Senior Exchangeable Preferred Stock does not
purport to be complete and is qualified in its entirety by the terms of the
Certificate of Designation therefor, copies of which are available from the
Company upon request.
Ranking. The Senior Exchangeable Preferred Stock, with respect to dividend
rights and rights on liquidation, winding-up and dissolution, ranks (a) senior
to all classes of common stock of Capstar Partners and to each other series of
preferred stock established after the date of the consummation of the Preferred
Stock Offering (the "Preferred Stock Issuance Date") by the Board of Directors
of Capstar Partners the terms of which expressly provide that such class or
series will rank junior to the Senior Exchangeable Preferred Stock (the "Junior
Stock"), subject to certain conditions, (b) on a parity with each other class of
Preferred Stock established after the Preferred Stock Issuance Date by the Board
of Directors of Capstar Partners the terms of which expressly provide that such
class or series will rank on a parity with the Senior Exchangeable Preferred
Stock (the "Parity Stock") and (c) subject to certain conditions, junior to each
class of Preferred Stock established after the Preferred Stock Issuance Date by
the Board of Directors of Capstar Partners the terms of which expressly provide
that such class will rank senior to the Senior Exchangeable Preferred Stock
("Senior Stock").
Dividends. Holders of the Senior Exchangeable Preferred Stock are entitled
to receive, when, as and if declared by the Board of Directors of Capstar
Partners, out of funds legally available therefor, cash dividends on
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each share of Senior Exchangeable Preferred Stock at a rate per annum equal to
12% of the then effective liquidation preference per share of the Senior
Exchangeable Preferred Stock, payable semi-annually. Capstar Partners, at its
option, may pay dividends on any dividend payment date occurring on or before
July 1, 2002 either in cash or in additional shares of the Senior Exchangeable
Preferred Stock. If any dividend payable on any dividend payment date on or
before July 1, 2002 is not declared or paid in full in cash on such dividend
payment date, the amount payable as dividends on such dividend payment date that
is not paid in cash on such dividend payment date shall be paid in additional
shares of the Senior Exchangeable Preferred Stock on such dividend payment date
and will be deemed paid in full and will not accumulate. After July 1, 2002,
dividends may be paid only in cash out of funds legally available therefor. No
full dividends may be declared or paid or funds set apart for the payment of
dividends on any Parity Stock for any period unless full cumulative dividends
shall have been or contemporaneously are declared and paid (or are deemed
declared and paid) in full or declared and, if payable in cash, a sum in cash
sufficient for such payment is set apart for such payment on the Senior
Exchangeable Preferred Stock. If full dividends are not so paid, the Senior
Exchangeable Preferred Stock will share dividends pro rata with the Parity
Stock. No dividends may be paid or set apart for such payment on Junior Stock
(except dividends on Junior Stock payable in additional shares of Junior Stock)
and no Junior Stock or Parity Stock may be repurchased, redeemed or otherwise
retired nor may funds be set apart for payment with respect thereto, if full
cumulative dividends have not been paid in full (or deemed paid) on the Senior
Exchangeable Preferred Stock. So long as any shares of the Senior Exchangeable
Preferred Stock are outstanding, Capstar Partners shall not make any payment on
account of, or set apart for payment money for a sinking or other similar fund
for, the purchase, redemption or other retirement of, any of the Parity Stock or
Junior Stock or any warrants, rights, calls or options exercisable for or
convertible into any of the Parity Stock or Junior Stock, and shall not permit
any corporation or other entity directly or indirectly controlled by Capstar
Partners to purchase or redeem any of the Parity Stock or Junior Stock or any
such warrants, rights, calls or options unless full cumulative dividends
determined in accordance with the foregoing on the Senior Exchangeable Preferred
Stock have been paid (or are deemed paid) in full.
Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding up of Capstar Partners, holders of Senior Exchangeable
Preferred Stock are entitled to be paid, out of the assets of Capstar Partners
available for distribution to stockholders, the liquidation preference per share
of Senior Exchangeable Preferred Stock, which initially is $100.00 per share,
plus, without duplication, an amount in cash equal to all accumulated and unpaid
dividends thereon to the date fixed for liquidation, dissolution or winding-up
(including an amount equal to a prorated dividend for the period from the last
dividend payment date to the date fixed for liquidation, dissolution or
winding-up), before any distribution is made on any Junior Stock, including,
without limitation, common stock of Capstar Partners. If, upon any voluntary or
involuntary liquidation, dissolution or winding-up of Capstar Partners, the
amounts payable with respect to the Senior Exchangeable Preferred Stock and all
other Parity Stock are not paid in full, the holders of the Senior Exchangeable
Preferred Stock and the Parity Stock will share equally and ratably in any
distribution of assets of Capstar Partners in proportion to the full liquidation
preference to which each is entitled until such preferences are paid in full,
and then in proportion to their respective amounts of accumulated but unpaid
dividends. After payment of the full amount of the liquidation preference and
accumulated and unpaid dividends to which they are entitled, the holders of
shares of Senior Exchangeable Preferred Stock will not be entitled to any
further participation in any distribution of assets of Capstar Partners. The
Certificate of Designation for the Senior Exchangeable Preferred Stock does not
contain any provision requiring funds to be set aside to protect the liquidation
preference of the Senior Exchangeable Preferred Stock, although such liquidation
preference will be substantially in excess of the par value of such shares of
Senior Exchangeable Preferred Stock.
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Optional Redemption. The Senior Exchangeable Preferred Stock may be
redeemed (subject to contractual and other restrictions with respect thereto and
to the legal availability of funds therefor) at any time on or after July 1,
2002, in whole or in part, at the option of Capstar Partners, at the redemption
prices (expressed in percentages of the liquidation preference thereof) set
forth below, plus, without duplication, an amount in cash equal to all
accumulated and unpaid dividends to the redemption date (including an amount in
cash equal to a prorated dividend for the period from the dividend payment date
immediately prior to the redemption date to the redemption date), if redeemed
during the 12-month period beginning July 1 of each of the years set forth
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................ 106.000%
2003........................................................ 104.800%
2004........................................................ 103.600%
2005........................................................ 102.400%
2006........................................................ 101.200%
2007 and thereafter......................................... 100.000%
</TABLE>
In addition, prior to July 1, 2001, Capstar Partners may, at its option,
use the net cash proceeds of one or more public equity offerings or major asset
sales (each as defined in the Certificate of Designation) to redeem the Senior
Exchangeable Preferred Stock, in part, at a redemption price of 112.00% of the
liquidation preference thereof; provided, however, that after any such
redemption, there is outstanding at least $75.0 million in aggregate liquidation
preference of Senior Exchangeable Preferred Stock. Any such redemption will be
required to occur on or prior to one year after the receipt by Capstar Partners
of the proceeds of each public equity offering or major asset sale.
Mandatory Redemption. The Senior Exchangeable Preferred Stock is subject to
mandatory redemption (subject to the legal availability of funds therefor) in
whole on July 1, 2009 at a price equal to 100% of the liquidation preference
thereof, plus, without duplication, all accrued and unpaid dividends to the date
of redemption.
Exchange. Capstar Partners may, at its option, subject to certain
conditions, on any scheduled dividend payment date occurring on or after the
Preferred Stock Issuance Date, exchange the Senior Exchangeable Preferred Stock,
in whole but not in part, for the Exchange Debentures. Holders of the Senior
Exchangeable Preferred Stock will be entitled to receive $1.00 principal amount
of Exchange Debentures for each $1.00 in liquidation preference of Senior
Exchangeable Preferred Stock. See "Description of Other Indebtedness -- Exchange
Debentures."
Voting Rights. Holders of Senior Exchangeable Preferred Stock, except as
otherwise required under Delaware law or as set forth below, will not be
entitled or permitted to vote on any matter required or permitted to be voted
upon by the sole common stockholder of Capstar Partners.
The Certificate of Designation provides that if (i) after July 1, 2002,
cash dividends on the Senior Exchangeable Preferred Stock are in arrears and
unpaid for three or more semi-annual dividend periods (whether or not
consecutive); (ii) Capstar Partners fails to redeem the Senior Exchangeable
Preferred Stock on July 1, 2009 or fails to otherwise discharge any redemption
obligation with respect to the Senior Exchangeable Preferred Stock; (iii)
Capstar Partners fails to make a change of control offer if such offer is
required by the provisions of the Certificate of Designation or fails to
purchase shares of Senior Exchangeable Preferred Stock from holders who elect to
have such shares purchased pursuant to the change of control offer (unless, in
either case, Capstar Partners has decided to effect a change of control
redemption in lieu of such change of control offer as set forth in the
Certificate of Designation); (iv) Capstar Partners fails to make an offer to
purchase when it is obligated to do so; (v) a breach or violation of any of the
provisions described under the caption "-- Certain Covenants" occurs and the
breach or violation continues for a period of 30 days or more after Capstar
Partners receives notice thereof specifying the default from the holders of at
least 25% of the shares of Senior Exchangeable Preferred Stock then outstanding;
or (vi) Capstar Partners fails to pay at the final stated maturity (giving
effect to any extensions thereof) the principal amount of any indebtedness of
Capstar Partners or any subsidiary of Capstar Partners, or the final stated
maturity of any such indebtedness is accelerated, if the aggregate principal
amount of
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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 $10,000,000 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, then the number of directors constituting the board of
directors will be adjusted to permit the holders of a majority of the then
outstanding shares of Senior Exchangeable Preferred Stock, voting separately and
as a class (together with the holders of any Parity Stock having similar voting
rights), to elect the lesser of two directors and that number of directors
constituting at least 25% of the members of the Board of Directors of Capstar
Partners. Such voting rights will continue until such time as, in the case of a
dividend default, all dividends in arrears on the Senior Exchangeable Preferred
Stock are paid in full in cash and, in all other cases, any failure, breach or
default giving rise to such voting rights is remedied or waived by the holders
of at least a majority of the shares of Senior Exchangeable Preferred Stock then
outstanding, at which time the term of any directors elected pursuant to the
provisions of this paragraph shall terminate. Such voting rights shall be the
holders' exclusive remedy at law or in equity.
Change of Control. The Certificate of Designation provides that, upon the
occurrence of a change of control (as defined in the Certificate of
Designation), each holder has the right to require Capstar Partners to
repurchase all or a portion of such holder's Senior Exchangeable Preferred Stock
in cash at a purchase price equal to 101% of the liquidation preference thereof,
plus, without duplication, an amount in cash equal to all accumulated and unpaid
dividends per share to the date of repurchase.
In addition, the Certificate of Designation provides that, prior to July 1,
2002, upon the occurrence of a change of control, Capstar Partners has the
option to redeem the Senior Exchangeable Preferred Stock in whole but not in
part (a "Change of Control Redemption") at a redemption price equal to 100% of
the liquidation preference thereof, plus the applicable premium (as defined in
the Certificate of Designation).
Certain Covenants. The Certificate of Designation contains restrictive
provisions that, among other things, limit the ability of Capstar Partners and
its subsidiaries to incur additional indebtedness, pay dividends or make certain
other restricted payments, or merge or consolidate with or sell all or
substantially all of their assets to any other person.
CAPSTAR BROADCASTING
Capstar Broadcasting's authorized capital stock consists of (i) 75,000,000
shares of Class A Common Stock, of which 26,337,243 shares were issued and
outstanding upon completion of the Completed Transactions, (ii) 50,000,000
shares of Class B Common Stock of which 48,179,897 shares were issued and
outstanding upon completion of the Completed Transactions, and (iii) 300,000,000
shares of Class C Common Stock, of which 228,123,470 shares were issued and
outstanding upon completion of the Completed Transactions, and (iv) 50,000,000
shares of Preferred Stock, $.01 par value per share ("Preferred Stock"), none of
which were issued and outstanding upon completion of the Completed Transactions.
Common Stock
The rights of holders of the Common Stock are identical in all respects,
except for voting rights. All the outstanding shares of Class A Common Stock,
Class B Common Stock and Class C Common Stock (collectively, the "Common Stock")
are validly issued, fully paid and nonassessable.
Dividends. Subject to the right of the holders of any class of Preferred
Stock, holders of shares of Common Stock are entitled to receive such dividends
as may be declared by Capstar Broadcasting's Board of Directors out of funds
legally available for such purpose. No dividend may be declared or paid in cash
or property on any share of any class of Common Stock unless simultaneously the
same dividend is declared or paid on each share of the other class of Common
Stock, provided that, in the event of stock dividends, holders of a specific
class of Common Stock shall be entitled to receive only additional shares of
such class.
Voting Rights. The Class A Common Stock and the Class C Common Stock vote
together as a single class on all matters submitted to a vote of stockholders,
with each share of Class A Common Stock entitled to one vote and each share of
Class C Common Stock entitled to ten votes, except (i) after completion of an
IPO (as defined
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in Capstar Broadcasting's Certificate of Incorporation) that the holders of
Class A Common Stock, voting as a separate class, are entitled initially to
elect two members of the Board of Directors of Capstar Broadcasting; (ii) with
respect to any proposed "going private" transaction (as defined in Rule 13e-3
under the Securities Exchange Act of 1934 (the "Exchange Act")) with Hicks Muse
or any of its affiliates after the completion of an IPO (a "Rule 13e-3
Transaction"), each share of Class A Common Stock and Class C Common Stock shall
be entitled to one vote; and (iii) as otherwise required by law. The Class B
Common Stock has no voting rights except as otherwise required by law.
After the completion of an IPO, the holders of Class A Common Stock, voting
as a separate class, will be entitled to elect two persons to Capstar
Broadcasting's Board of Directors, each of whom must be an "independent
director." For this purpose, an "independent director" means a person who is not
an officer or employee of Capstar Broadcasting or its subsidiaries, and who does
not have a relationship which, in the opinion of the Board of Directors of
Capstar Broadcasting, would interfere with the exercise of independent judgment
in carrying out the responsibilities of a director. In addition, after the
completion of an IPO, the holders of Class A Common Stock and Class C Common
Stock, voting as a single class, are entitled to elect the remainder of the
Board of Directors, which will be divided into three classes of directors with
staggered three-year terms. Notwithstanding the foregoing, upon the earlier to
occur of (i) the date on which Hicks Muse and its affiliates ceases to own
beneficially more than 50% of the number of shares of Class C Common Stock owned
by them upon completion of an IPO subject to appropriate adjustment in respect
of any subdivisions or combinations affecting Class C Common Stock and (ii) the
third anniversary date of the completion of an IPO, the holders of Class A
Common Stock and Class C Common Stock shall vote together as a single class upon
the election of all directors. Holders of Common Stock are not entitled to
cumulate 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 Common Stock is required to approve any
amendment to the certificate of incorporation of Capstar Broadcasting that 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 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 Capstar
Broadcasting, the holders of the Common Stock are entitled to ratably share in
all assets available for distribution after payment in full of creditors and
holders of the Preferred Stock, if any.
Conversion of Class B Common Stock. The shares of Class B Common Stock are
convertible, in whole or in part, at the option of the holder or holders thereof
at any time into a like number of shares of Class A Common Stock, subject to
certain conditions. Upon the sale or other transfer of any share or shares of
Class B Common Stock to any person (subject to certain exceptions) other than
Hicks Muse and its affiliates, each share so sold or transferred shall
automatically be converted into one share of Class A Common Stock, subject to
certain conditions.
Conversion of Class C Common Stock. The shares of Class C Common Stock are
convertible, in whole or in part, at the option of the holder or holders thereof
at any time into a like number of shares of Class A Common Stock subject to
certain conditions. Upon the sale or other transfer of any share or shares of
Class C Common Stock to any person other than Hicks Muse or its affiliates, each
share so sold or transferred shall automatically be converted into one share of
Class A Common Stock.
Preemptive Rights. The holders of Common Stock are not entitled to
preemptive or similar rights.
Preferred Stock.
Capstar Broadcasting is authorized to issue 50,000,000 shares of Preferred
Stock. The Board of Directors of Capstar Broadcasting, in its sole discretion,
may designate and issue one or more series of Preferred Stock from the
authorized and unissued shares of Preferred Stock. Subject to limitations
imposed by law or Capstar Broadcasting's Certificate of Incorporation, the Board
of Directors of Capstar Broadcasting is empowered to determine the designation
of and the number of shares constituting a series of Preferred Stock. The
dividend rate for the series, the terms and conditions of any voting and
conversion rights for the series, the amounts payable on
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the series upon redemption or upon the liquidation, dissolution or winding-up of
Capstar Broadcasting, the provisions of any sinking fund for the redemption or
purchase of shares of any series, and the preferences and relative rights among
the series of Preferred Stock. Such rights, preferences, privileges and
limitations could adversely effect the rights of holders of Common Stock.
FOREIGN OWNERSHIP
The Certificates of Incorporation of Capstar Partners and Capstar
Broadcasting restrict the ownership, voting and transfer of each entity's
capital stock, including the such entity's common stock, in accordance with the
Communications Act and the rules of the FCC, which prohibit ownership of more
than 25% of such entity's outstanding capital stock (or more than 25% of the
voting rights it represents) by or for the account of Aliens or corporations
otherwise subject to domination or control by Aliens. The Certificates of
Incorporation of Capstar Partners and Capstar Broadcasting authorize each
entity's respective Board of Directors to adopt such provisions as it deems
necessary to enforce these prohibitions, including the inclusion of a legend
regarding restrictions on foreign ownership of such stock on the certificates
representing the common stock. In addition, the Certificates of Incorporation of
each of Capstar Partners and Capstar Broadcasting provides that shares of
capital stock determined by such entity's Board of Directors to be owned
beneficially by an Alien or an entity directly or indirectly owned by Aliens in
whole or in part shall always be subject to redemption by action of the such
Board of Directors to the extent necessary, in the judgment of such Board of
Directors, to comply with the Alien ownership restrictions of the Communications
Act and the FCC rules and regulations.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Generally, Section 203 of the General Corporation Law of the State of
Delaware prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless one of the following events occurs: (i) prior to the date of
the business combination, the transaction is approved by the board of directors
of the corporation; (ii) upon consummation of the transaction which resulted in
the stockholder becoming an interested stockholder, the interested stockholder
owns at least 85% of the outstanding voting stock; or (iii) on or after such
date the business combination is approved by the board and by the affirmative
vote of at least two-thirds of the outstanding voting stock which is not owned
by the interested stockholder. A "business combination" includes mergers, asset
sales and other transactions resulting in a financial benefit to the
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock.
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DESCRIPTION OF OTHER INDEBTEDNESS
CAPSTAR PARTNERS NOTES
The 12 3/4% Senior Discount Notes due 2009 of Capstar Partners (the
"Capstar Partners Notes") were issued under an Indenture dated as of February
20, 1997 (the "Capstar Indenture"), as amended, between Capstar Partners and
U.S. Trust Company of Texas, N.A., as trustee (the "Trustee"). Capstar Partners
will offer to exchange new notes ("New Capstar Partners Notes") for the Capstar
Partners Notes. The terms of the New Capstar Partners Notes are identical in all
material respects to the Capstar Partners Notes, except that the New Capstar
Partners Notes will have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer. On April 23, 1997,
Capstar Partners filed with the Commission a registration statement on Form S-4
to register the New Capstar Partners Notes. Upon the issuance of the New Capstar
Partners Notes, the Capstar Indenture will be subject to and governed by the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Capstar
Partners Notes and the New Capstar Partners Notes are collectively referred to
herein as the "Capstar Partners Notes." The following summary of certain
provisions of the Capstar Partner Notes and the Capstar Indenture assumes that
the exchange has been completed and does not purport to be complete and is
qualified in its entirety by reference to the Trust Indenture Act and to the
full text of the Capstar Indenture and the Capstar Partners Notes, copies of
which are available from the Company upon request.
The Capstar Partners Notes are unsecured, senior obligations of Capstar
Partners and are limited to $277,000,000 aggregate principal amount at maturity
and will mature on February 1, 2009. No interest will accrue on the Capstar
Partners Notes prior to February 1, 2002. Thereafter, interest on the Capstar
Partners Notes will accrue at the rate of 12 3/4% and will be payable in cash
semiannually on February 1 and August 1 commencing on August 1, 2002 to holders
of record on the immediately preceding January 15 and July 15. Interest on the
Capstar Partners Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from February 1, 2002. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months.
The yield to maturity of the Capstar Partners Notes is 12 3/4% (computed on
a semi-annual bond equivalent basis), calculated from February 20, 1997. The
Capstar Partners Notes were offered at a substantial discount from their
principal amount at maturity.
The Capstar Partners Notes may be redeemed (subject to contractual and
other restrictions with respect thereto and to the legal availability of funds
therefor) at any time on or after February 1, 2002, in whole or in part, at the
option of Capstar Partners, at the redemption prices (expressed as a percentage
of the accreted value thereof on the applicable redemption date) set forth
below, plus accrued and unpaid interest, if any, to the redemption date, if
redeemed during the 12-month period beginning February 1 of each of the years
set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002...................................................... 106.375%
2003...................................................... 105.313%
2004...................................................... 104.250%
2005...................................................... 103.188%
2006...................................................... 102.125%
2007...................................................... 100.000%
</TABLE>
In addition, prior to February 1, 2001, Capstar Partners may, at its
option, use the net cash proceeds of one or more public equity offerings (as
defined in the Capstar Indenture) or major asset sales (as defined in the
Capstar Indenture) to redeem up to 25% of the principal amount at maturity of
the Capstar Partners Notes at a redemption price of 112.75% of the accreted
value thereof at the redemption date of the Capstar Partners Notes so redeemed;
provided, however, that after any such redemption, at least 75% in aggregate
principal amount at maturity of Capstar Partners Notes would remain outstanding
immediately after giving effect to such redemption. Any such redemption will be
required to occur on or prior to the date that is one year after the receipt by
Capstar Partners of the proceeds of a public equity offering or major asset
sale. Capstar Partners shall effect such redemption on a pro rata basis.
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In addition, prior to February 1, 2002, Capstar Partners may, at its
option, redeem the Capstar Partners Notes upon a change of control (as defined
in the Capstar Indenture).
Change of Control. The Capstar Indenture provides that, upon the occurrence
of a change of control, each holder will have the right to require that Capstar
Partners purchase all or a portion of such holder's Notes in cash pursuant to
the offer to purchase the Capstar Partners Notes at a purchase price equal to
(i) 101% of the accreted value on the change of control payment date (as defined
therein) if the change of control payment date is on or before February 1, 2002
and (ii) 101% of the principal amount at maturity thereof, plus, without
duplication, all accrued and unpaid interest, if any, to the change of control
payment date if such change of control payment date is after February 1, 2002.
Limitation on Incurrence of Additional Indebtedness and Issuance of
Preferred Stock of Subsidiaries. Under the Capstar Indenture, Capstar Partners
will not, and will not permit any of its subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any indebtedness (other than permitted indebtedness) and the Capstar
Partners' subsidiaries will not issue any preferred stock (except preferred
stock issued to Capstar Partners or a wholly owned subsidiary of Capstar
Partners); provided, however, that Capstar Partners and its subsidiaries may
incur indebtedness and Capstar Partners' subsidiaries may issue shares of
preferred stock if, in either case, Capstar Partners' leverage ratio at the time
of incurrence of such indebtedness or the issuance of such preferred stock, as
the case may be, after giving pro forma effect to such incurrence or issuance as
of such date and to the use of proceeds therefrom is less than 7.0 to 1.
Limitation on Restricted Payments. The Capstar Indenture provides that
neither Capstar Partners nor any of its subsidiaries will, directly or
indirectly, make any restricted payment (as defined in the Capstar Indenture) if
at the time of such restricted payment and immediately after giving effect
thereto:
(i) a default or event of default shall have occurred and be
continuing at the time of or after giving effect to such restricted
payment; or
(ii) Capstar Partners is not able to incur $1.00 of additional
indebtedness (other than permitted indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness and Issuance of
Preferred Stock of Subsidiaries" covenant; or
(iii) the aggregate amount of restricted payments made subsequent to
the issue date of the Capstar Partners Notes exceeds the sum of (a) (x)
100% of the aggregate consolidated EBITDA (as defined in the Capstar
Indenture) of Capstar Partners (or, in the event such consolidated EBITDA
shall be a deficit, minus 100% of such deficit) accrued subsequent to the
issue date to the most recent date for which financial information is
available to Capstar Partners, taken as one accounting period, less (y) 1.4
times consolidated interest expense (as defined in the Capstar Indenture)
for the same period, plus (b) 100% of the aggregate net proceeds, received
by Capstar Partners from any person (other than a subsidiary of Capstar
Partners) from the issuance and sale on or subsequent to the issue date of
qualified capital stock (as defined in the Capstar Indenture) of Capstar
Partners, plus (c) without duplication of any amount included in clause
(iii)(b) above, 100% of the aggregate net proceeds, received by Capstar
Partners as a capital contribution on or after the issue date, plus (d) the
amount equal to the net reduction in investments, other than permitted
investments, made by Capstar Partners or any of its subsidiaries in any
person resulting from (i) repurchases or redemptions of such investments by
such person, proceeds realized upon the sale of such investment to an
unaffiliated purchaser and repayments of loans or advances or other
transfers of assets by such person to Capstar Partners or any subsidiary of
Capstar Partners or (ii) the redesignation of unrestricted subsidiaries (as
defined in the Capstar Indenture) as subsidiaries, plus (e) the aggregate
net cash proceeds received by a person in consideration for the issuance of
such person's capital stock, other than disqualified capital stock (as such
terms are defined in the Capstar Indenture), that are held by such person
at the time such person is merged with and into Capstar Partners.
Other Restrictive Covenants. The Capstar Indenture contains certain other
restrictive covenants that, among other things, impose limitations (subject to
certain exceptions) on Capstar Partners with respect to (i) sales of
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<PAGE> 127
assets by Capstar Partners and its subsidiaries, (ii) asset swaps and (iii) the
merger or sale of all or substantially all the assets of Capstar Partners.
Events of Default. The following events are defined in the Capstar
Indenture as "Events of Default": (i) the failure to pay interest on the Capstar
Partners Notes when the same becomes due and payable and the default continues
for a period of 30 days; (ii) the failure to pay the accreted value of or
premium, if any, on any Capstar Partners Notes when such accreted value or
premium, if any, becomes due and payable, at maturity, upon redemption or
otherwise; (iii) a default in the observance or performance of any other
covenant or agreement contained in the Capstar Partners Notes or the Capstar
Indenture, which default continues for a period of 30 days after Capstar
Partners receives written notice thereof specifying the default from the Trustee
or holders of at least 25% in aggregate principal amount at maturity of
outstanding Capstar Partners Notes; (iv) the failure to pay at the final stated
maturity (giving effect to any extensions thereof) the principal amount of any
indebtedness of Capstar Partners or any subsidiary of Capstar Partners, 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 $5.0 million 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 $5.0 million (which are not covered by insurance as to which
the insurer has not disclaimed coverage) being rendered against Capstar Partners
or any of its significant subsidiaries (as defined in the Capstar Indenture) and
such judgment or judgments remain undischarged or unstayed for a period of 60
days after such judgment or judgments become final and nonappealable; and (vi)
certain events of bankruptcy, insolvency or reorganization affecting Capstar
Partners or any of its significant subsidiaries.
Upon the happening of any Event of Default specified in the Capstar
Indenture, the Trustee may, and the Trustee upon the request of holders of 25%
in principal amount at maturity of the outstanding Capstar Partners Notes shall,
or the holders of at least 25% in principal amount at maturity of outstanding
Capstar Partners Notes may, declare the accreted value of all the Capstar
Partners Notes, together with all accrued and unpaid interest and premium, if
any, to be due and payable by notice in writing to Capstar Partners 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 New Credit Facility (as defined below), will become due and payable upon the
first to occur of an acceleration under the New Credit Facility or five business
days after receipt by the Company and the agent under the new credit facility of
such Acceleration Notice (unless all Events of Default specified in such
Acceleration Notice have been cured or waived). For purposes of the immediately
preceding sentence, "New Credit Facility" includes the Existing Credit Facility,
as it may be amended, supplemented or otherwise modified from time to time and
any renewal, extension, refunding, restructuring, replacement or refinancing
thereof (whether with the original agent and lenders or another agent or agents
or other lenders and whether provided under the original Existing Credit
Facility or any other credit agreement). If an Event of Default with respect to
bankruptcy proceedings relating to Capstar Partners 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 Capstar Partners Notes.
EXISTING NOTES
The following summary of certain terms of the Existing Notes and the
Existing Indenture does not purport to be complete and is qualified in its
entirety by reference to the Trust Indenture Act, and to the full text of the
Existing Indenture, copies of which are available from the Company upon request.
The Existing Notes were issued pursuant to the Existing Indenture among the
Company, the guarantors named therein and IBJ Schroder Bank & Trust Company, as
Trustee. The Existing Notes mature on May 1, 2003, are limited in aggregate
principal amount to $76,808,000 and bear cash interest at a rate of 7 1/2% per
annum from the date of original issuance until May 1, 1998, and at a rate of
13 1/4% per annum from and including May 1, 1998 until maturity. Interest is
payable semi-annually in arrears on May 1 and November 1.
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The Existing Notes are general unsecured obligations of the Company
subordinated in right of payment to all senior indebtedness (as defined in the
Existing Indenture) and senior in rights of payment to any current or future
indebtedness of the Company which, by its terms, is subordinated to the Existing
Notes. The Existing Notes are unconditionally guaranteed, on a senior
subordinated basis, as to payment of principal, premium, if any, and interest,
jointly and severally, by the guarantors named in the Existing Indenture.
The Existing Notes are redeemable at the option of the Company, in whole or
in part, at any time on or after (i) May 1, 1999 at 107.5% of their principal
amount, (ii) May 1, 2000, at 105.0% of their principal amount, (iii) May 1,
2001, at 102.5% of their principal amount and (iv) May 1, 2002 and thereafter,
at 100.0% of their principal amount, together, in each case, with accrued and
unpaid interest to the redemption date. Notwithstanding the foregoing, the
Company may redeem in the aggregate up to one-third of the original principal
amount of the Existing Notes at any time and from time to time prior to May 1,
1998 at a redemption price equal to 108% of the Accreted Value of the Existing
Notes thereof plus accrued interest to the redemption date out of the net
proceeds of one or more public equity offerings (as defined in the Existing
Indenture), provided, that at least $50 million in aggregate principal amount of
Existing Notes remains outstanding immediately after the occurrence of any such
redemption and that any such redemption occurs within 120 days following the
closing of any such public equity offering.
Limitation on Additional Indebtedness. Under the Existing Indenture, the
Company will not, and will not permit any restricted subsidiary of the Company
to, directly or indirectly, incur any indebtedness (including acquired
indebtedness as such term is defined in the Existing Indenture) unless (i) after
giving effect to the incurrence of such indebtedness and the receipt and
application of the proceeds thereof, the ratio of the Company's total
indebtedness to the Company's EBITDA (as defined in the Existing Indenture and
as determined on a pro forma basis for the last four fiscal quarters of the
Company for which financial statements are available at the date of
determination) is less than 6.75 to 1 if the indebtedness is incurred prior to
May 1, 1998 and 6.25 to 1 if the indebtedness is incurred thereafter and (ii) no
default or event of default (as such terms are defined in the Existing
Indenture) shall have occurred and be continuing at the time of or immediately
after giving effect to the incurrence of such indebtedness.
Limitation on Restricted Payments. Subject to certain exceptions set forth
in the Existing Indenture, the Company will not make, and will not permit any of
its restricted subsidiaries to, directly or indirectly, make, any restricted
payment (as defined in the Existing Indenture), unless: (i) no default or event
of default shall have occurred and be continuing at the time of or immediately
after giving effect to such restricted payment; (ii) immediately after giving
pro forma effect to such restricted payment, the Company could incur $1.00 of
additional indebtedness (other than permitted indebtedness) in compliance with
the covenant described above under "Limitation on Additional Indebtedness"; and
(iii) immediately after giving effect to such restricted payment, the aggregate
of all restricted payments declared or made after the issue date of the Existing
Notes does not exceed the sum of (a) 50% of the Company's cumulative
consolidated net income (or in the event such consolidated net income shall be a
deficit, minus 100% of such deficit) after the issue date, plus (b) 100% of the
aggregate net proceeds and the fair market value of securities or other property
received by the Company from the issue or sale, after the issue date, of capital
stock of the Company (other than disqualified capital stock as such term is
defined in the Existing Indenture or capital stock of the Company issued to any
subsidiary of the Company) or any indebtedness or other securities of the
Company convertible into or exercisable or exchangeable for capital stock (other
than disqualified capital stock) of the Company which has been so converted or
exercised or exchanged, as the case may be.
Change of Control. Under the Existing Indenture, in the event of a change
of control (as defined therein) of the Company, the Company will be required to
make an offer to purchase the outstanding Existing Notes at a purchase price
equal to 101% of their accreted value (as defined in the Existing Indenture),
plus any accrued and unpaid interest, if any, to the date of repurchase.
Other Restrictive Covenants. The Existing Indenture contains certain other
restrictive covenants that, among other things, impose limitations (subject to
certain exceptions) on the Company with respect to (i) the issuance of preferred
stock by any of the Company's subsidiaries, (ii) the sale, pledge, hypothecation
or other transfer of any capital stock of a subsidiary of the Company, (iii) the
issuance of any capital stock of the Company's subsidiaries
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<PAGE> 129
other than to the Company or a wholly-owned subsidiary, (iv) sales of assets by
the Company and its subsidiaries, (v) transactions with stockholders and
affiliates, (vi) the existence of liens on the assets of the Company or its
subsidiaries, (vii) investments by the Company and its subsidiaries, (viii) the
creation or acquisition of subsidiaries, (ix) the incurrence of indebtedness
senior to the Existing Notes and subordinate to other indebtedness of the
Company, (x) the guarantee of indebtedness, (xi) the merger or sale of all or
substantially all the assets of the Company and (xii) limitations on assets
swaps.
Events of Default. Under the Existing Indenture, each of the following
events constitutes an "Event of Default": (i) a default in the payment of any
principal of, or premium, if any, on the Existing Notes when the same becomes
due and payable; (ii) a default in the payment of any interest on any Existing
Note when the same becomes due and payable and the default continues for a
period of 30 days; (iii) the Company or any guarantor defaults in the observance
or performance of any covenant in the Existing Notes or Existing Indenture for
60 days after written notice from the trustee or the holders of not less than
25% in the aggregate principal amount of the Existing Notes then outstanding;
(iv) the Company or any guarantor fails to pay when due principal, interest or
premium aggregating $1,000,000 or more with respect to any indebtedness of the
Company or any restricted subsidiary thereof, or the acceleration of any such
indebtedness aggregating $1,000,000 or more which default is not cured, waived
or postponed pursuant to an agreement with the holders of such indebtedness
within 60 days after written notice; (v) a court of competent jurisdiction
enters a final and unappealable judgment or judgments for the payment of money
in excess of $1,000,000 against the Company or any restricted subsidiary thereof
and such judgment remains undischarged and unbonded, for a period of 60
consecutive days during which a stay of enforcement of such judgment is not in
effect by reason of appeal or otherwise; and (vi) certain events of bankruptcy,
insolvency, or reorganization affecting the Company or any of its restricted
subsidiaries.
Upon the happening of any Event of Default specified in the Existing
Indenture, the trustee may, and upon the request of holders of at least 25% in
principal amount of the Existing Notes, shall, or the holders of at least 25% in
principal amount of outstanding Existing Notes may, declare the principal of and
accrued but unpaid interest, if any, on all of such Existing Notes to be due and
payable.
EXISTING CREDIT FACILITY
The Company, as borrower, is a party to a credit facility (the "Existing
Credit Facility") with Bankers Trust Company, as administrative agent (the
"Agent"), and the other institutions from time to time party thereto (the
"Banks"). The Existing Credit Facility consists of a $50.0 million revolving
loan facility. The following description of certain provisions of the Existing
Credit Facility does not purport to be complete and is qualified in its entirety
by reference to the full text of the Existing Credit Facility, a copy of which
is available from the Company on request.
Revolver
The Existing Credit Facility provides for revolving credit loans (the
"Loans") of up to $50.0 million (as reduced from time to time, the
"Commitment"). The Existing Credit Facility matures five years from the
Borrowing Date with the Loans then outstanding to be repaid in full on such
date. As of August 6, 1997 (the date on which the Benchmark Acquisition was
consummated), a principal balance of $12.2 million was outstanding under the
Existing Credit Facility and approximately $21.7 million would have been
available for borrowing thereunder.
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<PAGE> 130
Interest Rate
The Loans bear interest at a rate equal to, at the Company's option, (i)
the Base Rate (as defined) in effect from time to time plus the Applicable
Margin (as defined) (the "Base Rate Loans") or (ii) the Eurodollar Rate (as
defined in the Existing Credit Facility) (adjusted for maximum reserves) as
determined by the Agent for the respective interest period plus the Applicable
Margin (the "Eurodollar Loans"). The Applicable Margin for the Loans is equal to
a percentage per annum, adjusted based upon the Company's Leverage Ratio (as
defined in the Existing Credit Facility) as set forth below:
<TABLE>
<CAPTION>
APPLICABLE MARGIN
-----------------------
BASE RATE EURODOLLAR
LEVERAGE RATIO LOANS LOANS
-------------- --------- ----------
<S> <C> <C>
Equal to or greater than 4.0 to 1 but less than 4.5 to 1.... 1.25% 2.25%
Less than 4.0 to 1.......................................... 1.00% 2.00%
</TABLE>
Notwithstanding the foregoing, from the date of the closing (the "Closing
Date") of the Existing Credit Facility until delivery of financial information
for the period ending June 30, 1997, the Company is obligated to pay interest at
the rate of 2.5% over LIBOR for Eurodollar Loans or 1.5% over the Base Rate for
Base Rate Loans, as the case may be.
"Base Rate" means the higher of (i) 1/2 of 1% in excess of the Federal
Reserve reported certificate of deposit rate, adjusted for reserves, and (ii)
the rate that the Agent announces from time to time as its prime lending rate,
as in effect from time to time. Interest on Base Rate Loans is payable quarterly
in arrears. Interest on Eurodollar Loans is payable on the last day of the
applicable interest period and, in the case of interest periods in excess of
three months, on the applicable three-month anniversary of the related
borrowing. Interest periods of one, two, three and six months are available for
Eurodollar Loans.
Fees
The Company is required to pay commitment fees of 1/2% per annum of the
unutilized Commitment, as in effect from time to time, to the Agent for the
account of the Banks for the period commencing on the Closing Date to and
including the date of termination of the Commitment, payable quarterly in
arrears and upon the termination of the Existing Credit Facility.
Security and Guarantees
The Company has secured the existing Credit Facility by granting a first
priority perfected pledge of Capstar Partners' assets, including, without
limitation, the capital stock of its subsidiaries. Capstar Partners and all of
the direct and indirect subsidiaries of Capstar Partners (other than the
Company) have guaranteed the Existing Credit Facility and secured their
guarantees by granting a first priority perfected pledge of substantially all of
their assets, including, without limitation, Capstar Partners' pledge of the
Company's capital stock.
Covenants
The Existing Credit Facility contains customary restrictive covenants,
which, among other things and with certain exceptions, limit the ability of
Capstar Partners and its subsidiaries to incur additional indebtedness and liens
in connection therewith, enter into certain transactions with affiliates, pay
dividends, consolidate, merge or effect certain asset sales, issue additional
stock, make capital expenditures and enter new lines of business. Under the
Existing Credit Facility, Capstar Partners is also required to satisfy certain
financial covenants, which require Capstar Partners to maintain specified
financial ratios and to comply with certain financial tests, such as maximum
leverage ratio, minimum consolidated EBITDA and minimum consolidated EBITDA to
consolidated net cash interest expense.
Events of Default
The Existing Credit Facility contains customary events of defaults,
including, but not limited to: (i)(x) the default in the payment when due of any
principal of any Loan or note thereunder or (y) the default, and such
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<PAGE> 131
default shall continue unremedied for three or more Business Days (as defined in
the Existing Credit Facility), in the payment when due of any Unpaid Drawings
(as defined in the Existing Credit Facility) or interest on any Loan or note or
fees (as defined in the Existing Credit Facility) thereunder; (ii) default in
the performance or observance of certain covenants and agreements contained in
the Existing Credit Facility; (iii) certain defaults, including payment
defaults, by Capstar Partners or its subsidiaries under other agreements
relating to indebtedness; (iv) the acceleration of certain indebtedness of
Capstar Partners or its subsidiaries prior to its stated maturity; (v) the
voluntary commencement by Capstar Partners or one of its subsidiaries of
bankruptcy proceedings under Title 11 of the United States Code or an
involuntary commencement of such a proceeding not contested within 10 days or
dismissed in 60 days; or the commencement of a proceeding under similar laws not
dismissed for 60 days or the appointment of a custodian for Capstar Partners
under certain circumstances or the adjudication of Capstar Partners or any of
its subsidiaries as insolvent or bankrupt or any order of relief for the
foregoing is entered; (vi) the failure to satisfy certain minimum employee
benefit funding standards; (vii) the failure of certain security documents or
guarantees under the Existing Credit Facility to be in effect; (viii) a Change
of Ownership (as defined in the Existing Credit Facility); and (ix) the entry of
an unvacated judgment against Capstar Partners or its subsidiaries in excess of
an amount to be determined.
NEW CREDIT FACILITY
The Company expects to amend and restate the Existing Credit Facility in
August 1997 (the "New Credit Facility") with the Company, as borrower, Capstar
Partners and Capstar Broadcasting, as guarantors,
BankBoston, N.A., as managing agent, NationsBank of Texas, N.A., as syndication
agent, The Bank of New York, as documentation agent, and Bankers Trust Company,
as administrative agent (the "Agent"), and the other financial institutions
party thereto (the "Banks"). The New Credit Facility will consist of a $200
million revolving loan facility, and an additional $150 million of multiple
advancing term loans subject to future commitment availability from the Banks.
The following description of certain provisions of the New Credit Facility does
not purport to be complete and is qualified in its entirety by reference to the
full text of the New Credit Facility, a copy of which, when entered into, will
be available from the Company on request.
Revolving Loans
The New Credit Facility will initially provide for revolving credit loans
(the "Revolving Loans") of up to $200 million (as reduced from time to time, the
"Revolving Loan Commitment"). The New Credit Facility will mature seven years
from the initial borrowing date with the Revolving Loans then outstanding to be
repaid in full on such date. $75 million of the Revolving Loan Commitment will
be available to the Company for the issuance of letters of credit.
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<PAGE> 132
Term Loans
At any time on or after the Restatement Effective Date and prior to
December 31, 1998 (the "Term Loan Availability Termination Date"), with the
prior written consent of the Agent, the Company may request one or more of the
Banks or other lending institutions to assume a Term Loan Commitment and to make
Term Loans under the New Credit Facility, up to an aggregate amount equal to
$150 million in up to two advances with a minimum of $50 million for each such
advance (the "Term Loans"). The Term Loans are subject to scheduled annual
principal repayments, payable in equal quarterly installments, equal to the
product of the aggregate principal amount of the Term Loans outstanding on the
Term Loan Availability Termination Date and the percentages set forth in the
table below:
<TABLE>
<CAPTION>
SCHEDULED REPAYMENT DATE PERCENTAGE
------------------------ ----------
<S> <C>
September 30, 1999....................................... 3.75%
December 31, 1999........................................ 3.75%
March 31, 2000........................................... 3.75%
June 30, 2000............................................ 3.75%
September 30, 2000....................................... 3.75%
December 31, 2000........................................ 3.75%
March 31, 2001........................................... 3.75%
June 30, 2001............................................ 3.75%
September 30, 2001....................................... 5.00%
December 31, 2001........................................ 5.00%
March 31, 2002........................................... 5.00%
June 30, 2002............................................ 5.00%
September 30, 2002....................................... 6.25%
December 31, 2002........................................ 6.25%
March 31, 2003........................................... 6.25%
June 30, 2003............................................ 6.25%
September 30, 2003....................................... 6.25%
December 31, 2003........................................ 6.25%
March 31, 2004........................................... 6.25%
Final Maturity Date...................................... 6.25%
</TABLE>
The Term Loans will mature on the seventh anniversary of the Restatement
Effective Date (as defined) of the New Credit Facility. Term Loans may not be
reborrowed after payment.
Letter of Credit
Letters of Credit will be provided under the New Credit Facility as portion
of the Revolving Loan Commitment, subject to a limit on availability equal to an
aggregate amount of $75 million. The letters of credit will be available for
general corporate purposes, including, without limitation, to provide letter of
credit support in connection with the requirements of the purchase contracts
relating to Permitted Section 8.02(xiii) Acquisitions (as defined in the New
Credit Facility).
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Interest Rate
The Revolving Loans and the Term Loans (the "Loans") will bear interest at
a rate equal to, at the Company's option, (i) the Base Rate (as defined below)
in effect from time to time plus the Applicable Margin (as defined below) (the
"Base Rate Loans") or (ii) the Eurodollar Rate (as defined in the New Credit
Facility) (adjusted for maximum reserves) as determined by the Agent for the
respective interest period plus the Applicable Margin (the "Eurodollar Loans").
The Applicable Margin for the Loans will be equal to a percentage per annum,
adjusted based upon the Company's Leverage Ratio (as defined in the New Credit
Facility) as set forth below:
<TABLE>
<CAPTION>
APPLICABLE MARGIN
-----------------------
BASE RATE EURODOLLAR
LEVERAGE RATIO LOANS LOANS
-------------- --------- ----------
<S> <C> <C>
Equal to or greater than 6.5 to 1...................... 1.25% 2.25%
Equal to or greater than 6.0 to 1 but less than 6.5 to
1.................................................... 1.00% 2.00%
Equal to or greater than 5.5 to 1 but less than 6.0 to
1.................................................... 0.75% 1.75%
Equal to or greater than 5.0 to 1 but less than 5.5 to
1.................................................... 0.50% 1.50%
Equal to or greater than 4.5 to 1 but less than 5.0 to
1.................................................... 0.25% 1.25%
Equal to or greater than 4.0 to 1 but less than 4.5 to
1.................................................... 0.00% 1.00%
Less than 4.0 to 1..................................... 0.00% 0.75%
</TABLE>
;provided, that at any time a default or an event of default exists under the
New Credit Facility the Applicable Margin shall be 2.25% in the case of
Eurodollar Loans and 1.25% in the case of Base Rate Loans.
"Base Rate" means the higher of (i) 1/2 of 1% in excess of the Federal
Reserve reported certificate of deposit rate, adjusted for reserves, and (ii)
the rate that the Agent announces from time to time as its prime lending rate,
as in effect from time to time. Interest on Base Rate Loans will be payable
quarterly in arrears. Interest on Eurodollar Loans will be payable on the last
day of the applicable interest period and, in the case of interest periods in
excess of three months, on the applicable three-month anniversary of the related
borrowing. Interest periods of one, two, three, six, nine and twelve months will
be available for Eurodollar Loans.
Fees
The Company will be required to pay commitment fees on the combined
unutilized total Revolving Loan Commitment and total Term Loan Commitment, as in
effect from time to time, to the Agent for the account of the Banks for period
commencing on the effective date (the "Restatement Effective Date") of the New
Credit Facility to and including the date of termination of the Revolving Loan
Commitment and the Term Loan Availability Termination Date, as applicable,
payable quarterly in arrears and upon the termination of the New Credit
Facility. The Applicable Commitment Commission Percentage will equal a
percentage per annum, adjusted based upon the Company's Leverage Ratio as
follows: (i) for the period from the Restatement Effective Date until the first
day of the first Margin Reduction Period (the date of the delivery of financial
statements of the Company in respect of the fiscal quarter ending December 31,
1997) at 0.50%, (ii) thereafter, if the Leverage Ratio is greater than 4.5:1.0
on each applicable Test Date (as defined in the New Credit Facility) at 0.50%,
and (iii) if the Leverage Ratio is equal to or less than 4.5:1.0 on each
applicable Test Date at 0.375%. In addition, the Company will be required to pay
letter of credit fees equal to the remainder of the Applicable Margin from time
to time for Revolving Loans maintained as Eurodollar Loans less 1/4% per annum
on the outstanding stated amounts of letters of credit, plus a facing fee for
the account of the issuer of the letter of credit equal to 1/4% on such
outstanding stated amounts.
Security and Guarantees
The Company will secure the New Credit Facility by granting a first
priority perfected pledge of the Company's assets, including, without
limitation, the capital stock of its subsidiaries. Capstar Partners, Capstar
Broadcasting and all of the direct and indirect subsidiaries of Capstar Partners
(other than the Company) will guarantee the New Credit Facility and will secure
their guarantees by granting a first priority perfected pledge of
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substantially all of their assets, including Capstar Broadcasting's pledge of
the capital stock of Capstar Partners, and Capstar Partners' pledge of the
capital stock of the Company.
Covenants
The New Credit Facility will contain customary restrictive covenants,
which, among other things and with certain exceptions, limit the ability of
Capstar Partners, Capstar Broadcasting and 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, make capital expenditures and enter new lines of
business. The New Credit Facility limits the Company's ability to make
additional acquisitions in excess of $100,000,000 on an individual basis without
the prior consent of a majority of the Banks. Under the New Credit Facility, the
Company will also be required to satisfy certain financial covenants, which will
require the Company to maintain specified financial ratios and to comply with
certain financial tests, such as maximum leverage ratio, minimum consolidated
EBITDA and minimum consolidated EBITDA to consolidated net cash interest
expense.
Events of Default
The New Credit Facility will contain customary events of defaults,
including, but not limited to: (i)(x) the default in the payment when due of any
principal of any Loan or note thereunder or (y) the default, and such default
shall continue unremedied for three or more Business Days (as defined in the New
Credit Facility), in the payment when due of any Unpaid Drawings (as defined in
the New Credit Facility) or interest on any Loan or note or fees (as defined in
the New Credit Facility) thereunder; (ii) default in the performance or
observance of certain covenants and agreements contained in the New Credit
Facility; (iii) certain defaults, including payment defaults, by Capstar
Broadcasting or its subsidiaries under other agreements relating to
indebtedness; (iv) the acceleration of certain indebtedness of Capstar
Broadcasting or its subsidiaries prior to its stated maturity; (v) the voluntary
commencement by Capstar Broadcasting or one of its subsidiaries of bankruptcy
proceedings under Title 11 of the United States Code or an involuntary
commencement of such a proceeding not contested within 10 days or dismissed in
60 days; or the commencement of a proceeding under similar laws not dismissed
for 60 days or the appointment of a custodian for Capstar Broadcasting under
certain circumstances or the adjudication of Capstar Broadcasting or any of its
subsidiaries as insolvent or bankrupt or any order of relief for the foregoing
is entered; (vi) the failure to satisfy certain minimum employee benefit funding
standards; (vii) the failure of certain security documents or guarantees under
the New Credit Facility to be in effect; (viii) a Change of Ownership (as
defined below); and (ix) the entry of unvacated judgments against Capstar
Broadcasting or its subsidiaries that in the aggregate are in excess of
$2,500,000.
"Change of Ownership" means (i) Capstar Broadcasting shall cease to own
beneficially 100% of the capital stock (other than the Senior Exchangeable
Preferred Stock) of Capstar Partners; (ii) Capstar Partners shall cease to own
beneficially 100% of the capital stock of the Company; (iii) if the HM Group (as
defined below) shall cease to have the power, directly or indirectly, to vote or
direct the voting of securities having a majority of the ordinary voting power
for the election of directors of Capstar Broadcasting, provided, that the
occurrence of the foregoing event shall not be deemed a "Change of Ownership" if
(A) at any time prior to the consummation of an underwritten public offering of
common stock of Capstar Broadcasting pursuant to a registration statement filed
with the Commission in accordance with the Securities Act, which public equity
offering results in gross proceeds to Capstar Broadcasting of not less than a
specified dollar amount ("Initial Public Offering"), (1) the HM Group otherwise
have the right to designate (and do so designate) a majority of the board of
directors of Capstar Broadcasting or (2) the HM Group own of record and
beneficially an amount of common stock of Capstar Broadcasting equal to at least
50% of the amount of common stock of Capstar Partners (adjusted for stock
splits, stock dividends and other similar events on an equitable basis) owned by
the HM Group of record and beneficially as of the Restatement Effective Date and
such ownership of the HM Group represents the largest single block of voting
securities of Capstar Broadcasting held by any "person" or "group" for purposes
of Section 13(d) of the Exchange Act, or (B) at any time after the consummation
of an Initial Public Offering, (1) no "person" or "group" (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act), excluding the HM Group,
shall become the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5
under the Exchange
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<PAGE> 135
Act), directly or indirectly, of more than the greater of (x) 15% of the then
outstanding Voting Stock (as defined in the New Credit Facility) of Capstar
Broadcasting and (y) the percentage of the then outstanding Voting Stock of
Capstar Broadcasting owned by the HM Group and (2) the board of directors of
Capstar Broadcasting shall consist of a majority of Continuing Directors (as
defined below); (iii) the HM Group (excluding R. Steven Hicks) shall own
beneficially fewer shares of outstanding common stock of Capstar Broadcasting
than R. Steven Hicks; or (iv) a "Change of Control" under and as defined in the
Indentures shall have occurred.
"HM Group" means, collectively, (i) Hicks Muse, its affiliates and R.
Steven Hicks taken as a whole, (ii) so long as Hicks Muse, its affiliates and R.
Steven Hicks taken as a whole possess sole voting right with respect to the
Voting Stock of Capstar Broadcasting held by each such individual, such
individuals who are or were employees, officers, directors or partners of Hicks
Muse or such affiliate and the family members of such individuals or trusts
created for the sole benefit of such family members and (iii) so long as Hicks
Muse, its affiliates and R. Steven Hicks taken as a whole possess sole voting
right with respect to the Voting Stock of Capstar Broadcasting held by such
person, any person not otherwise described by clause (i) or (ii) above, provided
that the aggregate number of shares held by all such persons in accordance with
this clause (iii) at any time shall not exceed 3% of the aggregate number of
shares held by the persons described in clause (i) and (ii) above at such time.
"Continuing Directors" means the directors of Capstar Broadcasting on the
date which occurs six months prior to the consummation of an Initial Public
Offering and each other director, if such director's nomination for election to
the board of directors of Capstar Broadcasting is recommended by a majority of
the then Continuing Directors or any other nominee of the HM Group.
EXCHANGE DEBENTURES
The Senior Exchangeable Preferred Stock is exchangeable, at the option of
Capstar Partners, for Capstar Partners' 12% Subordinated Exchange Debentures due
2009 (the "Exchange Debentures.") The Exchange Debentures, if issued, will be
issued under the Exchange Indenture, entered into between Capstar Partners and
U.S. Trust Company of Texas, N.A., as Trustee (the "Exchange Trustee"). The
following summary of certain provisions of the Exchange Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to the provisions of the Exchange Indenture, copies of which are
available from the Company upon request.
The Exchange Debentures will be general unsecured obligations of Capstar
Partners and will be limited in aggregate principal amount to the liquidation
preference of the Senior Exchangeable Preferred Stock, plus, without
duplication, accrued and unpaid dividends, on the exchange date (as defined in
the Exchange Indenture) of the Senior Exchangeable Preferred Stock into Exchange
Debentures (plus any additional Exchange Debentures issued in lieu of cash
interest). The Exchange Debentures will be subordinated to all existing and
future senior debt (as defined in the Exchange Indenture) of Capstar Partners.
The Exchange Debentures will mature on July 1, 2009. Each Exchange
Debenture will bear interest at the rate of 12% per annum from the exchange date
or from the most recent interest payment date to which interest has been paid or
provided for or, if no interest has been paid or provided for, from the exchange
date. Interest will be payable semi-annually in cash (or, on or prior to July 1,
2002, in additional Exchange Debentures, at the option of Capstar Partners) in
arrears on each January 1 and July 1 commencing with the first such date after
the exchange date.
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<PAGE> 136
The Exchange Debentures will be redeemable, at Capstar Partners' option, in
whole at any time or in part from time to time, on and after July 1, 2002, at
the redemption prices (expressed as percentages of the principal amount thereof)
set forth below if redeemed during the 12-month period beginning on July 1 of
each of the years set forth below, plus, without duplication, in each case,
accrued and unpaid interest thereon to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................ 106.000%
2003........................................................ 104.800%
2004........................................................ 103.600%
2005........................................................ 102.400%
2006........................................................ 101.200%
2007 and thereafter......................................... 100.000%
</TABLE>
In addition, prior to July 1, 2001, Capstar Partners may, at its option,
use the net cash proceeds of one or more public equity offerings or major asset
sales (both as defined in the Exchange Indenture) to redeem the Exchange
Debentures, in whole or in part, at a redemption price of 112.0% of the
principal amount thereof; provided, however, that after any such redemption, the
aggregate principal amount of the Exchange Debentures outstanding must equal at
least $75.0 million. Any such redemption will be required to occur on or prior
to one year after the receipt by Capstar Partners of the proceeds of each public
equity offering or major asset sale.
In addition, prior to July 1, 2002, Capstar Partners may, at its option,
redeem the Exchange Debentures upon a Change of Control (as defined in the
Exchange Indenture).
Change of Control. The Exchange Indenture provides that upon the occurrence
of a Change of Control, each holder will have the right to require that Capstar
Partners repurchase all or a portion of such holder's Exchange Debentures at a
purchase price equal to 101% of the principal amount thereof, plus, without
duplication, accrued and unpaid interest, if any, to the date of repurchase.
Limitation on Incurrence of Additional Indebtedness and Issuance of
Preferred Stock of Subsidiaries. The Exchange Indenture provides that Capstar
Partners will not, and will not permit any of its subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any indebtedness (other than permitted indebtedness), and that Capstar
Partners' subsidiaries will not issue any shares of Preferred Stock (except
Preferred Stock issued to Capstar Partners or a wholly-owned subsidiary of
Capstar Partners); provided, however, that Capstar Partners and its subsidiaries
may incur indebtedness and Capstar Partners' subsidiaries may issue shares of
preferred stock if, in either case, Capstar Partners' leverage ratio at the time
of incurrence of such indebtedness or the issuance of such preferred stock, as
the case may be, after giving pro forma effect to such incurrence or issuance as
of such date and to the use of proceeds therefrom is less than 7.0 to 1.
Limitation on Restricted Payments. (a) The Exchange Indenture provides that
neither Capstar Partners nor any of its subsidiaries will, directly or
indirectly, make any restricted payment (as defined in the Exchange Indenture)
if, at the time of such restricted payment and immediately after giving effect
thereto:
(i) any default or event of default shall have occurred and be
continuing at the time of or after giving effect to such restricted
payment; or
(ii) Capstar Partners is not able to incur $1.00 of additional
indebtedness (other than permitted indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness and Issuance of
Preferred Stock of Subsidiaries" covenant; or
(iii) the aggregate amount of restricted payments made subsequent to
the 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 Capstar Partners in good faith) exceeds the sum of
(a) (x) 100% of the aggregate consolidated EBITDA of Capstar Partners (or,
in the event such consolidated EBITDA shall be a deficit, minus 100% of
such deficit) accrued subsequent to the issue date to the most recent date
for which financial
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information is available to Capstar Partners, 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 Capstar Partners in good faith, received by Capstar Partners
from any person (other than a subsidiary of Capstar Partners) from the
issuance and sale on or subsequent to the issue date of qualified capital
stock of Capstar Partners (excluding (i) any net proceeds from issuances
and sales financed directly or indirectly using funds borrowed from Capstar
Partners or any Subsidiary of Capstar Partners, 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 Capstar Partners upon
such conversion or exchange and (ii) any net proceeds received from
issuances and sales that are used to consummate certain transactions
including certain purchase redemption or other acquisition or retirement of
any capital stock of Capstar Partners and certain acquisition of
indebtedness of Capstar Partners the subordinate or junior's right of
payment to the Exchange Debentures), plus (c) without duplication of any
amount included in clause (iii)(b) above, 100% of the aggregate net
proceeds, including the fair market value of property other than cash
(valued as provided in clause (iii)(b) above), received as a capital
contribution on or subsequent to the issue date, plus (d) the amount equal
to the net reduction in investments (other than permitted investments) made
by Capstar Partners or any of its subsidiaries in any person resulting from
(i) repurchases or redemptions of such investments by such person, proceeds
realized upon the sale of such investment to an unaffiliated purchaser, and
repayments of loans or advances or other transfers of assets by such person
to Capstar Partners or any subsidiary of Capstar Partners or (ii) the
redesignation of unrestricted subsidiaries as subsidiaries (valued in each
case as provided in the definition of "Investment") not to exceed, in the
case of any subsidiary, the amount of Investments previously made by
Capstar Partners or any subsidiary in such unrestricted subsidiary, which
amount was included in the calculation of restricted payments; provided,
however, that no amount shall be included under this clause (d) to the
extent it is already included in consolidated EBITDA, plus (e) the
aggregate net cash proceeds received by a person in consideration for the
issuance of such person's capital stock (other than disqualified capital
stock) that are held by such person at the time such person is merged with
and into Capstar Partners in accordance with the "Merger, Consolidation and
Sale of Assets" covenant subsequent to the issue date; provided, however,
that concurrently with or immediately following such merger Capstar
Partners uses an amount equal to such net cash proceeds to redeem or
repurchase Capstar Partners' capital stock, plus (f) $5,000,000.
Other Restrictive Covenants. The Exchange Indenture contains certain other
restrictive covenants that, among other things, impose limitations (subject to
certain exceptions) on Capstar Partners with respect to (i) sales of assets by
Capstar Partners and its subsidiaries, (ii) asset swaps and (iii) the merger or
sale of all or substantially all the assets of Capstar Partners.
Events of Default. The definition of "Events of Default," and the
consequences thereof, in the Exchange Indenture are substantially similar to the
definition and consequences described in "-- Description of the New Notes."
LETTERS OF CREDIT
The acquisition agreement for each Pending Acquisition may be terminated
prior to consummation of the Pending Acquisition under various circumstances,
including, generally in certain agreements, a breach (a material breach in the
case of certain Pending Acquisitions) of any representation or warranty, or any
breach (a material breach in the case of certain Pending Acquisitions) of any
covenant or agreement or a failure of Capstar Partners or a subsidiary thereof
(including the Company) to consummate an acquisition even though the seller has
satisfied all conditions precedent in the applicable acquisition agreement, by
Capstar Partners or a subsidiary thereof. Capstar Partners or a subsidiary
thereof has secured its obligation to consummate certain of the Pending
Acquisitions by placing into escrow a letter of credit in connection therewith.
The letters of credit (the "Letters of Credit") for all such Pending
Acquisitions total approximately $17.9 million. If the Pending Acquisition is
not consummated due to any such breach by Capstar Partners or a subsidiary
thereof, the letter of credit in connection therewith will be released to the
seller in payment of liquidated damages. In other cases, the letter of credit
will be released to Capstar Partners or a subsidiary thereof.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company on June 17, 1997 in a private
placement. In connection with that placement, the Company entered into the
Registration Rights Agreement which requires that the Company file a
registration statement under the Securities Act with respect to the New Notes on
or prior to 90 days after the date of issuance of the Old Notes (the "Issue
Date") and, upon the effectiveness of that registration statement, offer to the
holders of the Old Notes the opportunity to exchange their Old Notes for a like
principal amount of New Notes, which will be issued without a restrictive legend
and may be reoffered and resold by the holder without registration under the
Securities Act. The Registration Rights Agreement further provides that the
Company must use its reasonable best efforts to cause the registration statement
with respect to the Exchange Offer to be declared effective within 180 days
following the Issue Date. A copy of the Registration Rights Agreement has been
filed as an exhibit to the registration statement of which this Prospectus is a
part.
In order to participate in the Exchange Offer, a holder must represent to
the Company, among other things, that (i) any New Notes to be received by it
will be acquired in the ordinary course of its business, (ii) it has no
arrangement with any person to participate in the distribution of the New Notes
and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities
Act, of the Company, or if it is an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer should acknowledge that it acquired the
Old Notes for its own account as the result of market making activities or other
trading activities. Any holder who is unable to make the appropriate
representations to the Company will not be permitted to tender the Old Notes in
the Exchange Offer and will be required to comply with the registration and
prospectus delivery requirements of the Securities Act (or an appropriate
exemption therefrom) in connection with any sale or transfer of the Old Notes.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
New Notes. If the holder is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes.
The Old Notes are designated for trading in the PORTAL market. To the
extent Old Notes are tendered and accepted in the Exchange Offer, the principal
amount of outstanding Old Notes will decrease with a resulting decrease in the
liquidity in the market therefor. Following the consummation of the Exchange
Offer, holders of Old Notes who were eligible to participate in the Exchange
Offer but who did not tender their Old Notes will not be entitled to certain
rights under the Registration Rights Agreement and such Old Notes will continue
to be subject to certain restrictions on transfer. Accordingly, the liquidity of
the market for the Old Notes could be adversely affected. No assurance can be
given as to the liquidity of the trading market for either the Old Notes or the
New Notes.
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third parties unrelated to the Company, the Company believes
that, with the exceptions discussed herein, New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by any person receiving the New Notes, whether or not that
person is the holder (other than any such holder or such other person that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that (i) the New Notes are acquired
in the ordinary course of business of that holder or such other person, (ii)
neither the holder nor such other person is engaging in or intends to engage in
a distribution of the New Notes, and (iii) neither the holder nor such other
person has an arrangement or understanding with any person to participate in the
distribution of the New Notes. Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes, where those Old Notes were acquired
by the broker-dealer as a result of its market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of those New Notes. See "Plan of Distribution."
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CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the offer or sale of the Old Notes pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act and
applicable state securities laws, 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 Old Notes under the Securities
Act and, after consummation of the Exchange Offer, will not be obligated to do
so. Based on an interpretation by the staff of the Commission set forth in a
series of no-action letters issued to third parties, the Company believes that,
except as set forth in the next sentence, New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold or
otherwise transferred by holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such Old Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement with any
person to participate in the distribution of such New Notes. Each broker-dealer
that receives New Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. See "Plan of
Distribution."
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 will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount at maturity
of New Notes in exchange for each $1,000 principal amount at maturity of
outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or
all of their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000 in principal amount.
The form and terms of the New Notes are substantially the same as the form
and terms of the Old Notes except that the New Notes have been registered under
the Securities Act and will not bear legends restricting their transfer. The New
Notes will evidence the same debt as the Old Notes and will be issued pursuant
to, and entitled to the benefits of, the Notes Indenture pursuant to which the
Old Notes were, and the New Notes will be, issued.
As of the date of this Prospectus, $200.0 million in aggregate principal
amount of the Old Notes were outstanding. The Company has fixed the close of
business on August 8, 1997 as the record date for the Exchange Offer for
purposes of determining the persons to whom this Prospectus, together with the
Letter of Transmittal, will initially be sent. As of such date, there were
approximately 40 registered holders of the Old Notes. Holders of Old Notes do
not have any appraisal or dissenters' rights under the General Corporation Law
of the State of Delaware or the Notes Indenture in connection with the Exchange
Offer. The Company intends to conduct the Exchange Offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations of the
Commission promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Old 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 New Notes from the Company. If any tendered Old
Notes are not accepted for exchange because of an invalid tender, the occurrence
of certain other events set forth herein or otherwise, certificates for any such
unaccepted Old Notes will be returned, without expense, to the tendering holder
thereof as promptly as practicable after the Expiration Date.
Holders who tender Old 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 Old 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
"The Exchange Offer -- Solicitation of Tenders; Fees and Expenses."
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EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
September 11, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. In order to extend the
Exchange Offer, the Company will notify the Exchange Agent of any extension by
oral or written notice prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. The Company
reserves the right, in its sole discretion, (i) to delay accepting any Old
Notes, to extend the Exchange Offer or, if any of the conditions set forth under
"The Exchange Offer -- Conditions" shall not have been satisfied, to terminate
the Exchange Offer, 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.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender the Old Notes in the Exchange Offer.
Except as set forth under "The Exchange Offer -- Book Entry Transfer," to tender
in the Exchange Offer a holder must complete, sign and date the Letter of
Transmittal, or a copy thereof, have the signatures thereon guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver the Letter
of Transmittal or copy to the Exchange Agent prior to the Expiration Date. In
addition, either (i) certificates for such Old 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 Old Notes, if
that procedure is available, into the Exchange Agent's account at The Depository
Trust Company (the "DTC" or the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described 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. To be tendered
effectively, the Old Notes, Letter of Transmittal and other required documents
must be received by the Exchange Agent at the address set forth under "The
Exchange Offer -- Exchange Agent" prior to the Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date
will constitute an agreement between that holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE AND
PROPER INSURANCE SHOULD BE OBTAINED. NO LETTER OF TRANSMITTAL OR OLD NOTES
SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THESE
TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the Letter of Transmittal and delivering the owner's
Old Notes, either make appropriate arrangements to register ownership of the Old
Notes in the beneficial owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined herein)
unless Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box titled "Special Registration Instructions"
or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. If signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, the
guarantee must be by any eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program, the Stock Exchange Medallion
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Program, or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, the Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the Old Notes.
If the Letter of Transmittal or any Old 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
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal unless waived by the Company.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that the Company
determines are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding after the
Expiration Date or, as set forth under "The Exchange Offer -- Conditions," to
terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the terms
of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the New Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the holder, (ii) if it is not a
broker-dealer, neither the holder nor any such other person is engaging in or
intends to engage in a distribution of such New Notes, (iii) neither the holder
nor any such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes, and (iv) neither the holder
nor any such other person is an "affiliate" (as defined in Rule 405 of the
Securities Act) of the Company. Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes, where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Company), may
participate in the Exchange Offer but may be deemed an "underwriter" under the
Securities Act and, therefore, must acknowledge in the Letter of Transmittal
that it will deliver a prospectus in connection with any resale of such New
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. See "Plan of
Distribution."
In all cases, issuance of New Notes for Old 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 Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal (or, with respect to the DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of and
agreement to be bound by the Letter of Transmittal), and all other required
documents. If any tendered Old Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged Old
Notes
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will be returned without expense to the tendering holder thereof (or, in the
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described below, such non-exchanged Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) 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 Old Notes at the Book-Entry Transfer Facility 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 the Book-Entry Transfer
Facility system may make book-entry delivery of Old Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or copy thereof, with
any required signature guarantees and any other required documents, must, in any
case other than as set forth in the following paragraph, be transmitted to and
received by the Exchange Agent at the address set forth under "The Exchange
Offer -- Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
The DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through the DTC. To accept the Exchange Offer through
ATOP, participants in the DTC must send electronic instructions to the DTC
through the DTC's communication system in place of sending a signed, hard copy
Letter of Transmittal. The DTC is obligated to communicate those electronic
instructions to the Exchange Agent. To tender Old Notes through ATOP, the
electronic instructions sent to the DTC and transmitted by the DTC to the
Exchange Agent must contain the character by which the participant acknowledges
its receipt of and agrees to be bound by the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old 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 received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within three New
York Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically tendered Old 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 NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written or
(for DTC participants) electronic ATOP transmission notice of withdrawal 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. Any such notice of withdrawal
must (i) specify the name of the person having deposited the Old Notes to be
withdrawn (the "Depositor"), (ii) identify the Old
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Notes to be withdrawn (including the certificate number or numbers and principal
amount at maturity of such Old Notes), (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such Old
Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee with respect
to the Old Notes register the transfer of such Old Notes into the name of the
person withdrawing the tender, and (iv) specify the name in which any such Old
Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, in its sole discretion, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old 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 as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described under "The Exchange Offer -- Procedures for Tendering" at any time on
or prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate the Exchange Offer as provided herein before the acceptance of
such Old Notes, if:
(a) the Exchange Offer shall violate applicable law or any applicable
interpretation of the staff of the Commission; or
(b) any action or proceeding is instituted or threatened in any court
or by any governmental agency that might materially impair the ability of
the Company to proceed with the Exchange Offer or any material adverse
development has occurred in any existing action or proceeding with respect
to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall deem necessary for the consummation of the Exchange
Offer.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and return
all tendered Old Notes to the tendering holders (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility), (ii) extend the Exchange Offer and retain
all Old Notes tendered prior to the expiration of the Exchange Offer, subject,
however, to the rights of holders to withdraw such Old Notes (see "-- Withdrawal
Rights") or (iii) waive such unsatisfied conditions with respect to the Exchange
Offer and accept all properly tendered Old Notes which have not been withdrawn.
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 the 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 waiver and the manner of disclosure to the registered
holders, if the Exchange Offer would otherwise expire during such five-to-
ten-business-day period.
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EXCHANGE AGENT
All executed Letters of Transmittal should be directed to the Exchange
Agent. U.S. Trust Company of Texas, N.A., has been appointed as Exchange Agent
for the Exchange Offer. Questions, requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
By Registered or Certified Mail,
by Overnight Courier or by Hand:
U.S. Trust Company of Texas, N.A.
P.O. Box 841
Cooper Station
New York, New York 10276-0841
By Hand:
U.S. Trust Company of Texas, N.A.
111 Broadway
Lower Level
Corporate Trust Window
New York, New York 10006-1906
By Overnight Courier:
U.S. Trust Company of Texas, N.A.
770 Broadway
13th Floor-Corporate Trust Operations
New York, New York 10003
By Facsimile:
(212) 420-6504
Confirm by Telephone:
(800) 225-2398
SOLICITATIONS OF TENDERS; FEES AND EXPENSES
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The Company has not retained any dealer-manager or similar agent 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. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
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DESCRIPTION OF THE NEW NOTES
GENERAL
The Old Notes were, and the New Notes will be, issued under an Indenture,
dated as of June 17, 1997 (the "Notes Indenture"), between the Company and U.S.
Trust Company of Texas, N.A., as trustee (the "Trustee"), a copy of which is
filed as an exhibit to the Registration Statement (as defined). The terms of the
New Notes are identical in all material respects to the Old Notes, except that
the New Notes have been registered under the Securities Act and, therefor, will
not bear legends restricting their transfer. Upon the issuance of the New Notes,
the Notes Indenture will be subject to and governed by the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"). The following summary of
certain provisions of the Notes Indenture and the New Notes does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Notes Indenture (including the definitions of certain
terms therein and those terms made a part thereof by the Trust Indenture Act)
and the New Notes. The Old Notes and the New Notes are sometimes collectively
referred to herein as the "Notes."
Principal of, premium, if any, and interest on the New Notes will be
payable, and the New Notes may be exchanged or transferred, at the office or
agency of the Company in the Borough of Manhattan, The City of New York (which
initially shall be the corporate trust office of the Trustee in New York, New
York), except that, at the option of the Company, payment of interest may be
made by check mailed to the address of the holders as such address appears in
the Note Registrar.
The New Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustees will act as Paying Agent and Registrar for the New Notes. The New
Notes may be presented for registration of 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 holders
of the Notes.
Old Notes that remain outstanding after the consummation of the Exchange
Offer and New Notes issued in connection with the Exchange Offer will be
entitled to vote or consent on all matters as a single class of securities under
the Notes Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be general unsecured obligations of the Company ranking
subordinate in right of payment to all Senior Indebtedness of the Company, will
be limited to $200 million aggregate principal amount and will mature on July 1,
2007. Interest on the Notes will accrue at the rate of 9 1/4% per annum and will
be payable in cash semiannually on January 1 and July 1 commencing on January 1,
1998 to holders of record on the immediately preceding December 15 and June 15.
Interest on the Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from and including the date of
issuance. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
OPTIONAL REDEMPTION
The Notes may be redeemed (subject to contractual and other restrictions
with respect thereto and to the legal availability of funds therefor) at any
time on or after July 1, 2002, in whole or in part, at the option of the
Company, at the redemption prices (expressed as a percentage of the principal
amount thereof) set forth below, plus accrued and unpaid interest, if any, to
the redemption date, if redeemed during the 12-month period beginning July 1 of
each of the years set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.............................................. 104.625%
2003.............................................. 103.083%
2004.............................................. 101.542%
2005 and thereafter............................... 100.000%
</TABLE>
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In addition, prior to July 1, 2001, the Company may, at its option, use the
net cash proceeds of one or more Public Equity Offerings or Major Asset Sales to
redeem up to 25% of the aggregate principal amount of the Notes originally
issued at a redemption price equal to 109.250% of the aggregate principal amount
of the Notes to be redeemed plus accrued interest, if any, thereon to the date
of redemption; provided, however, that after any such redemption, at least 75%
of the aggregate principal amount of Notes originally issued remains outstanding
immediately after giving effect to any such redemption. Any such redemption will
be required to occur on or prior to the date that is one year after the receipt
by the Company of the proceeds of a Public Equity Offering or Major Asset Sale.
The Company shall effect such redemption on a pro rata basis.
In addition, prior to July 1, 2002, the Company may, at its option, redeem
the Notes upon a Change of Control. See "-- Change of Control."
The Indentures and the Credit Facilities restrict, or will restrict, the
Company's ability to pay dividends or make other restricted payments to the
Company and, accordingly, may also limit the ability of the Company to redeem
the Notes. See "Description of Other Indebtedness."
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, in the absence of such requirements or if the Notes are not
so listed, on a pro rata basis, provided that no Notes of $1,000 or less shall
be redeemed in part. Notice of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each holder of
Notes to be redeemed at its registered address. If any Note is to be redeemed in
part only, the notice of redemption that relates to such Note shall state the
portion of the principal amount at maturity thereof to be redeemed. A new 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 Note. On and
after the redemption date, interest ceases to accrue on Notes or portions of
them called for redemption.
SUBORDINATION
The Indebtedness represented by the Notes and the payment of the principal
of, premium, if any, and interest on the Notes are, to the extent and in the
manner provided in the Notes Indenture, subordinated in right of payment to the
prior payment and satisfaction in full in cash or Cash Equivalents of all
existing and future Senior Indebtedness of the Company.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Notes Indenture.
The Notes will in all respects rank pari passu with the Existing Notes and all
other senior subordinated indebtedness of the Company that, by its terms, ranks
pari passu with the Notes.
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relative to the Company or to its creditors, as such, or
to its assets, whether voluntary or involuntary, or any liquidation, dissolution
or other winding-up of the Company, whether voluntary or involuntary and whether
or not involving insolvency or bankruptcy, or any assignment for the benefit of
creditors or any other marshaling of assets or liabilities of the Company
(except in connection with the merger or consolidation of the Company or its
liquidation or dissolution following the transfer of substantially all of its
assets, upon the terms and conditions permitted under the circumstances
described under "-- Merger, Consolidation or Sale of Assets") (all of the
foregoing referred to herein individually as a "Bankruptcy Proceeding" and
collectively as "Bankruptcy Proceedings"), the holders of Senior Indebtedness of
the Company will be entitled to receive payment in full in cash or Cash
Equivalents or, as acceptable to the holders of Senior Indebtedness, in any
other manner, of all amounts due on or in respect of all Senior Indebtedness, or
provision shall be made for such payment, before the holders of the Notes are
entitled to receive any payment or distribution of any kind or character (other
than a payment or distribution in the form of Permitted Junior Securities) on
account of principal of, premium, if any, or interest on the Notes. In the event
that, notwithstanding the foregoing, the Trustee or any holder of Notes receives
any payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, including, without
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limitation, by way of set-off or otherwise, in respect of principal of, premium,
if any, or interest on the Notes before all Senior Indebtedness is paid in full
or payment thereof provided for, then and in such event such payment or
distribution (other than Permitted Junior Securities) shall be paid over or
delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other Person making payment or distribution of
assets of the Company for application to the payment of all Senior Indebtedness
remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full
in cash, Cash Equivalents or, as acceptable to the holders of Senior
Indebtedness, any other manner, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness. By reason of such
subordination, in the event of liquidation or insolvency, creditors of the
Company who are holders of Senior Indebtedness may recover more, ratably, than
other creditors of the Company, and creditors of the Company who are not holders
of Senior Indebtedness or of the Notes may recover more, ratably, than the
holders of the Notes.
No payment or distribution (other than a payment or distribution in the
form of Permitted Junior Securities) of any assets or securities of the Company
or any Subsidiary of any kind or character (including, without limitation, cash,
property and any payment or distribution which may be payable or deliverable by
reason of the payment of any other Indebtedness of the Company being
subordinated to the payment of the Notes by the Company) may be made by or on
behalf of the Company including, without limitation, by way of set-off or
otherwise, for or on account of the Notes, or for or on account of the purchase,
redemption, defeasance or other acquisition of the Notes, and neither the
Trustee nor any holder or owner of any Notes shall take or receive from the
Company or any Subsidiary, directly or indirectly in any manner, payment in
respect of all or any portion of Notes following the delivery by any holder of
any Senior Indebtedness or by the Company to the Trustee of written notice of
the occurrence of a Payment Default, and in any such event, such prohibition
shall continue until such Payment Default is cured, waived in writing or
otherwise ceases to exist, or the Senior Indebtedness as to which such Payment
Default relates shall have been discharged or paid in full in cash or Cash
Equivalents. At such time as the prohibition set forth in the preceding sentence
shall no longer be in effect, subject to the provisions of the following
paragraph, the Company shall resume making any and all required payments in
respect of the Notes, including any missed payments.
Upon the occurrence of a Non-Payment Event of Default on Designated Senior
Indebtedness, and upon receipt by the Trustee and the Company from any holder of
Designated Senior Indebtedness (the "Representative") of written notice of such
occurrence, no payment or distribution (other than a payment or distribution in
the form of Permitted Junior Securities) of any assets of the Company of any
kind or character may be made by the Company, including, without limitation, by
way of set-off or otherwise, on account of any principal of, premium, if any, or
interest on the Notes, or on account of the purchase, redemption defeasance or
other acquisition of Notes, for a period (a "Payment Blockage Period")
commencing on the date of receipt by the Trustee of such notice unless and until
(subject to any blockage of payments that may then be in effect under the
preceding paragraph) the earliest of (x) more than 179 days shall have elapsed
since receipt of such written notice by the Trustee, (y) such Non-Payment Event
of Default shall have been cured or waived in writing or shall have ceased to
exist or such Designated Senior Indebtedness shall have been discharged or paid
in full in cash or Cash Equivalents or (z) such Payment Blockage Period shall
have been terminated by written notice to the Company or the Trustee from such
Representative, or the holders of at least a majority in principal amount of
such issue of Designated Senior Indebtedness, after which, in the case of clause
(x), (y) or (z), the Company shall resume making any and all required payments
in respect of the Notes, including any missed payments. Notwithstanding any
other provision of the Notes Indenture, in no event shall a Payment Blockage
Period commenced in accordance with the provisions of the Notes Indenture
described in this paragraph extend beyond 179 days from the date of the receipt
by the Trustee of the notice referred to above (the "Initial Blockage Period").
Any number of additional Payment Blockage Periods may be commenced during the
Initial Blockage Period, provided, however, that no such additional Payment
Blockage Period shall extend beyond the Initial Blockage Period. After the
expiration of the Initial Blockage Period, no Payment Blockage Period may be
commenced until at least 180 consecutive days have elapsed from the last day of
the Initial Blockage Period. Notwithstanding any other provision of the Notes
Indenture, no event of default with respect to Designated Senior Indebtedness
(other than a Payment Default) which existed or was continuing on the date of
the commencement of any Payment Blockage Period initiated by the Representative
shall be, or be made, the basis for the commencement of a second Payment
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Blockage Period initiated by the Representative, whether or not within the
Initial Blockage Period, unless such event of default shall have been cured or
waived for a period of not less than 90 consecutive days.
If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of payment blockage
provisions, such failure would constitute an Event of Default under the Notes
Indenture and would enable the holders of the Notes to accelerate the maturity
thereof. See "--Events of Default."
A holder of Notes by his acceptance of Notes agrees to be bound by such
provisions and authorizes and expressly directs the Trustee, on his behalf, to
take such action as may be necessary or appropriate to effectuate the
subordination provided for in the Notes Indenture and appoints the Trustee his
attorney-in-fact for such purpose.
CHANGE OF CONTROL
The Notes Indenture provides that, upon the occurrence of a Change of
Control, each holder will have the right to require that the Company purchase
all or a portion of such holder's Notes in cash pursuant to the offer described
below (the "Change of Control Offer"), at a purchase price equal to 101% of the
principal amount thereof, plus, without duplication, all accrued and unpaid
interest, if any, to the Change of Control Payment Date.
The Notes 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
the Company becomes aware that a Change of Control has occurred, the Company
covenants that if the purchase of the Notes would violate or constitute a
default under any other Indebtedness of the Company, then the Company shall, to
the extent needed to permit such purchase of Notes, either (i) repay all such
Indebtedness and terminate all commitments outstanding thereunder or (ii) obtain
the requisite consents, if any, under such Indebtedness required to permit the
purchase of the Notes as provided below. The Company will first comply with the
covenant in the preceding sentence before it will be required to make the Change
of Control Offer or purchase the Notes pursuant to the provisions described
below.
Within 30 days following the date on which the Company becomes aware that a
Change of Control has occurred, the Company must send, by first-class mail
postage prepaid, a notice to each holder of Notes, which notice shall govern the
terms of the Change of Control Offer. Such notice shall 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"). Holders electing to have any Notes
purchased pursuant to a Change of Control Offer will be required to surrender
such Notes to the paying agent and registrar for the Notes 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.
In addition, the Notes Indenture provides that, prior to July 1, 2002, upon
the occurrence of a Change of Control, the Company will have the option to
redeem the Notes in whole but not in part (a "Change of Control Redemption") at
a redemption price equal to 100% of the principal amount of the Notes, plus
accrued and unpaid interest to the date of redemption, plus the Applicable
Premium. In order to effect a Change of Control Redemption, the Company must
send a notice to each holder of Notes, which notice shall govern the terms of
the Change of Control Redemption. Such notice must be mailed to holders of Notes
within 30 days following the date the Change of Control occurred (the "Change of
Control Redemption Date") and state that the Company is effecting a Change of
Control Redemption in lieu of a Change of Control Offer.
"Applicable Premium" means, with respect to a Note at any Change of Control
Redemption Date, the greater of (i) 1.0% of the principal amount of such Note
and (ii) the excess of (A) the present value at such time of (1) the redemption
price of such Note at July 1, 2002 (such redemption price being described under
"-- Optional Redemption") plus (2) all required interest payments payable on
such Note from and after the date of redemption through July 1, 2002, computed
using a discount rate equal to the Treasury Rate plus 100 basis points over (B)
the principal amount of such Note.
"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) that
has become publicly available at least two business days prior to the Change of
Control
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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 Change of Control Redemption Date to July 1, 2002; provided,
however, that if the period from the Change of Control Redemption Date to July
1, 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 Change of Control
Redemption Date to July 1, 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.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act to the extent applicable in connection with the purchase of Notes
pursuant to a Change of Control Offer.
This "Change of Control" covenant will not apply in the event of (a)
changes in a majority of the board of directors of the Company so long as a
majority of the board of directors continues to consist of Continuing Directors
and (b) certain transactions with Permitted Holders. In addition, this covenant
is not intended to afford holders of Notes protection in the event of certain
highly leveraged transactions, reorganizations, restructurings, mergers and
other similar transactions that might adversely affect the holders of Notes, but
would not constitute a Change of Control. The Company could, in the future,
enter into certain transactions, including certain recapitalizations of the
Company, that would not constitute a Change of Control with respect to the
Change of Control purchase feature of the Notes, but would increase the amount
of indebtedness outstanding at such time. However, the Notes Indenture will
contain 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 and Issuance of
Preferred Stock of Subsidiaries" and "-- Certain Covenants -- Merger,
Consolidation and Sale of Assets" below.
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 Notes that
the Company might be required to purchase. Moreover, as of the date hereof,
after giving effect to the Old Notes Offering and the application of the
proceeds therefrom, the Company would not have sufficient funds available to
purchase all of the outstanding Notes pursuant to a Change of Control Offer. In
the event that the Company were required to purchase outstanding 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. See "Description
of Other Indebtedness."
With respect to the sale of "all or substantially all" the assets of the
Company, which would constitute a Change of Control for purposes of the Notes
Indenture, 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 Notes should be subject to a Change of Control Offer.
None of the provisions in the Notes Indenture relating to a purchase of
Notes upon a Change of Control is waivable by the board of directors of the
Company. Without the consent of each holder of Notes affected thereby, after the
mailing of the notice of a Change of Control Offer, no amendment to the Notes
Indenture may, directly or indirectly, affect the Company's obligation to
purchase the outstanding 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 of the definitions with
respect to any such offer.
CERTAIN COVENANTS
Limitation on Incurrence of Additional Indebtedness and Issuance of
Preferred Stock of Subsidiaries. The Notes Indenture provides that the Company
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable, contingently
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or otherwise, with respect to (collectively, "incur") any Indebtedness (other
than Permitted Indebtedness), and the Company's Subsidiaries will not issue any
Preferred Stock (except Preferred Stock issued to the Company or a Wholly Owned
Subsidiary of the Company); provided, however, that the Company and its
Subsidiaries may incur Indebtedness and the Company's Subsidiaries may issue
shares of Preferred Stock if, in either case, the Company's Leverage Ratio at
the time of incurrence of such Indebtedness or the issuance of such Preferred
Stock, as the case may be, after giving pro forma effect to such incurrence or
issuance as of such date and to the use of proceeds therefrom is less than 7.0
to 1.
Limitation on Restricted Payments. (a) The Notes Indenture provides that
neither the Company nor any of its Subsidiaries will, directly or indirectly,
make any Restricted Payment if at the time of such Restricted Payment and
immediately after giving effect thereto:
(i) a Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Restricted
Payment; or
(ii) the Company is not able to incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the "Limitation on
Incurrence of Additional Indebtedness and Issuance of Preferred Stock of
Subsidiaries" covenant; or
(iii) the aggregate amount of Restricted Payments made subsequent to
the 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 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 subsequent to the Issue Date of Qualified Capital Stock of the
Company (excluding (i) 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 and (ii) any net proceeds received from issuances and sales that
are used to consummate a transaction described in clauses (2) and (3) of
paragraph (b) below), plus (c) without duplication of any amount included
in clause (iii)(b) above, 100% of the aggregate net proceeds, including the
fair market value of property other than cash (valued as provided in clause
(iii)(b) above), received by the Company as a capital contribution on or
after the Issue Date, plus (d) the amount equal to the net reduction in
Investments (other than Permitted Investments) made by the Company or any
of its Subsidiaries in any Person resulting from (i) repurchases or
redemptions of such Investments by such Person, proceeds realized upon the
sale of such Investment to an unaffiliated purchaser and repayments of
loans or advances or other transfers of assets by such Person to the
Company or any Subsidiary of the Company or (ii) the redesignation of
Unrestricted Subsidiaries as Subsidiaries (valued in each case as provided
in the definition of "Investment") not to exceed, in the case of any
Subsidiary, the amount of Investments previously made by the Company or any
Subsidiary in such Unrestricted Subsidiary, which amount was included in
the calculation of Restricted Payments; provided, however, that no amount
shall be included under this clause (d) to the extent it is already
included in Consolidated EBITDA, plus (e) the aggregate net cash proceeds
received by a Person in consideration for the issuance of such Person's
Capital Stock (other than Disqualified Capital Stock) that are held by such
Person at the time such Person is merged with and into the Company in
accordance with the "Merger, Consolidation and Sale of Assets" covenant
subsequent to the Issue Date; provided, however, that concurrently with or
immediately following such merger the Company uses an amount equal to such
net cash proceeds to redeem or repurchase the Company's Capital Stock, plus
(f) $5,000,000.
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(b) Notwithstanding the foregoing, these provisions will not prohibit: (1)
the payment of any dividend or the making of any distribution within 60 days
after the date of its declaration if such dividend or distribution would have
been permitted on the date of declaration; (2) the purchase, redemption or other
acquisition or retirement of any Capital Stock of the Company or any warrants,
options or other rights to acquire shares of any class of such Capital Stock
either (x) solely in exchange for shares of Qualified Capital Stock or other
rights to acquire Qualified Capital Stock or (y) 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 (z) in the case of
Disqualified Capital Stock, solely in exchange for, or through the application
of the net proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of the Company) of, Disqualified Capital Stock that has a redemption
date no earlier than, and requires the payment of current dividends or
distributions in cash no earlier than, in each case, the Disqualified Capital
Stock being purchased, redeemed or otherwise acquired or retired; (3) the
acquisition of Indebtedness of the Company that is subordinate or junior in
right of payment to the Notes either (x) solely in exchange for shares of
Qualified Capital Stock (or warrants, options or other rights to acquire
Qualified Capital Stock), for shares of Disqualified Capital Stock that have a
redemption date no earlier than, and require the payment of current dividends or
distributions in cash no earlier than, in each case, the maturity date and
interest payments dates, respectively, of the Indebtedness being acquired, or
for Indebtedness of the Company that is subordinate or junior in right of
payment to the Notes, at least to the extent that the Indebtedness being
acquired is subordinated to the Notes and has a Weighted Average Life to
Maturity no less than that of the Indebtedness being acquired or (y) 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),
shares of Disqualified Capital Stock that have a redemption date no earlier
than, and require the payment of current dividends or distributions in cash no
earlier than, in each case, the maturity date and interest payments dates,
respectively, of the Indebtedness being refinanced, or Indebtedness of the
Company that is subordinate or junior in right of payment to the Notes at least
to the extent that the Indebtedness being acquired is subordinated to the Notes
and has a Weighted Average Life to Maturity no less than that of the
Indebtedness being refinanced; (4) payments by the Company to repurchase Capital
Stock or other securities of the Company, Capstar Partners, Capstar Broadcasting
or any corporation that, directly or indirectly, owns all of the Common Stock of
Capstar Broadcasting from employees of the Company or any such other corporation
in an aggregate amount not to exceed $5,000,000; (5) payments to enable the
Company or any such other corporation to redeem or repurchase stock purchase or
similar rights in an aggregate amount not to exceed $500,000; (6) payments, not
to exceed $100,000 in the aggregate, to enable the Company or any such other
corporation to make cash payments to holders of its Capital Stock in lieu of the
issuance of fractional shares of its Capital Stock; (7) payments by the Company
to enable Capstar Partners to make payments pursuant to the Financial Monitoring
and Oversight Agreements; (8) 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 (8) unless, after giving effect to
such transaction (and the incurrence of any Indebtedness in connection therewith
and the use of the proceeds thereof), the Company would be able to incur $1.00
of additional Indebtedness (other than Permitted Indebtedness) in compliance
with the "Limitation on Incurrence of Additional Indebtedness and Issuance of
Preferred Stock of Subsidiaries" covenant such that after incurring that $1.00
of additional Indebtedness, the Leverage Ratio would be less than 6.0 to 1; and
(9) the payments of dividends on the Company's Common Stock after an initial
public offering of Common Stock of the Company, Capstar Partners, Capstar
Broadcasting or any corporation that, directly or indirectly, owns all of the
Common Stock of Capstar Broadcasting in an annual amount not to exceed 6.0% of
the gross proceeds (before deducting underwriting discounts and commissions and
other fees and expenses of the offering) received by the Company (through a
capital contribution or otherwise) from shares of Common Stock sold for the
account of the Company or any such other corporation (and not for the account of
any stockholder) in such initial public offering; provided, however, that in the
case of clauses (3), (4), (5), (6), (8) and (9), no 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), (4), (5), (6), (8) and (9)
shall be included in such calculation.
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Merger, Consolidation and Sale of Assets. The Notes 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 (1) the Company
is the surviving or continuing Person or (2) the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or the
person that acquires by conveyance, transfer or lease the properties and assets
of the Company substantially as an entirety or in the case of a plan of
liquidation, the Person to which assets of the Company have been transferred,
shall be a corporation, partnership or trust organized and existing under the
laws of the United States or any State thereof or the District of Columbia; (ii)
such surviving person shall assume all of the obligations of the Company under
the Notes and the Notes Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) immediately after giving effect to
such transaction and the use of the proceeds therefrom (on a pro forma basis,
including giving effect to any Indebtedness incurred or anticipated to be
incurred in connection with such transaction), the Company (in the case of
clause (1) of the foregoing clause (i)) or such Person (in the case of clause
(2) of the foregoing clause (i)) shall be able to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred
Stock of Subsidiaries" covenant; (iv) immediately after giving effect to such
transactions, no Default or Event of Default shall have occurred or be
continuing; and (v) the Company has delivered to the Trustee prior to the
consummation of the proposed transaction an Officers' Certificate and an Opinion
of Counsel, each stating that such consolidation, merger or transfer complies
with the Notes Indenture and that all conditions precedent in the Notes
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 or assets of the
Company, will be deemed to be the transfer of all or substantially all of the
properties and assets of the Company. Notwithstanding the foregoing clauses (ii)
and (iii), (1) any Subsidiary of the Company may consolidate with, merge into or
transfer all or part of its properties and assets to the Company and (2) the
Company may merge with a corporate Affiliate thereof incorporated solely for the
purpose of reincorporating the Company in another jurisdiction in the U.S. to
realize tax or other benefits.
Limitation on Asset Sales. The Notes 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
$5,000,000, by the board of directors of the Company, as evidenced by a board
resolution), (ii) at least 75% of the consideration received by the Company or
such Subsidiary, as the case may be, from such Asset Sale is in 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 any Senior Indebtedness of the
Company or any Indebtedness of a Subsidiary of the Company (and, to the extent
such Senior Indebtedness 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 Notes tendered to the Company for purchase at a
price equal to 100% of the principal amount thereof plus accrued interest
thereon, if any, 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 the Company may defer making a Net Proceeds Offer until the aggregate Net
Cash Proceeds from Asset Sales not otherwise applied in accordance with this
covenant equal or exceed $5,000,000. In addition, to the extent that any Asset
Sale also constitutes an asset sale under the Existing Indenture, a Net Proceeds
Offer is only required to be made out of the proceeds which remain after the
application of the proceeds in accordance with the terms of the Existing
Indenture.
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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 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 Notes Indenture. Upon receiving
notice of the Net Proceeds Offer, holders of Notes may elect to tender their
Notes in whole or in part in integral multiples of $1,000. To the extent holders
properly tender Notes in an amount exceeding the Net Proceeds Offer, Notes of
tendering holders will be repurchased on a pro rata basis (based upon the
principal amount at maturity tendered). To the extent that the aggregate
principal amount at maturity of 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 Notes for any purposes otherwise
permitted by the Notes 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 to the extent applicable in connection with the repurchase of Notes
pursuant to a Net Proceeds Offer.
Limitation on Asset Swaps. The Notes 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 such Asset Swap and immediately after
giving effect to such Asset Swap, no Default or Event of Default shall have
occurred or be continuing or would occur as a consequence thereof, (ii) in the
event such Asset Swap involves an aggregate amount in excess of $2.0 million,
the terms of such Asset Swap have been approved by a majority of the members of
the board of directors of the Company and (iii) in the event such Asset Swap
involves an aggregate amount in excess of $10.0 million, the Company has
received a written opinion from an independent investment banking firm of
nationally recognized standing that such Asset Swap is fair to the Company or
such Subsidiary, as the case may be, from a financial point of view.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Notes Indenture provides that the Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, create or
otherwise cause to permit to exist or become effective, by operation of the
charter of such Subsidiary or by reason of any agreement, instrument, judgment,
decree, rule, order, statute or governmental regulation, any encumbrance or
restriction on the ability of any Subsidiary to (a) pay dividends or make any
other distributions on its Capital Stock; (b) make loans or advances or pay any
Indebtedness or other obligation owed to the Company or any of its Subsidiaries;
or (c) transfer any of its property or assets to the Company, except for such
encumbrances or restrictions existing under or by reason of: (1) applicable law,
(2) the Notes 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 or Acquired Preferred Stock, 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 existing on the Issue Date (including the
Credit Facility and the Existing Indenture) as such agreements are from time to
time in effect; provided, however, that any amendments or modifications of such
agreements that 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) any restriction
with respect to such a Subsidiary imposed pursuant to an agreement entered into
for the sale or disposition of all or substantially all the Capital Stock or
assets of such Subsidiary pending the closing of such sale or disposition, (7)
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; provided, however, that the provisions relating to
such encumbrance or restriction contained in any such refinancing, replacement
or substitution agreement are not 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 relating to such encumbrance or restriction contained in
agreements referred to in
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such clause (2), (4) or (5) above, (8) any agreement or charter provision
evidencing Indebtedness or Preferred Stock permitted under the Notes Indenture;
provided, however, that the provisions relating to such encumbrance or
restriction contained in such agreement or charter provision are not less
favorable to the Company in any material respect as determined in good faith by
the board of directors of the Company then the provisions relating to such
encumbrance or restriction contained in the Notes Indenture, or (9) restrictions
on the transfer of the assets subject to any Lien imposed by the holder of such
Lien.
Limitation on Other Senior Subordinated Debt. The Company will not,
directly or indirectly, incur, contingently or otherwise, any Indebtedness
(other than the Notes) that is both (i) subordinate in right of payment to any
Senior Indebtedness and (ii) senior in right of payment to the Notes. For
purposes of this covenant, Indebtedness is deemed to be senior in right of
payment to the Notes if it is not explicitly subordinate in right of payment to
Senior Indebtedness at least to the same extent as the Notes are subordinate to
Senior Indebtedness.
Limitations on Transactions with Affiliates. The Notes 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 $2,000,000 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 $10,000,000 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 (1) reasonable and customary directors' fees, indemnification and
similar arrangements and payments thereunder, (2) any employment, noncompetition
or confidentiality agreement with any officer of the Company, (3) reasonable and
customary investment banking, financial advisory, commercial banking and similar
fees and expenses paid to BT Securities Corporation and its Affiliates, (4) any
Restricted Payment permitted to be made pursuant to the covenant described under
"Limitation on Restricted Payments," (5) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock ownership plans
approved by the Board of Directors of the Company, (6) loans or advances to
employees in the ordinary course of business of the Company or any of its
Subsidiaries consistent with past practices, (7) payments made in connection
with any acquisitions or dispositions by the Company and its Subsidiaries which
acquisitions and dispositions are disclosed in this Offering Memorandum,
including fees to Hicks Muse, and (8) the issuance of Capital Stock of the
Company (other than Disqualified Capital Stock).
Reports. The Notes Indenture provides that so long as any of the Notes are
outstanding, the Company will provide to the holders of Notes and file with the
Commission copies of the annual reports and of the information, documents and
other reports that the Company would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act regardless of
whether the Company is then obligated to file such reports.
EVENTS OF DEFAULT
The following events are defined in the Notes Indenture as "Events of
Default": (i) the failure to pay interest (including any Additional Interest) on
any Notes when the same becomes due and payable and the Default continues for a
period of 30 days; (ii) the failure to pay the principal of any Notes when such
principal becomes due and payable, at maturity, upon redemption or otherwise;
(iii) a default in the observance or performance of any other covenant or
agreement contained in the Notes or the Notes 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 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
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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 $10,000,000 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 $10,000,000 (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 judgment or judgments remain
undischarged or unstayed for a period of 60 days after such judgment or
judgments become final and nonappealable; 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 Notes
Indenture, the Trustee may, and the Trustee upon the request of holders of 25%
in principal amount of the outstanding Notes shall, or the holders of at least
25% in principal amount of outstanding Notes may, declare the principal of all
the Notes, together with all accrued and unpaid interest and premium, if any, 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 Facility, will become due and payable upon the first to occur of an
acceleration under the Credit Facility or five Business Days after receipt by
the Company and the agent under the Credit Facility of such Acceleration Notice
(unless all Events of Default specified in such Acceleration Notice have been
cured or waived). If an Event of Default with respect to bankruptcy proceedings
relating to the Company occurs and is continuing, then such amount will ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any holder of the Notes.
The Notes Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the holders of a majority in principal amount of the 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 the principal amount of or
interest on the 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 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 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 Notes may waive any existing Default or Event of Default
under the Notes Indenture, and its consequences, except a default in the payment
of the principal amount of or interest on any 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 Notes Indenture. In addition, the Company will be required to notify
the Trustee of the occurrence and continuation of any Default or Event of
Default promptly after the Company becomes aware of the same.
Subject to the provisions of the Notes 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 Notes Indenture at the request or direction of any of
the holders of the 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 Notes Indenture, the holders of a majority in principal amount
at maturity of the outstanding 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.
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SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may terminate its obligations under the Notes Indenture at any
time by delivering all outstanding 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 Notes (except for
certain obligations of the Company to register the transfer or exchange of such
Notes, replace stolen, lost or mutilated 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 Notes Indenture, if the Company
deposits with the Trustee, in trust, U.S. Legal Tender or U.S. Government
Obligations or a combination thereof that, through the payment of interest and
premium thereon and principal amount in respect thereof in accordance with their
terms, will be sufficient to pay all the principal amount of and interest and
premium on the Notes on the dates such payments are due in accordance with the
terms of such 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
Internal Revenue Service (the "Service") to the effect that the holders of the
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 Service to such effect, (B) subject to certain qualifications, an Opinion
of Counsel to the effect that funds so deposited will not be subject to
avoidance under applicable bankruptcy law and (C) an Officers' Certificate and
an Opinion of Counsel to the effect that the Company has complied with all
conditions precedent to the defeasance. Notwithstanding the foregoing, the
Opinion of Counsel required by clause (A) above need not be delivered if all
Notes not theretofore 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.
MODIFICATION OF THE NOTES INDENTURE
From time to time, the Company and the Trustee, together, without the
consent of the holders of the Notes, may amend or supplement the Notes Indenture
for certain specified purposes, including curing ambiguities, defects or
inconsistencies, so long as such change does not adversely affect the rights of
any of the holders in any material respect. Other modifications and amendments
of the Notes Indenture and the Escrow Agreement may be made with the consent of
the holders of a majority in principal amount at maturity of the then
outstanding Notes, except that, without the consent of each holder of the Notes
affected thereby, no amendment may, directly or indirectly: (i) reduce the
amount of 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 Notes; (iii) reduce the principal of or change the fixed maturity of any
Notes, or change the date on which any Notes may be subject to redemption or
repurchase, or reduce the redemption or repurchase price therefor; (iv) make any
Notes payable in money other than that stated in the Notes and the Notes
Indenture; (v) make any change in provisions of the Notes Indenture protecting
the right of each holder of a Note to receive payment of principal of, premium
on 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 Notes to waive a Default or an Event of Default; or (vi) after the
Company's obligation to purchase the Notes arises under the Notes 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.
CONCERNING THE TRUSTEE
The Notes Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it requires any conflicting interest, it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
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The Holders of a majority in principal amount at maturity of the then
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Notes Indenture provides that in case an
Event of Default shall occur (which shall not be cured), the Trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to such provisions, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Notes Indenture at the request of any holder of Notes, unless such holder shall
have offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Notes Indenture. Reference is made to the Notes Indenture for the full
definition of all such terms, as well as any other terms used herein for which
no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Subsidiary of the
Company or at the time it merges or consolidates with the Company or any of its
Subsidiaries or assumed in connection with the acquisition of assets from such
Person and not incurred by such Person in connection with, or in anticipation or
contemplation of, such Person becoming a Subsidiary of the Company or such
acquisition, merger or consolidation.
"Acquired Preferred Stock" means Preferred Stock of any Person at the time
such Person becomes a Subsidiary of the Company or at the time it merges or
consolidates with the Company or any of its Subsidiaries and not issued by such
Person in connection with, or in anticipation or contemplation of, such
acquisition, merger or consolidation.
"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 in which the Company or its Subsidiaries receive aggregate
consideration of less than $1,000,000, (b) transactions permitted under the
"Limitation on Asset Swaps" covenant, or (c) transactions covered by the
"Merger, Consolidation and Sale of Assets" covenant.
"Asset Swap" means the execution of a definitive agreement, subject only to
FCC approval, if applicable, 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 that individually or in
the aggregate is material to the Asset Swap shall be deemed to be a new Asset
Swap.
"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 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.
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"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.
"Capstar Broadcasting" means Capstar Broadcasting Corporation, a Delaware
corporation.
"Capstar Partners" means Capstar Broadcasting Partners, Inc., a Delaware
corporation and sole stockholder of the Company.
"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 that 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 Notes Indenture), other than to Hicks Muse, any of its
affiliates (excluding Chancellor), officers and directors or R. Steven Hicks
(the "Permitted Holders"); or (ii) a majority of the board of directors of the
Company shall consist of Persons who are not Continuing Directors; or (iii) the
acquisition by any Person or Group (other than the Permitted Holders) of the
power, directly or indirectly, to vote or direct the voting of securities having
more than 50% of the ordinary voting power for the election of directors of the
Company.
"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 (d) all accrued interest and (ii) the
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interest component of Capitalized Lease Obligations paid or accrued by such
Person and its Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" of any Person means, for any period, the
aggregate net income (or loss) of such Person and its Subsidiaries for such
period on a consolidated basis, determined in accordance with GAAP; provided
that there shall be excluded therefrom, without duplication, (a) gains and
losses from Asset Sales (without regard to the $1,000,000 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, (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 and
(f) any non-cash expenses attributable to grants or exercises of employee stock
options.
"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 (excluding any such charges constituting an
extraordinary or nonrecurring item) reducing Consolidated Net Income of such
Person and its Subsidiaries for such period, determined on a consolidated basis
in accordance with GAAP.
"Continuing Director" means, as of the date of determination, any Person
who (i) was a member of the Board of Directors of the Company on the Issue Date,
(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.
"Credit Facility" means the credit agreement dated February 20, 1997 among
the Company, Capstar Partners, Bankers Trust Company, as agent, and the lenders
parties thereto from time to time, as the same may be amended, supplemented or
otherwise modified from time to time, and any renewal, extension, refunding,
restructuring, replacement or refinancing thereof (whether with the original
agent and lenders or another agent or agents or other lenders and whether
provided under the original Credit Facility or any other credit agreement).
"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 Senior Indebtedness" means any Senior Indebtedness (a) which at
the time of determination exceeds $10 million in aggregate principal amount (or
accreted value in the case of Indebtedness issued at a discount) outstanding or
available under a committed facility, (b) which is specifically designated in
the instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness" by such Person and (c) as to which the Trustee has been given
written notice of such designation.
"Discount Notes" means the 12 3/4% Senior Discount Notes due 2009 of
Capstar Partners.
"Disqualified Capital Stock" means any Capital Stock that, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures (excluding any
maturity as the result of an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof (except, in each case,
upon the occurrence of a Change of Control), in whole or in part, on or prior to
the final maturity date of the Notes.
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"Existing Indenture" means the indenture governing the Existing Notes dated
as of April 21, 1995 by and among the Company, as Issuer, the Subsidiaries of
the Company named therein, as Guarantors, and IBJ Schroder Bank & Trust Company,
as Trustee, as in effect on the Issue Date.
"Existing Notes" means the Company's 13 1/4% Senior Subordinated Notes due
2003.
"Financial Monitoring and Oversight Agreements" means, collectively, (i)
the Monitoring and Oversight Agreement between Capstar Partners and Hicks, Muse
& Co. Partners, L.P. ("HM Partners") as in effect on the Issue Date, and (ii)
the Financial Advisory Agreement between Capstar Partners and HM Partners, as in
effect on the Issue Date.
"GAAP" means generally accepted accounting principles as in effect in the
United States of America as of the Issue Date.
"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 is secured by
any Lien on any property or asset of such first referred to Person, the amount
of such Indebtedness being deemed to be the lesser of the value of such property
or asset or the amount of the Indebtedness so secured. The amount of
Indebtedness of any Person at any date shall be the outstanding principal amount
of all unconditional obligations described above, as such amount would be
reflected on a balance sheet prepared in accordance with GAAP, and the maximum
liability at such date of such Person for any contingent obligations described
above.
"Interest Swap Obligations" means the obligations of any Person under any
interest rate protection agreement, interest rate future, interest rate option,
interest rate swap, interest rate cap or other interest rate hedge or
arrangement.
"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 $2,000,000, 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.
"Leverage Ratio" shall mean the ratio of (i) the aggregate outstanding
amount of Indebtedness of the Company and its Subsidiaries as of the date of
calculation on a consolidated basis in accordance with GAAP (subject to the
terms described in the next paragraph) plus the aggregate liquidation preference
of all outstanding Preferred Stock of the Company's Subsidiaries (except
Preferred Stock issued to the Company or a Wholly Owned Subsidiary of the
Company) on such date to (ii) the Consolidated EBITDA of the Company for the
four full fiscal quarters (the "Four Quarter Period") ending on or prior to the
date of determination.
For purposes of this definition, (i) the amount of Indebtedness which is
issued at a discount shall be deemed to be the accreted value of such
Indebtedness at the end of the Four Quarter Period, whether or not such amount
is the amount then reflected on a balance sheet prepared in accordance with
GAAP, and (ii) the aggregate outstanding principal amount of Indebtedness of the
Company and its Subsidiaries and the aggregate liquidation preference of all
outstanding Preferred Stock of the Company's Subsidiaries for which such
calculation is made shall be determined on a pro forma basis as if the
Indebtedness and Preferred Stock giving rise to the need to perform such
calculation had been incurred and issued and the proceeds therefrom had been
applied, and all other transactions in respect of which such Indebtedness is
being incurred or Preferred Stock is being issued had
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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 issuance of the
Preferred Stock of such 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 or issuance (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, (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 that becomes a Subsidiary as a result of such Asset Acquisition)
incurring, assuming or otherwise becoming liable for Indebtedness or such
Person's Subsidiaries issuing Preferred Stock) 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 the issuance
of such Preferred Stock and also including any Consolidated EBITDA associated
with such Asset Acquisition) occurred on the first day of the Four Quarter
Period and (iii) cost savings resulting from employee terminations, facilities
consolidations and closings, standardization of employee benefits and
compensation practices, consolidation of property, casualty and other insurance
coverage and policies, standardization of sales representation commissions and
other contract rates, and reductions in taxes other than income taxes
(collectively, "Cost Savings Measures"), which cost savings the Company
reasonably believes in good faith would have been achieved during the Four
Quarter Period as a result of such Asset Acquisitions (regardless of whether
such cost savings could then be reflected in pro forma financial statements
under GAAP, Regulation S-X promulgated by the Commission or any other regulation
or policy of the Commission), provided that both (A) such cost savings and Cost
Savings Measures were identified and such cost savings were quantified in an
officer's certificate delivered to the Trustee at the time of the consummation
of the Asset Acquisition and such officer's certificate states that such officer
believes in good faith that actions will be commenced or initiated within 90
days of such Asset Acquisition to effect such Cost Savings Measures and (B) with
respect to each Asset Acquisition completed prior to the 90th day preceding such
date of determination, actions were commenced or initiated by the Company within
90 days of such Asset Acquisition to effect the Cost Savings Measures identified
in such officer's certificate (regardless, however, of whether the corresponding
cost savings have been achieved). Furthermore, in calculating "Consolidated
Interest Expense" for purposes of the calculation of "Consolidated EBITDA," (i)
interest on Indebtedness determined on a fluctuating basis as of the date of
determination (including Indebtedness actually incurred on the date of the
transaction giving rise to the need to calculate the Leverage Ratio) and which
will continue to be so determined thereafter shall be deemed to have accrued at
a fixed rate per annum equal to the rate of interest on such Indebtedness as in
effect on the date of determination and (ii) notwithstanding (i) above, interest
determined on a fluctuating basis, to the extent such interest is covered by
Interest Swap Obligations, shall be deemed to accrue at the rate per annum
resulting after giving effect to the operation of such agreements.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Major Asset Sale" means an Asset Sale or series of related Asset Sales
involving assets with a fair market value in excess of $25,000,000.
"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
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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.
"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles one or more Persons to accelerate the
maturity of any Designated Senior Indebtedness.
"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.
"Payment Default" means any default, whether or not any requirement for the
giving of notice, the lapse of time or both, or any other condition to such
default becoming an event of default has occurred, in the payment of principal
of (or premium, if any) or interest on or any other amount payable in connection
with Designated Senior Indebtedness.
"Permitted Holders" shall have the meaning set forth in the definition of
"Change of Control."
"Permitted Indebtedness" means, without duplication, (i) Indebtedness
outstanding on the Issue Date; (ii) Indebtedness of the Company or a Subsidiary
incurred pursuant to the Credit Facility in an aggregate principal amount at any
time outstanding not to exceed $150.0 million; (iii) Indebtedness evidenced by
or arising under the Notes and the Notes Indenture; (iv) Interest Swap
Obligations; provided that such Interest Swap Obligations are entered into to
protect the Company from fluctuations in interest rates of its Indebtedness; (v)
additional Indebtedness of the Company or any of its Subsidiaries not to exceed
$20,000,000 in principal amount outstanding at any time (which amount may, but
need not, be incurred under the Credit Facility); (vi) Refinancing Indebtedness;
(vii) Indebtedness owed by the Company to any Wholly Owned Subsidiary of the
Company or by any Subsidiary of the Company to the Company or any Wholly Owned
Subsidiary of the Company; (viii) guarantees by Subsidiaries of any Indebtedness
permitted to be incurred pursuant to the Notes Indenture; (ix) Indebtedness in
respect of performance bonds, bankers' acceptances and surety or appeal bonds
provided by the Company or any of its Subsidiaries to their customers in the
ordinary course of their business; (x) Indebtedness arising from agreements
providing for indemnification, adjustment of purchase price or similar
obligations, or from guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Company or any of its
Subsidiaries pursuant to such agreements, in each case incurred in connection
with the disposition of any business assets or Subsidiaries of the Company
(other than guarantees of Indebtedness or other obligations incurred by any
Person acquiring all or any portion of such business assets or Subsidiaries of
the Company for the purpose of financing such acquisition) in a principal amount
not to exceed the gross proceeds actually received by the Company or any of its
Subsidiaries in connection with such disposition; provided, however, that the
principal amount of any Indebtedness incurred pursuant to this clause (x), when
taken together with all Indebtedness incurred pursuant to this clause (x) and
then outstanding, shall not exceed $15,000,000; and (xi) Indebtedness
represented by Capitalized Lease Obligations, mortgage financings or purchase
money obligations, in each case incurred for the purpose of financing all or any
part of the purchase price or cost of construction or improvement of property
used in a related business or incurred to refinance any such purchase price or
cost of construction or improvement, in each case incurred no later than 365
days after the date of such acquisition or the date of completion of such
construction or improvement; provided, however, that the principal amount of any
Indebtedness incurred pursuant to this clause (xi) shall not exceed $6,000,000
at any time outstanding.
"Permitted Investments" means (i) Investments by the Company or any
Subsidiary of the Company to acquire the stock or assets of any Person (or
Acquired Indebtedness or Acquired Preferred Stock 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
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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 and
Issuance of Preferred Stock of Subsidiaries" covenant, (ii) Investments received
by the Company or its Subsidiaries as consideration for a sale of assets, (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, (vi) loans or advances to employees of the Company or any
Subsidiary thereof for purposes of purchasing the Capital Stock of the Company,
Capstar Partners, Capstar Broadcasting or any corporation that, directly or
indirectly, owns all of the Common Stock of Capstar Broadcasting and other loans
and advances to employees made in the ordinary course of business consistent
with past practices of the Company or such Subsidiary, and (vii) additional
Investments in an aggregate amount not to exceed $2,000,000 at any time
outstanding.
"Permitted Junior Securities" mean equity securities or subordinated
securities of an issuer as reorganized or readjusted or securities of the
Company or any other company, trust, corporation or partnership provided for by
a plan of reorganization or readjustment that, in the case of any such
subordinated securities, are junior or the payment of which is otherwise
subordinate, at least to the extent provided in the Notes Indenture with respect
to the Notes, to the payment and satisfaction in full in cash of all Senior
Indebtedness of the Company at the time outstanding, and to the payment of all
securities issued in exchange therefor, to the holders of the Senior
Indebtedness at the time outstanding.
"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, Capstar Partners,
Capstar Broadcasting or any corporation that, directly or indirectly, owns all
of the Common Stock of Capstar Broadcasting, 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 Capstar Partners, Capstar Broadcasting or any such other corporation, Capstar
Partners, Capstar Broadcasting or such other corporation contributes to the
capital of the Company net cash proceeds in an amount sufficient to redeem the
Notes 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 and Issuance of
Preferred Stock of Subsidiaries" 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.
"Restricted Payment" means (i) the declaration or payment of any dividend
or the making of any other distribution (other than dividends or distributions
payable in Qualified Capital Stock or in options, rights or warrants to acquire
Qualified Capital Stock) on shares of the Company's Capital Stock, (ii) the
purchase, redemption, retirement or other acquisition for value of any Capital
Stock of the Company, or any warrants, rights or options to acquire shares of
Capital Stock of the Company, other than through 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
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Stock or warrants, rights or options to acquire Qualified Capital Stock, (iii)
the making of any principal payment on, or the purchase, defeasance, redemption,
prepayment, decrease or other acquisition or retirement for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund payment,
of, any Indebtedness of the Company or its Subsidiaries that is subordinated or
junior in right of payment to the Notes or (iv) the making of any Investment
(other than a Permitted Investment).
"Senior Indebtedness" means the principal of and premium, if any, and
interest on, and any and all other fees, expense reimbursement obligations and
other amounts due pursuant to the terms of all agreements, documents and
instruments providing for, creating, securing or evidencing or otherwise entered
into in connection with (a) all Indebtedness of the Company owed to lenders
under the Credit Facility, (b) all obligations of the Company with respect to
any Interest Swap Obligations, (c) all obligations of the Company to reimburse
any bank or other person in respect of amounts paid under letters of credit,
acceptances or other similar instruments, (d) all other Indebtedness of the
Company which does not provide that it is to rank pari passu with or subordinate
to the Notes and (e) all deferrals, renewals, extensions and refundings of, and
amendments, modifications and supplements to, any of the Senior Indebtedness
described above. Notwithstanding anything to the contrary in the foregoing,
Senior Indebtedness will not include (i) Indebtedness of the Company to any of
its Subsidiaries, (ii) Indebtedness represented by the Notes, (iii) any
Indebtedness which by the express terms of the agreement or instrument creating,
evidencing or governing the same is junior or subordinate in right of payment to
any item of Senior Indebtedness, (iv) any trade payable arising from the
purchase of goods or materials or for services obtained in the ordinary course
of business, (v) Indebtedness incurred in violation of the Notes Indenture and
(vi) as long as any Existing Notes are outstanding, Indebtedness of the Company
that is not fully and adequately secured except as may be required by bankruptcy
or other laws affecting the rights of creditors generally.
"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.
Except as specifically provided otherwise in the Notes Indenture, 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 consolidated basis in accordance with GAAP and to financial
information prepared on such a consolidated basis. Notwithstanding anything in
the Notes Indenture to the contrary, an Unrestricted Subsidiary shall not be
deemed to be a Subsidiary for purposes of the Notes Indenture.
"Unrestricted Subsidiary" means a Subsidiary of the Company created after
the 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 and (b) 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). The board of directors may designate any Unrestricted
Subsidiary to be a Subsidiary; provided, however, that immediately after giving
effect to such designation (x) the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred
Stock of Subsidiaries" covenant and (y) no Default or Event of Default shall
have occurred or be continuing. Any designation pursuant to this definition 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
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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.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such Person
of which all the outstanding voting securities (other than directors' qualifying
shares) which normally have the right to vote in the election of directors are
owned by such Person or any Wholly-Owned Subsidiary of such Person.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of Old Notes for New Notes, but does not
purport to be a complete analysis of all potential tax effects. The discussion
is based upon the Internal Revenue Code of 1986, as amended, Treasury
regulations, Internal Revenue Service rulings and pronouncements and judicial
decisions now in effect, all of which are subject to change at any time by
legislative, judicial or administrative action. Any such changes may be applied
retroactively in a manner that could adversely affect a holder of the New Notes.
The description does not consider the effect of any applicable foreign, state,
local or other tax laws or estate or gift tax considerations.
EACH HOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES TO IT OF EXCHANGING OLD NOTES FOR NEW NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
The exchange of Old Notes for New Notes should not be an exchange or
otherwise a taxable event to a holder for federal income tax purposes.
Accordingly, a holder should have the same adjusted issue price, adjusted basis
and holding period in the New Notes as it had in the Old Notes immediately
before the exchange.
BOOK-ENTRY; DELIVERY AND FORM
The certificate representing the Old Notes was issued, and the certificates
representing the New Notes will be issued, in fully registered form, without
coupons. The Old Notes are represented by one permanent global certificate in
definitive, fully registered form without interest coupons in the aggregate
principal amount of $200.0 million (the "Initial Global Certificate"). Except as
described in the next paragraph, the New Notes 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,
DTC, and registered in the name of a nominee of DTC. If any holder of Old Notes
whose interest in such Old Notes is represented by the Initial Global
Certificate fails to tender in the Exchange Offer, the Company may issue and
deliver to such holder a separate certificate representing such holder's Old
Notes in registered form without interest coupons.
New Notes exchanged for Old Notes originally purchased by or transferred to
(i) "foreign purchasers" or institutional "accredited investors" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act) who are not "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act)
("QIBs") or (ii) QIBs who elect to take physical delivery of their certificates
instead of holding their interest through the Global Certificate (and which are
thus ineligible to trade through DTC) (collectively referred to herein as the
"Non-Global Purchasers") will be issued in registered form (a "Certificated
Security"). Upon the transfer to a QIB of any Certificated Security initially
issued to a Non-Global Purchaser, such Certificated Security will, unless the
transferee requests otherwise or the Global Certificate has previously been
exchanged in whole for Certificated Securities, be exchanged for an interest in
the Global Certificate.
The Global Certificate. 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 number of New 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 (as defined) (with
respect to interests of persons other
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than participants). Ownership of beneficial interests in the Global Certificate
are 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 which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
New Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the New 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.
Payments of principal of, premium, if any, and interest, if any, on the
Global Certificate will be made to DTC or its nominee, as the case may be, as
the registered owner thereof. Neither the Company nor the Paying Agent 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 of, premium, if any, and interest, if any, 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 New Notes to persons in states which require physical delivery
of the certificate evidencing the New Notes, 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 Notes
Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of New Notes (including the presentation of New 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 New 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 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. The Company will not have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective 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.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New 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 New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 90 days after
the Expiration Date, it will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until December 10, 1997, all dealers effecting transactions in the New
Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by 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 New 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 at 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 such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New 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 New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any commission
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
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus or any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company agreed to pay all expenses incident to
the Exchange Offer (including the expenses of counsel for the Holders of the Old
Notes) other than commissions or concessions of any broker-dealers and will
indemnify the holders of the Old Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
See "The Exchange Offer" for additional information concerning the Exchange
Offer and interpretations of the Commission's staff with respect to prospectus
delivery obligations of broker-dealers.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Vinson & Elkins L.L.P., Dallas, Texas.
EXPERTS
The consolidated financial statements of Capstar Radio Broadcasting
Partners, Inc. and Subsidiaries, formerly known as Commodore Media, Inc. and
Subsidiaries, as of December 31, 1996 and 1995 and for each of the three years
in the period ended December 31, 1996, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The consolidated financial statements of Southern Star Communications,
Inc., formerly known as Osborn Communications Corporation, as of December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
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The consolidated balance sheets of GulfStar Communications, Inc. and
Subsidiaries as of December 31, 1996 and 1995 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows 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 combined balance sheets of Benchmark Communications Radio Limited
Partnership as of December 31, 1996 and 1995 and the related combined statements
of operations, changes in partners' equity (deficit) and cash flows 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 balance sheet of Midcontinent Broadcasting Co. of Wisconsin, Inc. as of
December 31, 1996 and the related statements of income and retained earnings,
and cash flows for the year then ended 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 balance sheet of Point Communications Limited Partnership as of
December 31, 1996, and the related statements of operations, partner's equity
and cash flows for the year then ended 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 balance sheet of Community Pacific Broadcasting Company L.P. as of
December 31, 1996, and the related statements of operations, partners' equity
and cash flows for the year then ended 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 balance sheets of Patterson Broadcasting, Inc. and
subsidiaries as of December 31, 1996 and 1995 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the year ended December 31, 1996 and for the period from May 1, 1995 (inception)
through December 31, 1995 included in this Prospectus, have been included herein
in reliance on the report of Arthur Andersen LLP, independent accountants, given
on the authority of that firm as experts in accounting and auditing.
The balance sheet of Ameron Broadcasting, Inc. as of December 31, 1996, and
the related statements of operations, stockholders' equity and cash flows for
the year then ended included in this Prospectus, have been included herein in
reliance on the report of Arthur Andersen LLP, independent accountants, given on
the authority of that firm as experts in accounting and auditing.
The combined financial statements of Knight Quality Stations as of December
31, 1996, and for the year then ended included in this Prospectus or elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto and are included herein upon the authority of the said firm as experts
in giving said reports.
The balance sheet of Quass Broadcasting Company as of December 31, 1996,
and the related statements of income, common stockholders' equity (deficit) and
cash flows for the year then ended December 31, 1996 included in this
Prospectus, have been included herein in reliance on the report of McGladrey &
Pullen, LLP, independent accountants, given on the authority of that firm as
experts in accounting and auditing.
The combined financial statements of Mountain Lakes Broadcasting, L.L.C. as
of December 31, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The statements of operations and deficit and cash flows of Q Broadcasting,
Inc. for each of the three years in the period ended September 30, 1995 included
in this Prospectus, have been included herein in reliance on the report of Holtz
Rubenstein & Co., LLP, independent accountants, given on the authority of that
firm as experts in accounting and auditing.
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The statements of operations and accumulated deficit and cash flows of
Danbury Broadcasting, Inc. for the year ended June 30, 1995 included in this
Prospectus, have been included herein in reliance on the report of Paneth, Haber
& Zimmerman LLP, independent accountants, given on the authority of that firm as
experts in accounting and auditing.
The balance sheet of Adventure Communications-Huntington (Division of
Adventure Communications, Inc.) as of December 31, 1995, and the related
statements of operations, division's deficit and cash flows for the year ended
December 31, 1995 included in this Prospectus, have been included herein in
reliance on the report of Brown, Edwards & Company, LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement (the
"Registration Statement") under the Securities Act with respect to the New Notes
offered hereby. As permitted by the rules and regulations of the Commission,
this Prospectus does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company and
the New Notes offered hereby, reference is made to the Registration Statement,
including the exhibits and schedules filed therewith. Statements contained in
this Prospectus concerning the provisions of any contract, agreement or other
document referred to herein or therein are not necessarily complete, but contain
a summary of the material terms of such contracts, agreements or other
documents. With respect to each contract, agreement or other document filed as
an exhibit to the Registration Statement, reference is made to the exhibit for
the complete contents of the exhibit, and each statement concerning its
provisions is qualified in its entirety by such reference. The Registration
Statement may be inspected, without charge, at the offices of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices at 7
World Trade Center, New York, New York, 10048 and Citicorp Center, 500 West
Madison Street, Chicago, Illinois 60661-2551. Copies of such materials may also
be obtained by mail at prescribed rates from the Public Reference Section of the
Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C.
20549. Copies of such materials may also be obtained from the web site that the
Commission maintains at www.sec.gov.
The Company is required by the Notes Indenture for the New Notes to furnish
the holders of the New Notes with copies of the annual reports and of the
information, documents and other reports specified in Section 13 and 15(d) of
the Exchange Act of 1934, as long as any shares of New Notes are outstanding.
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GLOSSARY OF CERTAIN TERMS AND MARKET AND INDUSTRY DATA
"advertising inventory" refers to the amount of advertising air time a
radio station has available to sell to advertisers.
"Ameron Acquisition" means the Company's pending acquisition of
substantially all of the assets of Ameron Broadcasting, Inc. ("Ameron"), used or
useful in the operation of radio stations WMJJ-FM and WERC-AM in Birmingham,
Alabama and radio station WOWC-FM in Jasper, Alabama.
"Benchmark Acquisition" means the completed acquisitions of, and mergers of
directly and indirectly wholly-owned subsidiaries of HM Fund III with, Benchmark
Communications Radio Limited Partnership, L.P. and certain of its subsidiary
partnerships (collectively, "Benchmark").
"broadcast cash flow" consists of operating income before depreciation,
amortization, corporate and other compensation expenses. Although broadcast cash
flow is not a measure of performance calculated in accordance with generally
accepted accounting principles ("GAAP"), management believes that it is useful
to an investor in evaluating the Company because it is a measure widely used in
the broadcast industry to evaluate a radio company's operating performance.
However, broadcast cash flow should not be considered in isolation or as a
substitute for net income, cash flows from operating activities and other income
or cash flow statement data prepared in accordance with GAAP as a measure of
liquidity or profitability.
"broadcast cash flow margin" represents the percentage of net revenue which
is attributable to broadcast cash flow.
"Capstar Broadcasting" means Capstar Broadcasting Corporation.
"Capstar BT Equity Investment" means the purchase by Capstar BT Partners,
L.P. of certain shares of Class B Common Stock for $11.1 million in cash
concurrently with consummation of the GulfStar Merger.
"Capstar Indenture" means that certain indenture, dated February 20, 1997
between the Company and U.S. Trust Company of Texas, N.A. in connection with the
Capstar Partners Notes.
"Capstar Partners" means Capstar Broadcasting Partners, Inc.
"Capstar Partners Notes" means Capstars Partners' 12 3/4% Senior Discount
Notes due 2009.
"Capstar Radio Notes Offering" means the Company's private placement of the
New Notes.
"Cavalier Acquisition" means the Company's completed acquisition of
substantially all of the assets of Cavalier Communications, L.P. ("Cavalier").
"Certificate of Designation" means the Certificate of Designation that
governs the Senior Exchangeable Preferred Stock.
"COMCO Acquisition" means the Company's pending acquisition of
substantially all of the assets of COMCO Broadcasting, Inc. ("COMCO").
"Commodore Acquisition" means Capstar Partners' completed acquisition of
the Company.
"Commonwealth Acquisition" means the Company's pending acquisition of
substantially all of the assets of Commonwealth Broadcasting of Arizona, L.L.C.
("Commonwealth").
"Communications Act" means the Communications Act of 1934, as amended.
"Community Pacific Acquisition" means the Company's completed acquisition
of substantially all of the assets of Community Pacific Broadcasting Company
L.P. ("Community Pacific").
"Company" means, unless the context otherwise requires, Capstar Radio
Broadcasting Partners, Inc. and its subsidiaries.
"Completed Transactions" collectively refers to the Osborn Transactions,
the Space Coast Acquisitions, the GulfStar Transaction, the Community Pacific
Acquisition, the Cavalier Acquisition, the Benchmark Acquisition, the
GulfStar -- McForhun Acquisition, and the GulfStar -- Livingston Acquisition.
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"EBITDA" consists of operating income before depreciation, amortization and
other expenses. Although EBITDA is not a measure of performance calculated in
accordance with GAAP, management believes that it is useful to an investor in
evaluating the Company because it is a measure widely used in the broadcast
industry to evaluate a radio company's operating performance. However, EBITDA
should not be considered in isolation or as a substitute for net income, cash
flows from operating activities and other income or cash flow statement data
prepared in accordance with GAAP as a measure of liquidity or profitability.
"Emerald City Acquisition" means the Company's pending acquisition of
substantially all of the assets of Emerald City Radio Partners, L.P. ("Emerald
City") used or held for use in connection with station WNOK-FM in the Columbia,
South Carolina market.
"Existing Indenture" means that certain indenture, between the Company, the
guarantors named therein and IBJ Schroder Bank & Trust Company in connection
with the Existing Notes.
"Existing Notes" refers to the Company's 13 1/4% Senior Subordinated Notes
due 2003.
"Existing Credit Facility" means that certain credit facility between the
Company, Capstar Partners, Bankers Trust Company, as administrative agent, and
the other parties thereto.
"Financing" collectively refers to the Preferred Stock Offering, the Hicks
Muse GulfStar Equity Investment, the Capstar BT Equity Investment and the
Capstar Radio Notes Offering.
"Grant Acquisition" means the Company's pending acquisition of
substantially all of the assets of Grant Communications Company ("Grant") used
or useful in the operation of radio station WZBQ-FM in the Tuscaloosa, Alabama
market.
"Griffith Acquisition" means the Company's pending acquisition of
substantially all of the assets of Griffith Communications Corporation
("Griffith") used or useful in the operation of radio stations WTAK-FM, WXQW-FM
and WWXQ-FM in the Huntsville, Alabama market.
"GulfStar" means, prior to the GulfStar Merger, GulfStar Communications,
Inc. and, from and after the GulfStar Merger, the surviving corporation in the
GulfStar Merger.
"GulfStar Merger" means the merger of GulfStar with and into a subsidiary
of Capstar Broadcasting, pursuant to which the subsidiary was the surviving
corporation and was named GulfStar Communications, Inc.
"GulfStar Transaction" means the GulfStar Merger and Capstar Broadcasting's
contribution of GulfStar through the Company to the Company upon completion of
the GulfStar Merger.
"GulfStar -- American General Acquisition" means the Company's pending
acquisition of substantially all of the assets of American General Media
("American General") used or useful in the operation of radio station KKCL-FM in
the Lubbock, Texas market.
"GulfStar -- Booneville Acquisition" means the Company's pending
acquisition of substantially all of the assets of Booneville Broadcasting
Company and Oklahoma Communications Company (collectively, "Booneville") used or
useful in the operation of radio station KZBB-FM in the Ft. Smith, Arkansas
market.
"GulfStar -- Bryan Disposition" means the Company's pending sale of Bryan
Broadcasting Operating Company, a wholly owned subsidiary that owns three FM
stations in Bryan, Texas.
"GulfStar -- KJEM Acquisition Option" means the Company's option to acquire
substantially all of the assets of KJEM-FM, Inc. ("KJEM") used or useful in the
operation of radio station KJEM-FM in the Seligman, Missouri market.
"GulfStar -- KLAW Acquisition" means the Company's pending acquisition of
substantially all of the assets of KLAW Broadcasting, Inc. ("KLAW") used or
useful in the operation of radio stations KLAW-FM and KZCD-FM, which serves the
Lawton, Oklahoma market.
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"GulfStar -- Livingston Acquisition" means the Company's completed
acquisition of substantially all of the assets Livingston Communications, Inc.
("Livingston") used or useful in the operation of radio station WBIU-AM in the
Denham Springs, Louisiana market.
"GulfStar -- McForhun Acquisition" means the Company's completed
acquisition of substantially all of the assets of McForhun, Inc. ("McForhun")
used or useful in the operation of radio station KRVE-FM in the Brusly,
Louisiana market.
"GulfStar -- Noalmark Acquisition" means the Company's option to purchase
substantially all of the assets of Noalmark Broadcasting Corp. ("Noalmark") used
or held for use in the operation of radio stations KKTX-FM and KKTX-AM, which
serve the Longview, Texas market.
"Hicks Muse" means Hicks, Muse, Tate & Furst Incorporated.
"Hicks Muse GulfStar Equity Investment" means the purchase by an affiliate
of Hicks Muse of certain shares of Class C Common Stock for $75.0 million in
cash concurrently with consummation of the GulfStar Merger.
"Hicks Muse Osborn Equity Investment" means the purchase by an affiliate of
Hicks Muse of certain shares of Class A Common Stock for $34.8 million in cash
concurrently with the consummation of the Osborn Acquisition.
"HM Fund III" means Hicks, Muse, Tate & Furst Equity Fund III, L.P.
"Huntington Acquisition" collectively refers to certain defined assets of
radio stations WKEE-FM and WKEE-AM in Huntington, West Virginia; WZZW-AM and
WFXN-FM in Milton, West Virginia; WBVB-FM in Coal Grove, Ohio; and WIRO-AM and
WMLV-FM in Ironton, Ohio, acquired by the Company.
"JSA" refers to a joint sales agreement, whereby a station licensee
obtains, for a fee, the right to sell substantially all of the commercial
advertising on a separately-owned and licensed station. JSAs take varying forms.
A JSA, unlike an LMA, normally does not involve programming.
"Knight Quality Acquisition" means the Company's pending acquisition of
substantially all of the assets of Knight Radio, Inc., Knight Communications
Corporation and Knight Broadcasting of New Hampshire, Inc. (collectively,
"Knight Quality") used or useful in the operations of eight radio stations owned
and operated by Knight Quality.
"LMA" refers to a local marketing agreement, whereby a radio station
outsources the management of certain limited functions of its operations. LMAs
take varying forms; however, the FCC requires that, in all cases, the licensee
maintain independent control over the programming and operations of the station.
"Madison Acquisition" means the Company's pending acquisition of
substantially all of the assets of The Madison Radio Group ("Madison") which is
comprised of the stations formerly owned by Midcontinent Broadcasting Co. of
Wisconsin, Inc. and Point Communication Limited Partnership.
"Notes" means the Company's 9 1/4% Senior Subordinated Notes due 2007.
"Notes Indenture" means that certain indenture, dated June 17, 1997,
between the Company and U.S. Trust Company of Texas, N.A. in connection with the
Notes.
"Osborn Acquisition" means the Company's completed acquisition of Osborn
Communications, Inc.
"Osborn Add-on Acquisitions" means the Company's completed acquisitions of
(i) all of the issued and outstanding capital stock of Dixie Broadcasting, Inc.
and Radio WBHP, Inc. (the "Osborn Huntsville Acquisition") and (ii)
substantially all of the assets of Taylor Communications Corporation ("Taylor")
utilized in the operations of Taylor's stations in the Tuscaloosa, Alabama
market (the "Osborn Tuscaloosa Acquisition").
"Osborn Combination" means the Osborn Transactions and all acquisitions or
dispositions completed by Osborn since January 1, 1996 through the date of the
Osborn Acquisition.
170
<PAGE> 173
"Osborn Ft. Myers Disposition" means Osborn's completed disposition of
substantially all of the assets used or held for use in connection with the
business and operations of Osborn's stations in the Port Charlotte and Ft.
Myers, Florida markets.
"Osborn Transactions" collectively refers to the Osborn Acquisition, the
Osborn Add-on Acquisitions and the Osborn Ft. Myers Disposition.
"Patterson Acquisition" means the Company's pending acquisition of all of
the outstanding capital stock of Patterson Broadcasting, Inc. ("Patterson").
"Pending Acquisitions" collectively refers to the Ameron Acquisition, the
COMCO Acquisition, the Commonwealth Acquisition, the Emerald City Acquisition,
the Grant Acquisition, the Griffith Acquisition, the Knight Quality Acquisition,
the Madison Acquisition, the Patterson Acquisition, the Quass Acquisition, the
SFX Exchange, the WRIS Acquisition, the GulfStar -- American General
Acquisition, the GulfStar -- Booneville Acquisition, the GulfStar -- Noalmark
Acquisition, the GulfStar -- KJEM Acquisition and the GulfStar -- KLAW
Acquisition.
"Pending Transactions" collectively refers to the Pending Acquisitions and
the GulfStar -- Bryan Disposition.
"Quass Acquisition" means the Company's pending acquisition of all of the
outstanding capital stock of Quass Broadcasting Company ("Quass").
"SFX Exchange" means the Company's pending exchange of substantially all of
the assets used or useful in the operation of three radio stations that will be
owned by the Company upon completion of the Benchmark Acquisition in the
Greenville, South Carolina market for substantially all of the assets used or
useful in the operation of four radio stations owned by SFX in Wichita, Kansas
and Daytona Beach, Florida.
"Space Coast Acquisitions" collectively refers to the Company's completed
acquisitions of substantially all of the assets of EZY Com, Inc., City
Broadcasting Co., Inc., and Roper Broadcasting, Inc.
"WRIS Acquisition" means the Company's pending acquisition of substantially
all of the assets of WRIS, Inc. ("WRIS").
Unless otherwise indicated herein, (i) MSA rankings by population were
obtained from the Summer 1996 Radio Market Survey Schedule (copyright 1996), as
provided by The Arbitron Company ("Arbitron"), (ii) all audience share rankings,
except for the Yuma, Arizona market and where specifically stated to the
contrary, have been derived from surveys of persons, ages 25 to 54, listening
Monday through Sunday, 6 a.m. to 12 midnight, and are based on either the Spring
or Fall 1996 survey period, as reported in Radio Market Reports, Metro Audience
Trends (copyright 1996), a publication of Arbitron, (iii) audience share
rankings in Yuma, Arizona, are based on the Spring 1996 survey period, as
reported in AccuRatings(TM) (Copyright 1996), a publication of Strategic Radio
Research, Inc. ("AccuRatings(TM)") and (iv) all revenue share rankings are based
on data compiled as of February 27, 1997, as reported in BIA Publications Radio
Analyzer -- BIA's Master Access, Version 1.7 (copyright 1996), a computer
database by BIA Publications Inc. ("BIA").
171
<PAGE> 174
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
Report of Independent Accountants......................... F-4
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996 and 1995............................. F-5
Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1996 and for the years ended
December 31, 1996, 1995 and 1994....................... F-6
Consolidated Statements of Stockholders' Equity (Deficit)
for the three months ended March 31, 1997 and for the
years ended December 31, 1996, 1995 and 1994........... F-7
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 and for the years ended
December 31, 1996, 1995 and 1994....................... F-8
Notes to Consolidated Financial Statements................ F-9
SOUTHERN STAR COMMUNICATIONS INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
Report of Independent Auditors............................ F-27
Consolidated Balance Sheets as of December 31, 1996 and
1995................................................... F-28
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994....................... F-29
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994... F-30
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994....................... F-31
Notes to Consolidated Financial Statements................ F-32
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Report of Independent Accountants......................... F-44
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996 and 1995............................. F-45
Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1996 and for the years ended
December 31, 1996, 1995 and 1994....................... F-46
Consolidated Statements of Changes in Stockholders' Equity
for the three months ended March 31, 1997 and for the
years ended December 31, 1996, 1995 and 1994........... F-47
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 and for the years ended
December 31, 1996, 1995 and 1994....................... F-48
Notes to Consolidated Financial Statements................ F-49
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
Report of Independent Accountants......................... F-65
Combined Balance Sheets as of March 31, 1997 and December
31, 1996 and 1995...................................... F-66
Combined Statements of Operations for the three months
ended March 31, 1997 and 1996 and for the years ended
December 31, 1996, 1995 and 1994....................... F-67
Combined Statements of Changes in Partners' Equity
(Deficit) for the three months ended March 31, 1997 and
for the years ended December 31, 1996, 1995 and 1994... F-68
Combined Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 and for the years ended
December 31, 1996, 1995 and 1994....................... F-69
Notes to Combined Financial Statements.................... F-70
MADISON RADIO GROUP
Condensed Balance Sheet as of March 31, 1997.............. F-80
Condensed Statement of Operations for the period from
January 2, 1997 to March 31, 1997...................... F-81
Condensed Statement of Partners' Equity for the period
from January 2, 1997 to March 31, 1997................. F-82
Condensed Statement of Cash Flows for the period from
January 2, 1997 to March 31, 1997...................... F-83
Notes to Financial Statements............................. F-84
</TABLE>
F-1
<PAGE> 175
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.
Report of Independent Accountants......................... F-88
Balance Sheet as of December 31, 1996..................... F-89
Statement of Income and Retained Earnings for the year
ended December 31, 1996................................ F-90
Statement of Cash Flows for the year ended December 31,
1996................................................... F-91
Notes to Financial Statements............................. F-92
POINT COMMUNICATIONS LIMITED PARTNERSHIP
Report of Independent Accountants......................... F-95
Balance Sheet as of December 31, 1996..................... F-96
Statement of Operations for the year ended December 31,
1996................................................... F-97
Statement of Partners' Equity for the year ended December
31, 1996............................................... F-98
Statement of Cash Flows for the year ended December 31,
1996................................................... F-99
Notes to Financial Statements............................. F-100
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
Report of Independent Accountants......................... F-104
Balance Sheets as of March 31, 1997 and December 31,
1996................................................... F-105
Statements of Operations for the three months ended March
31, 1997 and for the year ended December 31, 1996...... F-106
Statements of Changes in Partners' Equity for the three
months ended March 31, 1997 and for the year ended
December 31, 1996...................................... F-107
Statements of Cash Flows for the three months ended March
31, 1997 and for the year ended December 31, 1996...... F-108
Notes to Financial Statements............................. F-109
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
Report of Independent Public Accountants.................. F-114
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996 and 1995............................. F-115
Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1996 and for the year ended
December 31, 1996 and the period from May 1, 1995
(inception) through December 31, 1995.................. F-116
Consolidated Statements of Changes in Stockholders' Equity
for the three months ended March 31, 1997 and for the
year ended December 31, 1996 and the period from May 1,
1995 (inception) through December 31, 1995............. F-117
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 and for the year ended
December 31, 1996 and the period from May 1, 1995
(inception) through December 31, 1995.................. F-118
Notes to Consolidated Financial Statements................ F-119
AMERON BROADCASTING, INC.
Report of Independent Public Accountants.................. F-128
Balance Sheets as of March 31, 1997 and December 31,
1996................................................... F-129
Statements of Operations for the three months ended March
31, 1997 and for the year ended December 31, 1996...... F-130
Statements of Stockholders' Equity for the three months
ended March 31, 1997 and for the year ended December
31, 1996............................................... F-131
Statements of Cash Flows for the three months ended March
31, 1997 and for the year ended December 31, 1996...... F-132
Notes to Financial Statements............................. F-133
F-2
<PAGE> 176
KNIGHT QUALITY STATIONS
Report of Independent Public Accountants.................. F-138
Combined Balance Sheets as of March 31, 1997 and December
31, 1996............................................... F-139
Combined Statements of Operations for the three months
ended March 31, 1997 and for the year ended December
31, 1996............................................... F-140
Combined Statements of Stockholders' Equity for the three
months ended March 31, 1997 and for the year ended
December 31, 1996...................................... F-141
Combined Statements of Cash Flows for the three months
ended March 31, 1997 and for the year ended December
31, 1996............................................... F-142
Notes to Combined Financial Statements.................... F-143
QUASS BROADCASTING COMPANY
Independent Auditor's Report.............................. F-150
Balance Sheets as of December 31, 1996 and March 31,
1997................................................... F-151
Statements of Income for the year ended December 31, 1996
and for the three months ended March 31, 1996 and
1997................................................... F-152
Statements of Common Stockholders' Equity (Deficit) for
the year ended December 31, 1996 and for the three
months ended March 31, 1997............................ F-153
Statements of Cash Flows for the year ended December 31,
1996 and for the three months ended March 31, 1996 and
1997................................................... F-154
Notes to Financial Statements............................. F-155
MOUNTAIN LAKES BROADCASTING, L.L.C.
Report of Independent Auditors............................ F-159
Balance Sheets as of December 31, 1996 and 1995........... F-160
Statements of Operations and Station Equity for the years
ended December 31, 1996, 1995 and 1994................. F-161
Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994.................................... F-162
Notes to Financial Statements............................. F-163
Q BROADCASTING, INC.
Independent Auditors' Report.............................. F-167
Statements of Operations and Deficit for the years ended
September 30, 1995, 1994 and 1993...................... F-168
Statements of Cash Flows for the years ended September 30,
1995, 1994 and 1993.................................... F-169
Notes to Financial Statements............................. F-170
DANBURY BROADCASTING, INC.
Report of Independent Auditors............................ F-173
Statement of Operations and Accumulated Deficit for the
year ended June 30, 1995............................... F-174
Statement of Cash Flows for the year ended June 30,
1995................................................... F-175
Notes to Financial Statements............................. F-176
ADVENTURE COMMUNICATIONS -- HUNTINGTON (DIVISION OF
ADVENTURE COMMUNICATIONS, INC.)
Independent Auditors' Report.............................. F-179
Balance Sheet as of December 31, 1995..................... F-180
Statement of Operations for the year ended December 31,
1995................................................... F-181
Statement of Division's Deficit for the year ended
December 31, 1995...................................... F-182
Statement of Cash Flows for the year ended December 31,
1995................................................... F-183
Notes to Financial Statements............................. F-184
F-3
<PAGE> 177
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Capstar Radio Broadcasting Partners, Inc.
We have audited the accompanying consolidated balance sheets of Capstar
Radio Broadcasting Partners, Inc. and Subsidiaries, formerly known as Commodore
Media Inc. and Subsidiaries, as of December 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' deficit 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. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Capstar Radio Broadcasting Partners, Inc. and Subsidiaries as of December 31,
1996 and 1995, and the consolidated results of their operations and their cash
flows and each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
January 31, 1997
F-4
<PAGE> 178
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31, ---------------------------
1997 1996 1995
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and short-term cash investments.............. $ 11,188,085 $ 4,367,847 $ 10,891,489
Accounts receivable, less allowance of $1,217,518,
$838,081 and $700,336 in 1997, 1996 and 1995... 12,257,900 8,912,965 6,131,447
Note receivable................................... 13,513,179 -- --
Prepaid expenses and other current assets......... 3,409,828 443,900 285,412
------------ ------------ ------------
Total current assets...................... 40,368,992 13,724,712 17,308,348
Property, plant and equipment, net.................. 40,690,071 14,263,055 8,080,043
FCC licenses and goodwill, net of accumulated
amortization of $5,886,173, $5,080,681 and
$3,912,167 in 1997, 1996 and 1995................. 172,511,050 59,172,868 20,767,625
Other intangible assets............................. 2,773,029 2,964,621 1,761,306
Deferred charges, net............................... 4,449,333 4,186,451 3,910,582
Deposits and other assets........................... 1,710,556 753,340 982,876
------------ ------------ ------------
Total assets.............................. $262,503,031 $ 95,065,047 $ 52,810,780
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses............. $ 8,393,476 $ 2,260,066 $ 1,774,256
Payable to parent................................. 771,212 -- --
Accrued compensation.............................. 378,269 422,062 815,162
Accrued interest.................................. 2,400,228 960,084 960,368
Accrued income taxes.............................. 1,268,418 -- 16,840
Current maturities of capital lease obligations... 124,056 16,056 11,977
Current maturities of long-term debt.............. -- 3,750,000 --
------------ ------------ ------------
Total current liabilities................. 13,335,659 7,408,268 3,578,603
Long-term capital lease obligations................. 262,025 49,629 43,130
Long-term debt...................................... 70,736,960 90,737,274 66,261,339
Noncurrent compensation............................. 1,022,655 -- 1,482,275
Deferred income taxes............................... 26,641,050 1,700,000 --
Stockholders' equity (deficit):
Common Stock, $.01 par value, 350,000,000 shares
authorized: 249,847,909, 106,757,000 and
106,757,000 shares issued and outstanding in
1997, 1996 and 1995, respectively.............. 2,498,479 1,067,570 1,067,570
Additional paid-in capital........................ 211,894,423 54,125,332 22,492,943
Accumulated deficit............................... (63,888,220) (60,023,026) (42,115,080)
------------ ------------ ------------
Total stockholders' equity (deficit)...... 150,504,682 (4,830,124) (18,554,567)
------------ ------------ ------------
Total liabilities and stockholders' equity
(deficit)............................... $262,503,031 $ 95,065,047 $ 52,810,780
============ ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 179
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- ----------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Total revenue............................. $14,208,071 $ 8,047,568 $ 45,959,646 $33,652,677 $28,686,381
Less agency commissions................... (953,956) (631,887) (3,699,285) (2,857,912) (2,461,478)
----------- ----------- ------------ ----------- -----------
Net revenue............................... 13,254,115 7,415,681 42,260,361 30,794,765 26,224,903
----------- ----------- ------------ ----------- -----------
Operating expenses:
Programming, technical and news......... 2,360,679 1,513,468 7,743,634 5,365,686 4,601,374
Sales and promotion..................... 3,677,407 2,421,153 12,239,804 8,796,481 7,325,549
General and administrative.............. 2,612,057 1,440,612 7,592,405 4,870,463 4,556,515
Direct programmed music and
entertainment........................ 1,039,250 -- -- -- --
Corporate expenses........................ 1,423,892 465,684 2,134,102 2,051,181 2,109,741
Depreciation and amortization............. 1,721,430 480,210 3,192,803 1,926,250 2,145,201
Long-term incentive compensation.......... -- -- 1,102,141 2,006,550 2,180,000
Merger related stock option
compensation............................ -- -- 12,731,587 -- --
----------- ----------- ------------ ----------- -----------
Operating (loss) income................... 419,400 1,094,554 (4,476,115) 5,778,154 3,306,523
Interest expense.......................... 2,892,083 2,451,638 11,474,720 7,805,525 3,152,352
Interest income........................... 127,621 115,252 255,869 420,659 266
Initial public offering and merger
expenses................................ -- -- 1,909,648 -- --
Other expenses, net....................... 100,562 167,594 170,856 48,796 381,550
----------- ----------- ------------ ----------- -----------
Loss before provision for income taxes and
extraordinary loss...................... (2,445,624) (1,409,426) (17,775,470) (1,655,508) (227,113)
Provision for income taxes................ 46,345 27,000 132,476 140,634 300,000
----------- ----------- ------------ ----------- -----------
Loss before extraordinary loss............ (2,491,969) (1,436,426) (17,907,946) (1,796,142) (527,113)
Extraordinary loss on extinguishment of
debt.................................... (1,373,225) -- -- (443,521) --
----------- ----------- ------------ ----------- -----------
Net loss.................................. $(3,865,194) $(1,436,426) $(17,907,946) $(2,239,663) $ (527,113)
=========== =========== ============ =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 180
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
PAR VALUE CAPITAL DEFICIT EQUITY (DEFICIT)
------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994..................... $1,020,597 $ 21,507,651 $(38,348,304) $ (15,820,056)
Cumulative dividends on redeemable preferred
stock........................................ -- (690,660) -- (690,660)
Adjustment to carrying value of redeemable
warrant...................................... -- -- (1,000,000) (1,000,000)
Loss for the year.............................. -- -- (527,113) (527,113)
---------- ------------ ------------ -------------
Balance at December 31, 1994................... 1,020,597 20,816,991 (39,875,417) (18,037,829)
Cumulative dividends on redeemable preferred
stock........................................ -- (252,175) -- (252,175)
Allocation of net proceeds of debt offering to
warrants..................................... -- 2,000,000 -- 2,000,000
Repurchase of common stock..................... -- (25,000) -- (25,000)
Exercise of warrants........................... 46,973 (46,873) -- 100
Loss for the year.............................. -- -- (2,239,663) (2,239,663)
---------- ------------ ------------ -------------
Balance at December 31, 1995................... 1,067,570 22,492,943 (42,115,080) (18,554,567)
Warrants issued with preferred stock
facility..................................... -- 981,500 -- 981,500
Dividends on senior exchangeable redeemable
preferred stock.............................. -- (359,957) -- (359,957)
Merger related transactions:
Recapitalization and acquisition of common
shares by Capstar......................... 32,112,081 -- 32,112,081
Redemption of preferred stock................ -- (1,101,235) -- (1,101,235)
Net loss for the period........................ -- -- (17,907,946) (17,907,946)
---------- ------------ ------------ -------------
Balance at December 31, 1996................... 1,067,570 54,125,332 (60,023,026) (4,830,124)
Proceeds from issuance of Common Stock
(unaudited).................................. 1,430,909 155,969,091 157,400,000
Equity contribution from parent (unaudited).... 1,800,000 1,800,000
Net loss for the period (unaudited)............ (3,865,194) (3,865,194)
---------- ------------ ------------ -------------
Balance at March 31, 1997 (unaudited).......... $2,498,479 $211,894,423 $(63,888,220) $ 150,504,682
========== ============ ============ =============
</TABLE>
See accompanying notes.
F-7
<PAGE> 181
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------------- ------------------------------------------
1997 1996 1996 1995 1994
------------- ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................. $ (3,865,194) $ (1,436,426) $(17,907,946) $ (2,239,663) $ (527,113)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities:
Merger related stock option compensation........... -- -- 12,731,587 -- --
Loss on extinguishment of debt..................... 1,373,225 -- -- 443,521 --
Depreciation and amortization...................... 1,886,586 480,210 3,192,803 1,926,250 2,145,201
Noncash interest................................... 949,686 998,244 4,231,815 2,673,829 219,910
Change in long-term incentive compensation......... -- -- (1,364,000) 79,000 2,180,000
Provision for uncollectible accounts receivable.... 136,013 104,981 593,158 556,137 468,155
Gain on disposition of assets...................... -- (44,864) -- 9,819 335,736
Net barter income.................................. (47,953) -- (268,397) (184,300) (122,163)
Initial public offering and merger expenses........ -- -- 1,909,648 -- --
Changes in assets and liabilities, net of amounts
acquired:
Increase in accounts receivable.................. 1,528,647 1,137,320 (3,217,224) (1,847,015) (1,509,195)
Increase in prepaid expenses and other current
assets......................................... (571,002) (153,096) (160,893) (88,787) (267,196)
(Decrease) increase in accounts payable and
accrued expenses............................... (954,014) (159,141) (270,648) (158,855) 326,251
(Decrease) increase in payable to parent......... 771,212 -- -- -- --
(Decrease) increase in accrued compensation...... (602,749) (457,120) (393,100) (230,645) 197,881
(Decrease) increase in accrued interest.......... 1,440,144 1,452,360 (284) 582,525 351,639
(Decrease) increase in accrued income taxes...... (114,731) (31,908) (57,506) (277,135) 261,541
------------- ------------ ------------ ------------ ------------
Total adjustments.................................... 5,795,064 3,326,986 16,926,959 3,484,344 4,587,760
------------- ------------ ------------ ------------ ------------
Net cash (used in) provided by operating
activities......................................... 1,929,870 1,890,560 (980,987) 1,244,681 4,060,647
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from redemption of note..................... -- -- -- -- 405,000
Proceeds from sale of property, plant and
equipment.......................................... -- -- -- -- 398,018
Repayment of stockholder loans....................... -- -- 250,375 182,988 --
Purchase of property, plant and equipment............ (886,886) (124,192) (933,066) (320,980) (623,414)
Payments for acquisitions............................ (111,401,140) (14,400,000) (43,900,000) (3,100,000) --
Deferred acquisition costs incurred.................. (149,975) (290,766) (1,695,131) (417,020) (172,558)
Loan to affiliate.................................... (13,475,000) -- -- -- --
Deposits on pending acquisitions..................... (90,000) (915,000) (160,000) (525,000) --
Loans to employees................................... -- -- -- (315,863) (57,500)
Other investing activities, net...................... -- (68,177) (402,528) 87,528 --
------------- ------------ ------------ ------------ ------------
Net cash used in investing activities................ (126,003,001) (15,798,135) (46,840,350) (4,408,347) (50,454)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of Senior Subordinated Notes
and warrants....................................... -- -- -- 64,956,422 --
Proceeds from AT&T loan and security agreement....... -- 8,500,000 24,700,000 -- --
Cash capital contributions from Capstar.............. -- -- 19,560,216 -- --
Net proceeds from issuance of senior exchangeable
preferred stock.................................... -- -- 9,822,520 -- --
Retirement of senior exchangeable preferred stock,
including accrued dividends........................ -- -- (10,302,222) -- --
Proceeds from issuance of common stock............... 157,400,000 -- -- 100 --
Payment of initial public offering and merger
expenses........................................... -- -- (1,609,649) -- --
Repayment of amounts borrowed........................ (24,700,000) -- -- (39,014,833) (2,738,166)
Payment of financing related costs................... (1,801,263) (393,734) (860,748) (4,226,762) (104,245)
Redemption of preferred stock........................ -- -- -- (8,665,835) --
Purchase of redeemable warrant....................... -- -- -- (1,000,000) --
Repurchase of common stock........................... -- -- -- (25,000) --
Principal payments on capital leases................. (5,368) (3,455) (12,422) (11,186) (12,389)
------------- ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities......................................... 130,893,369 8,102,811 41,297,695 12,012,906 (2,854,800)
------------- ------------ ------------ ------------ ------------
Net (decrease) increase in cash and short-term cash
investments........................................ 6,820,238 (5,804,764) (6,523,642) 8,849,240 1,155,393
Cash and short-term cash investments at beginning of
period............................................. 4,367,847 10,891,489 10,891,489 2,042,249 886,856
------------- ------------ ------------ ------------ ------------
Cash and short-term cash investments at end of
period............................................. $ 11,188,085 $ 5,086,725 $ 4,367,847 $ 10,891,489 $ 2,042,249
============= ============ ============ ============ ============
SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest............................... $ 337,097 $ 46,738 $ 7,243,189 $ 4,474,789 $ 2,580,522
Cash paid for income taxes........................... 164,386 58,908 110,945 417,769 38,209
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Asset acquisitions recorded in connection with barter transactions were $189,982, $112,636 and $144,500 for the years ended
December 31, 1996, 1995 and 1994, respectively.
</TABLE>
See accompanying notes.
F-8
<PAGE> 182
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND MERGER AGREEMENT
Organization and Nature of Business
Capstar Radio Broadcasting Partners, Inc. and Subsidiaries, formerly known
as Commodore Media, Inc. and Subsidiaries (the "Company") is comprised of radio
stations that derive their revenue from local, regional and national
advertisers. The radio stations are located in the following markets:
Wilmington, Delaware; Westchester and Putnam Counties, New York; Huntington,
West Virginia -- Ashland, Kentucky; Allentown -- Bethlehem, Pennsylvania; Fort
Pierce -- Stuart -- Vero Beach, Florida; and Fairfield County, Connecticut. The
Company extends credit to its customers in the normal course of business without
requiring collateral.
Merger Agreement
On October 16, 1996, the Company was acquired pursuant to a merger
agreement dated June 21, 1996 with Capstar Broadcasting Partners, Inc.
("Capstar" or "Capstar Partners"), which is an indirect subsidiary of Hicks,
Muse, Tate & Furst Equity Fund III, L.P. The holders of Class A Common Stock and
Class B Common Stock (collectively, the "Common Stock"), the holders of employee
stock options and the holders of warrants received $140 per share as
consideration for the merger less, in the case of option and warrant holders,
the exercise price per share. In addition, the Senior Exchangeable Redeemable
Preferred Stock, Series A, $.01 par value per share (the "Series A Preferred
Stock") was redeemed, including all accrued and unpaid dividends.
The Company recognized approximately $12,700,000 in stock option
compensation expense, and approximately $1,400,000 of merger related fees and
expenses during the year ended December 31, 1996. No adjustments to the carrying
value of the Company's assets and liabilities have been made to the financial
statements of the Company as of December 31, 1996 in connection with the merger.
As a result of the merger and the change of control effected thereby, the
Company was obligated to satisfy the existing deferred compensation and
employment agreements with its former President and Chief Executive Officer and
its deferred compensation agreement with its current President and Chief
Executive Officer resulting in an additional charge to operations of
approximately $1,100,000.
As a result of the merger, the Company did not proceed with its previously
announced intention to undertake an initial public equity offering and therefore
withdrew its registration statement filed on Form S-1 on May 17, 1996 with the
Securities and Exchange Commission. Included in other expenses are approximately
$525,000 in various fees and expenses incurred in connection with this filing.
Certain employees of the Company were granted options in November 1996 to
purchase 3,764,830 shares of common stock of Capstar at an exercise price of $1
per share, which approximates the fair value of the Capstar stock. Of this
amount, through January 31, 1997, options to purchase 795,880 shares had been
forfeited due to resignation. The options vest over a three year period and
expire ten years after grant.
Change of Name
The Company changed its name from Commodore Media, Inc. to Capstar Radio
Broadcasting Partners, Inc. in May 1997.
F-9
<PAGE> 183
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
Basis of Presentation
The consolidated financial statements include the accounts of Capstar Radio
Broadcasting, Partners, Inc. and all subsidiaries, after elimination of
intercompany accounts and transactions. Certain prior years' amounts have been
reclassified to conform with the current year's presentation.
Interim Financial Information
The consolidated financial statements as of March 31, 1997 and for the
three-month periods ended March 31, 1997 and 1996 presented herein have been
prepared by the Company without audit and, in the opinion of management, contain
all adjustments necessary to present fairly and on a basis consistent with the
consolidated financial statements for the year ended December 31, 1996, the
Company's consolidated financial position as of March 31, 1997, and the results
of their operations and cash flows for the three-month periods ended March 31,
1997 and 1996.
The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the entire year.
Short-Term Cash Investments
The Company considers investments which have a remaining maturity of three
months or less at the time of purchase to be short-term cash investments. The
Company invests its excess cash in U.S. Treasury Bills.
Recapitalization Transaction
On February 20, 1997, the Company amended its Certificate of Incorporation
to reflect a new capital structure consisting of 350,000,000 authorized shares
of common stock, par value $.01 per share ("Common Stock"). Immediately upon the
filing of the amendment, each previously issued share of Class A common stock,
par value $.01 per share, and Class B common stock, par value $.01 per share, of
the Company was converted into 106,757 shares of Common Stock. The financial
statements have been adjusted retroactively for all periods presented.
Income Taxes
The Company accounts for income taxes in accordance with the liability
method. Under this method, deferred income taxes are provided for differences
between the book and tax bases of the Company's assets and liabilities.
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
disclosures 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.
Financial instruments which potentially subject the Company to
concentration risk consist primarily of trade receivables. The Company's revenue
is principally derived from local broadcast advertisers who are impacted by the
local economy.
F-10
<PAGE> 184
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
The Company routinely assesses the financial strength of its customers and
does not require collateral or other security to support customer receivables.
Credit losses are provided for in the consolidated financial statements in the
form of an allowance for doubtful accounts.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided
on the straight-line method based on the following estimated useful lives:
<TABLE>
<CAPTION>
ESTIMATED
CLASSIFICATION LIFE (YEARS)
-------------- ------------
<S> <C>
Land improvements........................................... 20
Buildings................................................... 20
Furniture, fixtures and equipment........................... 7-10
Broadcasting and technical equipment........................ 7-10
Towers and antennas......................................... 20
Music library............................................... 7
Leasehold improvements...................................... 10-20
Vehicles.................................................... 3
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred. Expenditures for betterments and major renewals are capitalized and,
therefore, are included in property, plant and equipment.
PROPERTY HELD UNDER CAPITAL LEASES
The Company is the lessee of office equipment under capital leases expiring
in various years through 2004. The assets and liabilities under capital leases
are recorded at the lower of the present value of the minimum lease payments or
the fair value of the asset. The assets are depreciated over their estimated
productive lives of seven to ten years.
Revenue Recognition
The Company recognizes revenue upon the airing of advertisements.
Intangible Assets
Intangible assets are being amortized by the straight-line method over the
following estimated useful lives:
<TABLE>
<CAPTION>
ESTIMATED
CLASSIFICATION LIFE (YEARS)
-------------- ------------
<S> <C>
FCC licenses and goodwill................................... 40
Organization expenses....................................... 5
Network affiliation agreement............................... 5
Covenant not to compete..................................... 5
Tower site lease............................................ 3
Contract rights............................................. 3
Software.................................................... 3
Pre-sold advertising contracts.............................. 1
</TABLE>
F-11
<PAGE> 185
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
Management reviews the appropriateness of the carrying value of goodwill of
its subsidiaries and the related amortization period quarterly based on their
anticipated undiscounted cash flows.
Deferred Charges
Legal fees, bank loan closing costs and other expenses associated with debt
financing and the Recapitalization Transaction (see Note 2) are being amortized
using the effective interest rate method. Amortization of debt expense charged
to operations and included in interest expense amounted to $584,880, $384,912
and $219,910 for the years ended December 31, 1996, 1995 and 1994, respectively.
Advertising Costs
The Company expenses advertising costs related to its radio station
operations as incurred. Advertising expense amounted to $730,990, $754,489 and
$560,818 for the years ended December 31, 1996, 1995 and 1994, respectively.
Barter Transactions
The fair value of barter and trade-out transactions is included in
broadcast revenue and sales and promotion expense. Barter revenue is recorded
when advertisements are broadcast and barter expense is recorded when
merchandise or services are received. Barter transactions charged to operations
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Trade revenue............................... $ 4,254,207 $ 3,238,111 $ 2,473,002
Trade expense............................... (3,985,810) (3,053,811) (2,350,839)
----------- ----------- -----------
Net barter revenue.......................... $ 268,397 $ 184,300 $ 122,163
=========== =========== ===========
</TABLE>
Financial Statement Presentation
Certain prior year financial statement items have been reclassified to
conform to the current year presentation.
2. THE RECAPITALIZATION TRANSACTIONS
On April 21, 1995, the Company completed the offering of its 13 1/4% Senior
Subordinated Notes due 2003 ("Senior Subordinated Notes"). The net proceeds of
approximately $65,000,000 were used to retire existing senior indebtedness of
approximately $36,200,000, fund the Treasure Coast Acquisition for $3,100,000,
and repay the Hanson note and Radio Financial Partners ("RFP") note for an
aggregate amount of $2,400,000. In addition, the Company used $8,700,000 to
redeem its preferred stock, paid $1,900,000 in connection with the long-term
incentive compensation of its President and its Chief Operating Officer (see
Note 10), paid approximately $4,200,000 in related deferred fees of the
offering, and used the balance of $8,500,000 for general corporate purposes. The
Company converted all of its existing common stock for 486,373 shares of its
Class B Common Stock ("Class B") and 119,212 shares (including 85,524 treasury
shares) of its Class A Common Stock ("Class A"). At the time of conversion, the
Company's President and its Chief Operating Officer purchased 27,369 shares and
6,319 shares, respectively, of Class A from the Chairman. In addition, William
A.M. Burden and Company, an affiliated entity, exercised its option to acquire
27,314 shares of Class A from the Company.
F-12
<PAGE> 186
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
Each share of Class B is entitled to eight votes and each share of Class A is
entitled to one vote. The consolidated financial statements have been
retroactively adjusted for this conversion.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31, ---------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Land and land improvements.............. $ 6,668,092 $ 3,322,567 $ 2,813,139
Buildings............................... 8,719,560 4,464,605 2,499,399
Furniture, fixtures and equipment....... 6,070,217 2,740,940 2,188,502
Broadcasting and technical equipment.... 19,911,836 8,921,484 5,907,905
Towers and antennas..................... 8,098,696 4,519,489 3,401,300
Leasehold improvements.................. 1,500,453 400,245 365,825
Property held under capital leases...... 430,261 104,497 81,497
Other................................... 658,466 484,501 398,023
------------ ------------ ------------
52,057,581 24,958,328 17,655,590
Less accumulated depreciation and
amortization.......................... (11,367,510) (10,695,273) (9,575,547)
------------ ------------ ------------
Property, plant and equipment, net...... $ 40,690,071 $ 14,263,055 $ 8,080,043
============ ============ ============
</TABLE>
Accumulated amortization of property held under capital leases as of
December 31, 1996 and 1995 was $21,663 and $12,728, respectively. Depreciation
as a charge to income amounted to $1,133,392 in 1996, $831,656 in 1995 and
$768,826 in 1994.
4. OTHER INTANGIBLE ASSETS
Other intangible assets, at cost, consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31, ------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Covenant not to compete................. $ 1,481,000 $ 1,481,000 $1,325,000
Deferred acquisition expenses........... 2,643,912 2,595,271 953,441
Pre-sold advertising contracts.......... 103,642 103,642 103,642
Network affiliation agreement........... 303,169 303,169 260,000
Other................................... 269,198 267,728 14,516
----------- ----------- ----------
4,800,921 4,750,810 2,656,599
Less accumulated amortization........... (2,027,892) (1,786,189) (895,293)
----------- ----------- ----------
Other intangible assets, net............ $ 2,773,029 $ 2,964,621 $1,761,306
=========== =========== ==========
</TABLE>
Amortization of the aforementioned intangible assets included as a charge
to income amounted to $890,896 for 1996, $506,447 for 1995 and $817,087 for
1994. Amortization of FCC licenses and goodwill amounted to $1,168,515 for 1996,
$588,149 for 1995 and $559,304 in 1994.
F-13
<PAGE> 187
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
5. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Senior Credit Facility -- AT&T
Commercial Finance Corporation,
collateralized by assets and capital
stock of all subsidiaries, interest at
3.5% over LIBOR, due December 31,
2002.................................. $ -- $24,700,000 $ --
Senior Subordinated Notes due 2003,
$76,808,000 principal, net of
unamortized discount of $7,020,726 at
December 31, 1996 and $10,546,661 at
December 31, 1995..................... 70,736,960 69,787,274 66,261,339
----------- ----------- -----------
Total debt.............................. 70,736,960 94,487,274 66,261,339
Less current maturities................. -- (3,750,000) --
----------- ----------- -----------
Long-term debt.......................... $70,736,960 $90,737,274 $66,261,339
=========== =========== ===========
</TABLE>
AT&T Senior Credit Facility
On March 13, 1996, the Company entered into a Senior Credit Facility with
AT&T Commercial Finance Corporation ("AT&T") pursuant to which AT&T will make
available to the Company senior secured (i) revolving loans in an amount up to
$30,000,000 and (ii) accounts receivable loans in an amount which shall be the
lesser of (a) $5,000,000 or (b) 85% of the net book value of the accounts
receivable of the Company (the "Senior Credit Facility"). The indebtedness to
AT&T is collateralized by the tangible and intangible assets and the capital
stock of all the Company's subsidiaries. Interest is payable monthly at a rate
of 3.5% over LIBOR (9.09% at December 31, 1996) and principal amortization of
the revolving loans and accounts receivable loans begins June 1, 1998 and
November 30, 1997, respectively. At December 31, 1996, the Company had
additional available borrowings under the revolving and accounts receivable
loans of approximately $9,000,000 and $1,300,000, respectively. The Company pays
a commitment fee of .25% every six months on the unused commitment.
On February 20, 1997, in connection with Capstar Partners' 12 3/4% Senior
Discount Note private placement offering, the Company repaid its existing Senior
Credit Facility with AT&T. This repayment resulted in an extraordinary charge of
$1,300,000 recorded in the Company's Consolidated Statement of Operations.
Senior Subordinated Notes
The Senior Subordinated Notes bear cash interest at a rate of 7 1/2% per
annum on the principal amount until May 1, 1998 then at a rate of 13 1/4% per
annum until maturity, with interest payment dates on May 1 and November 1. The
notes may be redeemed at the option of the Company at any time on or after May
1, 1999 at redemption prices specified in the indenture. The terms of the Senior
Subordinated Notes contain various covenants for the benefit of the holders
that, among other things, restrict the ability of the Company to incur
additional indebtedness, pay dividends and make certain investments. The notes,
excluding the notes that were held for the benefit of the former President (see
Note 10), were issued with detachable warrants to purchase 75,500 shares of
Class A Common Stock at an exercise price of $.01 per warrant. The warrant
holders at the time of the merger received $140 in cash for each warrant. The
Company estimated the fair market value of the
F-14
<PAGE> 188
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
warrants to be $2,000,000 as of the date of issuance and allocated this amount
out of the net proceeds of the debt offering to paid-in capital.
Aggregate maturities of long-term debt due within the next five years
ending December 31 are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 3,750,000
1998........................................................ --
1999........................................................ --
2000........................................................ 1,825,000
2001........................................................ 5,625,000
Thereafter.................................................. 83,287,274
-----------
$94,487,274
===========
</TABLE>
In connection with the Recapitalization Transactions, the Company wrote off
the balance of the unamortized deferred financing costs on its retired debt of
$443,521. Inasmuch as the Company has no current federal taxable income and has
fully reserved for its net deferred tax assets, there was no tax effect
attributable to this extraordinary item.
6. PREFERRED STOCK
Senior Exchangeable Redeemable Preferred Stock
On May 1, 1996, the Company entered into a Securities Purchase Agreement
with CIBC WG Argosy Merchant Fund 2, LLC ("CIBC Merchant Fund"), pursuant to
which the CIBC Merchant Fund agreed to purchase from the Company, if and when
requested by the Company, up to an aggregate liquidation value of $12,500,000 of
Senior Exchangeable Redeemable Preferred Stock, Series A, $.01 par value per
share, of the Company in such amounts as the Company requested (the "Preferred
Stock Facility"). In connection with the Stamford Acquisition on May 30, 1996
and the Florida Acquisition on May 31, 1996 (see Note 7), the Company issued
5,700 shares and 4,300 shares, respectively, of Preferred Stock for an aggregate
purchase price of $10,000,000. The Preferred Stock accrued cash dividends at the
rate of 8% per annum and was redeemed, including accrued dividends, in
connection with the merger on October 16, 1996. In connection with the Preferred
Stock Facility, the Company issued to the CIBC Merchant Fund a warrant to
purchase 7,550 shares of the Company's Class A Common Stock, at an exercise
price of $.01 per warrant, which were valued in the aggregate at the date of
issue at $981,500. This warrant was redeemed in connection with the merger for
$140 per share less the exercise price.
8.87% Cumulative Redeemable Preferred Stock
On December 28, 1993, RFP, a related entity (see Note 11), converted
$7,723,000 of outstanding debt and accrued interest into 10,000 shares of the
Company's newly issued 8.87% cumulative redeemable preferred stock ("Redeemable
Preferred Stock"). The Company redeemed all outstanding shares of the preferred
stock as part of the Recapitalization Transactions on April 21, 1995; the total
liquidation value as of the date of redemption was $8,665,835 which included
$942,835 in accumulated dividends.
7. (A) CONSUMMATED ACQUISITIONS
On October 16, 1996, the Company purchased certain defined assets of radio
stations WKEE-FM and WKEE-AM in Huntington, West Virginia, WZZW-AM in Milton,
West Virginia, WBVB-FM in Coal Grove,
F-15
<PAGE> 189
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
Ohio and WIRO-AM in Ironton, Ohio from Adventure Communications, Inc. for
$7,765,000 and certain defined assets of WFXN-FM in Milton, West Virginia and
WMLV-FM in Ironton, Ohio for $4,235,000 (collectively, the "Huntington
Acquisition"). The transactions were funded with borrowings from the AT&T Senior
Credit Facility and with a capital contribution from Capstar. The Company
operated these stations under an LMA agreement effective April 1996 until the
purchase date. In addition, the Company has an option to purchase WHRD-AM in
Huntington, West Virginia and operates the station under an LMA arrangement.
On May 31, 1996, the Company purchased certain defined assets of radio
stations WBBE-FM (formerly WKQS-FM), WAVW-FM and WAXE-AM in the Fort
Pierce-Stuart-Vero Beach, Florida market from Media VI for $8,000,000 (the
"Florida Acquisition"). The transaction was funded with borrowings from the AT&T
Senior Credit Facility and funds from the Preferred Stock Facility. The Company
operated these stations under a Joint Sales Agreement from February 1996 until
the purchase date.
On May 30, 1996, the Company purchased certain defined assets of radio
stations WKHL-FM and WSTC-AM in Stamford, Connecticut from Q Broadcasting, Inc.
for $9,500,000 (the "Stamford Acquisition"). The transaction was financed with
borrowings from the AT&T Senior Credit Facility and funds from the Preferred
Stock Facility.
On March 27, 1996, the Company purchased (i) certain defined assets of
radio stations WZZN-FM in Mount Kisco, New York, WAXB-FM in Patterson, New York
and WPUT-AM in Brewster, New York from Hudson Valley Growth, L.P. for $4,950,000
and (ii) all of the issued and outstanding common stock of Danbury Broadcasting,
Inc., owner of WRKI-FM, and WINE-AM in Brookfield, Connecticut, plus certain
real property for $9,950,000. The transaction was financed with the Company's
existing cash and borrowings under its senior credit facility with AT&T. The
Company operated these stations under LMA agreements from October 1995 until the
purchase date.
On June 27, 1995, the Company purchased the assets (excluding cash and
accounts receivable) and broadcasting license of radio broadcast station WQOL-FM
in Vero Beach, Florida (Treasure Coast Acquisition) for a total purchase price
of $3,150,000.
On December 28, 1993, the Company purchased the assets (excluding cash and
accounts receivable) and broadcasting license of radio broadcast station WZZO-FM
in Allentown, Pennsylvania, for a total purchase price of $9,375,000.
All of the transactions described above were accounted for under the
purchase method of accounting. The total purchase price of the transactions
described above, of approximately $56.9 million has been allocated as follows:
(1) approximately $7,700,000 to property, plant and equipment, (2) approximately
$50,900,000 to FCC licenses and goodwill and other intangible assets and (3)
approximately $1,700,000 to deferred income taxes. Unaudited pro forma results
of operations for the Company as if the aforementioned acquisitions had been
consummated on January 1, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Net revenue........................................ $ 44,474 $42,467
Net loss before extraordinary item................. (18,540) (3,756)
Net loss........................................... (18,540) (4,199)
</TABLE>
F-16
<PAGE> 190
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
7(B) ACQUISITIONS CONSUMMATED SUBSEQUENT TO DECEMBER 31, 1996 (UNAUDITED)
On April 8, 1997, the Company acquired substantially all of the assets of
City Broadcasting Co. ("City"), EZY Com. Inc. ("EZY") and Roper Broadcasting,
Inc. ("Roper"), (collectively, the "Space Coast Acquisitions"). The purchase
price of the City acquisition was approximately $3,000,000. City owned and
operated two radio stations (one FM and one AM) in the Melbourne, Florida
market. The purchase price of the EZY acquisition was approximately $5,000,000.
EZY owned and operated two radio stations (one FM and one AM) in the Cocoa,
Florida market. The purchase price of the Roper acquisition was approximately
$4,000,000. Roper owned and operated one FM radio station in the Rockledge,
Florida market.
On February 20, 1997, the Company acquired Southern Star Communications,
Inc., formerly known as Osborn Communication Corporation ("Southern Star") (the
"Southern Star Acquisition"). The purchase price of the Southern Star
Acquisition was approximately $118,800,000 (excluding $17,400,000 in transaction
fees and expenses) payable in cash and common stock. The purchase price includes
$113,000,000 for the 18 stations which are owned and operated or to which
services have been provided by the Company since consummation of the transaction
and $25,700,000 for the five stations in the Huntsville and Tuscaloosa, Alabama
markets which were pending acquisitions of Southern Star and excludes
$11,000,000 to be received by the Company upon the disposition of three stations
in the Ft. Myers, Florida market currently under sale agreements by Southern
Star. The Southern Star Acquisition was funded from the issuance of the
Company's common stock to Capstar for an aggregate purchase price of
$157,400,000.
In April 1997, the Company acquired substantially all the assets of Taylor
Communications Corporation ("Taylor") in Tuscaloosa, Alabama. The purchase price
of the Taylor Acquisition was approximately $1.0 million payable in cash.
In April 1997, the Company disposed of substantially all of the assets used
or held for use in connection with the operation of the Company's stations in
the Port Charlotte and Ft. Myers, Florida markets for a sale price of $11.0
million in cash.
In May 1997, the Company acquired all of the outstanding capital stock of
Dixie Broadcasting, Inc. and Radio WBHP, Inc., the owners of three radio
stations (one FM and two AM) in the Huntsville, Alabama market (the "Huntsville
Acquisition"). The purchase price of the acquisition was $24.5 million.
In July 1997, the Company acquired substantially all of the assets of
Community Pacific (the "Community Pacific Acquisition"). The purchase price of
the Community Pacific Acquisition was approximately $35,000,000. Community
Pacific owns and operates 12 radio stations (six FM and six AM) in four markets
located in the Western United States and Iowa, including: Anchorage, Alaska;
Modesto and Stockton, California and Des Moines, Iowa.
In July 1997, the Company acquired substantially all of the assets of
Cavalier (the "Cavalier Acquisition"). The enterprise value of the Cavalier
Acquisition was approximately $8,300,000. Cavalier owns and operates five radio
stations (four FM and one AM) in the Roanoke/Lynchburg, Virginia market.
Capstar Broadcasting Corporation ("Capstar Broadcasting") executed an
agreement with GulfStar Communications, Inc. ("GulfStar") whereby Capstar
Broadcasting acquired GulfStar through a merger transaction (the "GulfStar
Merger"). Capstar Broadcasting will contribute the surviving entity in the
GulfStar Merger through Capstar Partners to the Company. The Company is a
wholly-owned subsidiary of Capstar Partners, which is a wholly-owned subsidiary
of Capstar Broadcasting.
F-17
<PAGE> 191
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
McForhun and Livingston Acquisitions
In July 1997, the Company acquired substantially all of the assets of
McForhun, Inc. and Livingston Communications, Inc. for approximately $7.1
million and $250,000, respectively.
Unaudited pro forma results of the Company for the aforementioned
acquisitions which were completed during the period ended March 31, 1997 are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net revenue................................................. $16,831 $16,534
======= =======
Income before extraordinary item............................ $ 3,366 $ 4,453
======= =======
Net income.................................................. $ 1,993 $ 4,453
======= =======
</TABLE>
7(C) PENDING ACQUISITIONS (UNAUDITED)
On December 9, 1996, the Company agreed to acquire directly or indirectly
all of the outstanding partnership interests of the Benchmark Partnerships (the
"Benchmark Acquisition") ("Benchmark"). The purchase price of the Benchmark
Acquisition is estimated to be approximately $176,200,000 (including $13,000,000
in transaction fees and expenses). Benchmark owns and operates 26 radio stations
(16 FM and 10 AM), has agreed to acquire two radio stations in the Montgomery,
Alabama market (the "Benchmark Montgomery Acquisition") and has agreed to
acquire substantially all of the assets of WSCQ-FM in the Columbia, South
Carolina market (the "Benchmark Columbia Acquisition"). Those stations are
located in ten markets in the Southeastern United States, including: Dover,
Delaware; Salisbury-Ocean City, Maryland; Montgomery, Alabama; Shreveport,
Louisiana; Jackson, Mississippi; Statesville, North Carolina; Columbia, South
Carolina; Greenville, South Carolina; Roanoke-Lynchburg, Virginia and
Winchester, Virginia markets. The Company anticipates that the Benchmark
Acquisition will be consummated in August 1997.
On February 3, 1997, the Company agreed to acquire substantially all of the
assets of COMCO (the "COMCO Acquisition"). The purchase price of the COMCO
Acquisition will equal approximately $6,700,000. COMCO owns and operates six
radio stations (two AM and four FM) in the Anchorage and Fairbanks, Alaska
markets. The Company anticipates that the COMCO Acquisition will be consummated
in October 1997. COMCO Acquisition Co. has secured its obligation to consummate
the asset purchase by placing into escrow a letter of credit in the amount of
$335,000.
Upon consummation of the Community Pacific Acquisition and the COMCO
Acquisition, the Company will own and operate seven radio stations (four FM and
three AM) in the Anchorage, Alaska market, which number exceeds the ownership
limitations under the Telecom Act. Accordingly, the Company intends to obtain
permission from the FCC to consummate both the Community Pacific Acquisition and
the COMCO Acquisition provided that the Company sell radio station KASH-AM in
Anchorage, Alaska within nine months of the date on which the Community Pacific
Acquisition is consummated. The Company will comply with the ownership
limitations of the Telecom Act in the Anchorage, Alaska market once it disposes
of KASH-AM. No assurances can be given that the Company will be able to sell
KASH-AM or that if the Company is able to sell KASH-AM, the Company will not
recognize a loss on the sale.
On February 4, 1997, the Company agreed to acquire substantially all of the
assets of Madison (the "Madison Acquisition"). The purchase price of the Madison
Acquisition will be approximately $38,800,000.
F-18
<PAGE> 192
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
Madison owns and operates six radio stations (four FM and two AM) in Madison,
Wisconsin. The Company anticipates that the Madison Acquisition will be
consummated in October 1997.
In January 1997, the Company agreed to acquire substantially all of the
assets of Commonwealth Broadcasting of Arizona, LLC (the "Commonwealth
Acquisition"). The purchase price of the Commonwealth Acquisition will equal
approximately $5,300,000. Commonwealth owns and operates three radio stations
(two FM and one AM) in Yuma, Arizona. The Company anticipates that the
Commonwealth Acquisition will be consummated in October 1997.
On March 10, 1997, the Company entered into an Asset Purchase Agreement
with Emerald City Radio Partners, L.P. (the "Emerald City Acquisition") to
purchase substantially all of the assets of radio stations WNOK-FM, WMFX-FM and
WOIC-AM located in Columbia, South Carolina. Because of certain multiple station
ownership limitations under the Telecommunications Act of 1996, the Company has
agreed to assign the right to acquire WMFX-FM and WOIC-AM on or before the date
on which the Company acquires WNOK-FM. The purchase price will equal
approximately $14,900,000 in cash, of which approximately 9,500,000 has been
allocated to WNOK-FM and will be payable by the Company. The Company anticipates
that the Emerald City Acquisition will be consummated in August 1997.
In connection with the Emerald City Acquisition, the Company has loaned
Emerald City approximately $13.5 million, the proceeds of which were used by
Emerald City (i) to pay matured indebtedness of Emerald City to Clear
ChannelRadio, Inc. in the amount of approximately $13.3 million, including
principal and interest, and (ii) for other business purposes in the amount of
approximately $200,000. The loan matures on the earlier to occur of (i) October
31, 1997, (ii) the closing of the Emerald City Acquisition or (iii) within 75
days after the termination of the acquisition agreement with WNOK Acquisition
Co.
On April 11, 1997, the Company agreed to acquire substantially all of the
assets of WRIS used or held for use in the operation of station WILM-FM in
Salem, Virginia (the "WRIS Acquisition"). The purchase price of the WRIS
Acquisition will equal approximately $3,100,000 payable in cash. In April 1997,
the Company and WRIS filed an application with the FCC for approval to transfer
control of such radio station to the Company. No filing under the HSR Act is
required. The Company anticipates that the WRIS Acquisition will be consummated
in August 1997.
In April 1997, the Company agreed to acquire substantially all of the
assets of Ameron Broadcasting, Inc. used or held for use in the operation of
three radio stations (two FM and one AM) in the Birmingham, Alabama market (the
"Ameron Acquisition"). The purchase price of the Ameron Acquisition will equal
approximately $31,500,00 payable in cash. FCC approval is pending. The Company
anticipates that the Ameron Acquisition will be consummated in October 1997.
In May 1997, the Company agreed to exchange substantially all of the assets
used or useful in the Company's operation of three radio stations (two FM and
one AM) in the Greenville, South Carolina market for substantially all of the
assets used or useful in SFX Broadcasting, Inc.'s operation of four radio
stations (three FM and one AM) in Wichita, Kansas and Daytona Beach, Florida
(the "SFX Exchange"). The Company anticipates that the SFX Exchange will be
consummated in September 1997.
In June 1997, the Company agreed to acquire all of the outstanding common
stock of Quass Broadcasting Company ("Quass") (the "Quass Acquisition"). The
purchase price of the Quass Acquisition will equal approximately $14.8 million
payable in cash. Quass owns and operates three radio stations (two FM and one
AM) in the Cedar Rapids, Iowa market. The Company anticipates that the Quass
Acquisition will be consummated in October 1997.
In June 1997, the Company entered into an agreement to acquire all of the
outstanding preferred stock, common stock and common stock equivalents of
Patterson (the "Patterson Acquisition"). The purchase price of
F-19
<PAGE> 193
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
the Patterson Acquisition will equal approximately $215.0 million payable in
cash. Patterson owns and operates thirty-nine radio stations (twenty-five FM and
fourteen AM) in the Savannah, Georgia; Allentown and Harrisburg, Pennsylvania;
Fresno, California; Honolulu, Hawaii; Battle Creek and Grand Rapids, Michigan;
Reno, Nevada; Springfield, Illinois; and Pensacola, Florida markets. The Company
anticipates that the Patterson Acquisition will be consummated in February 1998.
In June 1997, the Company agreed to acquire all of the assets of Grant used
or held for use in the operations of their FM radio station in the Tuscaloosa,
Alabama market (the "Grant Acquisition"). The purchase price of the Grant
Acquisition will equal approximately $3.2 million payable in cash. FCC approval
is pending. The Company anticipates the Grant Acquisition will be consummated in
September 1997.
In June 1997, the Company agreed to acquire all of the assets of Knight
Quality. Knight Quality owns and operates eight radio stations (five FM and
three AM) in five markets located in Worcester, Massachusetts, Manchester, New
Hampshire, Burlington, Vermont, Portsmouth, New Hampshire, and York Center,
Maine (the "Knight Quality Acquisition"). The purchase price of the Knight
Quality Acquisition will equal approximately $60 million payable in cash. FCC
approval is pending. The Company anticipates the Knight Quality Acquisition will
be consummated in January 1998.
In May 1997, the Company agreed to acquire all of the assets of Griffith
Broadcasting, Inc. used or held for use in the operation of stations WTAK-FM,
WXQW-FM and WWXQ-FM which serve the Huntsville, Alabama market (the "Griffith
Acquisition"). The purchase price of the Griffith Acquisition will equal
approximately $5.4 million payable in cash. FCC approval is pending. The Company
anticipates that the Griffith Acquisition will be consummated in September 1997.
Possible Acquisitions
The Company has entered into six separate nonbinding letters of intent to
acquire and/or exchange substantially all of the assets of the respective
potential sellers used or useful in the operations of each seller's radio
stations, each of which is subject to various conditions, including the ability
of the Company to enter into a definitive agreement to acquire such assets. No
assurances can be given that definitive agreements will be entered into to
acquire such assets or that such acquisitions will be consummated. As part of
the Company's ongoing acquisition strategy, the Company is continually
evaluating certain other potential acquisition opportunities.
7(D) LOCAL MARKETING AND JOINT SALES AGREEMENTS
The Company has entered into various LMA's and Joint Sales Agreements
("JSA"). While each agreement is unique in its terms and conditions, generally
under an LMA and JSA the brokering station purchases substantially all of the
commercial time available on the brokered station and provides promotional and
sales related services. Under an LMA, the brokering station may also provide the
programming; a JSA requires the licensee to continue all of the programming. The
brokering station pays a fee to the brokered station for the services provided
based upon a flat monthly amount, and/or an amount contingent on the net revenue
or profit as calculated in the agreement. As the brokering station, the Company
currently has LMAs or JSAs with WKAP-AM, Allentown, PA, WPAW-FM, Vero Beach, FL
and WHRD-AM in Huntington, WV. The Company has an option to purchase WPAW-FM for
$1,200,000 which it may exercise during the 29 month period beginning August
1995 and an option to purchase WHRD-AM for $5,000. The Company has also operated
various stations that were under contract to purchase under LMA or JSA
agreements.
F-20
<PAGE> 194
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
8. INCOME TAXES
The Company has recorded a provision for income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.......................................... $ -- $ -- $ 70,400
State and local.................................. 132,476 140,634 229,600
Deferred:
Federal.......................................... -- -- --
State and local.................................. -- -- --
-------- -------- --------
Total.............................................. $132,476 $140,634 $300,000
======== ======== ========
</TABLE>
The Company did not record a federal tax benefit on the taxable loss for
the years ended December 31, 1996 and 1995 since it was not assured that it
could realize a benefit for such loss in the future. During 1994, the Company
utilized approximately $2,500,000 of Federal net operating losses to offset
current taxable income. Since the valuation allowance remained at 100% at the
end of the year, there was no deferred tax effect on 1994 earnings. The Company
recorded a provision for federal alternative minimum tax in 1994 because net
operating loss carryforwards may be used to offset only 90% of a corporation's
alternative minimum taxable income.
The Company received Internal Revenue Service approval and changed its tax
method of accounting for FCC licenses for the tax year ended December 31, 1995.
The aggregate amount of cumulative amortization that will be deductible ratably
over six taxable years for tax purposes is approximately $12,130,000.
The reconciliation of income tax computed at the U.S. federal statutory
rates to effective income tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1996 1995 1994
----------- --------- --------
<S> <C> <C> <C>
Provision (benefit) at statutory rate........... $(6,221,415) $(734,695) $(79,400)
State and local taxes........................... 132,476 140,634 229,600
Nondeductible expense........................... 42,700 8,286 36,575
Increase in valuation allowance, net of rate
changes....................................... 6,178,715 726,409 42,825
Alternative minimum tax......................... -- -- 70,400
----------- --------- --------
Total........................................... $ 132,476 $ 140,634 $300,000
=========== ========= ========
</TABLE>
F-21
<PAGE> 195
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The approximate effect of
temporary differences were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Allowance for bad debts............................... $ 370,800 $ 312,100
Deferred compensation................................. 126,400 1,244,100
Unamortized discount on Senior Subordinated Notes..... 3,015,500 959,200
Intangibles........................................... -- 290,300
Depreciation.......................................... -- 76,460
Other................................................. 78,200 --
Net operating loss carryforwards...................... 21,679,700 12,405,800
------------ ------------
Total deferred tax assets............................... 25,270,600 15,287,960
Deferred tax liabilities:
Intangibles........................................... (4,920,900) --
Depreciation.......................................... (516,500) (537,260)
Other................................................. -- (4,800)
------------ ------------
Total deferred tax liabilities.......................... (5,437,400) (542,060)
------------ ------------
Net deferred tax asset.................................. 19,833,200 14,745,900
------------ ------------
Less valuation allowance................................ (21,533,200) (14,745,900)
------------ ------------
Net deferred tax liability, net of allowance............ $ (1,700,000) $ --
============ ============
</TABLE>
The Company has provided a valuation allowance equivalent to its net
deferred tax asset in 1996, 1995 and 1994 as the past history of the Company
makes the realization of taxable income in the future years uncertain. As of
December 31, 1996, the Company had net operating loss carryforwards of
approximately $52,100,000 for federal purposes that expire in the years 1999
through 2011, and $36,200,000 for state purposes that expire in the years 1997
to 2011. The Company also has available as of December 31, 1996 $6,065,000 of
carryforward deductions related to the change in accounting for FCC licenses
that will be deductible in the tax years 1997 to 1999. As a result of the merger
transaction described in Note 1, the Company's net operating loss deduction will
be subject to an annual limitation under the Internal Revenue Code Section 382.
The increase in the net deferred tax liability, net of allowance, from
December 31, 1996 to March 31, 1997 relates primarily to the net tax effect of
temporary differences associated with the recording of the Osborn and Space
Coast Acquisitions (unaudited).
9. COMMITMENTS
Lease Commitments
The principal types of property leased by the Company and its subsidiaries
are office space, tower, real estate related to tower sites, office equipment
and transmitting equipment.
Total rent expense for the Company was approximately $548,000, $332,000 and
$306,400 for the years ended December 31, 1996, 1995 and 1994, respectively.
F-22
<PAGE> 196
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
The minimum rental commitments of the Company, under all noncancellable
operating leases, are set forth below:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Year:
1997...................................................... $ 526,183
1998...................................................... 499,447
1999...................................................... 422,837
2000...................................................... 232,872
2001...................................................... 233,691
Thereafter.................................................. 682,209
----------
Total minimum lease payments................................ $2,597,239
==========
</TABLE>
Other Commitments
The Company has employment agreements with key executives under which the
executives are paid a base salary and annual incentives based on broadcast cash
flow and EBITDA, as defined in the agreements.
10. LONG-TERM INCENTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS
On January 1, 1994, the Company entered into an agreement with Mr. Bruce A.
Friedman its President and Chief Executive Officer under which he would be
employed in that capacity through 1996 and provided for annual salary
requirements and bonuses, and a Long-Term Incentive Payment ("LTIP"). The LTIP
was based on a formula derived from the Company's net equity value, as defined.
A fair value amount of $1,750,000 was charged to income as long-term incentive
compensation in 1994 relating to the LTIP. On April 21, 1995, Mr. Friedman's
employment agreement was amended and restated. In lieu of the LTIP, the Company
paid Mr. Friedman $1,500,000 in cash, issued $1,308,000 principal ($1,125,000
net of discount) of the Company's Senior Subordinated Notes to a trust for his
benefit and agreed to provide $1,500,000 in deferred compensation which accrued
interest at a rate of 7% and was payable in 2003. The Company recorded the
deferred compensation on April 21, 1995 at its calculated net present value of
$921,000. The aggregate effect of the employment agreement restructuring was to
charge $1,817,750 to long-term incentive compensation expense during 1995. In
addition, Mr. Friedman's amended employment agreement extended his date of
employment through April 30, 1998, granted stock options to him to acquire
28,313 shares of Class A Common Stock at an exercise price of $45 per share and
provided for annual bonuses based upon specific operating results of the
Company.
On April 21, 1995, the Company amended its existing employment agreement
with Mr. James T. Shea, its Chief Operating Officer. The prior employment
agreement provided for a long-term incentive based upon the increase in certain
station values. As of December 31, 1994, $430,000 had been accrued as long-term
incentive compensation. The amended employment agreement provided for a cash
payment of $400,000 on April 21, 1995 and deferred compensation of $346,000
which accrued interest at a rate of 7% and was payable in 2003. The Company
recorded the deferred compensation on April 21, 1995 at its calculated net
present value of $213,000. The aggregate effect of the employment agreement
restructuring was to charge $188,800 to long-term incentive compensation expense
during 1995. In addition, the amended employment agreement extended the date of
employment through April 30, 1999, granted stock options to acquire 28,313
shares of Class A Common Stock at an exercise price of $45 per share and
provided for annual bonuses based upon specific operating results of the
Company.
F-23
<PAGE> 197
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
As a result of the merger and the change of control effected thereby, the
Company was obligated to satisfy the existing deferred compensation and
employment agreements with its President and Chief Executive Officer and its
deferred compensation agreement with its Chief Operating Officer, resulting in
an additional charge to operations of approximately $1.1 million. Furthermore,
all stock options for the aforementioned officers, as well as for all holders,
were redeemed at $140 per share, less the exercise price of $45 per share at the
time of the merger. The Company's President and Chief Executive Officer resigned
his position effective October 16, 1996 as required by the Merger Agreement. Mr.
James T. Shea was appointed as President on October 16, 1996.
11. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1996 and 1995, the Company paid the
former majority stockholder a salary of approximately $185,500 and $175,000,
respectively. In addition, the former majority stockholder repaid an outstanding
loan of $182,988, of which $65,488 was advanced in the year ended December 31,
1995; the former majority stockholder owed the Company $117,500 as of December
31, 1994 which was reflected in other current assets.
During May 1995, the Company loaned approximately $250,000 to certain
executive officers as evidenced by 7% promissory notes that mature in 2001, with
all accrued interest and principal due on the maturity date. The total amount
owed to the Company at December 31, 1995 is $261,329, which is included in
noncurrent assets. These loans plus all accrued interest were repaid in October
1996.
In connection with the debt restructuring described above, on December 28,
1993, the Company granted a warrant to an affiliate to purchase 4.99% of its
common stock at an exercise price of $100, on a fully diluted basis. The warrant
was exercised during 1995.
12. STOCK OPTION AND 401(K) PLANS
On April 21, 1995, the Company adopted a stock option plan which provides
for the granting of incentive stock options and nonqualified stock options to
executives and key employees (the "Plan"). The options were exercisable at a
price equal to the fair market value on the date of grant. On October 16, 1996,
all outstanding options were redeemed at $140 per share less their exercise
price of $45 per option.
The following table summarizes the Plan's transactions for the years ended
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- -------
<S> <C> <C>
Outstanding options, beginning of year...................... 96,670 --
Granted..................................................... 35,455 96,670
Cancelled or expired........................................ -- --
Exercised................................................... (132,125) --
--------- -------
Outstanding options, end of year............................ -- 96,670
========= =======
Average price of options exercised.......................... $ 45 $ --
Weighted average exercise price, end of year................ $ -- $ 45
Options exercisable, end of year............................ -- 96,670
Options available for future grant.......................... -- 35,455
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for its
Plan. Accordingly, no compensation expense has been recognized for its Plan. Had
compensation cost for the Plan been determined based upon the fair value at the
F-24
<PAGE> 198
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
grant date for awards under the Plan consistent with the methodology prescribed
under Statement of Financial Accounting Standards No. 123 ("FASB No. 123"),
Accounting for Stock-Based Compensation, the Company's net loss would have been
decreased by $11,520,499 and increased by $176,225 for the years ended December
31, 1996 and 1995, respectively, using the minimum valuation method
option-pricing model with the following assumptions: dividend yield of 0.00%,
risk-free interest rate of 6.64% and an expected life of four years. For
purposes of FASB No. 123 pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. Therefore, the
impact on pro forma results of operations in 1996 and 1995 may not be
representative of the impact in future periods should additional options be
granted.
During 1995, the Company established a 401(K) Plan for the benefit of all
eligible employees. Eligible participants under this plan are defined as all
full-time employees with one year of service. All eligible participants may
elect to contribute a portion of their compensation to the plan subject to
Internal Revenue Service limitations. The Company may make discretionary
matching contributions to the plan, subject to board approval; no contributions
were made during the plan years ended December 31, 1996 and 1995.
13. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings from time to time in
the normal course of business. In management's opinion, the litigation in which
the Company is currently involved, individually and in the aggregate, is not
material to the Company's financial condition or results of operations.
14. SUBSEQUENT EVENTS (UNAUDITED)
Southern Star Acquisition
On February 20, 1997, the Company issued 143,090,909 shares of Common Stock
to Capstar Partners, its sole stockholder, at a purchase price of $1.10 per
share. The net proceeds were used in part to fund the Southern Star Acquisition
and retire existing indebtedness of the Company and Southern Star. In addition,
on February 20, 1997 Capstar Partners exchanged shares of common stock of
Capstar Partners having a deemed value of $1.8 million for shares of common
stock of Southern Star also having a deemed value of $1.8 million as part of the
purchase price of the Southern Star Acquisition and contributed its interest in
Southern Star to the Company. The Company has reflected the contribution as
additional paid-in capital.
Existing Credit Facility
On February 20, 1997, the Company entered into a credit facility (the
"Existing Credit Facility") with various banks and Bankers Trust Company, as
administrative agent, which consists of a $50,000,000 revolving loan facility.
The indebtedness under the Existing Credit Facility is collateralized by a
pledge of substantially all of Capstar Partners' assets, including, without
limitation, the capital stock of the subsidiaries of Capstar Partners, and is
guaranteed by Capstar Partners and all of the direct and indirect subsidiaries
of Capstar Partners (other than the Company). Borrowings under the Existing
Credit Facility bear interest at floating rates and require interest payments on
varying dates depending on the interest rate option selected by the Company. All
loans outstanding under the Existing Credit Facility will mature in 2002.
Financing
The Company intends to obtain financing through a private placement of
$200,000,000 Senior Subordinated Notes which will mature in 2007 (the
"Offering"). The Company anticipates that it will receive proceeds from the
Offering of approximately $191.5 million, net of $8.5 million of estimated fees
and expenses. Concurrently
F-25
<PAGE> 199
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS COMMODORE MEDIA, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
with the Offering, the Capstar Partners will receive (i) estimated proceeds of
$94.8 million, net of estimated issuance costs of $5.2 million from issuing one
million shares of its Senior Exchangeable Preferred Stock, and (ii) proceeds of
$75.0 million from the Hicks Muse GulfStar Equity Investment in Capstar
Broadcasting, all of which will be contributed to the Company. Of the estimated
$169.8 million of proceeds, approximately $27.0 million will be used to redeem
the existing preferred stock of GulfStar (the "Preferred Stock Redemption"),
resulting in a loss of approximately $3.7 million in the period in which the
Preferred Stock Redemption is consummated. The remaining $142.8 million of
proceeds will be contributed to the Company (i) to repay indebtedness
outstanding under the Existing Credit Facility, (ii) to repay in full borrowings
under GulfStar's credit facility, (iii) to finance future acquisitions, (iv) to
pay related fees and expenses, and (v) for general corporate purposes.
F-26
<PAGE> 200
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Southern Star Communications, Inc.
We have audited the accompanying consolidated balance sheets of Southern
Star Communications Inc., formerly known as Osborn Communications Corporation,
as of December 31, 1996 and 1995, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Southern Star Communications, Inc. at December 31, 1996 and 1995, and the
consolidated 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.
ERNST & YOUNG LLP
New York, New York
February 3, 1997
F-27
<PAGE> 201
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,944,205 $ 12,994,779
Accounts receivable, less allowance for doubtful accounts
of $468,597 in 1996 and $518,157 in 1995............... 5,032,903 5,759,562
Inventory................................................. 1,095,157 889,942
Prepaid expenses and other current assets................. 1,018,701 1,525,308
Assets held for sale...................................... 7,539,190 --
----------- ------------
Total current assets.............................. 17,630,156 21,169,591
Investment in affiliated companies.......................... 512,088 524,084
Property, plant and equipment, at cost, less accumulated
depreciation of $15,894,081 in 1996 and $18,624,021 in
1995...................................................... 11,676,395 15,358,070
Intangible assets, net of accumulated amortization of
$15,437,481 in 1996 and $15,238,193 in 1995............... 26,711,629 40,463,595
Other noncurrent assets..................................... 925,000 118,753
----------- ------------
Total assets...................................... $57,455,268 $ 77,634,093
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 4,809,264 $ 4,509,292
Accrued wages and sales commissions....................... 434,986 434,309
Accrued interest payable.................................. 46,173 459,114
Accrued income taxes...................................... 1,492,114 825,712
Current portion of long-term debt......................... 320,000 2,718,000
----------- ------------
Total current liabilities......................... 7,102,537 8,946,427
Long-term debt.............................................. 13,880,000 44,482,000
Deferred income taxes....................................... 3,061,298 2,275,711
Other noncurrent liabilities................................ 1,501,279 432,916
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized
5,000,000 shares, none issued and outstanding.......... -- --
Common stock, par value $.01 per share; authorized
7,425,000 shares, issued and outstanding shares:
5,547,497 and 5,537,497, respectively, in 1996;
5,286,347 and 5,276,347, respectively, in 1995......... 55,376 52,764
Non-voting common stock, par value $.01 per share;
authorized 75,000 shares, none issued and
outstanding............................................ -- --
Additional paid-in capital.................................. 40,869,408 39,694,601
Accumulated deficit......................................... (9,014,630) (18,250,326)
----------- ------------
Total stockholders' equity........................ 31,910,154 21,497,039
----------- ------------
Total liabilities and stockholders' equity........ $57,455,268 $ 77,634,093
=========== ============
</TABLE>
See accompanying notes.
F-28
<PAGE> 202
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
Net revenues...................................... $37,215,048 $ 39,505,193 $ 34,982,110
Operating expenses:
Selling, technical and program.................. 9,656,347 11,785,471 9,487,815
Direct programmed music and entertainment....... 12,426,740 10,489,513 9,807,495
General and administrative...................... 6,740,352 7,526,897 6,611,035
Depreciation and amortization................... 4,756,325 5,782,404 5,285,280
Corporate expenses.............................. 1,849,820 1,705,850 2,475,675
Other........................................... 1,200,000 -- --
----------- ------------ ------------
Total operating expenses................ 36,629,584 37,290,135 33,667,300
Operating income.................................. 585,464 2,215,058 1,314,810
Other income (expense)............................ (291,163) 2,314,508 2,246,450
Interest expense.................................. 2,201,616 5,212,999 4,385,827
Equity in results of affiliated company........... -- (11,829) --
Other gains, including gains on sales of
stations........................................ 13,521,760 8,094,993 --
----------- ------------ ------------
Income (loss) before income taxes and
extraordinary item.............................. 11,614,445 7,399,731 (824,567)
Provision for income taxes........................ 2,378,749 775,982 289,220
----------- ------------ ------------
Income (loss) before extraordinary item........... 9,235,696 6,623,749 (1,113,787)
Extraordinary item:
Loss on debt extinguishment..................... -- (3,921,061) (436,329)
----------- ------------ ------------
Net income (loss)................................. $ 9,235,696 $ 2,702,688 $ (1,550,116)
=========== ============ ============
Primary earnings per common share:
Income (loss) before extraordinary item......... $ 1.65 $ 1.23 $ (0.21)
Loss on extinguishment of debt.................. -- (0.73) (0.08)
----------- ------------ ------------
Net income (loss) per common share................ $ 1.65 $ 0.50 $ (0.29)
=========== ============ ============
Fully diluted earnings per common share:
Income (loss) before extraordinary item......... $ 1.62 $ 1.22 $ (0.21)
Loss on extinguishment of debt.................. -- (0.72) (0.08)
----------- ------------ ------------
Net income (loss) per common share................ $ 1.62 $ 0.50 $ (0.29)
=========== ============ ============
Weighted average common shares outstanding:
Primary shares.................................. 5,598,237 5,388,001 5,376,715
=========== ============ ============
Fully diluted shares............................ 5,687,927 5,459,353 5,376,715
=========== ============ ============
</TABLE>
See accompanying notes.
F-29
<PAGE> 203
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
VOTING NON-VOTING ADDITIONAL
---------------------- -------------- ------------
PAR PAR PAID-IN ACCUMULATED
SHARES VALUE SHARES VALUE CAPITAL DEFICIT
----------- -------- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993.................... 10,752,181 $107,523 -- -- $ 38,453,555 $(19,402,898)
Exercise of stock options..................... 1,500 15 -- -- 5,984 --
Issuance of stock warrant..................... -- -- -- -- 1,774,837 --
Effect of 1-for-2 reverse stock split......... (5,376,091) (53,762) -- -- 53,762 --
Purchase and retirement of treasury stock..... (17,843) (178) -- -- (106,880) --
Net loss...................................... -- -- -- -- -- (1,550,116)
----------- -------- -- -- ------------ ------------
Balance at December 31, 1994.................... 5,359,747 53,598 -- -- 40,181,258 (20,953,014)
Purchase and retirement of treasury stock..... (107,059) (1,071) -- -- (641,283) --
Exercise of stock options..................... 23,659 237 -- -- 154,626 --
Net income.................................... -- -- -- -- -- 2,702,688
----------- -------- -- -- ------------ ------------
Balance at December 31, 1995.................... 5,276,347 52,764 -- -- 39,694,601 (18,250,326)
Exercise of stock options..................... 173,667 1,737 -- -- 732,182 --
Issuance of common stock...................... 132,500 1,325 -- -- 1,106,175 --
Acquisition and retirement of treasury
stock....................................... (45,017) (450) -- -- (663,550) --
Net income.................................... -- -- -- -- -- 9,235,696
----------- -------- -- -- ------------ ------------
Balance at December 31, 1996.................. 5,537,497 $ 55,376 -- -- $ 40,869,408 $ (9,014,630)
=========== ======== == == ============ ============
</TABLE>
See accompanying notes.
F-30
<PAGE> 204
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $ 9,235,696 $ 2,702,688 $ (1,550,116)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 4,756,325 5,782,404 5,285,280
Other gains (losses), including gains on sales of
stations................................................ (13,521,760) (8,094,993) --
Other operating expenses.................................. 1,200,000 -- --
Deferred income taxes..................................... 785,587 240,664 175,000
Transaction costs for proposed merger..................... 479,754 -- --
Loss on extinguishment of debt............................ -- 3,921,061 436,329
Write-off of registration statement costs................. -- -- 397,583
Non-cash interest expense................................. 244,363 332,284 210,421
Equity in results of affiliated company................... -- 11,829 --
Distributions from affiliated companies................... (62,500) (1,942,731) --
Changes in current assets and current liabilities:
Decrease (increase) in accounts receivable.............. 254,211 (323,770) (2,165,123)
(Increase) decrease in inventory........................ (205,215) 190,705 (214,241)
Decrease (increase) in prepaid expenses and other
current assets........................................ 506,607 (742,764) (177,499)
Acquisition deposit held in escrow...................... -- 180,000 --
Increase in distribution receivable..................... -- -- (2,264,552)
Increase in accounts payable and accrued expenses....... 299,972 721,764 1,069,534
(Decrease) increase in accrued wages and sales
commissions........................................... 677 129,528 (96,287)
Increase (decrease) in accrued interest payable......... (412,941) (1,485,673) 1,632,742
Increase in accrued income taxes........................ 666,402 290,223 15,009
------------ ------------ ------------
Total adjustments................................... (5,008,518) (789,469) 4,304,196
------------ ------------ ------------
Net cash provided by operating activities........... 4,227,178 1,913,219 2,754,080
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Distributions from affiliated companies..................... 62,500 4,207,283 --
Payments for business acquisitions.......................... (13,605,591) -- (21,825,094)
Net proceeds from sale of stations.......................... 34,687,928 10,000,000 --
Accrued transaction costs................................... (479,754) (1,411,981) --
Net proceeds from sale of other assets...................... 580,653 -- --
Proceeds from note receivable............................... -- 1,620,455 329,545
Capital expenditures........................................ (1,707,351) (1,326,492) (942,771)
Acquisition deposit held in escrow.......................... (925,000) (180,000) --
Reclassification of other noncurrent assets................. 118,753 -- --
Expenditures for intangible assets.......................... -- (524,863) --
------------ ------------ ------------
Net cash provided by (used in) investing activities......... 18,732,138 12,384,402 (22,438,320)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt.................... -- 44,500,000 48,460,982
Proceeds from issuance of stock warrant..................... -- -- 1,774,837
Debt issuance costs......................................... (79,807) (1,183,824) (1,887,965)
Registration statement costs................................ -- -- (228,587)
Proceeds from exercise of stock options..................... 69,917 154,863 6,000
Purchase and retirement of treasury stock................... -- (642,354) (107,058)
Prepayment penalty on debt retirement....................... -- (500,000) --
Principal payments on long-term debt and notes payable...... (33,000,000) (50,000,000) (23,286,671)
------------ ------------ ------------
Net cash (used in) provided by financing activities......... (33,009,890) (7,671,315) 24,731,538
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents........ (10,050,574) 6,626,306 5,047,298
Cash and cash equivalents at beginning of period............ 12,994,779 6,368,473 1,321,175
------------ ------------ ------------
Cash and cash equivalents at end of period.................. $ 2,944,205 $ 12,994,779 $ 6,368,473
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest...................................... $ 2,370,194 $ 6,366,388 $ 2,542,664
============ ============ ============
Cash paid for income taxes.................................. $ 926,760 $ 245,095 $ 99,211
============ ============ ============
</TABLE>
See accompanying notes.
F-31
<PAGE> 205
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. NATURE OF BUSINESS AND ORGANIZATION
Southern Star Communications, Inc. (the "Company" or "Southern Star"),
formerly known as Osborn Communications Corporation, is engaged in the operation
of radio stations, programmed music, cable television and other communications
properties throughout the United States.
2. PLAN OF MERGER
On July 23, 1996, Southern Star entered into an agreement and plan of
merger with a subsidiary of Capstar Radio Broadcasting Partners, Inc. ("Capstar
Radio") whereby Capstar Radio will acquire all of Southern Star's common stock
for $15.375 per share. A majority of the holders of the Southern Star's common
stock voted to approve the merger in December 1996 and the Federal
Communications Commission ("FCC") approved the transfer of Southern Star's
broadcast licenses to Capstar Radio in January 1997. The merger is expected to
be completed in February 1997.
Concurrently with the execution of the merger agreement and as security for
liquidated damages that may be payable by Capstar Radio to Southern Star for
Capstar Radio's failure to consummate the merger, Capstar Radio has deposited in
an escrow account an irrevocable letter of credit in favor of Southern Star for
the sum of $5.0 million. If Southern Star terminates the merger agreement by
reason of receiving an alternative proposal which is deemed more favorable to
Southern Star's stockholders, Southern Star must pay a termination fee of
$3,750,000 to Capstar Radio.
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Southern Star and its subsidiaries. All material intercompany items and
transactions have been eliminated. Investments in affiliated companies are
accounted for using the equity method. Certain prior years' amounts have been
reclassified to conform with the current year's presentation.
Change of Name
The Company changed its name from Osborn Communications Corporation to
Southern Star Communications, Inc. in May 1997.
Depreciation
Property, plant and equipment are recorded at cost and depreciated using
the straight-line method over the estimated useful lives of the assets, as
follows:
<TABLE>
<S> <C>
Buildings................................................... 10-39 years
Furniture and fixtures...................................... 5-7 years
Broadcasting equipment...................................... 3-19 years
Transportation equipment.................................... 2-5 years
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred.
Intangible Assets
Intangible assets include $2.6 million and $2.5 million in 1996 and 1995,
respectively, for agreements not to compete relating to certain transactions
described in Note 4, and $3.4 million in 1996 and 1995 assigned to
F-32
<PAGE> 206
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Muzak customer contracts acquired in 1990 and 1986, which are being amortized
over their estimated useful lives. Deferred financing costs of $1.3 million and
$1.2 million in 1996 and 1995, respectively, are being amortized over the term
of the related debt on a straight-line basis, which approximates the interest
method. The remainder in the amount of $34.7 million and $48.6 million in 1996
and 1995, respectively, represents the excess of acquisition cost over the
amounts assigned to other assets acquired in Southern Star's acquisitions, and
is being amortized on a straight-line basis principally over a 40-year period.
It is Southern Star's policy to account for goodwill and all other
intangible assets at the lower of amortized cost or estimated realizable value.
As part of an ongoing review of the valuation and amortization of intangible
assets of Southern Star and its subsidiaries, management assesses the carrying
value of the intangible assets, if facts and circumstances suggest that there
may be impairment. If this review indicates that the intangibles will not be
recoverable as determined by a non-discounted cash flow analysis of the
operating assets over the remaining amortization period, the carrying value of
the intangible assets would be reduced to estimated realizable value.
During 1996, Southern Star adopted SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which established standards for the recognition and measurement of impairment
losses on long-lived assets, certain identifiable intangible assets, and
goodwill (see Note 5).
Barter Transactions
Revenue from barter transactions (advertising provided in exchange for
goods and services) is recognized as income when advertisements are broadcast,
and merchandise or services received are charged to expense (or capitalized as
appropriate) when received or used.
Revenue
Broadcast revenue is presented net of advertising commissions of
approximately $1.3 million, $2.1 million and $1.7 million for the years ended
December 31, 1996, 1995 and 1994, respectively.
Per Share Data
Primary earnings per common share for 1996 and 1995 is based on the net
income for the year divided by the weighted average number of common and common
equivalent shares. Common stock equivalents consist of stock options and
warrants (see Notes 12 and 13). Shares issuable upon the exercise of all common
stock equivalents and other potentially dilutive securities are not included in
the computations for 1994 since their effect is not dilutive.
Cash Equivalents
Cash equivalents consist of short-term, highly liquid investments which are
readily convertible into cash and have an original maturity of three months or
less when purchased.
Inventory
Inventories, consisting of merchandise for Southern Star's entertainment
properties, sound equipment held for resale by Southern Star's Muzak franchises
and equipment held for resale by Southern Star's healthcare cable business, are
valued at the lower of cost or market using the first-in, first-out method.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires Southern Star to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
F-33
<PAGE> 207
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results may differ from those estimates.
4. ACQUISITIONS/DISPOSITIONS/PENDING TRANSACTIONS
At December 31, 1996, Southern Star owned and operated ten FM and six AM
radio stations, four programmed music and sound equipment distributorships, a
hospital cable television company and certain entertainment properties.
1996
In March 1996, Southern Star acquired substantially all the assets of radio
station WRIR-FM (formerly WHLX-FM), Wheeling, West Virginia, for $0.8 million
plus transaction costs. In June 1996, Southern Star acquired substantially all
the assets of radio stations WBBD-AM/WKWK-FM (formerly WKWK-AM/FM), Wheeling,
West Virginia, for $2.7 million plus transaction costs. Southern Star programmed
WBBD-AM/WKWK-FM pursuant to a local marketing agreement ("LMA") from March 1996
through the closing of the acquisition. In October 1996, Southern Star acquired
substantially all the assets of radio station WEGW-FM, Wheeling, West Virginia,
for $0.8 million. Southern Star already owned radio stations WWVA-AM/WOVK-FM in
Wheeling, West Virginia.
In April 1996, Southern Star acquired substantially all the assets of radio
stations WKII-AM/WFSN-FM (formerly WKII-AM/WEEJ-FM). Port Charlotte, Florida,
for $2.85 million plus transaction costs. Upon completion of the relocation of
WFSN-FM's broadcast antenna to Southern Star's Pine Island, Florida tower in
order to better serve the Port Charlotte/Ft. Myers market, additional
consideration of $750,000 will be paid. The additional consideration is included
in other noncurrent liabilities in the consolidated balance sheet at December
31, 1996. The additional consideration was paid in January 1997. Pending the
closing of the acquisition, the stations were programmed by Southern Star
pursuant to an LMA since September 1995. Southern Star already owns radio
station WOLZ-FM, Ft. Myers, and has a 50% non-voting ownership interest in radio
station WDRR-FM, San Carlos Park/Ft. Myers. Southern Star plans to dispose of
radio stations WOLZ-FM/WFSN-FM/ WKII-AM in 1997 (see Pending Transactions
below).
In May 1996, Southern Star acquired substantially all the assets of radio
stations KNAX-FM/KRBT-FM, Fresno, California. Consideration for the acquisition
consisted of $6.0 million plus 120,000 shares of Southern Star's common stock.
Pending the closing of the acquisition, the stations were programmed by Southern
Star since January 1996 pursuant to an LMA. In December 1996, Southern Star sold
substantially all the assets of radio stations KNAX-FM/ KRBT-FM for $11.0
million, resulting in a pre-tax gain of approximately $3.5 million. Pending the
closing of the transaction, the purchaser managed the stations pursuant to an
LMA since August 1, 1996.
In January 1996, Southern Star sold substantially all the assets of radio
station WWRD-FM, Jacksonville, Florida/Brunswick, Georgia, for $2.5 million,
resulting in a pre-tax gain of approximately $0.8 million. Pending the closing
of the disposition, the station was programmed by the purchaser pursuant to an
LMA.
In February 1996, Southern Star sold substantially all the assets of radio
stations WNDR-AM/WNTQ-FM, Syracuse, New York, for $12.5 million, resulting in a
pre-tax gain of approximately $6.0 million. Pending the closing of the
disposition, the stations were programmed by the purchaser pursuant to an LMA.
In June 1996, Southern Star sold substantially all the assets of radio
station WFXK-FM, Raleigh/Tarboro, North Carolina, for $5.9 million, resulting in
a pre-tax gain of approximately $2.2 million. Pending the closing of the
transaction, the purchaser programmed the station pursuant to an LMA.
F-34
<PAGE> 208
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In June 1996, Southern Star sold substantially all the assets of radio
station WAYV-FM, Atlantic City, New Jersey, for $3.1 million, resulting in a
pre-tax gain of approximately $0.2 million. Pending the closing of the
transaction, the purchaser programmed the station pursuant to an LMA since March
1996.
In June 1996, Southern Star sold substantially all the assets of radio
station WFKS-FM, Daytona Beach/Palatka, Florida, for $4.0 million, resulting in
a pre-tax gain of approximately $0.8 million. Pending the closing of the
transaction, the purchaser programmed the station pursuant to an LMA.
The net cash proceeds from each of the dispositions were used principally
to repay long-term debt and fund transaction costs.
All of the acquisitions have been accounted for using the purchase method
of accounting. Accordingly, the purchase price of each acquisition has been
allocated to the assets based upon their fair values at the date of acquisition.
The results of operations of the properties acquired are included in Southern
Star's consolidated results of operations from the respective dates of
acquisition and until the date of disposition for properties disposed.
1995
In December 1995, Southern Star entered into an option agreement with
Allbritton Communications Company for the sale of television station WJSU-TV,
Anniston, Alabama, and an associated 10-year LMA. In consideration for the
option, Southern Star received a nonrefundable cash payment of $10.0 million.
Because the cash proceeds from the option are nonrefundable, Southern Star
accounted for the economic substance of the transaction as if a sale of
substantially all the assets of the station had occurred. Accordingly, a gain of
approximately $8.1 million was recorded. In addition, upon the exercise of the
option and the necessary FCC consent, Southern Star will receive an additional
cash payment of $2.0 million. Upon the grant of the necessary regulatory
approvals to relocate the station's broadcast transmitter to maximize broadcast
coverage of the facility, Southern Star could have received additional cash
payments of up to $7.0 million. In January 1997, the regulatory approvals were
granted for the relocation of the station's broadcast transmitter, and a cash
payment of approximately $5.3 million was paid to Southern Star. An additional
payment relating to the transmitter relocation of approximately $1.4 million
will be payable upon exercise of the option.
1994
In June 1994, Southern Star acquired substantially all the assets of three
FM radio stations and one AM radio station for $20.0 million plus transaction
costs. The acquisition included radio stations WWNC-AM/ WKSF-FM, Asheville,
North Carolina; WOLZ-FM, Ft. Myers, Florida; and WFKS-FM, Daytona Beach,
Florida. In August 1994, Southern Star acquired substantially all the assets of
radio stations WAAX-AM/WQEN-FM, Gadsden, Alabama, (the "Gadsden Acquisition")
for $1.75 million plus transaction costs. Prior to the grant of the waiver of
the FCC's cross-ownership regulations, the Gadsden acquisition was accounted for
using the equity method of accounting. Accordingly, prior year financial
statements have been reclassified to reflect the consolidation of the Gadsden
radio stations.
In March 1994, Southern Star, through a wholly-owned subsidiary, acquired
radio station WAYV-FM, Atlantic City, New Jersey, for consideration of
approximately $2.5 million.
Pending Transactions
In January 1997, Southern Star acquired substantially all the assets of
radio station WYNU-FM, Jackson/ Milan, Tennessee for $3.6 million plus
transaction costs. Southern Star already owns one FM and one AM radio station in
the market.
F-35
<PAGE> 209
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In November 1996, Southern Star agreed to acquire substantially all the
assets of radio station WTXT-FM, Tuscaloosa/Fayette, Alabama from Tuscaloosa
Broadcasting Company, Inc. for approximately $5.8 million, subject to FCC
approval. The transaction is expected to close in February 1997. In December
1996, Southern Star agreed to acquire substantially all the assets of radio
stations WACT-AM/FM, Tuscaloosa, Alabama from Taylor Communications Corporation
for $1.0 million, subject to FCC approval. Pending the closing of the
transaction, which is expected in the first quarter of 1997, Southern Star is
managing the stations pursuant to an LMA.
In November 1996, Southern Star agreed to acquire the stock of Dixie
Broadcasting, Inc. and Radio WBHP, Inc., the owners of radio stations
WDRM-FM/WHOS-AM/WBHP-AM, Huntsville, Alabama. Consideration for the acquisition
consists of (i) $23.0 million; (ii) a three year consulting agreement valued at
$2.5 million; and (iii) a $1.5 million earn-out based on future operating
results. The transaction, which is subject to FCC approval, is expected to close
in 1997.
In December 1996, Southern Star agreed to sell substantially all the assets
of WOLZ-FM, WFSN-FM and WKII-AM, Fort Myers/Port Charlotte, Florida for
approximately $11.0 million to Clear Channel Radio, Inc., subject to FCC
approval. Pending the closing of the transaction, which is expected in 1997, the
stations are being managed by the Purchaser pursuant to a LMA starting in
January 1997.
Other Investments
In 1989, Southern Star acquired, for $620,000, a 50% non-voting ownership
interest (without control) in a corporation that owns and operates radio station
WDRR-FM, San Carlos Park, Florida. The station became operational in September
1995. Southern Star's net investment is included in investment in affiliated
companies on the consolidated balance sheet.
In 1989, Southern Star acquired a 32% ownership interest in Northstar
Television Group, Inc. ("Northstar") for $329,000. From Northstar's inception
through May 1994, Southern Star managed Northstar's four television stations for
an annual fee of up to $250,000, plus reimbursement of out-of-pocket expenses
and allocated overhead costs. In 1994, as a result of a proposed restructuring
of Northstar, Southern Star agreed, as payment for prior services rendered, to
receive an immediate payment of $250,000, another payment of $250,000 within two
years, and the retention of an economic interest. Southern Star's management
agreement terminated following the restructuring. In 1995, three of Northstar's
four television stations were sold and Southern Star received a distribution of
$1.6 million, classified as other income in the consolidated statement of
operations, plus accrued management fees of $250,000.
In 1987, Southern Star acquired 25% of the stock of Fairmont Communications
Corporation ("Fairmont") for $500,000. Fairmont owned seven radio stations in
four large and medium sized markets. In August 1992, Fairmont filed for
protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code. In
September 1993, Fairmont emerged from Chapter 11 upon approval by the bankruptcy
court of a plan of reorganization (the "Plan"). The Plan provided for the sale
of Fairmont's assets, distribution of the proceeds in accordance with the Plan,
and subsequent liquidation of Fairmont. All of Fairmont's stations were sold by
the second quarter of 1994. Southern Star will continue to manage Fairmont
pursuant to a management agreement which expires upon the liquidation of
Fairmont, which is expected in 1997. For managing Fairmont, Southern Star
receives an annual fee of $125,000, plus reimbursement of out-of-pocket expenses
and allocated overhead costs. In 1994, Southern Star received additional
management fees of $728,000 related to the sale of Fairmont's stations. Southern
Star also earned distributions of $400,000 and $2.3 million in 1995 and 1994,
respectively, classified as other income and distribution receivable in the
consolidated financial statements, determined by the amount realized by Fairmont
from sales of its assets.
F-36
<PAGE> 210
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. OSBORN HEALTHCARE
Osborn Healthcare, a division of Osborn Entertainment Enterprises
Corporation, continued to experience operating losses through the second quarter
of 1996. Consistent with Southern Star's previously stated intention to evaluate
options to increase shareholder value, management has reviewed the strategic
direction and long-term prospects of the Osborn Healthcare operations and has
restructured the operations. Southern Star plans to focus resources on only the
more profitable product lines. In conjunction with these plans, Southern Star
has combined the Osborn Healthcare operations and Southern Star's programmed
music operations, terminating certain employees of the Osborn Healthcare
operations, and consolidating certain overhead. In the second quarter of 1996,
Southern Star accrued costs of approximately $300,000, principally severance
costs, in connection with the consolidation of operations. In addition, Southern
Star has reduced goodwill by approximately $900,000 to reflect the anticipated
discounted cash flow from the remaining healthcare operations. The charges,
totaling $1.2 million, are included in other operating expenses in the
consolidated statement of operations.
6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net revenues.............................................. $36,131,000 $32,667,000
Income (loss) before extraordinary item................... 633,000 (808,000)
Net income (loss)......................................... 633,000 (4,729,000)
Net income (loss) per share............................... $ 0.11 $ (0.87)
</TABLE>
The unaudited pro forma information for the years ended December 31, 1996
and 1995 assumes that the acquisitions and dispositions described in Note 4,
excluding pending transactions, had occurred on January 1, 1995. The gains on
sales of stations and the loss from Osborn Healthcare's restructuring in 1996
and the distributions from Northstar Television Group in 1995 are excluded from
the pro forma information because of their nonrecurring nature. The pro forma
information is not necessarily indicative either of the results of operations
that would have occurred had these transactions been made on the date indicated,
or of future results of operations.
Net assets of properties to be disposed in Ft. Myers aggregated $7.5
million at December 31, 1996, consisting of current assets of $500,000, plant
and equipment of $2.0 million, and net intangible assets of $5.0 million.
F-37
<PAGE> 211
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Note payable to KeyBank National Association, at the prime
rate plus 0.5%; interest payable quarterly; quarterly
commitment reductions from December 31, 1996 through
December 31, 2001(A)...................................... $ 200,000 $14,500,000
Note payable to KeyBank National Association, at LIBOR plus
1.75%; principal due in quarterly installments from
December 31, 1996 through December 31, 2001(A)............ 14,000,000 30,000,000
Term loan payable to National Westminster Bank, net of
unamortized debt discount of $700,000; interest payable
quarterly at LIBOR plus 2.5%; principal due in quarterly
installments in varying amounts from June 1996 through
March 2000(B)............................................. -- 2,700,000
----------- -----------
14,200,000 47,200,000
Less current portion........................................ 320,000 2,718,000
----------- -----------
$13,880,000 $44,482,000
=========== ===========
</TABLE>
- ---------------
(A) In August 1995, Southern Star entered into a credit facility of $56.0
million with KeyBank National Association (the "Credit Facility"). The
Credit Facility consists of a $46.0 million revolving credit facility and a
$10.0 million facility which may be used for acquisitions. The initial
drawdown of $44.5 million, along with Southern Star's internally generated
funds, was used to repay existing loans totaling $50.0 million and pay
transaction costs. The Credit Facility contains covenants which require,
among other things, that Southern Star and its subsidiaries (excluding
Atlantic City Broadcasting Corp.) maintain certain financial levels,
principally with respect to EBITDA (earnings before interest, income tax,
depreciation and amortization) and leverage ratios, and limit the amount of
capital expenditures. The Credit Facility also restricts the payment of
cash dividends. The Credit Facility is collateralized by pledges of the
tangible and intangible assets of Southern Star and its subsidiaries, as
well as the stock of those subsidiaries. At December 31, 1996, Southern
Star has additional availability under the revolving credit facility of
$14.1 million. Effective December 31, 1996 the outstanding balance under
the acquisition facility will convert to a term loan. Under the current
terms of the Credit Facility, no additional amounts under the acquisition
facility may be borrowed after December 31, 1996 unless the terms are
modified. Southern Star pays an annual commitment fee of 0.5% of the unused
commitment.
(B) The term loan contained covenants with respect to Southern Star's
wholly-owned subsidiary, Atlantic City Broadcasting Corp., which, among
other things, restricted cash distributions to Southern Star and limited
the amount of annual capital expenditures. The loan was collateralized by
pledges of the tangible and intangible assets and stock of Atlantic City
Broadcasting Corp. ("Atlantic City"), and were otherwise nonrecourse to
Southern Star and its other assets. In June 1996, Southern Star sold
substantially all the assets of Atlantic City. The net proceeds were used
primarily to repay long-term debt and fund transaction costs.
F-38
<PAGE> 212
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996, the aggregate amounts of long-term debt due during
the next five years are as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
Year:
1997...................................................... $ 320,000
1998...................................................... 640,000
1999...................................................... 640,000
2000...................................................... 800,000
2001...................................................... 11,800,000
</TABLE>
The fair value of the debt approximates net book value.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Land.................................................... $ 3,095,266 $ 4,256,414
Buildings............................................... 3,967,805 4,168,839
Equipment............................................... 20,507,405 25,556,838
------------ ------------
27,570,476 33,982,091
Less accumulated depreciation........................... (15,894,081) (18,624,021)
------------ ------------
$ 11,676,395 $ 15,358,070
============ ============
</TABLE>
At December 31, 1996, all property, plant and equipment is pledged as
collateral for the debt disclosed in Note 7.
9. INCOME TAXES
At December 31, 1996, Southern Star has consolidated net operating loss
carryforwards for income tax purposes of $20.6 million that expire in years 2006
through 2010. Of the total net operating loss carryforwards, $11.0 million may
be used only to offset future income of Southern Star's subsidiary, Osborn
Entertainment Enterprises Corporation.
F-39
<PAGE> 213
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
Southern Star's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 8,237,540 $13,577,873
Other................................................... 971,542 713,951
----------- -----------
9,209,082 14,291,824
Valuation allowance....................................... (5,940,696) (9,088,722)
----------- -----------
3,268,386 5,203,102
Deferred tax liabilities:
Depreciation and amortization........................... 2,865,184 4,014,313
Sale of station......................................... 3,289,500 3,289,500
Other................................................... 175,000 175,000
----------- -----------
6,329,684 7,478,813
----------- -----------
Net deferred tax liabilities.............................. $ 3,061,298 $ 2,275,711
=========== ===========
</TABLE>
The provision for income taxes for 1996 consists of federal taxes of
$269,000, state and local taxes of $1,324,000 and deferred federal, state and
local taxes of $786,000. The provision for income taxes for 1995 and 1994
consists entirely of state and local taxes, of which $535,000 and $114,000,
respectively, is current and $241,000 and $175,000, respectively, is deferred.
The valuation allowance decreased to approximately $5,941,000 from approximately
$9,089,000 during 1996.
The reconciliation of income tax computed at the U.S. federal statutory tax
rate to income tax expense is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- ---------
<S> <C> <C> <C>
Amount computed using statutory rate.......... $ 4,065,056 $ 1,217,532 $(428,705)
State and local taxes, net of federal
benefit..................................... 860,748 504,388 190,885
Net operating losses (utilized) generated..... (2,673,429) (1,228,507) 234,539
Nondeductible expenses........................ 126,374 282,569 292,501
----------- ----------- ---------
$ 2,378,749 $ 775,982 $ 289,220
=========== =========== =========
</TABLE>
F-40
<PAGE> 214
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS
Southern Star leases office and broadcast tower space, vehicles and office
equipment. Rental expense amounted to $1,113,000, $994,000 and $768,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
The minimum aggregate annual rentals under noncancellable operating leases
are payable as follows:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Year:
1997...................................................... $1,038,000
1998...................................................... 752,000
1999...................................................... 532,000
2000...................................................... 305,000
2001...................................................... 244,000
Thereafter................................................ 2,693,000
----------
$5,564,000
==========
</TABLE>
11. EMPLOYEE BENEFIT PLANS
Southern Star sponsors a profit sharing plan which qualifies under Section
401(k) of the Internal Revenue Code (the "IRC"). The Plan is available to all
full-time employees with at least one year of employment with Southern Star. All
eligible employees may elect to contribute a portion of their compensation to
the profit sharing plan, subject to IRC limitations. Effective January 1, 1996,
the Plan provides for employer contributions based upon an employee's salary. In
December 1994, Southern Star adopted a non-qualified deferred compensation plan
available to certain management employees.
12. STOCK OPTION PLAN
Southern Star's Incentive Stock Option Plan (the "Plan") provides for the
granting to officers and key employees of incentive and non-qualified stock
options to purchase Southern Star's voting common stock as defined under current
tax laws. Incentive stock options are exercisable at a price equal to the fair
market value, as defined, on the date of grant, for a maximum 10-year period
from the date of grant. Non-qualified stock options may be granted at an
exercise price equal to at least 85% of the fair market value on the date of
grant, for a maximum 11-year period from the date of grant. The exercise prices
of all options granted in 1994 through 1996 were at fair market value at the
date of grant.
F-41
<PAGE> 215
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the Plan's transactions for the years ended
December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Outstanding options, beginning of year............. 447,341 417,000 382,750
Granted............................................ 52,000 66,500 108,250
Cancelled or expired............................... (8,299) (12,500) (72,500)
Exercised.......................................... (173,667) (23,659) (1,500)
--------- -------- --------
Outstanding options, end of year................... 317,375 447,341 417,000
========= ======== ========
Weighted average price of options granted.......... $ 10.10 $ 6.76 $ 6.26
Weighted average price of options canceled or
expired.......................................... $ 6.46 $ 7.00 $ 6.61
Weighted average price of options exercised........ $ 4.23 $ 6.55 $ 4.00
Weighted average exercise price, end of year....... $ 8.55 $ 6.66 $ 6.64
Options exercisable, end of year................... 205,125 283,921 280,083
Options available for future grant................. 35,299 79,000 133,000
</TABLE>
At December 31, 1996, the range of exercise prices for outstanding options
was $4.00 through $14.40 These outstanding options have a remaining contractual
life of five years.
Southern Star applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its Plan. Had compensation cost for the Plan been determined
based upon the fair value at the grant date for awards under the Plan consistent
with the methodology prescribed under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, Southern Star's net
income and earnings per share would have been reduced by approximately $144,000,
or $0.03 per share, and $46,000, or $0.01 per share for the years ended December
31, 1996 and 1995, respectively. The fair value of the options granted during
the years ended December 31, 1996 and 1995 is estimated as $102,000 and
$114,000, respectively, on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: dividend yield of 0.0%,
volatility of 40.7%, risk-free interest rate of 6.5%, assumed forfeiture rate of
0.0%, and an expected life of 1 to 2 years. The assumptions used assume that the
proposed merger as described in Note 2 is consummated in the first quarter of
1997.
13. STOCKHOLDERS' EQUITY
During 1996, approximately 174,000 shares of common stock were issued
pursuant to the exercise of stock options. Approximately 45,000 existing shares
were retired to fund the exercise of certain of these options.
In January 1995, Southern Star paid $642,000 to repurchase and subsequently
retired 107,059 unregistered shares of its common stock which were held by an
institution. In December 1994, Southern Star paid $107,000 to repurchase and
subsequently retired 17,843 shares of its common stock at $6.00 per share.
In June 1994, Southern Star entered into two credit agreements totaling
$50.0 million with Citicorp Mezzanine Investment Fund ("CMIF"). As partial
consideration for making the loans, CMIF received a warrant to purchase
1,014,193 shares (after giving effect to the reverse stock split described
below) of Southern Star's common stock at $7.00 per share. The warrant is
exercisable for a 10-year period. Under the terms of the warrant agreement, in
the event that the CMIF loans were repaid by December 31, 1995, purchase rights
with respect to 676,162 warrant shares will be canceled. The loans were repaid
in August 1995 and, accordingly, the purchase rights with respect to 676,162
warrant shares were canceled.
F-42
<PAGE> 216
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 1994, Southern Star effected a 1-for-2 reverse stock split for
shareholders of record on that date. Cash was paid in lieu of fractional shares.
All per share amounts in the consolidated statement of operations reflect the
reverse stock split.
14. SUBSEQUENT EVENT (UNAUDITED)
On February 20, 1997, Capstar Radio Broadcasting Partners, Inc. acquired
all of Southern Star's common stock and Southern Star was merged with Capstar
Radio.
F-43
<PAGE> 217
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
GulfStar Communications, Inc.:
We have audited the accompanying consolidated balance sheets of GulfStar
Communications, Inc. and Subsidiaries (the "Company") as of December 31, 1996
and 1995 and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1996 and 1995 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.
Austin, Texas
April 4, 1997
F-44
<PAGE> 218
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1997 1996 1995
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 5,978,752 $ 4,792,847 $ 220,049
Accounts receivable, net of allowance for doubtful
accounts of $410,910, $328,753 and $136,206,
respectively............................................ 8,232,489 8,336,005 3,560,050
Refundable income taxes................................... 1,111,940 1,111,940 --
Cash held in escrow....................................... -- 2,100,000 10,000
Prepaid expenses and other................................ 423,827 156,306 120,359
------------ ----------- -----------
Total current assets 15,747,008 16,497,098 3,910,458
Property and equipment, net................................. 17,484,782 13,697,163 6,086,683
Intangible assets, net...................................... 79,207,856 60,369,684 33,048,036
Deferred station acquisition costs.......................... 2,696,134 68,144 3,100,776
Deferred financing costs, net............................... 2,271,701 229,528 2,113,617
Other assets................................................ 629,045 468,315 740,587
------------ ----------- -----------
Total assets....................................... $118,036,526 $91,329,932 $49,000,157
============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,098,443 $ 2,428,048 $ 1,137,230
Accrued liabilities....................................... 2,288,430 2,739,576 2,142,055
Accrued interest.......................................... 308,964 36,390 513,232
Current portion of long-term debt......................... 213,683 90,667 2,107,390
Current portion of capital lease obligations.............. 123,921 79,594 36,886
------------ ----------- -----------
Total current liabilities.......................... 5,033,441 5,374,275 5,936,793
Long-term debt, net of current portion...................... 82,346,102 54,393,419 35,192,650
Capital lease obligations................................... 342,107 168,457 89,608
Deferred income taxes....................................... 5,597,176 5,702,283 4,460,652
------------ ----------- -----------
Total liabilities.................................. 93,318,826 65,638,434 45,679,703
------------ ----------- -----------
Commitments and contingencies (Notes 13 and 14)
Redeemable preferred stocks, aggregate liquidation
preference of $27,000,000, $27,052,500 and $757,500,
respectively.............................................. 23,080,611 23,097,788 757,500
------------ ----------- -----------
Stockholders' equity:
Common stock, voting, $0.01 par value, 100,000, 100,000
and 2,000,000 shares authorized, 11,342, 10,986 and
10,151 shares issued and outstanding at March 31, 1997
and at December 31, 1996 and 1995, respectively......... 113 109 101
Common stock, Class A, nonvoting, $0.01 par value, 60,000,
60,000 and 600,000 shares authorized, 10,000, 49,033 and
37,500 shares issued and outstanding at March 31, 1997
and at December 31, 1996 and 1995, respectively......... 100 490 375
Common stock, Class B, nonvoting, $0.01 par value, 10,000,
10,000 and 600,000 shares authorized, no shares issued
and outstanding at March 31, 1997 and December 31, 1996,
respectively and 6,081 at December 31, 1995............. -- -- 61
Common stock, Class C, voting, $0.01 par value, 100,000
shares authorized, 42,205 and 3,172 shares issued and
outstanding at March 31, 1997 and at December 31, 1996,
respectively............................................ 421 31 --
Additional paid-in capital................................ 15,006,417 11,871,525 366,091
Stock subscriptions receivable............................ (2,414,365) (2,090,024) (333,525)
Retained earnings (accumulated deficit)................... (8,319,221) (5,670,301) 2,529,851
Unearned compensation..................................... (2,636,376) (1,518,120) --
------------ ----------- -----------
Total stockholders' equity......................... 1,637,089 2,593,710 2,562,954
------------ ----------- -----------
Total liabilities and stockholders' equity..... $118,036,526 $91,329,932 $49,000,157
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-45
<PAGE> 219
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------ ---------------------------------------
1997 1996 1996 1995 1994
----------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross broadcasting revenues....... $12,030,130 $5,082,621 $36,066,561 $17,321,673 $10,639,226
Less agency commissions........... 1,035,526 487,838 3,503,610 1,525,088 805,332
----------- ---------- ----------- ----------- -----------
Net revenues...................... 10,994,604 4,594,783 32,562,951 15,796,585 9,833,894
----------- ---------- ----------- ----------- -----------
Operating expenses:
Programming, technical and
news......................... 2,784,013 1,217,956 7,534,906 2,873,677 2,122,044
Sales and promotion............. 2,720,534 1,313,343 9,871,778 4,638,142 2,470,962
General and administrative...... 2,442,706 1,072,519 6,892,971 4,225,281 2,069,388
Depreciation and amortization... 1,001,150 676,940 2,809,677 1,133,901 711,622
Corporate expenses.............. 517,926 170,765 1,922,744 513,153 338,799
Non-cash compensation expense... 2,469,162 272,644 5,431,880 -- --
----------- ---------- ----------- ----------- -----------
Total operating
expenses.............. 11,935,491 4,724,167 34,463,956 13,384,154 7,712,815
----------- ---------- ----------- ----------- -----------
Gain on sale of broadcasting
property........................ -- -- -- 2,389,567 --
----------- ---------- ----------- ----------- -----------
Income (loss) from operations..... (940,887) (129,384) (1,901,005) 4,801,998 2,121,079
Other expense (income):
Interest expense................ 1,846,320 851,171 4,604,115 2,146,151 964,638
Other........................... (36,256) (4,044) 829,544 53,590 42,344
----------- ---------- ----------- ----------- -----------
Income (loss) before provision
(benefit) for income taxes and
extraordinary loss.............. (2,750,951) (976,511) (7,334,664) 2,602,257 1,114,097
Provision (benefit) for income
taxes........................... (101,892) (190,889) (322,330) 1,032,476 469,526
----------- ---------- ----------- ----------- -----------
Income (loss) before extraordinary
loss............................ (2,649,059) (785,622) (7,012,334) 1,569,781 644,571
Extraordinary charge, net of tax
benefit of $707,535............. -- -- 1,187,818 -- --
----------- ---------- ----------- ----------- -----------
Net income (loss)................. (2,649,059) (785,622) (8,200,152) 1,569,781 644,571
Dividends and accretion on
preferred stocks................ 793,697 -- 1,350,115 7,500 --
----------- ---------- ----------- ----------- -----------
Net income (loss) attributable to
common stock.................... $(3,442,756) $ (785,622) $(9,550,267) $ 1,562,281 $ 644,571
=========== ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-46
<PAGE> 220
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK COMMON STOCK
--------------------- --------------------- ---------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES PAR VALUE SHARES PAR VALUE SHARES PAR VALUE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994...................... -- $ -- -- $ -- -- $ --
Issuance of voting common stock.............. 10,000 100 -- -- -- --
Issuance of Class A common stock............. -- -- 40,000 400 -- --
Net income................................... -- -- -- -- -- --
------- ----- ------- ------- ------- ---
Balance, December 31, 1994................... 10,000 100 40,000 400 -- --
Shares of Class A common stock contributed to
the Company by a stockholder............... -- -- (2,500) (25) -- --
Issuance of voting common.................... 151 1 -- -- -- --
Issuance of Class B common stock............. -- -- -- -- 6,081 61
Accrued interest on subscriptions
receivable................................. -- -- -- -- -- --
Dividends on preferred stock................. -- -- -- -- -- --
Net income................................... -- -- -- -- -- --
------- ----- ------- ------- ------- ---
Balance, December 31, 1995.................... 10,151 101 37,500 375 6,081 61
Issuance of common stock..................... 4,504 45 -- -- -- --
Issuance of Class A common stock............. -- -- 1,626 16 -- --
Issuance of Class B common stock............. -- -- -- -- 157 1
Issuance of Class C common stock............. -- -- -- -- -- --
Conversion of common stock to Class A common
stock...................................... (10,151) (101) 10,151 101 -- --
Conversion of Class A and B common stock to
common stock............................... 6,482 64 (244) (2) (6,238) (62)
Issuance of preferred stock.................. -- -- -- -- -- --
Accrued interest on subscriptions
receivable................................. -- -- -- -- -- --
Dividends and accretion on preferred
stocks..................................... -- -- -- -- -- --
Unearned compensation -- stock issued for
nonrecourse notes.......................... -- -- -- -- -- --
Net loss..................................... -- -- -- -- -- --
------- ----- ------- ------- ------- ---
Balance, December 31, 1996.................... 10,986 109 49,033 490 -- --
Issuance of common stock (unaudited)......... 356 4 -- -- -- --
Conversion of Class A common stock to Class C
common stock (unaudited)................... -- -- (39,033) (390) -- --
Payment received on subscribed stock
(unaudited)................................ -- -- -- -- -- --
Accrued interest on subscriptions receivable
(unaudited)................................ -- -- -- -- -- --
Dividends and accretion on preferred stocks
(unaudited)................................ -- -- -- -- -- --
Unearned compensation-stock issued for
nonrecourse notes (unaudited).............. -- -- -- -- -- --
Net loss (unaudited)......................... -- -- -- -- -- --
------- ----- ------- ------- ------- ---
Balance, March 31, 1997 (unaudited)........... 11,342 $ 113 10,000 $ 100 0 $ 0
======= ===== ======= ======= ======= ===
<CAPTION>
CLASS C
COMMON STOCK RETAINED
--------------------- ADDITIONAL STOCK EARNINGS
NUMBER OF PAID-IN SUBSCRIPTIONS (ACCUMULATED UNEARNED
SHARES PAR VALUE CAPITAL RECEIVABLE DEFICIT) COMPENSATION
--------- --------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994...................... -- $ -- $ -- $ -- $ 322,999 $ --
Issuance of voting common stock.............. -- -- 300 -- -- --
Issuance of Class A common stock............. -- -- 1,200 -- -- --
Net income................................... -- -- -- -- 644,571 --
------ --- ----------- ----------- ----------- -----------
Balance, December 31, 1994................... -- -- 1,500 -- 967,570 --
Shares of Class A common stock contributed to
the Company by a stockholder............... -- -- 25 -- -- --
Issuance of voting common.................... -- -- 8,530 (4,265) -- --
Issuance of Class B common stock............. -- -- 330,637 (303,861) -- --
Accrued interest on subscriptions
receivable................................. -- -- 25,399 (25,399) -- --
Dividends on preferred stock................. -- -- -- -- (7,500) --
Net income................................... -- -- -- -- 1,569,781 --
------ --- ----------- ----------- ----------- -----------
Balance, December 31, 1995.................... -- -- 366,091 (333,525) 2,529,851 --
Issuance of common stock..................... -- -- 1,378,840 (1,390,385) -- --
Issuance of Class A common stock............. -- -- 183,722 -- -- --
Issuance of Class B common stock............. -- -- 31,399 -- -- --
Issuance of Class C common stock............. 3,172 31 358,405 (297,190) -- --
Conversion of common stock to Class A common
stock...................................... -- -- -- -- -- --
Conversion of Class A and B common stock to
common stock............................... -- -- -- -- -- --
Issuance of preferred stock.................. -- -- 3,884,259 -- -- --
Accrued interest on subscriptions
receivable................................. -- -- 68,924 (68,924) -- --
Dividends and accretion on preferred
stocks..................................... -- -- (1,350,115) -- -- --
Unearned compensation -- stock issued for
nonrecourse notes.......................... -- -- 6,950,000 -- -- (1,518,120)
Net loss..................................... -- -- -- -- (8,200,152) --
------ --- ----------- ----------- ----------- -----------
Balance, December 31, 1996.................... 3,172 31 11,871,525 (2,090,024) (5,670,301) (1,518,120)
Issuance of common stock (unaudited)......... -- -- 299,621 (299,625) -- --
Conversion of Class A common stock to Class C
common stock (unaudited)................... 39,033 390 -- -- -- --
Payment received on subscribed stock
(unaudited)................................ -- -- -- 16,973 -- --
Accrued interest on subscriptions receivable
(unaudited)................................ -- -- 41,689 (41,689) -- --
Dividends and accretion on preferred stocks
(unaudited)................................ -- -- (793,836) -- 139 --
Unearned compensation-stock issued for
nonrecourse notes (unaudited).............. -- -- 3,587,418 -- -- (1,118,256)
Net loss (unaudited)......................... -- -- -- -- (2,649,059) --
------ --- ----------- ----------- ----------- -----------
Balance, March 31, 1997 (unaudited)........... 42,205 $421 $15,006,417 $(2,414,365) $(8,319,221) $(2,636,376)
====== === =========== =========== =========== ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, January 1, 1994...................... $ 322,999
Issuance of voting common stock.............. 400
Issuance of Class A common stock............. 1,600
Net income................................... 644,571
-----------
Balance, December 31, 1994................... 969,570
Shares of Class A common stock contributed to
the Company by a stockholder............... --
Issuance of voting common.................... 4,266
Issuance of Class B common stock............. 26,837
Accrued interest on subscriptions
receivable................................. --
Dividends on preferred stock................. (7,500)
Net income................................... 1,569,781
-----------
Balance, December 31, 1995.................... 2,562,954
Issuance of common stock..................... (11,500)
Issuance of Class A common stock............. 183,738
Issuance of Class B common stock............. 31,400
Issuance of Class C common stock............. 61,246
Conversion of common stock to Class A common
stock...................................... --
Conversion of Class A and B common stock to
common stock............................... --
Issuance of preferred stock.................. 3,884,259
Accrued interest on subscriptions
receivable................................. --
Dividends and accretion on preferred
stocks..................................... (1,350,115)
Unearned compensation -- stock issued for
nonrecourse notes.......................... 5,431,880
Net loss..................................... (8,200,152)
-----------
Balance, December 31, 1996.................... 2,593,710
Issuance of common stock (unaudited)......... --
Conversion of Class A common stock to Class C
common stock (unaudited)................... --
Payment received on subscribed stock
(unaudited)................................ 16,973
Accrued interest on subscriptions receivable
(unaudited)................................ --
Dividends and accretion on preferred stocks
(unaudited)................................ (793,697)
Unearned compensation-stock issued for
nonrecourse notes (unaudited).............. 2,469,162
Net loss (unaudited)......................... (2,649,059)
-----------
Balance, March 31, 1997 (unaudited)........... $ 1,637,089
===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-47
<PAGE> 221
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------- ------------------------------------------
1997 1996 1996 1995 1994
------------ ---------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ (2,649,059) $ (785,622) $ (8,200,152) $ 1,569,781 $ 644,571
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................ 1,001,150 676,940 2,809,677 1,133,901 711,622
Provision for doubtful accounts.............. 86,614 68,737 555,765 194,572 105,381
Deferred income taxes........................ (105,107) -- 546,754 (63,928) 261,197
Gain (loss) on sale of assets................ -- -- -- (2,389,567) --
Noncash interest expense..................... -- -- 218,264 247,625 204,070
Noncash compensation expense................. 2,469,162 272,644 5,431,880 -- --
Interest expense financed through long-term
borrowing.................................. 54,228 108,440 -- 75,971 41,198
Extraordinary loss........................... -- -- 1,187,818 -- --
Write-off of deferred acquisition costs...... -- -- 104,182 -- --
Other........................................ -- -- -- -- 2,744
Changes in assets and liabilities, net of
affects of acquired businesses:
Accounts receivable........................ 16,902 30,517 (4,272,007) (1,689,985) (479,903)
Refundable income taxes.................... -- (190,889) (1,111,940) -- --
Prepaid expenses and other................. (267,522) (85,582) 18,744 159,791 (22,271)
Accounts payable........................... (329,605) (222,807) 1,181,671 932,228 31,047
Accrued liabilities........................ (178,555) (28,352) (760,928) 1,088,809 333,447
------------ ---------- ------------ ------------ ------------
Net cash provided by (used in) operating
activities............................. 98,208 (155,974) (2,290,272) 1,259,198 1,833,103
------------ ---------- ------------ ------------ ------------
Cash flows from investing activities:
Purchases of broadcasting properties........... (14,735,669) -- (24,118,028) (20,217,242) (9,205,860)
Transfers to escrow accounts for broadcasting
property acquisition......................... -- -- (2,100,000) (10,000) (1,041,000)
Purchases of property, equipment and
intangibles.................................. (763,043) (426,001) (1,669,587) (494,651) (1,192,497)
Payments for pending broadcasting property
acquisitions................................. (2,628,005) -- (172,326) (1,968,203) (91,573)
Proceeds from sale of broadcasting property.... -- -- -- 3,650,000 --
Increase in other assets....................... (160,730) (403,125) (147,037) (608,300) --
------------ ---------- ------------ ------------ ------------
Net cash used in investing activities.... (18,287,447) (829,126) (28,206,978) (19,648,396) (11,530,930)
------------ ---------- ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from term loan........................ -- -- -- 6,000,000 12,708,415
Proceeds from borrowings under revolving debt
facility..................................... 22,300,000 800,000 23,647,309 30,145,561 --
Repayment of term loan......................... -- -- (6,000,000) (17,500,000) (770,750)
Repayment of notes payable and debt assumed in
acquisitions................................. (14,301) -- (7,158,327) -- --
Proceeds from issuance of common and preferred
stocks, net.................................. 16,973 -- 24,862,932 31,103 2,000
Payments for redemption of preferred stock..... (811,014) -- -- -- --
Repayment of capital lease obligations......... (20,113) (7,285) (52,338) (83,595) (30,624)
Payment of financing costs..................... (2,096,401) -- (229,528) (897,000) (1,584,000)
------------ ---------- ------------ ------------ ------------
Net cash provided by financing
activities............................. 19,375,144 792,715 35,070,048 17,696,069 10,325,041
------------ ---------- ------------ ------------ ------------
Net increase (decrease) in cash.................. 1,185,905 (192,385) 4,572,798 (693,129) 627,214
Cash and cash equivalents, at beginning of
period......................................... 4,792,847 220,049 220,049 913,178 285,964
------------ ---------- ------------ ------------ ------------
Cash and cash equivalents, at end of period...... $ 5,978,752 $ 27,664 $ 4,792,847 $ 220,049 $ 913,178
============ ========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-48
<PAGE> 222
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
1. BUSINESS AND ORGANIZATION:
The consolidated financial statements and following notes, insofar as they
are applicable to the three-month periods ended March 31, 1997 and 1996, and
transactions subsequent to April 4, 1997, the date of the Report of Independent
Accountants, are not covered by the Report of Independent Accountants. In the
opinion of management, all adjustments, consisting of only normal recurring
accruals considered necessary for a fair presentation of the unaudited
consolidated results of operations for the three-month periods ended March 31,
1997 and 1996, have been included.
The consolidated results of operations for the three months ended March 31,
1997 are not necessarily indicative of the results to be expected for the entire
year.
GulfStar Communications, Inc. (the "Company") was incorporated as a
Delaware corporation to own and operate radio stations. Effective April 18,
1994, the Company's stockholders contributed to the Company, their interests in
GulfStar Broadcasting L.C., a Texas limited liability company wholly-owned by
the Company's stockholders. For financial reporting purposes, this transaction
was treated in a manner similar to a pooling-of-interests. Consequently, the
historical cost and income statement data of the separate enterprises have been
combined for presentation of the Company's consolidated financial statements for
1994.
At December 31, 1996, the Company operated thirty radio stations that it
owns and twelve radio stations that it manages under time brokerage agreements.
From time to time, the Company enters into time brokerage agreements with radio
stations which it intends to acquire. Under these agreements, the Company is
responsible for fixed, monthly payments for the use of the owners' broadcast
rights and for the operating expenses of the stations. The Company classifies
the payments as interest expense to the extent interest is imputed based on the
purchase price of the radio station. These payments are expensed as incurred.
The radio stations are located in the following markets: Beaumont, Tyler,
Texarkana, Waco, Lufkin, Victoria, Corpus Christi, Lubbock, Killeen, Bryan,
Texas; Baton Rouge, Louisiana; and Fayetteville, Fort Smith, Arkansas. The
Company extends credit to its customers in the ordinary course of business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
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.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flow, the Company
considers highly liquid investments with original maturities of three months or
less to be cash equivalents.
Risks and Uncertainties and 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
F-49
<PAGE> 223
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
On February 8, 1996, the President signed into law the Telecommunications
Act of 1996. Among other things, this legislation requires the Federal
Communications Commission to relax its numerical restrictions on local ownership
and affords renewal applicants significant new protections from competing
applications for their broadcast licenses. The ultimate effect of this
legislation on the competitive environment is currently undeterminable.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Equipment under capital lease obligations is recorded at the
lower of cost or fair market value at the inception of the lease. 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 years. Leasehold
improvements are amortized over the shorter of their useful lives or the terms
of the related leases. Costs of ordinary repairs and maintenance are charged to
operations as incurred; betterments which increase the value or materially
extend the life of the related asset are capitalized. Upon sale or disposal, the
asset cost and accumulated depreciation and amortization are removed and any
gain or loss is recognized in earnings.
Intangible Assets
FCC licenses represent the excess of cost over the fair values of the
identifiable tangible and other intangible net assets acquired and is being
amortized using the straight-line method over 40 years. Other intangible assets
comprise amounts paid for agreements not to compete, favorable tower and
facility leases and organization costs incurred in the incorporation of the
Company. Other intangibles are being amortized using the straight-line method
over their estimated useful lives ranging from three to 14 years.
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 Station Acquisition Costs
Costs incurred by the Company for acquisitions of radio stations expected
to be consummated upon approval by the FCC are included as deferred station
acquisition costs in the accompanying consolidated financial statements. Such
costs are not being amortized and will be included as acquisition costs upon
consummation of the transaction to acquire the station.
Deferred Financing Costs
Costs associated with obtaining debt financing are capitalized and
amortized using the interest method over the term of the related debt.
Stock Subscriptions Receivable
Stock subscriptions receivable represent promissory notes issued in
connection with the purchase of capital stock. Capital stock issued in
connection with such promissory notes is reported as issued and outstanding and
included in capital stock and additional paid-in capital in the accompanying
consolidated financial statements in the amount of the related promissory note
plus accrued interest. The promissory notes and related accrued interest
F-50
<PAGE> 224
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
receivable are classified as stock subscriptions receivable and included as a
reduction of consolidated stockholders' equity.
Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period-end based on enacted tax laws and
statutory tax rates applicable to the 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.
Advertising Costs
The Company incurs various marketing and promotional costs to add and
maintain listenership. These costs are expensed as incurred and totaled
approximately $2,387,000, $575,000 and $345,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
Concentration of Credit Risk
As of December 31, 1996, the Company had cash deposits with financial
institutions of $3,223,369 in excess of the amount insured by the Federal
Deposit Insurance Corporation. Management believes that credit risk in these
deposits is minimal.
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.
Fair Value of Financial Instruments
The carrying values of cash, receivables, payables, and accrued liabilities
approximate the fair values of these instruments because of their short-term
maturities. The carrying value of the Company's debt also approximates fair
value as interest rates on the Company's existing debt approximates market.
Redeemable preferred stock is not traded in the open market and as such, a
market price is not readily available.
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.
Financial Statement Presentation
Certain prior year financial statement items of Capstar Radio have been
reclassified to conform to the current year presentation.
F-51
<PAGE> 225
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DEPRECIABLE DECEMBER 31,
LIFE MARCH 31, -------------------------
(YEARS) 1997 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Land................................... -- $ 1,273,391 $ 1,203,022 $ 358,958
Building and building improvements..... 5 to 20 3,185,731 2,128,101 994,998
Broadcast and other equipment.......... 3 to 20 16,191,879 13,259,746 6,458,201
Equipment under capital lease
obligations.......................... 3 to 5 605,730 358,944 171,138
----------- ----------- -----------
21,256,731 16,949,813 7,983,295
Less accumulated depreciation and
amortization......................... (3,771,949) (3,252,650) (1,896,612)
----------- ----------- -----------
$17,484,782 $13,697,163 $ 6,086,683
=========== =========== ===========
</TABLE>
Depreciation expense for the three-month periods ended March 31, 1997 and
1996 and the years ended December 31, 1996, 1995 and 1994 was $519,299,
$370,549, $1,361,564, $580,336 and $393,871, respectively.
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Noncompete agreements......................... $ 2,735,000 $ 1,335,000 $ 1,085,000
FCC licenses.................................. 78,972,867 61,052,844 32,499,190
Favorable tower and facility leases........... 406,817 406,817 406,817
Organization and start-up costs............... 360,718 360,718 360,718
----------- ----------- -----------
82,475,402 63,155,379 34,351,725
Less accumulated amortization................. (3,267,546) (2,785,695) (1,303,689)
----------- ----------- -----------
$79,207,856 $60,369,684 $33,048,036
=========== =========== ===========
</TABLE>
The significant change in intangible assets between periods is due to
acquisitions of broadcast properties.
Amortization expense for intangible assets for the three-month periods
ended March 31, 1997 and 1996 and the years ended December 31, 1996, 1995 and
1994 was $481,851, $306,391, $1,448,113, $553,565 and $317,751, respectively.
5. DISPOSITIONS OF BROADCASTING PROPERTIES:
Effective June 1, 1992, the Company entered into a broadcast time brokerage
agreement for a period of five years to lease the KLTN-FM station in Port
Arthur, Texas, to another broadcasting company. Under the terms of the
agreement, the time broker had the option to purchase the FCC license and
broadcast facilities for a price which escalated from $3,375,000 to $4,500,000.
On June 16, 1995, the time broker exercised the option to purchase the KLTN-FM
station in Port Arthur, Texas, for cash in the amount of $3,650,000, resulting
in a gain of $2,389,567. In connection with this transaction, the purchaser also
assumed the Company's obligation for a tower lease. The Company recorded time
brokerage revenues prior to the sale of the KLTN-FM station of approximately
$275,000 and $630,000 for the years ended December 31, 1995 and 1994,
respectively.
F-52
<PAGE> 226
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1996, the Company entered into an agreement to exchange KLTX-FM
and $1.3 million in cash, including acquisition costs, for KCKR-FM. The exchange
has been accounted for using the fair values of the assets exchanged plus the
$1.3 million of additional cash, including acquisition costs, and was allocated
to the net assets acquired based upon their estimated fair market values.
6. ACQUISITIONS OF BROADCASTING PROPERTIES:
During the three months ended March 31, 1997 and the years ended December
31, 1996, 1995 and 1994, the Company acquired numerous broadcasting properties,
all of which have been accounted for as purchases and, accordingly, the results
of operations associated with the acquired properties have been included in the
accompanying consolidated financial statements from the dates of acquisition.
Acquisition activity during the periods is as follows:
<TABLE>
<CAPTION>
DATE OF
PROPERTY ACQUIRED ACQUISITION PURCHASE OF COST
----------------- -------------- ------------ -----------
<S> <C> <C> <C>
1997 (Unaudited):
KNCN-FM....................................... January 1997 Assets $ 2,289,873
KFYO-FM, KZII-FM.............................. February 1997 Assets 3,209,375
KTRA-FM, KDAG-FM, KCQL-AM, KKFG-FM............ March 1997 Assets 5,407,469
KKIX-FM, KKZQ-FM.............................. March 1997 Assets 11,478,952
-----------
$22,385,669
===========
</TABLE>
Unaudited proforma results of the Company for the aforementioned
acquisitions which were completed during the three months ended March 31, 1997,
which were accounted for using the purchase method of accounting, and the
aforementioned disposition as if they were purchased or sold on January 1, 1996
are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1997 1996
---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net revenue................................................. $11,364 $9,118
======= ======
Operating income (loss)..................................... $ (845) $ 551
======= ======
Net loss.................................................... $(2,553) $ (105)
======= ======
</TABLE>
F-53
<PAGE> 227
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DATE OF
PROPERTY ACQUIRED ACQUISITION PURCHASE OF COST
----------------- -------------- ------------ -----------
<S> <C> <C> <C>
1996:
KKAM-AM, KFMX-FM, KRLB-FM, KBRQ-FM,
KIIZ-FM, KLTX-FM, WTAW-AM, KTSR-FM......... April 1996 Common stock $ 1,064,581
WACO-AM, WACO-FM.............................. July 1996 Assets 4,037,165
KRYS-AM, KRYS-FM, KMXR-FM..................... July 1996 Assets 6,305,256
KLUB-FM....................................... July 1996 Assets 315,399
KAFX-FM....................................... August 1996 Assets 728,243
KTYL-FM....................................... August 1996 Assets 2,061,477
KISX-FM....................................... September 1996 Assets 1,551,393
KCKR-FM....................................... September 1996 Assets 1,812,164
KWTX-AM, KWTX-FM.............................. November 1996 Assets 4,171,647
KEZA-FM....................................... December 1996 Assets 6,384,402
-----------
$28,431,727
===========
1995:
WJBO-AM, WLSS-FM.............................. November 1995 Common stock $ 8,025,288
WYNK-AM, WYNK-FM.............................. November 1995 Assets 11,908,067
KKMY-FM....................................... November 1995 Assets 1,586,167
-----------
$21,519,522
===========
1994:
KNUE-FM, KKYR-FM.............................. September 1994 Common stock $ 9,843,679
===========
</TABLE>
F-54
<PAGE> 228
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisitions are summarized in the aggregate by period as follows:
<TABLE>
<CAPTION>
1997 1996 1995 1994
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Consideration:
Cash and notes................. $21,350,000 $25,639,099 $19,628,631 $ 9,361,000
Common stock (2,325 shares).... -- 276,384 -- --
Preferred stock (7,500
shares)..................... -- -- 750,000 --
Acquisition costs.............. 1,035,669 2,045,938 1,140,891 482,679
Exchange of assets............. -- 470,306 -- --
----------- ----------- ----------- -----------
Total.................. $22,385,669 $28,431,727 $21,519,522 $ 9,843,679
=========== =========== =========== ===========
Assets acquired and liabilities
assumed:
Cash........................... $ -- $ 45,104 $ -- $ 637,819
Accounts receivable............ -- 1,059,713 28,297 745,521
Prepaid expenses and other..... -- 54,691 152,296 33,197
Property and equipment......... 3,065,646 7,127,228 3,352,602 817,098
Intangible assets.............. 19,320,023 29,144,077 21,088,284 9,224,333
Other assets................... -- 121,703 -- --
Accounts payable............... -- (109,147) -- --
Accrued liabilities............ -- (881,607) (249,692) (205,723)
Long-term debt................. -- (6,695,064) -- --
Capital lease obligations...... -- (32,559) (44,321) --
Deferred income taxes.......... -- (1,402,412) (2,807,944) (1,408,566)
----------- ----------- ----------- -----------
Total acquisition...... $22,385,669 $28,431,727 $21,519,522 $ 9,843,679
=========== =========== =========== ===========
</TABLE>
The following summarizes the unaudited consolidated pro forma data for the
years ended December 31, 1996 and 1995, as though these acquisitions had
occurred as of the beginning of 1995:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------- -------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues..................... $32,562,951 $38,918,951 $15,796,585 $34,363,585
Income (loss) before
extraordinary
loss........................... $(7,012,334) $(7,936,252) $ 1,569,781 $ (208,043)
Net income (loss)................ $(8,200,152) $(9,124,070) $ 1,569,781 $ (208,043)
</TABLE>
For purposes of the pro forma disclosures, dividends on preferred stock,
used to finance certain of the acquisitions, have been included in the pro forma
amounts as interest expense.
F-55
<PAGE> 229
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Term loan from a bank, bearing variable
interest as indicated below, interest
payments are due quarterly on prime rate
based loans or at the earlier of the
expiration of the applicable London
Interbank Offered Rate (LIBOR) period, or
in the case of a six-month LIBOR rate,
quarterly, principal due September 30,
1997, collateralized by substantially all
assets of the Company and common stock of
one of the Company's subsidiaries......... $ -- $ -- $ 6,000,000
Reducing revolver loan from a bank expiring
December 31, 1996, bearing variable
interest as indicated below (8.7% at
December 31, 1996), interest payments are
due quarterly on prime rate based loans or
at the earlier of the expiration of the
applicable LIBOR period, or in the case of
a six-month LIBOR rate, quarterly,
collateralized by substantially all assets
of the Company and common stock of one of
the Company's subsidiaries................ 76,093,620 53,793,620 30,146,311
Note payable in connection with acquisition,
9.5%, principal and interest payable at
date of Closing........................... 5,820,666 -- --
Note payable to a stockholder, bearing interest
at 6.87%, interest accretes into the note
quarterly, principal and interest due
January 1, 2002, collateralized by certain
assets of the Company..................... -- -- 1,153,729
Note payable, 8%, principal and interest
payable monthly through November 2008,
collateralized by certain assets of the
Company................................... 570,667 573,325 --
Other notes payable at various interest
rates..................................... 74,832 117,141 --
----------- ----------- -----------
82,559,785 54,484,086 37,300,040
Less current portion, as adjusted for
refinancing subsequent to December 31,
1996...................................... (213,683) (90,667) (2,107,390)
----------- ----------- -----------
$82,346,102 $54,393,419 $35,192,650
=========== =========== ===========
</TABLE>
Interest on the term loan and reducing revolver loan is calculated at the
Company's option of (1) the bank's prime rate plus a margin of 2% or (2) a one,
two, three, or six-month LIBOR rate plus a margin of 3.25%.
During 1996, the Company significantly modified the terms of its existing
reducing revolver loan and accelerated the maturity date from March 31, 2003 to
December 31, 1996. In connection with this modification,
F-56
<PAGE> 230
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company recognized an extraordinary charge in 1996 relating to the write off
of approximately $1,895,000 of unamortized deferred financing costs.
Subsequent to December 31, 1996, the Company entered into a financing
agreement with a syndicate of banks that permits the Company to borrow at any
time through March 31, 1998 up to $100,000,000 at variable rates (depending on
the Company's leverage ratio) ranging from the lesser of the bank's prime rate
plus .25% or LIBOR plus 1.5% to the lesser of the bank's prime rate plus 1.625%
or LIBOR plus 2.875%. The Company must pay an annual commitment fee of one-half
percent of the unused commitment. Borrowings under the financing agreement
mature ratably on a quarterly basis beginning June 30, 1998 and finishing June
30, 2004. Among other things, the agreement limits the level of capital
expenditures and operating leases and places the maintenance of certain leverage
ratios based on pro forma operating cash flow. In January 1997, the Company
borrowed amounts under the agreement sufficient to replace the reducing revolver
loan, and accordingly, amounts outstanding under the reducing revolver loan at
December 31, 1996 have been classified as long-term in the accompanying
consolidated financial statements.
Scheduled debt maturities for each of the next five calendar years and
thereafter are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 90,667
1998........................................................ 79,733
1999........................................................ 43,267
2000........................................................ 38,745
2001........................................................ 6,334,709
Thereafter.................................................. 47,896,965
-----------
$54,484,086
===========
</TABLE>
The reducing revolver loan contains certain covenants, including, among
others, limitations on the incurrence of additional debt, requirements to
maintain certain financial ratios, and restrictions on the payment of dividends.
8. REDEEMABLE PREFERRED STOCKS:
The Company has authorized 507,500 shares of $.01 par value per share
preferred stock. During 1995, 7,500 shares were designated 6% redeemable
convertible preferred shares and issued in connection with the acquisition of
broadcast properties. During 1996, 500,000 shares were designated 12% redeemable
preferred shares and issued for cash. The relevant preferences and terms of each
designation are described below.
6% Redeemable Convertible Preferred Stock
Holders of the Company's 6% redeemable convertible preferred stock are
entitled to receive annual cumulative dividends on October 31 of each year equal
to 6% of the liquidation value of $100 per share prior and in preference to any
dividend on common stock. Dividends are payable when and as declared by the
Company. Interest accrues on unpaid dividends at a rate of 5% per annum. Holders
are also entitled to a liquidation preference of $100 per share plus unpaid
dividends and interest. Holders may convert their shares into common shares of
the Company at any time. The conversion ratio is calculated by dividing the
liquidation value of $100 per share by the then fair market value per share of
the Company's common stock. The Company may at its option convert the preferred
shares to common shares upon the occurrence of certain events. Preferences of
the 6% redeemable convertible preferred stock are subordinate to those of the
Company's 12% redeemable preferred shares.
The Company may at its option any time after October 31, 1999, redeem the
6% redeemable convertible preferred shares for $100 per share. The Company has
also entered into a Put Rights Agreement whereby the
F-57
<PAGE> 231
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company has agreed to redeem the shares at any time through October 31, 1999
upon notice of the current holders at a rate of $100 per share plus unpaid
dividends and accrued interest.
The liquidation preference of the 6% redeemable convertible preferred
shares at December 31, 1996 amounted to $802,500 including accrued dividends.
Subsequent to December 31, 1996, the Company redeemed its 6% redeemable
convertible preferred stock for its then liquidation preference of $811,013.
12% Redeemable Preferred Stock
Holders of the Company's 12% redeemable preferred stock are entitled to
receive quarterly cumulative dividends equal to 12% of the liquidation value of
$50 per share per annum prior and in preference to any dividend on common stock
or other preferred shares. Dividends are payable when and as declared by the
Company. No interest accrues with respect to unpaid dividends. Any dividends due
on or before July 31, 2001 which are not declared and paid shall be added to the
liquidation preference and shall be deemed paid and not accumulate. Holders are
also entitled to a liquidation preference of $50 per share plus unpaid
dividends. Preferences of the 12% redeemable preferred stock are senior to those
of any other shares of capital stock of the Company.
The Company is required to redeem the preferred shares on July 31, 2006, at
the then liquidation preference of $50 per share plus unpaid dividends. The
Company may at its option redeem the preferred shares at any time at $50 per
share plus (1) a 6% premium through July 31, 1998; (2) a 4% premium through July
31, 2000, and (3) no premium thereafter, in all cases plus unpaid dividends.
The liquidation preference of the 12% redeemable preferred shares at
December 31, 1996 amounted to $26,250,000 including accrued dividends.
The preferred stock agreement contains certain restrictions which limit the
incurrence of additional debt, prohibit certain transactions and restrict
certain payments under certain conditions.
In connection with issuance of the 12% redeemable preferred shares, the
Company granted, to the holders of the preferred shares, warrants for the
purchase of 8,098 shares of the Company's common stock at a rate of $.01 per
share. Such warrants may be exercised at any time during the earlier to occur of
(1) the period beginning on January 31, 2003 and ending on July 31, 2003 or (2)
in the event of a sale of the Company or initial public offering of the
Company's capital stock.
Of the proceeds received from issuance of the preferred shares, $4,009,827
was assigned to the warrants and credited to additional paid-in capital in the
accompanying consolidated financial statements. Such value is being accreted to
redeemable preferred stock using the interest method over the period from
issuance to mandatory redemption.
9. COMMON STOCK
The Common Stock has one vote per share; the Class A and Class B Common
Stock have no voting rights; and the Class C Common Stock has ten votes per
share. The Common Stock may be converted at any time into shares of Class B
Common Stock. The Class B and Class C Common Stock may be converted at any time
into shares of Common Stock. The Class A Common Stock may be converted at any
time into shares of Common Stock or Class C Common Stock. The Company is
required to reserve and keep available out of its authorized but unissued Common
Stock such number of shares that will be deliverable upon the conversion of all
the then outstanding shares of Class A, Class B, Class C or Preferred Stock, and
issue additional shares of Common Stock as may be necessary upon such
conversion.
F-58
<PAGE> 232
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock subscriptions receivable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- --------
<S> <C> <C>
Promissory notes bearing interest at 9% per annum,
compounded annually; principal and accrued interest due
December 30, 2004, with accelerated payments required
under certain conditions; collateralized by certain
shares of stock of the Company........................... $ 277,023 $277,023
Promissory notes bearing interest at 9% per annum,
compounded annually; principal and accrued interest due
September 29, 2000, with accelerated payments required
under certain conditions; collateralized by certain
shares of stock of the Company........................... 31,103 31,103
Promissory notes bearing interest at 9% per annum,
compounded annually; principal and accrued interest due
April 16, 2006, with accelerated payments required under
certain conditions; collateralized by certain shares of
the Company.............................................. 297,190 --
Promissory notes bearing interest at 7.6% per annum,
compounded annually; principal and accrued interest due
October 15, 2006, with accelerated payments required
under certain conditions; collateralized by certain
shares of the Company.................................... 1,390,385 --
Accrued interest receivable related to these promissory
notes.................................................... 94,323 25,399
---------- --------
Total stock subscriptions receivable....................... $2,090,024 $333,525
========== ========
</TABLE>
In connection with these notes, the Company has issued 7,134, 1,101 and
5,131 shares of common stock in 1996, 1995 and 1994, respectively, for prices
ranging from $28 to $309 per share. In each case, the Company received recourse
and nonrecourse notes for 25% and 75% of the purchase price, respectively.
The Company has applied Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" in accounting for the stock issued.
The compensation cost that has been charged against income for its stock plan
was approximately $5,432,000 for 1996. For certain of the sales to employees
during 1996, compensation expense is considered unearned until the Company's
rights to repurchase the shares expire in accordance with the terms of
underlying securities purchase agreement. Such rights expire five years from the
date of the sale. Unearned compensation totaled $1,518,000 at December 31, 1996.
Had compensation cost for the Company's stock awards been determined based on
the fair value at the grant dates for awards under those plans using Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<S> <C>
Net loss -- as reported..................................... $8,200,152
Net loss -- pro forma....................................... $3,065,072
</TABLE>
F-59
<PAGE> 233
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES:
All of the Company's revenues were generated in the United States. The
components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
----------- ---------- --------
<S> <C> <C> <C>
Current:
Federal.......................................... $(1,111,940) $ 998,605 $189,746
State............................................ 242,856 97,799 18,583
Deferred:
Federal.......................................... 502,889 (58,226) 237,898
State............................................ 43,865 (5,702) 23,299
----------- ---------- --------
Total provision (benefit).......................... $ (322,330) $1,032,476 $469,526
=========== ========== ========
</TABLE>
$707,535 of benefit for income taxes was allocated to an extraordinary
item, loss on early extinguishment of debt, in the consolidated statement of
operations for the year ended December 31, 1996. For purposes of the foregoing
components of provision (benefit) for income taxes, such intra-period allocation
is treated to have affected the deferred components.
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 items for the following reasons:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
----------- ---------- --------
<S> <C> <C> <C>
U.S. federal income tax at statutory rate.......... $(2,493,785) $ 884,767 $378,793
State income taxes, net of federal benefit......... 189,236 60,784 27,642
Nondeductible compensation expense................. 1,846,839 -- --
Other items, primarily nondeductible expenses and
deferred tax adjustments......................... 135,380 86,925 63,091
----------- ---------- --------
$ (322,330) $1,032,476 $469,526
=========== ========== ========
</TABLE>
The net deferred tax liability consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment and intangible basis differences
and related depreciation and amortization.............. $6,727,822 $4,629,610
---------- ----------
Total deferred tax liabilities.................... 6,727,822 4,629,610
---------- ----------
Deferred tax assets:
Miscellaneous............................................. 181,750 168,958
Net operating loss carryforwards.......................... 1,293,977 --
---------- ----------
Total deferred tax assets......................... 1,475,727 168,958
Valuation allowance for deferred tax assets............... (450,188) --
---------- ----------
Net deferred tax assets........................... 1,025,539 168,958
---------- ----------
Net deferred tax liabilities...................... $5,702,283 $4,460,652
========== ==========
</TABLE>
The Company has net operating loss carryforwards for U.S. tax purposes of
$2,205,000, which expire in 2011. Additionally, the Company acquired
approximately $1,200,000 of net operating loss carryforwards in
F-60
<PAGE> 234
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
connection with the acquisition of certain subsidiaries. Such net operating loss
carryforwards expire in 2009 and 2010. The acquired net operating loss
carryforwards are SRLY to the acquired subsidiaries which generated the losses.
Due to the level of uncertainty regarding the ability of these subsidiaries to
generate sufficient taxable income to fully utilize these carryforwards, a
valuation allowance has been recorded related to such carryforwards. To the
extent such carryforwards are realized in the future, the recognized benefits
will be allocated to reduce intangible assets related to the acquired
subsidiaries. Management believes that it is more likely than not that the
Company will generate taxable income sufficient to realize the tax benefit
associated with future deductible temporary differences and the non-SRLY NOL
carryforwards prior to their expiration.
11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash paid during the period for:
Interest........................................ $4,862,693 $1,394,317 $ 643,835
Income taxes.................................... $ 998,989 $ 199,782 $ 56,751
Noncash investing and financing activities:
Liabilities assumed in connection with
acquisition of broadcasting properties....... $9,120,789 $3,101,957 $1,614,289
Issuance of capital stock in connection with
broadcasting property acquisitions........... $ 276,384 $ 750,000 $ --
Note receivable taken in connection with
broadcasting property acquisition............ $ -- $ -- $ 100,000
Financed property and equipment purchases....... $ 88,812 $ -- $ 110,669
Book value of assets exchanged in connection
with broadcast property acquisition.......... $ 470,306 $ -- $ --
Dividends and accretion on preferred stock...... $1,350,115 $ 7,500 $ --
Notes receivable and accrued interest taken in
connection with subscribed stock............. $1,744,999 $ 333,525 $ --
</TABLE>
12. EMPLOYEE BENEFIT PLAN:
The Company has a 401(k) Savings Plan (the "Plan"), whereby substantially
all employees with three months of service may contribute a percentage of their
compensation on a tax deferred basis. The Company matches employee contributions
at a rate of 50%, to an annual maximum of $200 per employee. Company expense
under the Plan was $22,283 and $12,528 for the years ended December 31, 1996 and
1995, respectively. No contributions under the Plan were made for the year ended
December 31, 1994.
13. COMMITMENTS:
The Company has acquired, under long-term capital lease obligations,
broadcast and other equipment with capitalized cost of $358,944 and $270,132 at
December 31, 1996 and 1995, respectively. The leases are noncancelable, with
options to purchase the equipment at the expiration of the lease. The capital
lease obligations bear interest at 9.4% to 15.2% with principal and interest due
in monthly installments through 2002.
The Company leases real property, office space, broadcasting equipment and
office equipment under various noncancelable operating leases. Certain of the
Company's leases contain escalation clauses, renewal options and/or purchase
options.
F-61
<PAGE> 235
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments under capital and noncancelable operating lease
agreements are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
<S> <C> <C>
1997........................................................ $107,132 $1,214,870
1998........................................................ 102,147 916,530
1999........................................................ 79,064 747,625
2000........................................................ 5,633 539,494
2001........................................................ 5,633 292,241
Thereafter.................................................. 469 1,101,400
-------- ----------
Total minimum lease payments................................ 300,078 $4,812,160
==========
Less amounts representing interest.......................... (52,027)
--------
Present value of future minimum lease payments, included as
current ($79,594) and noncurrent ($168,457) capital lease
obligations............................................... $248,051
========
</TABLE>
Rent expense was approximately $500,000, $290,000 and $216,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
14. CONTINGENCIES:
The Company is subject to various legal proceedings and claims that arise
in the ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not have a material
impact on the consolidated financial position or results of operations or cash
flows of the Company.
The Company is partially self-insured for employee medical insurance risks,
subject to specific retention levels. Self-insurance costs are accrued based
upon the aggregate of the estimated liability for reported claims and estimated
liabilities for claims incurred but not reported.
15. RELATED PARTY TRANSACTIONS:
On April 16, 1996, the Company acquired all of the outstanding capital
stock of Sonance Communications, Inc. ("Sonance") in exchange for 542 shares of
the Company's Class C Common Stock, 1,626 shares of the Company's Class A Common
Stock and approximately $619,000 of cash. Total consideration for the
acquisition, including acquisition costs, was approximately $1,065,000. The
primary assets of Sonance include broadcasting properties KKAM-AM, KFMX-FM,
KIIZ-FM, KLTX-FM, WTAW-AM and KTSR-FM. Liabilities of Sonance assumed by the
Company in connection with the acquisition approximated $7,627,000. The
controlling stockholder of the Company is a family member of the controlling
stockholder of Sonance. The majority stockholder of the Company, who is a family
member of both the controlling stockholder of the Company and the controlling
stockholder of Sonance was also the majority stockholder of Sonance.
The Company disbursed $178,500 and $132,624 to an affiliated entity during
the years ended December 31, 1995 and 1994, respectively, related to services
rendered in connection with the acquisition of various radio stations and for
certain administrative expenses.
Broker fees of $125,000 and consulting fees of $60,000 were disbursed to
affiliated entities in connection with the disposal of KLTN-FM on June 16, 1995.
As of December 31, 1996, the Company had made advances to an affiliated
company in the amount of approximately $277,000 which is included in accounts
receivable.
F-62
<PAGE> 236
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company recorded a charge of approximately $771,000 during 1996 in
connection with the write-off of a receivable from an entity owned by a family
member of the controlling stockholder of the Company. The charge is included in
other expense in the accompanying consolidated statement of operations.
16. SUBSEQUENT EVENTS:
As more fully described in Note 7, the Company's borrowing facility was
refinanced subsequent to December 31, 1996.
Subsequent to December 31, 1996, the Company acquired several broadcast
properties (KNCN, KZII, KFYO, KKIX, KKZQ, KTRA, KDAG, KCQL, KKFG) for aggregate
consideration of approximately $22,000,000. The Company previously operated five
of these stations under time brokerage agreements during 1996.
Subsequent to December 31, 1996, the Company entered into other agreements
for acquisition of three additional broadcast properties for aggregate
consideration of approximately $13.7 million. The Company currently operates all
of these broadcast properties under time brokerage agreements.
Subsequent to December 31, 1996, the Company reached an agreement to
dispose of two of its broadcast properties (WTAW-AM and KTSR-FM), previously
acquired through the acquisition of Sonance (Note 15), in exchange for 1,000
shares of the Company's Class C Common Stock. The stockholder to receive the
broadcast properties is a family member of the majority stockholder of the
Company. The related aggregate net assets of the broadcast properties
approximated $800,000 at December 31, 1996. The Company recorded revenues
related to these broadcast properties of approximately $1,703,000 during 1996.
On February 24, 1997, Thomas O. Hicks converted the 39,033 shares of Class
A Nonvoting Common Stock of GulfStar held by him to 39,033 shares of Class C
Voting Common Stock of GulfStar.
On March 4, 1997, GulfStar repurchased the 7,500 shares of GulfStar
Convertible Preferred Stock for an amount equal to the initial liquidation or
redemption value of $100 per share, plus dividends accrued to the date of
purchase in the amount of $8.135 per share, or an aggregate of $811,013. As a
result of this repurchase the 7,500 shares were retired and are no longer
authorized, resulting in only 500,000 authorized preferred shares, consisting of
500,000 outstanding shares of 12% Redeemable Preferred Stock.
17. SUBSEQUENT EVENTS (UNAUDITED):
Transactions (Unaudited)
On July 8, 1997, the Company entered into an agreement with Capstar
Broadcasting Corporation ("Capstar Broadcasting") whereby Capstar Broadcasting
acquired the Company through a merger (the "GulfStar Merger"). Capstar
Broadcasting then contributed the surviving entity in the GulfStar Merger
through Capstar Broadcasting Partners, Inc. to Capstar Radio Broadcasting
Partners, Inc. In conjunction with the GulfStar Merger, Capstar Broadcasting
paid the outstanding balance of the Company's financing agreement.
On July 3, 1997, the Company acquired KIOC in Beaumont, Texas for aggregate
consideration of approximately $2,700,000. The Company previously operated this
station under a time brokerage agreement during 1996.
On August 1, 1997, the Company acquired WBIU and KRVE in Baton Rouge,
Louisiana for aggregate consideration of approximately $7,300,000. The Company
previously operated these stations under time brokerage agreements during 1996.
Subsequent to March 31, 1997, the Company entered into various Local
Marketing Agreements ("LMA's") and contracts, pending FCC approval. While each
agreement is unique in its terms and conditions, generally under an LMA the
brokering station purchases substantially all of the commercial time available
on the brokered
F-63
<PAGE> 237
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
station and provides promotional and sales related services. The brokering
station may also provide programming. The brokering station pays a fee to the
brokered station for the services provided based upon a flat monthly amount
and/or an amount contingent on the net revenue or profit as calculated in the
agreement. The Company currently has LMA's or contracts pending FCC approval
with KZBB-FM in Ft. Smith, Arkansas; KLAW-FM and KZCD-FM in Lawton, Oklahoma;
KKCL-FM in Lubbock, Texas; KJEM-FM in Fayetteville, Arkansas; and KKTX-FM/AM in
Longview, Texas. The Company provided programming to and sold advertising time
on various stations that were under contract to purchase under LMA's.
Subsequent to March 31, 1997, the Company acquired several broadcast
properties (KIOC, KWHN, KMAG, KLLI, KYGL) for aggregate consideration of
approximately $10.0 million. The Company previously operated all of these
stations under time brokerage agreements.
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997.
F-64
<PAGE> 238
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Benchmark Communications
Radio Limited Partnership:
We have audited the accompanying combined balance sheets of Benchmark
Communications Radio Limited Partnership (as identified in Note 1) (collectively
"Benchmark") as of December 31, 1996 and 1995 and the related combined
statements of operations, changes in partners' equity (deficit), and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of Benchmark'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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Benchmark
as of December 31, 1996 and 1995 and the combined 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.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 8, 1997
F-65
<PAGE> 239
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
MARCH 31, --------------------------
1997 1996 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash.............................................. $ 4,020,802 $11,029,177 $ 825,403
Escrow deposit.................................... 330,393 150,000 --
Accounts receivable, net of allowance for doubtful
accounts of $323,369, $324,719 and $280,366,
respectively................................... 4,563,340 4,731,405 4,016,421
Due from related entities......................... 545,921 23,753 10,884
Prepaid expenses and other current assets......... 355,514 244,784 354,211
----------- ----------- -----------
Total current assets...................... 9,815,970 16,179,119 5,206,919
Property and equipment, net......................... 14,055,253 13,721,546 14,156,177
Investment in limited partnership................... 66,331 66,331 82,721
Intangible assets, net.............................. 46,041,437 43,788,173 30,204,762
Deferred acquisition costs.......................... 113,014 375,882 --
----------- ----------- -----------
Total assets.............................. $70,092,005 $74,131,051 $49,650,579
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses............. $ 2,491,703 $ 2,900,204 $ 1,645,018
Due to related entities........................... 1,564,493 2,865,164 65,345
Current portion of long-term debt................. 14,223,007 14,219,155 12,846,733
Obligations under capital leases, current
portion........................................ 55,868 78,984 114,451
----------- ----------- -----------
Total current liabilities................. 18,335,071 20,063,507 14,671,547
Long-term debt...................................... 29,849,426 29,841,341 14,127,693
Obligations under capital leases, net of current
portion........................................... 55,750 78,820 220,058
----------- ----------- -----------
Total liabilities................................. 48,240,247 49,983,668 29,019,298
----------- ----------- -----------
Commitments (Note 8)
Partners' capital................................... 21,851,758 24,147,383 20,631,281
----------- ----------- -----------
Total liabilities and partners' capital... $70,092,005 $74,131,051 $49,650,579
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-66
<PAGE> 240
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross broadcast revenue......... $ 6,999,900 $ 6,760,055 $29,697,028 $25,198,304 $17,621,955
Less agency commissions......... 555,850 542,832 2,441,800 2,051,455 1,449,843
----------- ----------- ----------- ----------- -----------
Net revenue................... 6,444,050 6,217,223 27,255,228 23,146,849 16,172,112
----------- ----------- ----------- ----------- -----------
Operating expenses:
Programming, technical and
news....................... 1,400,341 1,523,647 6,760,363 5,210,641 3,804,695
Sales and promotion........... 2,423,220 2,104,382 9,233,843 8,245,763 5,787,235
General and administrative.... 1,514,043 1,336,624 5,257,968 4,823,394 3,383,768
Depreciation and
amortization............... 1,336,402 1,329,982 5,320,258 5,005,245 4,149,542
Corporate expenses............ 265,076 818,671 1,513,438 1,271,455 569,480
----------- ----------- ----------- ----------- -----------
6,939,082 7,113,306 28,085,870 24,556,498 17,694,720
----------- ----------- ----------- ----------- -----------
Loss from
operations.......... (495,032) (896,083) (830,642) (1,409,649) (1,522,608)
Other income (expense):
Interest expense.............. (936,552) (646,212) (3,384,388) (2,519,578) (1,799,169)
Gain on sale of broadcasting
properties (Note 6b)....... -- -- 9,612,496 -- 1,437,817
Other, net.................... 60,660 58,092 678,636 (414,561) 96,920
----------- ----------- ----------- ----------- -----------
Net income (loss)............. $(1,370,924) $(1,484,203) $ 6,076,102 $(4,343,788) $(1,787,040)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-67
<PAGE> 241
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CHANGES
IN PARTNERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Balance, January 1, 1994............................. $(1,879,470) $13,165,680 $11,286,210
Capital contributions from partners................ (48,191) 9,163,878 9,115,687
Capital distributions to partners.................. (255,000) -- (255,000)
Net income (loss).................................. 233,554 (2,020,594) (1,787,040)
----------- ----------- -----------
Balance, December 31, 1994........................... (1,949,107) 20,308,964 18,359,857
Capital contributions from partners................ 961,516 6,253,441 7,214,957
Capital distributions to partners.................. (599,745) -- (599,745)
Net income (loss).................................. (300,171) (4,043,617) (4,343,788)
----------- ----------- -----------
Balance, December 31, 1995........................... (1,887,507) 22,518,788 20,631,281
Capital contributions from partners................ 800,000 -- 800,000
Capital distributions to partners.................. (1,260,000) (2,100,000) (3,360,000)
Net income (loss).................................. 2,137,845 3,938,257 6,076,102
----------- ----------- -----------
Balance, December 31, 1996........................... (209,662) 24,357,045 24,147,383
Capital distributions to partners (unaudited)...... (83,542) (841,159) (924,701)
Net income (loss) (unaudited)...................... (199,087) (1,171,837) (1,370,924)
----------- ----------- -----------
Balance, March 31, 1997 (unaudited).................. $ (492,291) $22,344,049 $$21,851,758
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-68
<PAGE> 242
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- -----------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $(1,370,924) $(1,484,203) $ 6,076,102 $ (4,343,788) $(1,787,040)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 1,336,402 1,329,982 5,320,258 5,005,245 4,149,542
Provision for doubtful accounts...................... 77,504 -- 332,487 280,760 342,038
Loss from investment in limited partnership.......... -- -- 16,490 7,381 7,914
Gain on sale of broadcast properties and equipment... -- -- (9,612,496) (4,766) (1,437,817)
Change in barter receivable/payable, net............. (105,399) (188,863) (83,433) 197,335 35,795
Changes in assets and liabilities, net of the effects
of acquired broadcasting properties:
Accounts receivable................................ 89,572 (62,959) (996,735) (1,528,818) (569,941)
Due from/due to related entities, net.............. (1,822,839) (417,397) 2,786,950 (332,505) 167,622
Prepaid expenses and other current assets.......... (110,730) (128,012) (109,427) (277,703) 42,261
Accounts payable and accrued expenses.............. (302,113) 456,846 1,375,292 635,184 (227,408)
----------- ----------- ------------ ------------ -----------
Net cash flows provided by (used in) operating
activities..................................... (2,208,527) (494,606) 5,105,488 (361,675) 722,966
----------- ----------- ------------ ------------ -----------
Cash flows from investing activities:
Purchases of property and equipment.................... (69,617) (82,618) (1,133,074) (1,140,417) (542,749)
Purchases of broadcasting properties................... (3,771,281) (7,754,829) (22,225,278) (16,535,198) (5,189,233)
Net proceeds from sales of broadcasting properties..... -- -- 14,123,152 -- 4,866,629
Capital contribution to limited partnerships........... -- -- -- -- 3,900,000
----------- ----------- ------------ ------------ -----------
Net cash flows provided by (used in) investing
activities..................................... (3,840,898) (7,837,447) (9,235,200) (17,675,615) 3,034,647
----------- ----------- ------------ ------------ -----------
Cash flows from financing activities:
Repayments of notes payable and capital leases......... (34,249) (122,006) (6,903,389) (9,341,629) (5,363,989)
Proceeds from borrowing under notes payable and
promissory notes..................................... -- 8,022,516 23,846,875 15,652,627 1,755,000
Distributions to partners.............................. (924,701) (24,299) (3,360,000) (599,745) (255,000)
Capital contributions for acquisition of broadcasting
properties........................................... -- -- 800,000 7,393,804 5,700,000
Cash paid for syndication costs........................ -- -- -- (178,847) (584,313)
Borrowings under line of credit........................ -- -- 647,075 215,535 --
Repayments under line of credit........................ -- -- (697,075) -- --
Proceeds from sale leaseback transaction............... -- -- -- -- 141,000
Proceeds from assumption of capital lease obligation... -- -- -- -- 28,000
----------- ----------- ------------ ------------ -----------
Net cash flows provided by financing
activities..................................... (958,950) 7,876,211 14,333,486 13,141,745 1,420,698
----------- ----------- ------------ ------------ -----------
Net increase (decrease) in cash.......................... (7,008,375) (455,842) 10,203,774 (4,895,545) 5,178,311
Cash, at beginning of period............................. 11,029,177 825,403 825,403 5,720,948 542,637
----------- ----------- ------------ ------------ -----------
Cash, at end of period................................... $ 4,020,802 $ 369,561 $ 11,029,177 $ 825,403 $ 5,720,948
=========== =========== ============ ============ ===========
Supplementary information:
Cash paid for interest................................. $ 946,455 $ 533,102 $ 3,459,331 $ 2,473,568 $ 1,363,052
Noncash activities:
Asset additions under capital lease obligations...... -- -- 15,882 16,936 211,371
Assumption of note payable in connection with fund
merger............................................. -- -- -- 500,000 --
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-69
<PAGE> 243
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH PERIODS ENDED
MARCH 31, 1997 AND 1996 ARE UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION:
The financial statements and following notes, insofar as they are
applicable to the three-month periods ended March 31, 1997 and 1996, and
transactions subsequent to February 8, 1997, the date of the Report of
Independent Accountants, are not covered by the Report of Independent
Accountants. In the opinion of management, all adjustments, consisting of only
normal recurring accruals considered necessary for a fair presentation of the
unaudited consolidated results of operations for the three-month periods ended
March 31, 1997 and 1996, have been included.
The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the entire year.
The accompanying financial statements include the combined radio station
holdings of Benchmark Communications Radio Limited Partnership (BCRLP), and
Benchmark Radio Acquisition Fund I Limited Partnership (BRAF I), Benchmark Radio
Acquisition Fund IV Limited Partnership (BRAF IV), Benchmark Radio Acquisition
Fund VII Limited Partnership (BRAF VII), and Benchmark Radio Acquisition Fund
VIII Limited Partnership (BRAF VIII) (collectively, Benchmark). BCRLP is a
Maryland limited partnership formed on June 1, 1991 to invest in and manage
radio stations and serves as the general partner for the four funds listed
above, as well as other funds not included in these combined financial
statements. Benchmark serves certain radio markets in Delaware, Maryland, South
Carolina, Virginia, Louisiana, Mississippi and Alabama.
All significant intercompany accounts and transactions have been
eliminated.
BENCHMARK RADIO ACQUISITION FUND I LIMITED PARTNERSHIP
BRAF I is a Maryland limited partnership formed on May 16, 1990, and
operates radio stations WDOV-AM, WDSD-FM and WSRV-FM.
BENCHMARK RADIO ACQUISITION FUND IV LIMITED PARTNERSHIP
BRAF IV is a Maryland limited partnership formed on December 10, 1992, to
operate radio stations and its 99.99999% owned subsidiary, Benchmark Radio
Acquisition Fund V Limited Partnership (BRAF V) (together, the Fund IV
Partnership). BRAF IV is the general partner in BRAF V and BCRLP is the limited
partner. The Fund IV Partnership operates radio stations WOSC-FM, WWFG-FM,
WCOS-AM/FM, WHKZ-FM, WVOC-AM, and KRMD-AM/FM.
BENCHMARK RADIO ACQUISITION FUND VII LIMITED PARTNERSHIP
BRAF VII is a Maryland limited partnership formed on June 20, 1994, and
operates WESC-AM/FM, WFNQ-FM and WJMZ-FM.
BENCHMARK RADIO ACQUISITION FUND VIII LIMITED PARTNERSHIP
BRAF VIII is a Maryland limited partnership formed on November 15, 1994,
and operates WUSQ-FM, WNTW-AM, WYYD-FM, WROV-AM/FM and WFQX-FM.
On January 1, 1995, Benchmark Radio Acquisition Fund II Limited Partnership
(BRAF II), which owned WUSQ-FM and WNTW-AM in Winchester, Virginia, and
Benchmark Radio Acquisition Fund VI Limited Partnership (BRAF VI), which owned
WFQX-FM in Front Royal, Virginia, were merged into BRAF VIII. The limited
partners of BRAF II and BRAF VI collectively received approximately 33 units, of
the total of 73 units, in BRAF VIII. The merger has been accounted for in a
manner similar to a pooling of interests, whereby the net assets of the merged
partnerships are recorded at their carrying amounts at the time of the merger.
F-70
<PAGE> 244
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 Benchmark are included in accounts payable and accounts receivable,
respectively.
INVESTMENT IN LIMITED PARTNERSHIP
Investment in limited partnership (representing BRAF Fund III which is not
included in these combined financial statements) is accounted for using the
equity method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is determined using the straight-line method
based upon the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Buildings................................................... 39
Building improvements....................................... 13 - 39
Broadcast equipment......................................... 5 - 25
Furniture, fixtures and equipment........................... 5 - 10
</TABLE>
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.
INTANGIBLE ASSETS
Intangible assets are stated at cost, less accumulated amortization.
Amortization is determined using the straight-line method based upon the
estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
YEARS
-----------------------
<S> <C>
Licenses and authorization costs....................... 25
Organization costs..................................... 5
Deferred financing costs............................... Life of respective loan
Noncompete agreements.................................. 5
Goodwill............................................... 25
Other.................................................. 1-5
</TABLE>
Benchmark evaluates intangible assets for potential impairment by analyzing
the operating results, trends and prospects of the business, as well as
comparing them to their competitors. Benchmark also takes into consideration
recent acquisition patterns within the broadcast industry as well as the impact
of recently enacted or potential Federal Communications Commission (the FCC)
rules and regulations and any other events or circumstances which might indicate
potential impairment.
F-71
<PAGE> 245
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
ADVERTISING COSTS
Benchmark incurs various marketing and promotional costs to add and
maintain listenership. These costs are expensed as incurred or deferred and
amortized over the interim periods which they benefit and totaled approximately
$1.6 million, $1.6 million and $1.2 million for the years ended December 31,
1996, 1995 and 1994, respectively.
CONCENTRATION OF CREDIT RISK
Benchmark's revenue and accounts receivable primarily relate to advertising
of products and services within the radio stations' broadcast areas. Benchmark's
management performs ongoing credit evaluations of the customers' financial
condition and, generally, requires no collateral from their customers. Credit
losses have been within management's expectations and adequate allowances for
any uncollectible trade receivables are maintained.
INCOME TAXES
Benchmark is comprised of limited partnerships which are exempt from
federal and state income taxes. Accordingly, no provision for income taxes has
been made in the accompanying financial statements as all items of tax
attributes pass through pro rata to each partner in accordance with the
partnership agreements.
3. UNCERTAINTIES AND 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 the
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.
On February 8, 1996, the President signed into law the Telecommunications
Act of 1996. Among other things, this legislation requires 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 ultimate effect of this legislation on the competitive environment
is currently undeterminable.
4. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Land...................................................... $ 1,489,647 $ 1,532,116
Tower, building and improvements.......................... 5,588,771 5,357,989
Broadcast equipment....................................... 9,936,338 10,087,239
Office furniture and fixtures............................. 1,137,222 1,245,332
Equipment under capital leases............................ 321,638 293,174
Vehicles.................................................. 281,305 310,742
Computer equipment........................................ 603,496 516,604
----------- -----------
19,358,417 19,343,196
Less accumulated depreciation............................. (5,636,871) (5,187,019)
----------- -----------
$13,721,546 $14,156,177
=========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1996, 1995 and 1994
was $2,409,696, $2,227,478 and $1,680,039, respectively.
F-72
<PAGE> 246
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. INTANGIBLE ASSETS:
Intangible assets at December 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Licenses and authorization costs......................... $ 42,423,027 $28,335,031
Organization costs....................................... 2,801,440 2,339,639
Deferred financing costs................................. 688,971 460,610
Noncompete agreements.................................... 4,685,668 4,785,669
Goodwill................................................. 2,430,590 2,258,490
Other.................................................... 1,254,282 1,536,518
------------ -----------
54,283,978 39,715,957
Less accumulated amortization............................ (10,495,805) (9,511,195)
------------ -----------
$ 43,788,173 $30,204,762
============ ===========
</TABLE>
Amortization expense for the years ended December 31, 1996, 1995 and 1994
was $2,910,562, $2,777,767 and $2,469,503, respectively.
6A. ACQUISITIONS OF BROADCASTING PROPERTIES:
On January 19, 1995, BRAF VIII purchased substantially all the assets of
WYYD-FM for approximately $8.5 million, including acquisition costs and an
agreement by the seller not to compete with the station. 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>
<CAPTION>
<S> <C>
Assets acquired:
Property and equipment.................................... $1,059
Goodwill and other intangibles............................ 7,441
------
Purchase price.............................................. $8,500
======
</TABLE>
On February 10, 1995, BRAF IV purchased substantially all of the assets of
WVOC-AM for approximately $2.5 million including acquisition costs and an
agreement by the seller not to compete with the station. 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>
<CAPTION>
<S> <C>
Assets acquired:
Property and equipment.................................... $1,006
Goodwill and other intangibles............................ 1,494
------
Purchase price.............................................. $2,500
======
</TABLE>
On March 1, 1995, BRAF VII purchased substantially all the assets of
WESC-AM/FM for approximately $8.1 million, including acquisition costs and an
agreement by the seller not to compete with the station. The acquisition has
been accounted for as a purchase and, accordingly, the results of operations
associated with the acquired assets have been included in the accompanying
statements from the date of acquisition.
F-73
<PAGE> 247
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired:
Property and equipment.................................... $3,447
Goodwill and other intangibles............................ 4,653
------
Purchase price.............................................. $8,100
======
</TABLE>
On January 1, 1996, BRAF VIII purchased substantially all the assets of
WROV-AM/FM for approximately $5.8 million, including acquisition costs and an
agreement by the seller not to compete with the stations. 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:
Property and equipment.................................... $1,388
Goodwill and other intangibles............................ 4,412
------
Purchase price.............................................. $5,800
======
</TABLE>
On November 27, 1996, BRAF IV purchased substantially all the assets of
KRMD-AM/FM in Shreveport, Louisiana (Shreveport) for approximately $7.5 million,
including acquisition costs and an agreement by the seller not to compete with
the stations. 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 statement from the date of the acquisition.
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired:
Property and equipment.................................... $1,330
Goodwill and other intangibles............................ 6,170
------
Purchase price.............................................. $7,500
======
</TABLE>
On December 9, 1996, BRAF VII purchased substantially all the assets of
WJMZ-FM in Greenville, South Carolina (Greenville) for approximately $7.5
million, including acquisition costs and an agreement by the seller not to
compete with the station. 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 the
acquisition.
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired:
Property and equipment.................................... $ 903
Goodwill and other intangibles............................ 6,597
------
Purchase price.............................................. $7,500
======
</TABLE>
UNAUDITED
On March 11, 1997, BRAF IV purchased substantially all the assets of
WSCQ-FM in the Columbia, South Carolina market for approximately $4.1 million,
including acquisition costs. The acquisition has been accounted for as a
purchase and, accordingly, the results of operations associated with the
acquired assets have been included in the accompanying statements from the date
of acquisition.
F-74
<PAGE> 248
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired:
Property and equipment.................................... $ 736
Goodwill and other intangibles............................ 3,364
------
Purchase price.............................................. $4,100
======
</TABLE>
The following table presents the operating results of Benchmark for the
three months ended March 31, 1997 and 1996, compared to pro forma operating
results for such periods, reflecting the acquisition of WSCQ-FM. The unaudited
pro forma information presents combined operating results as though the
acquisition of WSCQ-FM and acquisitions completed during 1996 had occurred at
the beginning of the period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
------------------- -------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
------ --------- ------ ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue............................... $6,440 $6,647 $6,217 $6,525
Net loss.................................. $1,371 $1,457 $1,484 $1,520
</TABLE>
The following summarizes the combined historical and unaudited pro forma
data for the years ended December 31, 1996 and 1995, as though Benchmark's
acquisitions of WYYD-FM, WVOC-AM, WESC-AM/FM, WROV-AM/FM, KRMD-AM/FM and
WJMZ-FM, had occurred as of January 1, 1995 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------- -----------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net revenue............................. $27,255 $30,002 $23,147 $30,615
Net income (loss)....................... $ 6,076 $ 7,334 $(4,344) $(3,352)
</TABLE>
6b. RADIO BROADCASTING DISPOSITIONS:
During 1994, Benchmark sold substantially all of the assets of WZNY-FM and
WXFQ-FM/WGUS-AM for $3,600,000 and $1,284,700, respectively, and had recorded
gains of $1,316,741 and $121,076, respectively.
In October 1996, BRAF IV sold substantially all of the assets of WLTY-FM,
WTAR-AM and WKOC-FM for $14.1 million, net of closing costs of approximately
$500,000. Benchmark received cash proceeds from the sale and, in November 1996,
acquired the assets of KRMD-AM/FM valued at $7.5 million. BRAF IV recorded a
gain of $9.6 million.
F-75
<PAGE> 249
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. DEBT:
Debt at December 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
BRAF I:
Term note, maximum principal amount of $4,700,000;
interest at bank's prime plus applicable margin ranging
from 1/2% to 1 1/2% (9.75% at December 31, 1996 and
1995), due in full on December 31, 2002................ $ 4,249,986 $ 2,269,761
BRAF IV:
Revolving line of credit, maximum principal amount of
$13,500,000; interest at LIBOR plus 2% -- 2 3/4% (8.2%
at December 31, 1996 and 7.4% at December 31, 1995),
due in full on June 30, 1997........................... 11,900,039 10,600,038
Subordinated promissory note, maximum principal amount of
$500,000; interest at 10% per annum due quarterly; due
in full on October 23, 1996............................ -- 437,500
Notes payable for vehicles................................ 12,361 30,594
Subordinated promissory note, maximum principal amount of
$1,200,000; interest at 8.25% per annum due monthly;
due in full in October 1996; personally guaranteed by
the general partners of BCRLP.......................... -- 1,200,000
BRAF VII:
Bank debt; interest at 8.4% per annum due monthly; due in
full on June 1, 1999; paid in full on December 9,
1996................................................... -- 3,325,998
Line of credit agreement, maximum principal amount of
$200,000; interest at bank's prime plus 2% (8.25% at
December 31, 1995); due in full on January 1, 1997;
paid in full on December 9, 1996....................... -- 50,000
Note payable to Fund III Acquisition Sub. (See Note 12),
maximum principal amount of $12,600,000, interest due
monthly at prime plus 1% (9.25% at December 31, 1996)
due in full on March 9, 1998........................... 12,600,000 --
BRAF VIII:
Revolving line of credit, maximum principal amount of
$14,500,000; interest at bank's prime rate plus
applicable margin ranging from 1/4% to 1/2% (8.63% at
December 31, 1996 and 8.75% at December 31, 1995) per
annum due monthly; due in full in December 2002........ 13,198,441 8,325,000
Subordinated promissory note, maximum principal amount of
$500,000; interest at 8% per annum payable monthly; due
in full on August 31, 1997............................. 425,000 475,000
Subordinated promissory note, maximum principal amount of
$1,500,000; interest at bank's prime plus 1% (8.9% at
December 31, 1996 and 9.25% at December 31, 1995); due
in full on January 1, 2001............................. 1,500,000 --
Notes payable for vehicles................................ 14,134 --
</TABLE>
F-76
<PAGE> 250
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
BCRLP:
Note payable, maximum principal amount of $75,000;
interest at 7% per annum due monthly; due in full on
demand; guaranteed jointly and severally by certain
general and limited partners of BCRLP.................. 75,000 75,000
Note payable, maximum principal amount of $37,500 assumed
from an affiliated entity; due in full on demand (See
Note 10)............................................... 20,000 20,000
Revolving line of credit, maximum principal amount of
$250,000; interest at bank's prime rate (8.25% at
December 31, 1996 and 8.5% at December 31, 1995); due
in full on demand...................................... 65,535 165,535
----------- -----------
44,060,496 26,974,426
Less: Current portion..................................... 14,219,155 12,846,733
----------- -----------
$29,841,341 $14,127,693
=========== ===========
</TABLE>
Borrowings were primarily used to finance the acquisition of additional
stations and are collateralized by substantially all of Benchmark's assets.
The various agreements impose restrictive covenants on Benchmark with
respect to, among other things, the maintenance of certain financial ratios and
limits on capital expenditures, new indebtedness, investments and disposition of
assets. Benchmark was in compliance with all such financial covenants or had
obtained waivers for any items of noncompliance as of December 31, 1996.
At December 31, 1996 the aggregate amounts of debt due during the next five
years are as follows:
<TABLE>
<S> <C>
1997........................................................ $14,219,155
1998........................................................ 14,767,925
1999........................................................ 2,766,704
2000........................................................ 3,217,662
2001........................................................ 5,421,900
2002 and thereafter......................................... 3,667,150
-----------
$44,060,496
===========
</TABLE>
8. LEASES AND OTHER COMMITMENTS:
Effective May 22, 1992, BRAF I entered into a participation agreement with
the General Manager of WDSD-FM, WDOV-AM and WSRV-FM which provides for the
General Manager to receive a portion (based upon certain vesting criteria) of
the "Net Sales Proceeds," as defined, in the event that the stations are sold or
a percentage of adjusted cash flow (as defined in the agreement) in the event
that the General Manager ceases to be employed by BRAF I. At December 31, 1996,
Benchmark had recorded an expense of $140,000 related to this participation
agreement due to the agreement dated December 9, 1996 to sell the stations. See
Note 12.
Benchmark leases certain transmitting tower facilities, vehicles, and
office space under various operating leases.
F-77
<PAGE> 251
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments (which reflect leases having noncancelable
lease terms in excess of one year) are as follows for the year ended December
31:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
<S> <C> <C>
1997........................................................ $100,821 $ 346,575
1998........................................................ 69,316 276,964
1999........................................................ 10,156 204,000
2000........................................................ 7,090 155,212
2001........................................................ -- 53,195
Thereafter.................................................. -- 97,171
-------- ----------
Total............................................. 187,383 $1,133,117
==========
Less amount representing interest........................... (29,579)
--------
Present value of minimum lease payments..................... 157,804
Less current portion........................................ (78,984)
--------
Obligations under capital leases, net of current portion.... $ 78,820
========
</TABLE>
Rental expense under operating leases for the years ended December 31,
1996, 1995 and 1994 was approximately $365,000, $414,000 and $366,000,
respectively.
9. PROFIT SHARING PLAN:
The employees of Benchmark are included in a 401(k) profit sharing plan
(the "Plan"). All full-time employees of Benchmark who have attained the age of
21 years are eligible for participation in the Plan after one year and one
thousand hours of service. The Plan allows the employees to defer up to 16% of
their compensation through a salary reduction arrangement. Benchmark makes a
matching contribution equal to 25% of the employees' salary reduction. In
addition, Benchmark may make a discretionary contribution to the Plan.
Participation in the Plan is subject to a five year vesting schedule. During the
years ended December 31, 1996, 1995 and 1994, Benchmark's combined expense
related to the Plan was approximately $85,900, $70,700 and $40,300,
respectively.
10. RELATED PARTY TRANSACTIONS:
The various entities defined in Note 1 are involved in certain transactions
with each other related to sharing of services and purchasing. These
transactions are settled on a current basis through adjustments to partners'
equity accounts.
In February 1996, BRAF VII borrowed $1,500,000 from a limited partner to
finance the escrow deposit for the acquisition of WJMZ-FM (Greenville). The note
was paid in full on December 9, 1996. In connection with such debt, interest
expense of $287,436 was recorded for the year ended December 31, 1996.
As of July 1, 1992, BCRLP assumed $37,500 of a note payable to limited
partners in Benchmark made by an affiliated entity. Interest expense related to
this note was immaterial for the years ended December 31, 1996, 1995 and 1994,
respectively.
11. LITIGATION:
Benchmark is the plaintiff or the defendant in several legal actions, the
probable outcomes of which are not considered material, either individually or
in the aggregate.
F-78
<PAGE> 252
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
12. PENDING SALE OF BENCHMARK AND OTHER TRANSACTIONS (UNAUDITED):
On December 9, 1996, Benchmark agreed to be acquired by Capstar Radio
Broadcasting Partners, Inc. (Capstar Radio), a Delaware corporation, through an
acquisition affiliate, Fund III Acquisition Sub. In June, 1997, the FCC approved
the sale. The purchase price will equal approximately $176.2 million and is
subject to adjustment. The sale is expected to be completed in August 1997. In
connection with the sale, a general partner will receive 1,538,461 shares of
Capstar Class A Common Stock in lieu of cash, in consideration of a portion of
his ownership interest in Benchmark. In the event the acquisition is terminated
by Capstar or its affiliates, Benchmark could be entitled to certain liquidation
damages up to approximately $8.2 million. No adjustments have been made to the
combined financial statements to reflect the pending sale, except as described
in Note 8 relating to the participation agreement.
Benchmark and certain other related entities (BRAF IX, BRAF X and BRAF XI)
under common control of the Benchmark General Partners also have agreed to
acquire two radio stations in the Montgomery, Alabama market (the "Benchmark
Montgomery Acquisition") for an aggregate cash price of approximately $17.0 to
$18.0 million. The acquisition was completed in April 1997.
In May 1996, BRAF IX entered into an agreement to acquire substantially all
the assets and certain liabilities of WFMX-FM and WSIC-AM in Statesville, North
Carolina (Statesville) for an aggregate cash price of approximately $9.6
million. Liabilities assumed were limited to certain ongoing contractual rights
and obligations. The acquisition was completed in January 1997.
In September, 1996, BRAF X entered into an agreement to acquire
substantially all the assets and certain liabilities of WJMI-FM, WKXI-AM/FM and
WOAD-FM in Jackson, Mississippi (Jackson) for an aggregate cash price of
approximately $15.0 million. Liabilities assumed were limited to certain ongoing
contractual rights and obligations. The acquisition was completed in December
1996.
As part of the acquisition of Benchmark by Capstar Radio and Fund III
Acquisition Sub, BRAF VII, (along with certain other partnerships not included
in these combined financial statements, specifically referred to as BRAF IX,
BRAF X and BRAF XI) entered into separate senior credit agreements with Fund III
Acquisition Sub. Under these agreements, BRAF VII, BRAF IX, BRAF X and BRAF XI
can collectively borrow up to approximately $60.0 million. Approximately $60.0
million has been loaned to BRAF VII , BRAF IX and BRAF X, net of expenses, of
which approximately $12.6 million as of December 31, 1996 has been loaned to
BRAF VII, to consummate the acquisition of substantially all of the assets of
WJMZ-FM (Greenville) and to refinance debt, and, during January 1997, the
remainder has been borrowed by BRAF IX, BRAF X, and BRAF XI to consummate the
acquisitions of Statesville, Jackson, and Montgomery and for working capital
purposes.
F-79
<PAGE> 253
MADISON RADIO GROUP
CONDENSED BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 347,800
Certificate of deposit.................................... 93,441
Accounts receivable, net of $17,000 allowance for doubtful
accounts............................................... 1,310,973
Accounts receivable, related party........................ 103,688
Prepaid expenses.......................................... 39,139
-----------
Total current assets.............................. 1,895,041
Property and equipment, net................................. 2,738,963
Intangible assets, net...................................... 12,833,288
Other....................................................... 18,665
-----------
Total assets...................................... $17,485,957
===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 250,000
Accounts payable.......................................... 317,004
Accounts payable, related party........................... 232,026
Accrued expenses.......................................... 210,143
Trade payable, net........................................ 31,260
-----------
Total current liabilities......................... 1,040,433
Long-term debt.............................................. 13,250,000
Partners' equity............................................ 3,195,524
-----------
Total liabilities and partners' equity............ $17,485,957
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-80
<PAGE> 254
MADISON RADIO GROUP
CONDENSED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 2, 1997 TO MARCH 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Broadcasting revenue:
Gross revenue............................................. $2,269,996
Less agency commissions................................... 241,570
----------
Net broadcasting revenue.......................... 2,028,426
Operating expenses:
Sales and promotion....................................... 417,186
Programming, engineering and news......................... 613,666
General and administrative................................ 214,863
Depreciation and amortization............................. 376,204
Management fees and other expenses........................ 47,160
----------
1,669,079
----------
Operating income.................................. 359,347
Interest expense............................................ (347,906)
----------
Net income........................................ $ 11,441
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-81
<PAGE> 255
MADISON RADIO GROUP
CONDENSED STATEMENT OF PARTNERS' EQUITY
FOR THE PERIOD FROM JANUARY 2, 1997 TO MARCH 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Partners' initial capital contributions, January 2, 1997.... $ 7,146,583
Distribution to partner..................................... (3,962,500)
Net income for the period from January 2, 1997 to March 31,
1997...................................................... 11,441
-----------
Partners' equity, March 31, 1997............................ $ 3,195,524
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-82
<PAGE> 256
MADISON RADIO GROUP
CONDENSED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 2, 1997 TO MARCH 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Cash from operating activities:
Net income................................................ $ 11,441
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization.......................... 376,204
Changes in operating assets and liabilities:
Accounts receivable.................................. (1,310,973)
Prepaid expenses..................................... 19,466
Accounts payable and accrued expenses................ 562,282
Trade payable, net................................... 3,269
-----------
Net cash used in operating activities............. (338,311)
-----------
Cash flows from investing activities:
Advances to related party................................. (103,688)
Purchases of property and equipment....................... (36,381)
Capstar Broadcasting Partners, Inc. related costs......... (18,665)
-----------
Net cash used in investing activities............. (158,734)
-----------
Cash flows from financing activities:
Proceeds from term loan................................... 3,962,500
Distribution to partner................................... (3,962,500)
Proceeds from capital contributions....................... 612,819
Advances from related party............................... 232,026
-----------
Net cash provided by financing activities......... 844,845
-----------
Net increase in cash and cash equivalents......... 347,800
Cash and cash equivalents, beginning of period.............. --
-----------
Cash and cash equivalents, end of period.................... $ 347,800
===========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 347,906
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE> 257
MADISON RADIO GROUP
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Organization and Basis of Presentation: Madison Radio Group (the
"Company"), a general partnership, was formed on January 2, 1997, to own and
operate radio stations WIBA-AM, WIBA-FM, WMAD-FM, WZEE-FM, WMLI-FM and WTSO-AM,
servicing the Madison, Wisconsin area. At Madison Radio Group's inception, Point
Communications Limited Partnership ("Point") exchanged its broadcasting and real
estate assets of stations WIBA-AM, WIBA-FM, and WMAD-FM and $400,000 cash,
subject to its long-term debt, for a 50% partnership interest in the Company and
$3,962,500 cash (which was financed by Madison Radio Group borrowings).
Simultaneously, Midcontinent Broadcasting Company of Wisconsin, Inc.
("Midcontinent") exchanged its broadcasting and real estate assets of stations
WZEE-FM, WMLI-FM and WTSO-AM and $400,000 cash for the remaining 50% partnership
interest in the Company. The broadcasting and real estate assets exchanged were
recorded at the transferors' cost basis by the Company.
The Company's financial statements have been prepared in accordance with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses for the period presented. They also affect
the disclosures of contingencies. Actual results could differ from those
estimates.
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 the broadcast licenses. The ultimate effect of this
legislation on the competitive environment is currently undeterminable.
b. Cash Equivalents: For purposes of the Statement of Cash Flows, the
Company considers all highly liquid, short-term investments purchased with
original maturities of three months or less to be cash equivalents.
c. Property and Equipment: Property and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets, as follows: buildings and
improvements 5-39 years, tower and antennae 3-15 years, equipment 5-15 years,
and other 3-10 years. Expenditures for repairs are expensed while major
additions are capitalized. Upon sale or disposal, the asset cost and accumulated
depreciation are removed and any gain or loss is recognized in earnings.
d. Intangible Assets: Intangible assets are stated at cost and amortized on
a straight-line basis over their estimated useful lives, as follows:
FCC broadcast licenses -- 15 years. Accumulated amortization as of March
31, 1997 was $205,992.
Other intangibles -- 5-15 years. Accumulated amortization as of March 31,
1997 was $7,290.
Goodwill -- Goodwill acquired prior to November 1, 1970 ($374,223) is not
being amortized. Goodwill arising from acquisitions subsequent to November 1,
1970 is being amortized over 15-40 years. Accumulated amortization as of March
31, 1997, was $5,746.
Deferred financing costs -- loan term. Accumulated amortization as of March
31, 1997 was $12,737.
Organization costs -- 5 years. Accumulated amortization as of March 31,
1997 was $5,155.
On an ongoing basis, management evaluates the recoverability of the net
carrying value of intangible assets by reference to the Company's undiscounted
anticipated future cash flows.
e. Barter Transactions: The Company exchanges advertising airtime for goods
and services, as is customary in the broadcast industry. In accordance with
Statement of Financial Accounting Standards No. 63, "Financial Reporting by
Broadcasters", revenue is recognized as the advertising is broadcast at the
estimated fair
F-84
<PAGE> 258
MADISON RADIO GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
market value of goods or services received or to be received. The value of the
goods and services received in barter transactions is charged to expense when
received or used. Barter revenues and expenses approximated $42,000 for the
period from January 2, 1997 to March 31, 1997.
f. Revenue Recognition: Revenue from the sale of air-time is recognized at
the time the related program or advertisement is broadcast.
g. Concentration of Risk: The Stations operate within the Madison,
Wisconsin geographic area. They extend credit to their various customers in the
form of accounts receivable. The Company performs ongoing credit evaluations of
its customers and maintains an allowance for doubtful accounts based on factors
surrounding the credit risk of specific customers, historical trends and other
information.
h. Allocations and Distributions: The profits and losses of the Company are
being allocated among the partners, and cash flow from operations or cash from
capital transactions, if any, will be distributed to the partners in accordance
with the terms of the partnership agreement.
i. Income Taxes: No provision for federal or state income taxes has been
provided as the partners report their pro rata share of the partnership profits
or losses on their tax returns.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at March 31, 1997:
<TABLE>
<S> <C>
Land and improvements....................................... $277,058
Buildings................................................... 830,738
Tower and antennae.......................................... 833,199
Equipment................................................... 849,762
Other....................................................... 87,490
----------
2,878,247
Less accumulated depreciation............................... 139,284
----------
$2,738,963
==========
</TABLE>
Depreciation expense was $139,284 for the period from January 2, 1997 to
March 31, 1997.
3. INTANGIBLE ASSETS:
Intangible assets consisted of the following at March 31, 1997:
<TABLE>
<S> <C>
FCC broadcast licenses...................................... $11,210,008
Other intangibles........................................... 850,277
Goodwill.................................................... 720,010
Deferred financing costs.................................... 186,816
Organization costs.......................................... 103,097
-----------
13,070,208
Less accumulated amortization............................... 236,920
-----------
$12,833,288
===========
</TABLE>
F-85
<PAGE> 259
MADISON RADIO GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
4. LONG-TERM DEBT:
Long-term debt consisted of the following at March 31, 1997:
<TABLE>
<S> <C>
Term loan payable in quarterly installments of $250,000 to
$400,000 beginning January, 1998, with a balloon payment
of remaining balance due October 1, 2001.................. $13,500,000
Less current portion........................................ 250,000
-----------
$13,250,000
===========
</TABLE>
The term loan is subject to certain restrictive financial covenants,
including the maintenance of minimum broadcast operating cash flow amounts, and
limitations on additional indebtedness, capital expenditures, lease agreements,
investments and distributions to partners. The term loan is collateralized by
substantially all assets of the Company. The term loan bears interest at the
bank's reference rate plus 1.25%-2.50% subject to operating cash flow results
(the reference rate was 8.50% at March 31, 1997).
The carrying amount reported for long-term debt approximates fair value
since the underlying instrument bears interest at a variable rate that reprices
frequently.
The aggregate scheduled maturities of debt is as follows:
<TABLE>
<S> <C>
April 1, 1997 to December 31, 1997.......................... $ --
1998........................................................ 1,000,000
1999........................................................ 1,250,000
2000........................................................ 1,400,000
2001........................................................ 9,850,000
-----------
$13,500,000
===========
</TABLE>
5. OPERATING LEASES:
The Company leases vehicles, office equipment, office space and a tower
site under operating leases with future minimum rental payments as follows:
<TABLE>
<S> <C>
April 1, 1997 to December 31, 1997.......................... $ 62,924
1998........................................................ 67,512
1999........................................................ 67,512
2000........................................................ 67,512
2001........................................................ 38,707
Thereafter.................................................. 331,000
--------
$635,167
========
</TABLE>
Rental expense charged to operations was $27,230 for the period from
January 2, 1997 to March 31, 1997.
6. LETTER OF CREDIT:
At March 31, 1997, the Company had a letter of credit outstanding for
$90,000. The letter of credit can be drawn upon if the Company fails to make
payments due under the terms and conditions of a network agreement which expires
in May 1997. The Company has pledged a certificate of deposit as collateral for
the letter of credit.
F-86
<PAGE> 260
MADISON RADIO GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
7. SALE TO CAPSTAR RADIO BROADCASTING PARTNERS, INC.:
On February 4, 1997, the Company entered into an agreement to sell
substantially all the assets of its stations to Capstar Radio Broadcasting
Partners, Inc., a radio investment group. The closing of the transaction, which
is subject to various conditions and approvals as defined in the agreement, is
expected to occur in the fourth quarter of 1997.
During the period from January 2, 1997 to March 31, 1997, the Company
incurred $18,665 of costs directly related to the pending sale to Capstar Radio
Broadcasting Partners, Inc., which are included in other assets in the
accompanying balance sheet.
F-87
<PAGE> 261
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Capstar Radio Broadcasting Partners, Inc.:
We have audited the accompanying balance sheet of Midcontinent Broadcasting
Co. of Wisconsin, Inc. (the "Company") as of December 31, 1996, and the related
statements of income and retained earnings, 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 Midcontinent Broadcasting
Co. of Wisconsin, Inc. 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.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
February 3, 1997
F-88
<PAGE> 262
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash...................................................... $ 78,996
Accounts receivable, net of $34,143 allowance for doubtful
accounts............................................... 718,133
Prepaid expenses and other assets......................... 17,088
----------
Total current assets.............................. 814,217
Property and equipment, net................................. 686,433
Intangible assets, net...................................... 3,031,048
Other....................................................... 101,085
----------
Total assets...................................... $4,632,783
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 25,226
Accounts payable, related party........................... 7,083
Accrued expenses.......................................... 119,274
----------
Total current liabilities......................... 151,583
Due to Parent............................................... 1,369,004
Stockholder's equity:
Common stock, no par value, 2,500 shares authorized, 2,000
shares issued and outstanding.......................... 200,000
Retained earnings......................................... 2,912,196
----------
Total stockholder's equity........................ 3,112,196
----------
Total liabilities and stockholder's equity........ $4,632,783
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE> 263
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Broadcasting revenue:
Gross revenue............................................. $3,876,324
Less agency commissions................................... 430,031
----------
Net broadcasting revenue.......................... 3,446,293
Operating expenses:
Programming, technical and news........................... 988,406
Sales, advertising and promotion.......................... 1,221,541
General and administrative................................ 345,283
Depreciation and amortization............................. 405,091
----------
2,960,321
----------
Operating income....................................... 485,972
Other income:
Rental income............................................. 47,207
Other..................................................... 21,952
----------
69,159
----------
Income before income taxes............................. 555,131
Provision for income taxes.................................. 188,745
----------
Net income................................................ 366,386
Retained earnings:
Beginning of year......................................... 2,545,810
----------
End of year............................................... $2,912,196
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-90
<PAGE> 264
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 366,386
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 405,091
Changes in operating assets and liabilities:
Accounts receivable.................................. (240,785)
Prepaid expenses and other assets.................... 17,838
Accounts payable..................................... (56,069)
Accrued expenses..................................... (72,929)
---------
Net cash provided by operating activities......... 419,532
---------
Cash flows from investing activities:
Purchases of property and equipment....................... (66,893)
Madison Radio Group related costs......................... (101,085)
Other..................................................... (15,182)
---------
Net cash used in investing activities............. (183,160)
---------
Cash flows from financing activities:
Due to Parent............................................. (251,932)
---------
Net cash used in financing activities............. (251,932)
---------
Net decrease in cash.............................. (15,560)
Cash, beginning of year..................................... 94,556
---------
Cash, end of year........................................... $ 78,996
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-91
<PAGE> 265
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Organization and Basis of Presentation: Midcontinent Broadcasting Co. of
Wisconsin, Inc. (the "Company") is a wholly-owned subsidiary of Midcontinent
Broadcasting Co., which in turn is wholly-owned by Midcontinent Media, Inc. (the
"Parent"). The Company owns and operates radio stations WZEE-FM, WTSO-AM and
WMLI-FM (the "Stations") serving the Madison, Wisconsin area.
The Company's financial statements have been prepared in accordance with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses for the period presented. They also affect
the disclosures of contingencies. Actual results could differ from those
estimates.
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 the broadcast licenses. The ultimate effect of this
legislation on the competitive environment is currently undeterminable.
b. Property and Equipment: Property and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using accelerated and
straight-line methods over the estimated useful lives of the assets as follows:
buildings and improvements 5-39 years, tower and antennae 3-15 years, equipment
5-15 years, and other 3-10 years. Expenditures for repairs are expensed while
major additions are capitalized. Upon sale or disposal, the asset cost and
accumulated depreciation are removed and any gain or loss is recognized in
earnings.
c. Intangible Assets: Intangible assets are stated at cost and amortized on
a straight-line basis over their estimated useful lives, as follows:
FCC broadcast licenses -- 15 years. Accumulated amortization as of
December 31, 1996 was $190,903.
Goodwill -- Goodwill acquired prior to November 1, 1970 ($374,223) is
not being amortized. Goodwill arising from acquisitions subsequent to
November 1, 1970 is being amortized over 40 years. Accumulated amortization
as of December 31, 1996 was $88,098.
Other -- Five years. Accumulated amortization at December 31, 1996 was
$7,048.
On an ongoing basis, management evaluates the recoverability of the
net carrying value of intangible assets by reference to the Company's
undiscounted anticipated future cash flows.
d. Barter Transactions: The Company exchanges advertising airtime for goods
and services, as is customary in the broadcast industry. In accordance with
Statement of Financial Accounting Standards No. 63, "Financial Reporting by
Broadcasters", revenue is recognized as the advertising is broadcast at the
estimated fair market value of goods or services received or to be received. The
value of the goods and services received in barter transactions is charged to
expense when received or used. Barter revenues and expenses were approximately
$45,000 and $53,000, respectively, for 1996.
e. Revenue Recognition: Revenue from the sale of air-time is recognized at
the time the related program or advertisement is broadcast.
f. Concentration of Risk: The Stations operate within the Madison,
Wisconsin geographic area. They extend credit to their various customers in the
form of accounts receivable. The Company performs ongoing credit evaluations of
its customers and maintains an allowance for doubtful accounts based on factors
surrounding the credit risk of specific customers, historical trends and other
information.
F-92
<PAGE> 266
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
g. Income Taxes: The Company files a consolidated federal income tax return
with the Parent, which provides for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes",
which requires the liability method of accounting for deferred income taxes. The
consolidated provision for income taxes is allocated among the members of the
consolidated group based upon each member's pre-tax earnings compared to the
consolidated pre-tax earnings. The liability for income taxes is included in Due
to Parent in the accompanying balance sheet. At December 31, 1996, there was no
provision for deferred income taxes, as temporary differences between tax and
financial reporting bases of assets and liabilities are immaterial.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Land........................................................ $ 27,013
Buildings and improvements.................................. 520,077
Tower and antennae.......................................... 567,569
Equipment................................................... 1,249,975
Other....................................................... 66,262
----------
2,430,896
Less accumulated depreciation............................... 1,744,463
----------
$ 686,433
==========
</TABLE>
Depreciation expense was $211,319 in 1996.
3. INTANGIBLE ASSETS:
Intangible assets consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
FCC broadcast licenses...................................... $2,749,000
Goodwill.................................................... 532,523
Other intangibles........................................... 35,574
----------
3,317,097
Less accumulated amortization............................... 286,049
----------
$3,031,048
==========
</TABLE>
4. ACCRUED EXPENSES:
Accrued expenses consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Salaries, wages and benefits................................ $ 45,149
Property taxes.............................................. 38,367
Music license fees.......................................... 11,478
Professional fees........................................... 9,300
Other....................................................... 14,980
--------
$119,274
========
</TABLE>
F-93
<PAGE> 267
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES:
The provision for income taxes for 1996 consists of the following:
<TABLE>
<S> <C>
Currently payable
Federal................................................... $144,190
State..................................................... 44,555
--------
$188,745
========
</TABLE>
The following reconciles the statutory federal income tax rate with the
effective income tax rate:
<TABLE>
<S> <C>
Statutory federal income tax rate........................... 34.0%
State income tax, net....................................... 5.3
Effect of tax sharing arrangement among consolidated
group..................................................... (5.3)
-----
Effective income tax rate................................... 34.0%
=====
</TABLE>
6. EMPLOYEE BENEFIT PLAN:
The Company, along with other affiliated companies, participates in a
profit sharing plan for substantially all full-time employees who have at least
one year of service and have attained age 21. Company contributions, which are
based on a percentage of the compensation paid to eligible employees,
approximated $32,000 for 1996.
The Company is not obligated to provide any postretirement medical and life
insurance benefits or any other postretirement benefits to employees.
7. SUBSEQUENT EVENT:
On January 2, 1997, the Company exchanged its broadcasting and real estate
assets of stations WZEE-FM, WMLI-FM and WTSO-AM and $400,000 cash for a 50%
partnership interest in Madison Radio Group (a general partnership).
Simultaneously, Point Communications Limited Partnership ("Point"), a company
that also owns and operates radio stations serving the Madison, Wisconsin area,
exchanged its broadcasting and real estate assets of stations WMAD-FM, WIBA-FM
and WIBA-AM and $400,000 cash, subject to its long-term debt, for the remaining
50% partnership interest in Madison Radio Group, and $3,962,500 cash (which was
financed by Madison Radio Group borrowings). During 1996, the Company incurred
$101,085 of costs directly related to its investment in Madison Radio Group,
which are included in other assets on the accompanying balance sheet.
In February 1997, Madison Radio Group entered into an agreement to sell
substantially all the assets of its stations to Capstar Broadcasting Partners,
Inc., a radio investment group. The closing of this transaction, which is
subject to various conditions and approvals as defined in the agreement, is
expected to occur in the fourth quarter of 1997.
F-94
<PAGE> 268
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Point Communications Limited Partnership:
We have audited the accompanying balance sheet of Point Communications
Limited Partnership (the "Partnership") as of December 31, 1996, and the related
statement of operations, partners' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 Point Communications Limited
Partnership 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.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
February 3, 1997
F-95
<PAGE> 269
POINT COMMUNICATIONS LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 260,670
Certificate of deposit.................................... 93,441
Accounts receivable, net of $65,000 allowance for doubtful
accounts............................................... 1,309,154
Accounts receivable, related party........................ 59,320
Prepaid expenses.......................................... 43,064
-----------
Total current assets.............................. 1,765,649
Property and equipment, net................................. 2,339,617
Intangible assets, net...................................... 10,060,913
Other....................................................... 103,097
-----------
Total assets...................................... $14,269,276
===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 912,500
Accounts payable.......................................... 204,645
Accounts payable, related party........................... 15,765
Accrued expenses.......................................... 135,156
Trade payable, net........................................ 25,311
-----------
Total current liabilities......................... 1,293,377
Long-term debt.............................................. 8,625,000
Partners' equity............................................ 4,350,899
-----------
Total liabilities and partners' equity............ $14,269,276
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-96
<PAGE> 270
POINT COMMUNICATIONS LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Broadcasting revenue:
Gross revenue............................................. $ 6,235,475
Less agency commissions................................... 634,833
-----------
Net broadcasting revenue.......................... 5,600,642
Operating expenses:
Sales and promotion....................................... 1,276,030
Programming, engineering and news......................... 1,467,136
General and administrative................................ 685,926
Depreciation and amortization............................. 1,538,196
Management fees and other expenses........................ 178,749
-----------
5,146,037
-----------
Operating income....................................... 454,605
Other income (expense):
Interest expense.......................................... (1,071,241)
Interest income........................................... 7,916
-----------
(1,063,325)
-----------
Net loss............................................... $ (608,720)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-97
<PAGE> 271
POINT COMMUNICATIONS LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------- ---------- ----------
<S> <C> <C> <C>
Partners' equity, January 1, 1996...................... $50,484 $4,909,135 $4,959,619
Net loss for 1996...................................... (6,195) (602,525) (608,720)
------- ---------- ----------
Partners' equity, December 31, 1996.................... $44,289 $4,306,610 $4,350,899
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-98
<PAGE> 272
POINT COMMUNICATIONS LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $ (608,720)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 1,538,196
Changes in operating assets and liabilities:
Accounts receivable.................................. (293,368)
Prepaid expenses..................................... 3,648
Accounts payable and accrued expenses................ 90,615
Trade payable, net................................... 19,584
----------
Net cash provided by operating activities......... 749,955
----------
Cash flows from investing activities:
Madison Radio Group related costs......................... (103,097)
Advances to related party................................. (32,082)
Purchases of property and equipment....................... (80,058)
Other..................................................... (5,510)
----------
Net cash used in investing activities............. (220,747)
----------
Cash flows from financing activities:
Principal payments on term loan........................... (462,500)
----------
Net cash used in financing activities............. (462,500)
----------
Net increase in cash and cash equivalents......... 66,708
Cash and cash equivalents, beginning of year................ 193,962
----------
Cash and cash equivalents, end of year...................... $ 260,670
==========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 985,801
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-99
<PAGE> 273
POINT COMMUNICATIONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Organization and Basis of Presentation: Point Communications Limited
Partnership (the "Partnership") was formed to acquire, own and operate radio
stations WIBA-AM, WIBA-FM, WMAD-AM and WMAD-FM (the "Stations") servicing the
Madison, Wisconsin area. The general partner of Point Communications L.P. is a
corporation wholly-owned by the president of the radio stations. Included in
management fees and other expenses in the Statement of Operations are management
fees paid to the general partner and other costs related to the general
partner's activities.
The Partnership's financial statements have been prepared in accordance
with generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses for the period presented. They also affect
the disclosures of contingencies. Actual results could differ from those
estimates.
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 the broadcast licenses. The ultimate effect of this
legislation on the competitive environment is currently undeterminable.
b. Cash Equivalents: For purposes of the Statement of Cash Flows, the
Partnership considers all highly liquid, short-term investments purchased with
original maturities of three months or less to be cash equivalents.
c. Property and Equipment: Property and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets, as follows: buildings and
improvements 15-39 years, tower and antennae 5-15 years, equipment 5-7 years,
and other 3-5 years. Expenditures for repairs are expensed while major additions
are capitalized. Upon sale or disposal, the asset cost and accumulated
depreciation are removed and any gain or loss is recognized in earnings.
d. Intangible Assets: Intangible assets are stated at cost and amortized on
a straight-line basis over their estimated useful lives, as follows:
FCC broadcast licenses -- 15 years. Accumulated amortization as of
December 31, 1996 was $848,533.
Other intangibles -- 15 years. Accumulated amortization as of December
31, 1996 was $82,089.
Goodwill -- 15 years. Accumulated amortization as of December 31, 1996
was $25,721.
Deferred financing costs -- loan term. Accumulated amortization as of
December 31, 1996 was $67,933.
Organization cost -- 5 years. Accumulated amortization as of December
31, 1996 was $26,033.
On an ongoing basis, management evaluates the recoverability of the net
carrying value of intangible assets by reference to the Partnership's
undiscounted anticipated future cash flows.
e. Barter Transactions: The Partnership exchanges advertising airtime for
goods and services, as is customary in the broadcast industry. In accordance
with Statement of Financial Accounting Standards No. 63, "Financial Reporting by
Broadcasters", revenue is recognized as the advertising is broadcast at the
estimated fair market value of goods or services received or to be received. The
value of the goods and services received in barter transactions is charged to
expense when received or used. Barter revenues and expenses approximated
$214,000 for 1996.
F-100
<PAGE> 274
POINT COMMUNICATIONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
f. Revenue Recognition: Revenue from the sale of air-time is recognized at
the time the related program or advertisement is broadcast.
g. Concentration of Risk: The Stations operate within the Madison,
Wisconsin geographic area. They extend credit to their various customers in the
form of accounts receivable. The Partnership performs ongoing credit evaluations
of its customers and maintains an allowance for doubtful accounts based on
factors surrounding the credit risk of specific customers, historical trends and
other information.
h. Allocations and Distributions: The profits and losses of the Partnership
are being allocated among the partners, and cash flow from operations or cash
from capital transactions, if any, will be distributed to the partners in
accordance with the terms of the partnership agreement.
i. Income Taxes: No provision for federal or state income taxes has been
provided as the partners report their pro rata share of the partnership profits
or losses on their individual tax returns.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Land and improvements....................................... $ 283,200
Buildings................................................... 725,720
Tower and antennae.......................................... 986,770
Equipment................................................... 703,640
Other....................................................... 148,983
----------
2,848,313
Less accumulated depreciation............................... 508,696
----------
$2,339,617
==========
</TABLE>
Depreciation expense was $383,010 in 1996.
3. INTANGIBLE ASSETS:
Intangible assets consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
FCC broadcast licenses...................................... $ 9,546,000
Other intangibles........................................... 911,544
Goodwill.................................................... 301,306
Deferred financing costs.................................... 254,749
Organization costs.......................................... 97,623
------------
11,111,222
Less accumulated amortization............................... 1,050,309
------------
$ 10,060,913
============
</TABLE>
F-101
<PAGE> 275
POINT COMMUNICATIONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT:
Long-term debt consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Term loan payable in quarterly installments of $212,500 to
$400,000, with a balloon payment of remaining balance due
August 1, 2000, bearing interest at the bank's reference
rate plus 2.5% (reference rate was 8.25% at December 31,
1996)..................................................... $9,537,500
Less current portion........................................ 912,500
----------
$8,625,000
==========
</TABLE>
The term loan is subject to certain restrictive financial covenants,
including the maintenance of minimum broadcast operating cash flow amounts, and
limitations on additional indebtedness, capital expenditures, lease agreements,
investments and distributions to partners.
The term loan is collateralized by substantially all assets of the
Partnership.
The carrying amount reported for long-term debt approximates fair value
since the underlying instrument bears interest at a variable rate that reprices
frequently.
The aggregate scheduled maturities of debt in subsequent years is as
follows:
<TABLE>
<S> <C>
1997........................................................ $ 912,500
1998........................................................ 1,125,000
1999........................................................ 2,100,000
2000........................................................ 5,400,000
----------
$9,537,500
==========
</TABLE>
5. OPERATING LEASES:
The Partnership leases vehicles, office equipment, office space and a tower
site under operating leases with future minimum rental payments as follows:
<TABLE>
<S> <C>
1997........................................................ $ 87,004
1998........................................................ 67,512
1999........................................................ 67,512
2000........................................................ 67,512
2001........................................................ 38,705
Thereafter.................................................. 331,000
--------
$659,245
========
</TABLE>
Rental expense charged to operations was $84,382 for 1996.
6. LETTER OF CREDIT:
At December 31, 1996, the Partnership had a letter of credit outstanding
for $90,000. The letter of credit can be drawn upon if the Partnership fails to
make payments due under the terms and conditions of a network agreement which
expires in May 1997. The Partnership has pledged a certificate of deposit as
collateral for the letter of credit.
F-102
<PAGE> 276
POINT COMMUNICATIONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. SUBSEQUENT EVENTS:
On January 2, 1997, the Partnership exchanged its broadcasting and real
estate assets of stations WMAD-FM, WIBA-FM and WIBA-AM and $400,000 cash,
subject to its long-term debt, for a 50% partnership interest in Madison Radio
Group (a general partnership), and $3,962,500 cash (which was financed by
Madison Radio Group borrowings). Simultaneously, Midcontinent Broadcasting Co.
of Wisconsin, Inc. ("Midcontinent"), a company that also owns and operates radio
stations serving the Madison, Wisconsin area, exchanged its broadcasting and
real estate assets of stations WZEE-FM, WMLI-FM and WTSO-AM and $400,000 cash
for the remaining 50% partnership interest in Madison Radio Group. During 1996,
the Partnership incurred $103,097 of costs directly related to its investment in
Madison Radio Group, which are included in other assets on the accompanying
balance sheet. Also, on January 2, 1997, the Partnership contributed the assets
of its WMAD-AM station with a net book value of approximately $230,000 to an
educational institution and received $85,000 cash.
On February 4, 1997, Madison Radio Group entered into an agreement to sell
substantially all the assets of its stations to Capstar Radio Broadcasting
Partners, Inc., a radio investment group. The closing of the transaction, which
is subject to various conditions and approvals as defined in the agreement, is
expected to occur in the fourth quarter of 1997.
F-103
<PAGE> 277
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
Community Pacific Broadcasting Company L.P.:
We have audited the accompanying balance sheet of Community Pacific
Broadcasting Company L.P. (the "Partnership") as of December 31, 1996, and the
related statements of operations, partners' equity and cash flows for the year
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our 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 Community Pacific
Broadcasting Company L.P. 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.
COOPERS & LYBRAND L.L.P.
San Jose, California
February 13, 1997
F-104
<PAGE> 278
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 330,770 $ 38,532
Accounts receivable, net of allowance for doubtful
accounts of $58,982 and $70,525, respectively.......... 745,638 1,708,213
Prepaid expenses and other current assets................. 144,731 97,239
----------- -----------
Total current assets.............................. 1,221,139 1,843,984
Property and equipment, net................................. 3,806,144 3,843,508
Intangible assets, net...................................... 12,595,121 12,817,337
Other assets................................................ 100,661 125,453
----------- -----------
Total assets........................................... $17,723,065 $18,630,282
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 68,679 $ 237,996
Accrued liabilities....................................... 189,477 483,065
Due to Pacific Star....................................... 72,026 --
Current portion of long-term debt......................... 1,437,500.. 1,175,125
----------- -----------
Total current liabilities......................... 1,767,682 1,896,186
Long-term debt, net of current portion...................... 8,337,500 8,696,875
----------- -----------
Total liabilities................................. 10,105,182 10,593,061
----------- -----------
Commitments (Note 9)
Partners' equity............................................ 7,617,883 8,037,221
----------- -----------
Total liabilities and partners' equity............ $17,723,065 $18,630,282
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-105
<PAGE> 279
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Broadcasting revenue...................................... $1,849,044 $12,318,547
Less agency commissions................................... 168,049 1,119,613
---------- -----------
Net revenue....................................... 1,680,995 11,198,934
---------- -----------
Station operating expenses:
Programming and technical expense......................... 623,566 3,935,571
Selling and promotion expense............................. 331,592 2,981,563
General and administrative expense........................ 354,878 1,998,698
---------- -----------
Total station operating expenses.................. 1,310,036 8,915,832
Corporate expenses.......................................... 197,220 760,150
Depreciation and amortization............................... 350,270 1,416,077
---------- -----------
Operating income (loss)................................... (176,531) 106,875
Other expense, net.......................................... (2,424) (8,438)
Loss on disposal of assets.................................. -- (10,611)
Interest expense............................................ (237,774) (933,315)
---------- -----------
Net loss.......................................... $ (416,729) $ (845,489)
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-106
<PAGE> 280
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
GENERAL LIMITED PARTNERS'
PARTNER PARTNERS TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
Balances as of January 1, 1996.......................... $ 272,872 $ 7,583,322 $ 7,856,194
Capital contributions from partners................... 20,000 3,058,916 3,078,916
Capital distributions to partners..................... (800) (2,051,600) (2,052,400)
Net loss.............................................. (176,474) (669,015) (845,489)
--------- ----------- -----------
Balances as of December 31, 1996........................ 115,598 7,921,623 8,037,221
Capital distributions to partners (unaudited)......... (800) (1,809) (2,609)
Net loss (unaudited).................................. (86,971) (329,758) (416,729)
--------- ----------- -----------
Balances as of March 31, 1997 (unaudited)............... $ 27,827 $ 7,590,056 $ 7,617,883
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-107
<PAGE> 281
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(416,729) $ (845,489)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 350,270 1,416,077
Loss on sale of fixed assets........................... -- 10,611
Changes in operating assets and liabilities:
Accounts receivable, net............................. 962,575 116,834
Prepaid expenses and other current assets............ (47,492) 41,643
Other assets......................................... 24,792 --
Accounts payable..................................... (169,317) (345,207)
Accrued liabilities.................................. (293,588) (108,490)
Due to Pacific Star.................................. 72,026 --
--------- -----------
Net cash provided by operating activities......... 482,537 285,979
--------- -----------
Cash flows from investing activities:
Purchase of property and equipment, net of acquisition.... (90,690) (408,731)
Proceeds from sale of fixed assets........................ -- 3,500
Intangible assets, net of acquisition..................... -- (103,635)
Increase in other assets.................................. -- (17,919)
Cash used in acquisition.................................. -- (450,000)
--------- -----------
Net cash used in investing activities............. (90,690) (976,785)
--------- -----------
Cash flows from financing activities:
Proceeds from notes payable............................... 190,500 1,408,000
Repayment of notes payable................................ (287,500) (1,650,000)
Capital contributions from partners....................... -- 3,092,954
Capital distributions to partners......................... (2,609) (2,209,658)
--------- -----------
Net cash (used in) provided by financing
activities...................................... (99,609) 641,296
--------- -----------
Net increase (decrease) in cash............................. 292,238 (49,510)
Cash, beginning of year..................................... 38,532 88,042
--------- -----------
Cash, end of year........................................... $ 330,770 $ 38,532
========= ===========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 991,233
===========
Supplemental disclosure of noncash activities:
Revenue related to barter transactions.................... $ 322,837 $ 2,171,006
========= ===========
Advances from partners converted into equity.............. $ -- $ 427,046
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-108
<PAGE> 282
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
Community Pacific Broadcasting Company L.P. (the Partnership), a Delaware
limited partnership, was formed April 1, 1992 and operates AM and FM radio
broadcasting stations in the following communities as of December 31, 1996:
- Modesto, California -- KFIV-AM, KJSN-FM, KVFX-FM and KJAX-AM
- Anchorage, Alaska -- KASH-AM, KASH-FM, KENI-AM and KBFX-FM
- Des Moines, Iowa -- KGGO-FM, KDMI-AM, and KHKI-FM
Effective March 1, 1997, the Partnership entered into an LMA with Pacific
Star in connection with the Partnership's radio stations pursuant to which
Pacific Star provides certain sales, programming and marketing services for the
Partnership's radio stations (unaudited).
Interim Periods
The balance sheet as of March 31, 1997 and the statements of operations,
partners' equity and cash flows for the three month period ended March 31, 1997
are unaudited. However, in the opinion of management, all adjustments necessary
(consisting only of normal recurring adjustments) for a fair presentation of
such financial statements have been included. Interim results are not
necessarily indicative of results for a full year.
2. USE OF ESTIMATES AND UNCERTAINTIES:
The Partnership's financial statements have been prepared in accordance
with generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses for the period presented. They also affect
the disclosures of contingencies. Actual results could differ from those
estimates.
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 the broadcast licenses. The ultimate effect of this
legislation on the competitive environment is currently undeterminable.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is calculated on a straight-line basis over the estimated useful
life of the assets as follows:
<TABLE>
<S> <C>
Tower and antennae................... 7-20 years
Broadcast equipment.................. 7 to 10 years
Building............................. 30 years
Furniture and fixtures............... 7 to 10 years
Automobiles.......................... 3-5 years
Leasehold improvements............... Shorter of the life of the asset or the lease
</TABLE>
When items are retired or sold, the cost and accumulated depreciation are
removed and any gain or loss is included in income.
F-109
<PAGE> 283
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Intangible Assets:
Intangible assets are stated at cost, less accumulated amortization.
Amortization is determined using the straight-line method based upon the
estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
FCC licenses and goodwill................................... 20
Organization costs.......................................... 5
Noncompetition agreements................................... 5
Other....................................................... 2-5
</TABLE>
On an ongoing basis, management evaluates the recoverability of the net
carrying value of intangible assets by reference to the Company's undiscounted
anticipated future cash flows.
Revenue:
Revenue is recognized when advertisements are broadcast.
Barter Transactions:
The Partnership trades or barters commercial air time for syndicated radio
shows and for goods and services used for promotional, sales and other business
activities. These exchanges are recorded at the fair market value of the radio
shows or the goods or services received or the value of the advertising time
provided, whichever is more clearly determinable. Revenue from barter
transactions is recognized as income when advertisements are broadcast, and
radio shows are charged to expense when broadcast, and goods or services are
charged to expense or capitalized when used or received. Barter revenue totaled
$2,171,006 for the year ended December 31, 1996.
Advertising Costs:
The Partnership incurs various marketing and promotional costs to add and
maintain listenership. These costs are expensed as incurred and totaled
approximately $1,007,626 for the year ended December 31, 1996.
Concentration of Credit Risk:
The Partnership's revenue and accounts receivable primarily relate to
advertising of products and services within the radio stations' broadcast areas.
The Partnership's management perform ongoing credit evaluations of the
customers' financial condition and, generally, require no collateral from their
customers. The Partnership maintains an allowance for doubtful accounts and past
credit losses have been within management's expectations.
Income Taxes:
No provision has been made for income taxes since the Partnership is not a
taxable entity. Partners report their share of the Partnership's income on their
respective tax returns.
F-110
<PAGE> 284
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
At December 31, 1996, property and equipment consist of the following:
<TABLE>
<S> <C>
Land and improvements....................................... $ 131,130
Buildings................................................... 400,603
Tower and antenna systems................................... 952,025
Broadcast and transmitter equipment......................... 2,644,931
Furniture and fixtures...................................... 878,730
Leasehold improvements...................................... 93,038
----------
5,100,457
Less accumulated depreciation............................... 1,256,949
----------
$3,843,508
==========
</TABLE>
Depreciation expense was $473,380 in 1996.
5. INTANGIBLE ASSETS:
At December 31, 1996, intangible assets consist of the following:
<TABLE>
<S> <C>
FCC licenses and goodwill................................... $15,451,996
Organization costs.......................................... 103,511
Noncompetition agreements................................... 117,500
Other....................................................... 26,100
-----------
15,699,107
Less accumulated amortization............................... 2,881,770
-----------
$12,817,337
===========
</TABLE>
Amortization expense was $942,697 in 1996.
6. LONG-TERM DEBT:
In January 1995, the Partnership entered into a variable rate loan
agreement with a bank whereby the Partnership could borrow up to $11,500,000.
Borrowings under this agreement bear interest at a rate based on the London
Interbank Offered Rate (LIBOR) or the bank's prime rate plus the applicable
margin, which ranges from 1.50% to 2.75% for LIBOR and prime depending on ratios
of debt to operating cash flow. The interest rate is approximately 8.75% as of
December 31, 1996 and $9,872,000 is outstanding under this agreement. The
Partnership pays a commitment fee of 0.5% per annum on the unused portion of the
loan commitment and paid a onetime facility fee of $115,000 in January 1995,
which is being amortized over the term of the loan agreement.
The credit facility agreement contains certain financial and operational
covenants and other restrictions with which the Partnership must comply, which
include limitations on incurrence of additional indebtedness, partner
distributions and redemptions.
Borrowings under this agreement are collateralized by substantially all
assets of the Partnership.
The carrying amount reported for long-term debt approximates fair value
since the underlying instrument bears interest at a variable rate that reprices
frequently.
F-111
<PAGE> 285
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Total annual maturities of long-term debt, excluding mandatory prepayments,
are as follows:
<TABLE>
<S> <C>
1997........................................................ $1,175,125
1998........................................................ 1,653,125
1999........................................................ 1,725,000
2000........................................................ 2,156,250
2001........................................................ 2,515,625
Thereafter.................................................. 646,875
----------
$9,872,000
==========
</TABLE>
7. PARTNERS' EQUITY:
Under the amended and restated agreement of limited partnership dated
December 1, 1995, the general partner is authorized to manage the activities of
the Partnership. No management fee is to be paid, although the general partner
is reimbursed for expenses incurred. Extraordinary actions, as defined, require
the approval of the holders of a majority of the voting partner units (general
partner plus Classes B and C limited partner units).
Losses and profits are allocated among the partners in accordance with the
partnership agreement.
For tax purposes, any gain, loss, income or deductions with respect to
property contributed to the Partnership are subject to the special allocation
rules of Section 704 of the Internal Revenue Code.
In December 1995, the Partnership issued warrants to purchase 76,868 units
of Class C stock at $0.75 per unit. In July 1996, the Partnership issued
warrants to purchase 11,647 units of Class C stock at $0.825 per unit. The
warrants expire five years after the date of issuance.
8. EMPLOYEE BENEFIT PLAN:
The Company maintains a salary deferral 401(k) Plan (the Plan) that allows
eligible employees, at their discretion, to make pre-tax contributions to the
Plan. The Partnership may make discretionary contributions to the Plan. No
amounts have been accrued or paid for such discretionary contributions in
respect of the year ended December 31, 1996.
9. COMMITMENTS:
The Partnership rents certain facilities and equipment under noncancelable
operating leases. Minimum annual payments under these leases as of December 31,
1996 are as follows:
<TABLE>
<S> <C>
1997........................................................ $323,670
1998........................................................ 269,566
1999........................................................ 245,175
2000........................................................ 204,547
2001........................................................ 151,938
Thereafter.................................................. 220,388
----------
Total............................................. $1,415,284
==========
</TABLE>
Rent expense was approximately $362,685 for the year ended December 31,
1996.
The Partnership has entered into several royalty agreements in order to
broadcast music. Most of these contracts require payments based upon related
advertising revenue.
F-112
<PAGE> 286
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. ACQUISITION:
In April 1996, the Partnership acquired substantially all the assets of
KJAX-AM in Stockton, California, for $450,000 plus acquisition costs of $64,757.
The purchase price has been allocated $100,000 to property and equipment,
$325,000 to FCC licenses and goodwill and $25,000 to other intangibles.
The acquisition has been accounted for as an asset purchase. The purchase
price has been allocated to the assets acquired based on their estimated fair
market value at the date of the acquisition.
Accordingly, the accompanying financial statements include the results of
operations of the acquired entity from the date of acquisition. Had the
acquisition occurred January 1, 1996 the Partnership's results of operations for
the year ended December 31, 1996 would not have been materially different.
11. PENDING SALE OF PARTNERSHIP:
On December 26, 1996, the Partnership agreed to be acquired by Capstar
Radio Broadcasting Partners, Inc., a Delaware corporation, through an
acquisition affiliate, Community Acquisition Company, Inc. The sale is subject
to regulatory approval. The purchase price is estimated to be approximately
$35.0 million and is subject to adjustment. No adjustments have been made to the
financial statements to reflect the pending sale.
12. SUBSEQUENT EVENTS (UNAUDITED):
In July 1997, Capstar Radio Broadcasting Partners, Inc. acquired
substantially all of the assets of the Partnership for approximately $35.0
million.
F-113
<PAGE> 287
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Patterson Broadcasting, Inc.:
We have audited the accompanying consolidated balance sheets of Patterson
Broadcasting, Inc. and subsidiaries (a Delaware corporation) as of December 31,
1996 and 1995 and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the year ended December 31, 1996 and
for the period from May 1, 1995 (inception) through December 31, 1995. 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 financial position of Patterson
Broadcasting, Inc. and subsidiaries at December 31, 1996 and 1995 and the
results of their operations and cash flows for the year ended December 31, 1996
and for the period from May 1, 1995 (inception) through December 31, 1995 in
conformity with generally accepted accounting principles.
As explained in Note 1 to the financial statements, the Company has given
effect to a change in accounting principle for redeemable warrants.
ARTHUR ANDERSEN LLP
New York, New York
February 28, 1997 (except with respect to the matter
discussed in Note 13, as to which the date is April 16, 1997)
F-114
<PAGE> 288
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------------
1997 1996 1995
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,177,000 $ 3,046,000 $ 214,000
Accounts receivable, less allowances for doubtful accounts
of $452,000 at March 31, 1997, $402,000 at December 31,
1996 and $32,000 at December 31, 1995................... 8,171,000 9,426,000 2,498,000
Prepaid expenses and other current assets................. 1,231,000 932,000 497,000
Deferred income taxes (Note 6)............................ 658,000 458,000 --
------------ ------------ -----------
Total current assets............................... 11,237,000 13,862,000 3,209,000
------------ ------------ -----------
PROPERTY, PLANT, AND EQUIPMENT:
Land and land improvements................................ 1,265,000 1,261,000 387,000
Buildings and leasehold improvements...................... 3,379,000 3,362,000 1,836,000
Equipment................................................. 16,140,000 15,809,000 5,510,000
------------ ------------ -----------
20,784,000 20,432,000 7,733,000
Less accumulated depreciation............................. (1,670,000) (1,305,000) (166,000)
------------ ------------ -----------
Total property, plant, and equipment -- net........ 19,114,000 19,127,000 7,567,000
------------ ------------ -----------
INTANGIBLE AND OTHER ASSETS -- Net:
Cost of purchased businesses in excess of net tangible
assets
acquired (Note 2)....................................... 108,768,000 109,089,000 29,795,000
Deposits (Note 2)......................................... 290,000 40,000 2,916,000
Other assets (Note 2)..................................... 4,073,000 4,315,000 2,575,000
Deferred income taxes (Note 6)............................ 4,957,000 2,258,000 --
------------ ------------ -----------
Total intangible and other assets -- net........... 118,088,000 115,702,000 35,286,000
------------ ------------ -----------
$148,439,000 $148,691,000 $46,062,000
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 2,898,000 $ 3,503,000 $ 1,947,000
Accrued interest.......................................... 383,000 393,000 34,000
Accrued dividends......................................... 250,000 250,000 --
Note payable (Note 2)..................................... -- 600,000 --
Accrued income taxes...................................... 211,000 173,000 --
------------ ------------ -----------
Total current liabilities.......................... 3,742,000 4,919,000 1,981,000
------------ ------------ -----------
LONG-TERM DEBT (Note 3)..................................... 66,500,000 67,000,000 10,000,000
------------ ------------ -----------
OTHER LIABILITIES........................................... 87,000 97,000 58,000
------------ ------------ -----------
REDEEMABLE PREFERRED STOCK, $1.00 par value, 100,000 shares
authorized, 2,775, 2,700 and -0- issued and outstanding at
March 31, 1997 and December 31, 1996 and 1995,
respectively (Note 4)..................................... 20,747,000 19,816,000 --
------------ ------------ -----------
REDEEMABLE WARRANTS (Note 4)................................ 17,803,000 11,921,000 --
------------ ------------ -----------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (Note 5):
Class A Common Stock, $.01 par value, 200,000 shares
authorized, 70,571.91, 70,571.91 and 50,140.91 issued
and outstanding at March 31, 1997 and December 31, 1996
and 1995, respectively.................................. 1,000 1,000 1,000
Class B Common Stock, $.01 par value, 200,000 shares
authorized, 4,227, 4,227 and -0- issued and outstanding
at March 31, 1997 and December 31, 1996 and 1995,
respectively............................................ --
Additional paid-in capital................................ 52,562,000 52,137,000 35,099,000
Accumulated deficit....................................... (13,003,000) (7,200,000) (1,077,000)
------------ ------------ -----------
Total stockholders' equity......................... 39,560,000 44,938,000 34,023,000
------------ ------------ -----------
$148,439,000 $148,691,000 $46,062,000
============ ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-115
<PAGE> 289
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995
(INCEPTION)
QUARTER ENDED MARCH 31, YEAR ENDED THROUGH
------------------------ DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995
----------- ---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Revenues................................ $10,727,000 $6,097,000 $ 41,369,000 $ 4,613,000
Operating Expenses, excluding Depreciation
and Amortization.......................... 8,319,000 5,144,000 29,725,000 3,623,000
LMA Fee..................................... -- -- 500,000 --
Corporate Expense........................... 1,088,000 513,000 2,374,000 1,217,000
Regional Expense............................ 233,000 -- 143,000 --
Patterson Planning Management Fee........... 63,000 63,000 250,000 146,000
Depreciation and Amortization............... 1,162,000 522,000 3,537,000 391,000
----------- ---------- ------------ -----------
Income (Loss) From Operations............... (138,000) (145,000) 4,840,000 (764,000)
----------- ---------- ------------ -----------
Other Income (Expense):
Interest expense.......................... (1,716,000) (821,000) (5,052,000) (458,000)
Increase in fair value of redeemable
warrants (Note 4)...................... (5,882,000) -- (5,499,000) --
Interest income........................... 1,000 55,000 70,000 148,000
Other - net............................... 2,000 -- (33,000) (3,000)
----------- ---------- ------------ -----------
Total other income (expense)...... (7,595,000) (766,000) (10,514,000) (313,000)
----------- ---------- ------------ -----------
Loss Before Income Taxes.................... (7,733,000) (911,000) (5,674,000) (1,077,000)
Income Tax Benefit (Note 6)................. 2,861,000 -- 2,344,000 --
----------- ---------- ------------ -----------
Net Loss.................................... $(4,872,000) $ (911,000) $ (3,330,000) $(1,077,000)
=========== ========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-116
<PAGE> 290
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT
------ ----------- ------------
<S> <C> <C> <C>
BALANCE, May 1, 1995 (inception)........................ $ -- $ -- $ --
Equity contribution................................... 1,000 35,099,000 --
Net loss.............................................. -- -- (1,077,000)
------ ----------- ------------
BALANCE, December 31, 1995 1,000 35,099,000 (1,077,000)
Equity contribution, net of issuance costs of
$462,000........................................... -- 17,038,000 --
Accretion of redeemable preferred stock............... -- -- (543,000)
Dividends declared on redeemable preferred stock...... -- -- (2,250,000)
Net loss.............................................. -- -- (3,330,000)
------ ----------- ------------
BALANCE, December 31, 1996.............................. 1,000 52,137,000 (7,200,000)
Accretion of redeemable preferred stock (unaudited)... -- -- (181,000)
Dividends declared on redeemable preferred stock
(unaudited)........................................ -- -- (750,000)
Contingent award of common stock pursuant to
compensation plan (unaudited)...................... -- 425,000 --
Net loss (unaudited).................................. -- -- (4,872,000)
------ ----------- ------------
BALANCE, March 31, 1997 (unaudited)..................... $1,000 $52,562,000 $(13,003,000)
====== =========== ============
</TABLE>
See notes to consolidated financial statements.
F-117
<PAGE> 291
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995
QUARTER ENDED (INCEPTION)
MARCH 31, YEAR ENDED THROUGH
------------------------- DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995
----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss........................................ $(4,872,000) $ (911,000) $ (3,330,000) $ (1,077,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation................................. 366,000 188,000 1,175,000 166,000
Amortization................................. 796,000 334,000 2,362,000 225,000
Deferred financing costs..................... 159,000 56,000 429,000 --
Increase in fair value of redeemable
warrants................................... 5,882,000 -- 5,499,000 --
Loss on sale of property, plant, and
equipment.................................. -- -- 31,000 --
Provision for contingent stock
compensation............................... 425,000 -- -- --
Changes in assets and liabilities, net of
effects from acquisitions and dispositions:
Accounts receivable........................ 1,255,000 (1,186,000) (5,243,000) (2,492,000)
Prepaid expenses and other current
assets.................................. (299,000) (40,000) (53,000) (279,000)
Accounts payable and accrued expenses...... (605,000) (120,000) 955,000 1,219,000
Accrued interest........................... (10,000) 116,000 359,000 34,000
Accrued income taxes....................... 38,000 -- 173,000 --
Deferred income taxes...................... (2,899,000) -- (2,517,000) --
Other...................................... (11,000) 15,000 35,000 (28,000)
----------- ----------- ------------ ------------
Net cash provided by (used in) operating
activities............................ 225,000 (1,548,000) (125,000) (2,232,000)
----------- ----------- ------------ ------------
INVESTING ACTIVITIES:
Purchases of media properties, net of cash
acquired..................................... (600,000) (60,309,000) (92,915,000) (36,923,000)
Purchases of property, plant, and equipment..... (279,000) (296,000) (1,036,000) (107,000)
Disposal of property, plant, and equipment...... -- -- 21,000 --
Deposits in escrow.............................. (250,000) -- -- (2,900,000)
Net proceeds on disposal of media property...... -- 2,100,000 2,100,000 --
Deferred acquisition costs...................... (465,000) (587,000) (84,000) (768,000)
Other........................................... -- -- -- (156,000)
----------- ----------- ------------ ------------
Net cash used in investing activities... (1,594,000) (59,092,000) (91,914,000) (40,854,000)
----------- ----------- ------------ ------------
FINANCING ACTIVITIES:
Equity contributions............................ -- 8,125,000 17,500,000 35,100,000
Issuance of redeemable preferred stock and
warrants..................................... -- -- 25,000,000 --
Borrowings under bank credit facility........... 2,000,000 62,500,000 86,500,000 10,000,000
Repayment of borrowings under bank credit
facility..................................... (2,500,000) (7,500,000) (29,500,000) --
Financing and issuance costs.................... -- (224,000) (4,629,000) (1,800,000)
----------- ----------- ------------ ------------
Net cash provided by (used in) financing
activities............................ (500,000) 62,901,000 94,871,000 43,300,000
----------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH................... (1,869,000) 2,261,000 2,832,000 214,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.... 3,046,000 214,000 214,000 --
----------- ----------- ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD................................ $ 1,177,000 $ 2,475,000 $ 3,046,000 $ 214,000
=========== =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
F-118
<PAGE> 292
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Patterson Broadcasting, Inc. was organized in May 1995 for the purpose of
owning and operating radio stations. At December 31, 1996, the Company owned and
operated radio stations in Savannah, Georgia; Allentown, Pennsylvania; Honolulu,
Hawaii; Fresno, California; Grand Rapids, Michigan; Battle Creek, Michigan;
Reno, Nevada; Harrisburg, Pennsylvania; Pensacola, Florida; and Springfield,
Illinois.
Of the 70,572 issued shares of Class A common stock, 65.9% are held by The
Dyson-Kissner-Moran Corporation ("DKM").
Change in Accounting Principle -- In order to conform the Company's
accounting principles with the accounting requirements of the Securities and
Exchange Commission, the accompanying financial statements reflect a change in
accounting principle for the redeemable warrants. Previously issued financial
statements presented the redeemable warrants as equity. The warrant value was
being accreted to its earliest potential put value, with the accretion included
in stockholders' equity. The accompanying financial statements present the
warrants as liabilities, measured at their fair value, with changes in the fair
value included in earnings, in conformity with EITF 96-13, Accounting For Sales
Of Call Options Or Warrants On Issuer's Stock With Various Forms Of Settlement,
which is only applicable to public companies.
Principles of Consolidation -- The consolidated financial statements
include the accounts of Patterson Broadcasting, Inc. and its wholly-owned
subsidiaries (the "Company"). All significant intercompany accounts and
transactions are eliminated in consolidation.
Revenue Recognition -- Radio advertising revenues are recognized when the
related advertisements are broadcast and are recorded net of advertising agency
commissions. Exchanges of advertising time for products and services are
recorded at the estimated fair value of the products or services received.
Cash and Cash Equivalents -- Cash and cash equivalents consist of cash,
money market funds, overnight deposits, and investments with maturities of three
months or less when purchased.
Property, Plant, and Equipment -- Property, plant, and equipment is stated
at cost. Depreciation is computed by the straight-line method using estimated
useful lives of the individual assets which range from 5 to 40 years.
Deferred Financing Costs -- Costs associated with obtaining debt financing
are capitalized and amortized over the term of the related debt.
Intangible and Other Assets -- Costs of purchased businesses in excess of
net tangible assets acquired are stated at cost less accumulated amortization
and primarily consist of FCC broadcast licenses and goodwill. These costs are
being amortized using the straight-line method over periods not exceeding 40
years. Accumulated amortization at December 31, 1996 and 1995 was $2,575,000 and
$225,000, respectively.
On a continuing basis, the Company reviews the financial statement carrying
amounts of its operating units for impairment. Specifically, this process
includes a comparison of the carrying amounts of the operating units to their
estimated fair values, an analysis of estimated future cash flows and an
evaluation as to whether an operating unit might be sold in the near future. If
this process concludes that the carrying amount of an operating unit's assets
will not be recovered from either future operations or sale, a write down of the
operating unit's assets is recognized through a charge to operations.
Incomes Taxes -- Deferred income taxes are recorded using Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
SFAS No. 109 requires the Company to compute deferred income taxes based on
the difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
F-119
<PAGE> 293
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the 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.
Unaudited Interim Financial Statements -- In the opinion of management,
interim unaudited financial statements reflect all adjustments, consisting of
normal recurring accruals, necessary to present fairly the financial position,
the results of operations and the cash flows for the periods presented. Results
for the interim periods are not necessarily indicative of results to be expected
for the full year.
The unaudited financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and note disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to those rules and regulations, although the Company
believes that the disclosures made are adequate to make the information
presented not misleading.
2. ACQUISITION, DISPOSITIONS AND PRO FORMA FINANCIAL INFORMATION
In July 1995, the Company purchased radio stations WCHY-AM/FM in Savannah,
Georgia, for $5,200,000 in cash. In September 1995, the Company purchased radio
stations WEEX-AM and WODE-FM in Allentown, Pennsylvania, radio stations KRZR-FM
and KTHT-FM in Fresno, California, and radio stations KSSK-AM/FM and KUCD-FM in
Honolulu, Hawaii for $30,590,000 in cash.
In January 1996, the Company purchased radio stations WLHT-FM, WGRD-FM, and
WRCV-AM in Grand Rapids, Michigan and radio stations WBCK-AM, WBXX-FM, WRCC-AM
and WWKN-FM in Battle Creek, Michigan for $21,400,000 in cash.
In January 1996, the Company purchased stations KCBN-AM, KRNO-FM, KWNZ-FM
in Reno, Nevada for $4,100,000 in cash.
In January 1996, the Company purchased radio stations KCBL-AM and KBOS-FM
in Fresno, California for $6,250,000 in cash.
In January 1996, the Company sold radio station KTHT-FM in Fresno,
California for $2,200,000 in cash.
In March 1996, the Company purchased radio stations WTCY-AM, WNNK-FM in
Harrisburg, Pennsylvania and radio station WXBM-FM in Pensacola, Florida for
$31,200,000 in cash, including accounts receivable.
In April 1996, the Company purchased radio station WYKZ-FM in Savannah,
Georgia for $1,500,000 in cash.
In August 1996, the Company purchased radio stations WFMB-AM/FM, WCVS-FM in
Springfield, Illinois for $7,000,000 in cash.
In November 1996, the Company purchased radio stations KIKI-AM/FM, KKLV-FM,
KHVH-AM in Honolulu, Hawaii for $9,100,000 in cash, of which $600,000 was paid
in January 1997. Such amount is recorded as a note payable at December 31, 1996.
In November 1996, the Company purchased radio stations WAEV-FM, WLVH-FM,
WSOK-AM in Savannah, Georgia for $11,000,000 in cash, including accounts
receivable.
In November 1996, the Company purchased radio station WWSF-FM in Pensacola,
Florida for $1,820,000 in cash, including accounts receivable.
F-120
<PAGE> 294
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisitions have been accounted for using the purchase method of
accounting. The consolidated statements of operations include the operations of
the acquired businesses since their respective date of acquisition.
The following unaudited pro forma financial information gives effect to the
above acquisitions and disposition as if such transactions had occurred on
January 1, 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ -------------------------
1997 1996 1996 1995
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues...................... $10,727,000 $9,930,000 $48,615,000 $44,750,000
Income (loss) from operations..... (138,000) 357,000 6,560,000 5,762,000
Net loss.......................... (1,166,000) (875,000) (503,000) (1,105,000)
</TABLE>
The pro forma information also reflects adjustments to interest expense and
income taxes resulting from the transactions, and is not necessarily indicative
of the results of operations that would have been achieved if such transactions
had occurred at the beginning of the periods presented or of future results of
operations.
The Company has operated stations under time brokerage agreements ("TBAs")
or local marketing agreements ("LMAs") whereby the Company agreed to purchase
from the broadcast station licensee certain broadcast time on the station and to
provide programming to and sell advertising on the station during the purchased
time. Accordingly, the Company received all the revenue derived from the
advertising sold during the purchased time, paid certain expenses of the station
and performed other functions. The broadcast station licensee retains
responsibility for ultimate control of the station in accordance with FCC
policies. At December 31, 1996, the Company had acquired all stations operated
under LMAs during 1996.
At December 31, 1996 and 1995, the Company had deferred $84,000 and
$768,000, respectively, in acquisition costs, primarily legal, related to future
acquisitions. The Company had placed $2,900,000 of deposits in escrow related to
future acquisitions at December 31, 1995. The $2,900,000 deposits in escrow were
utilized in the 1996 acquisitions outlined above. At December 31, 1996, there
were no deposits in escrow. The deferred acquisition costs and deposits in
escrow are included in other assets and deposits, respectively, in the
accompanying consolidated balance sheets.
3. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Bank Credit Facility................................ $67,000,000 $10,000,000
</TABLE>
On June 20, 1996, the Company amended and restated its variable rate loan
agreement (the "Credit Facility"). The agreement was amended to increase the
available credit up to $150,000,000 by adding new lenders and amending certain
other provisions. The interest rate on the Credit Facility floats with the prime
rate established by the agent but can be fixed by the Company for up to six
months based upon a Eurodollar rate. The interest rate includes a borrowing
premium which varies from 1/4% to 3 1/4% depending on the Company's ratio of
total indebtedness to annualized operating cash flow for revolving credit loans,
as defined in the Credit Facility, and based on the interest rate option
selected. The Credit Facility also includes a commitment fee of 1/2% on the
unused portion of the Credit Facility. The Company may incur borrowings under
the Credit Facility until June 30, 2003; however, commitment reductions begin
December 31, 1997 with a final commitment reduction date of June 30, 2003. In
addition, beginning in 1998, the Company is required to prepay outstanding
borrowings to the extent of any excess of any cash flow, as defined. The Credit
Facility is secured by a pledge of the stock of and is guaranteed by all
subsidiaries of the Company and contains certain restrictive covenants,
including the
F-121
<PAGE> 295
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maintenance of cash flow ratios and limitations on additional borrowings,
mergers, acquisitions, dispositions, and certain restricted payments.
Of long-term debt outstanding at December 31, 1996, $43,000,000 matures in
2003 and $24,000,000 matures in 2004.
4. REDEEMABLE PREFERRED STOCK AND WARRANTS
In April 1996, the Company issued 2,500 shares of Series A Cumulative
Redeemable Preferred Stock (the "Preferred Stock") along with warrants for total
proceeds of $25,000,000. The Preferred Stock carries a 12% per annum cumulative
dividend rate and is redeemable April 2005 at $25,000,000 plus accrued and
unpaid dividends. The proceeds were allocated between the Preferred Stock and
warrants based on their estimated fair values. The Preferred Stock is being
increased to its redemption price during the period from date of issuance until
April 2005. The dividends are payable in cash or at the option of the Company in
additional shares of Preferred Stock at a rate of 3/100 of one share for $300 of
such dividends paid. The dividend payment date is each March 1, June 1,
September 1 and December 1, beginning June 1, 1996. During 1996, the Company
paid $2,000,000 in dividends by issuing 200 additional shares. In addition, the
shares of Preferred Stock are subject to mandatory redemption upon the
occurrence of certain specified events and are subject to optional redemption by
the Company at any time and upon the occurrence of certain specified events, in
each case at specified redemption prices based upon the date of any such event.
There are no redemption requirements for the next five years.
The warrants, which are exercisable upon issuance, entitle the holder to
receive 12,177 shares of Class A Common Stock at an exercise price of $.01 per
share. The warrants expire April 2006. In addition, subject to certain
conditions, the warrants (and any shares of Common Stock issued upon the
exercise thereof) may be put to the Company at any one time after April 1, 2001
and may be called at the option of the Company after April 1, 2002. The warrants
are measured at their fair value at December 31, 1996 and, as a result, a change
in the fair value of $5,499,000 was recorded as other expense during 1996.
5. STOCKHOLDERS' EQUITY
In February 1996, the Company reclassified the initial Common Stock to
Class A Common Stock and increased the authorized shares to 200,000, $.01 par
value per share. The Company also created a new class of non-voting Common Stock
known as Class B Common Stock, with 200,000 shares authorized, $.01 par value
per share.
The Company issued Class A Common Stock of 7,221.25 shares for $5,125,000
in February 1996, 3,452.16 shares for $2,450,000 in July 1996, and 9,757.59
shares for $6,925,000 in October 1996. The Company also issued 4,227 shares of
Class B Common Stock for $3,000,000 in February 1996.
One of the shareholders has the right to purchase up to 1,160 additional
shares of Class A Common Stock at a price of $.01 per share, on the earlier of
the occurrence of certain specified events or February 27, 1999.
F-122
<PAGE> 296
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
Income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995
YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, DECEMBER 31,
1996 1995
------------ -------------------
<S> <C> <C>
Current:
Federal..................................................... $ -- $ --
State....................................................... 173,000 --
----------- ---------
Total....................................................... 173,000 --
----------- ---------
Deferred:
Federal..................................................... (1,791,000) (374,000)
State....................................................... (306,000) (46,000)
Change in valuation allowance............................... (420,000) 420,000
----------- ---------
Total....................................................... (2,517,000) --
----------- ---------
Income tax expense (benefit)................................ $(2,344,000) $ --
=========== =========
</TABLE>
Income tax expense (benefit) computed using the federal statutory tax rate
is reconciled to the reported income tax expense (benefit) as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995
YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------- -------------------
<S> <C> <C> <C> <C>
Federal statutory tax rate................. $(1,986,000) (35%) $(377,000) (35%)
State income taxes, net of federal tax
benefit.................................. (183,000) (3%) (46,000) (4%)
Change in valuation allowance.............. (420,000) (7%) 420,000 39%
Nondeductible amortization................. 131,000 2% -- 0%
Nondeductible meals and entertainment...... 59,000 1% -- 0%
Other -- net............................... 55,000 1% 3,000 0%
----------- ---------
Total...................................... $(2,344,000) (41%) $ -- 0%
=========== =========
</TABLE>
F-123
<PAGE> 297
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of significant items comprising the Company's net deferred
tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves not currently deductible........... $ 374,000 $ 289,000
Compensation accruals not currently deductible........... 84,000 --
Increase in fair value of redeemable warrants............ 2,062,000 --
Operating loss carryforward.............................. 4,053,000 466,000
Other.................................................... 5,000 --
----------- ---------
Total deferred tax assets........................ 6,578,000 755,000
Deferred tax liabilities:
Difference in book and tax basis of property............. (1,503,000) (335,000)
Difference in book and tax basis of intangible assets.... (913,000) --
----------- ---------
Total deferred tax liabilities................... (2,416,000) (335,000)
Valuation Allowance........................................ (1,446,000) (420,000)
----------- ---------
Net deferred tax asset..................................... $ 2,716,000 $ --
=========== =========
</TABLE>
For 1995, the Company was included in the consolidated federal income tax
return of DKM. Effective February 27, 1996, the Company was no longer included
in DKM's consolidated federal income tax return. This deconsolidation resulted
from additional equity contributions which lowered DKM's stock ownership below
eighty percent.
The Company and DKM have a tax sharing agreement addressing the utilization
of the Company's net operating losses in DKM's consolidated federal tax return.
Per this agreement, the Company computed its tax liability as if it filed a
separate tax return. DKM will reimburse the Company when the Company would have
utilized the net operating loss carryforward generated through February 27, 1996
on a stand alone basis. DKM's obligation to reimburse remains in effect although
the Company no longer files a consolidated return with DKM.
At February 27, 1996, the net operating loss carryforward included in DKM's
consolidated federal income tax return was estimated at $2,180,000. This net
operating loss carryforward is subject to separate return limitations as the
result of the deconsolidation discussed above.
At December 31, 1996 and 1995, the Company had approximately $10,509,000
and $1,222,000, respectively, in net operating loss carryforwards for federal
income tax purposes. Such amounts include the portion attributable to losses
included in DKM's consolidated return. These loss carryforwards, unless
utilized, will expire between 2008 and 2011. At December 31, 1996, $3,982,000 of
these loss carryforwards result from an acquisition and are subject to separate
return limitations as well as certain limitations under Section 382 described
below. Limitations imposed by Section 382 of the Internal Revenue Code, after a
change of control, will limit the amount of net operating loss which will be
available to offset future taxable income. At December 31, 1996, the Company has
a valuation allowance against such restricted net operating loss for the excess
of the net operating loss over the amount of taxable temporary differences which
will reverse during the permitted carryover period.
7. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities, transmitter sites, and various items
of equipment under noncancelable operating leases. Many of these lease
agreements contain renewal options. Total rental expense was $1,062,000 and
$179,000, for the year ended December 31, 1996 and for the period from May 1,
1995 through December 31, 1995, respectively.
F-124
<PAGE> 298
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summary sets forth annual commitments under noncancelable
leases, net of sublease rentals of $129,000, $135,000, $125,000, $62,000, and
$28,000 for the years ending December 31, 1997, 1998, 1999, 2000, and 2001,
respectively.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997................................................... $ 1,003,000
1998................................................... 1,014,000
1999................................................... 782,000
2000................................................... 538,000
2001................................................... 308,000
Thereafter............................................. 6,494,000
-----------
$10,139,000
===========
</TABLE>
The Company has employment agreements with its two top executive officers.
Pursuant to the agreements, which expire in 2000, the executives receive an
aggregate annual salary of $500,000 plus beginning in 1996, an incentive bonus
based upon the Company achieving certain operating objectives. Bonus amounts for
1995 were determined at the discretion of the Board of Directors of the Company.
At December 31, 1996 and 1995, amounts accrued under these agreements were
$294,000 and $120,000, respectively.
The Company from time to time is involved in litigation incidental to the
conduct of its business. The Company is not a party to any lawsuit or legal
proceedings that, in the opinion of management, is likely to have a material
adverse effect on the Company's financial position or results of operations.
8. STATEMENTS OF CASH FLOWS, SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED MAY 1, 1995
MARCH 31, YEAR ENDED (INCEPTION) THROUGH
---------------------- DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995
---------- -------- ------------ -------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash paid for interest........ $1,548,000 $628,000 $4,264,000 $313,000
Cash paid for income taxes.... -- -- -- --
</TABLE>
Net cash used for purchases of media properties, net of cash acquired, was
allocated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Purchase price in excess of the net tangible assets
acquired.............................................. $81,353,000 $29,864,000
Property, plant and equipment........................... 12,426,000 7,628,000
Other assets............................................ 1,200,000 --
Working capital, net.................................... (1,464,000) (505,000)
Other liabilities....................................... (600,000) (64,000)
----------- -----------
Net cash used for purchases of media properties......... $92,915,000 $36,923,000
=========== ===========
</TABLE>
9. RELATED PARTY TRANSACTIONS
The Company is a party to a management agreement with an affiliate of DKM.
Under the agreement, the Company pays an annual fee of $250,000 for various
financial services. This amount is deemed to be reflective of the fair value of
such services.
As discussed in Note 6, the Company has a tax sharing agreement with DKM.
F-125
<PAGE> 299
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In May 1995, the Company received a 5 1/2% promissory note, payable on
demand, from DKM, representing a portion of DKM's initial capital contribution.
This note was repaid in October 1995. The Company recorded $107,000 in interest
income related to this note for the period from May 1, 1995 (inception) through
December 31, 1995.
10. STOCK-BASED COMPENSATION
Pursuant to the formation of the Company, certain members of the Company's
management were granted the right to receive up to a total of 2,840 additional
shares of Common Stock, on the earlier of the occurrence of certain events or
May 3, 2000. The number of shares to be granted is based upon the appreciation
in the fair value of the Company. As of December 31, 1996, no compensation
expense has been recorded due to the uncertainty associated with estimating the
total ultimate value of the shares to be granted.
Based upon the pending sale transaction (Note 13), for the three months
ended March 31, 1997, the Company recorded $425,000 of compensation expense
based on an estimate of the total ultimate number of shares to be granted. This
amount is included in corporate expense.
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." In accordance with the provisions of SFAS No. 123, the Company
has applied APB Opinion 25 and related interpretations in accounting for its
stock compensation plans. If the Company had elected to recognize compensation
cost based on the fair value of the options granted at grant date as prescribed
by SFAS No. 123, there would have been no impact on net income for the year and
period ended December 31, 1996 and 1995, respectively.
11. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company, using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents............... $ 3,046,000 $ 3,046,000 $ 214,000 $ 214,000
Liabilities:
Long-term debt.......................... 67,000,00 67,000,000 10,000,000 10,000,000
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and Cash Equivalents -- The carrying amount approximates fair value
because of the short maturity of those instruments.
Long-term Debt -- The fair value of long-term debt is estimated based
on financial instruments with similar terms, credit characteristics, and
expected maturities.
The fair value estimates presented herein are based on pertinent
information available to the Company as of December 31, 1996 and 1995. Although
the Company is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
reevaluated for purposes of these
F-126
<PAGE> 300
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial statements since that date, and current estimates of fair value may
differ significantly from the amounts presented herein.
12. SUBSEQUENT EVENT -- 401(k) PLAN
Effective January 1, 1997, the Company sponsors a 401(k) Plan for the
benefit of eligible employees. The Company matches 25% of the first 6% of each
participant's salary contributed to the plan.
13. SUBSEQUENT EVENT -- SALE TRANSACTION
In April 1997, the Company and its stockholders signed a letter of intent
pursuant to which all of the outstanding common stock and common stock
equivalents will be sold to Capstar Radio Broadcasting Partners, Inc. for
$220,000,000 subject to certain conditions. Completion of the transaction, which
is subject to the execution of a definitive agreement, FCC approval and other
closing conditions, is expected to occur by the end of the first quarter of
1998.
14. PENDING ACQUISITIONS
In January 1997, the Company signed an agreement to purchase radio station
WMEZ-FM in Pensacola, Florida for $7,000,000 in cash.
In April 1997, the Company signed an agreement to purchase radio stations
KJOI-FM and KRDU-AM in Fresno, California for $6,000,000 in cash. The Company
signed a letter of credit for $500,000 in connection with this transaction.
In May 1997, the Company signed an agreement to purchase radio station
WQFN-FM in Grand Rapids, Michigan for $1,900,000 in cash.
The Company began to operate KJOI-FM and KRDU-AM in Fresno, California and
WQFN-FM in Grand Rapids, Michigan under LMA agreements in April 1997 and May
1997, respectively.
F-127
<PAGE> 301
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Ameron Broadcasting, Inc.:
We have audited the accompanying balance sheet of Ameron Broadcasting, Inc.
(a Missouri corporation) as of December 31, 1996, and the related statements of
operations, stockholders' 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 Ameron Broadcasting, Inc. 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.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
May 14, 1997
F-128
<PAGE> 302
AMERON BROADCASTING, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 90,108 $ 54,237
Accounts receivable, net of allowance for doubtful
accounts of $75,000 and $115,697, respectively......... 1,405,017 1,758,295
Prepaid assets and other.................................. 205,761 158,131
----------- -----------
Total current assets.............................. 1,700,886 1,970,663
----------- -----------
PROPERTY, PLANT AND EQUIPMENT............................... 3,950,470 3,949,846
ACCUMULATED DEPRECIATION.................................... (2,033,595) (1,962,993)
----------- -----------
Net property, plant and equipment................. 1,916,875 1,986,853
----------- -----------
INTANGIBLE ASSETS:
Federal Communications Commission licenses................ 7,130,104 7,182,920
Goodwill.................................................. 5,876,425 5,919,954
----------- -----------
Total intangible assets........................... 13,006,529 13,102,874
----------- -----------
Total assets...................................... $16,624,290 $17,060,390
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to related party............................. $ 4,200,000 $ 4,320,000
Current maturities of long-term debt...................... 1,000,000 1,000,000
Accounts payable and accrued liabilities.................. 761,495 677,154
----------- -----------
Total current liabilities......................... 5,961,495 5,997,154
LONG-TERM DEBT.............................................. 4,562,500 4,812,500
----------- -----------
Total liabilities................................. 10,523,995 10,809,654
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 1,410,000 shares authorized,
1,316,502 shares issued and outstanding................ 1,316,502 1,316,502
Additional paid-in capital................................ 12,433,654 12,433,654
Accumulated deficit....................................... (7,649,861) (7,499,420)
----------- -----------
Total stockholders' equity........................ 6,100,295 6,250,736
----------- -----------
Total liabilities and stockholders' equity........ $16,624,290 $17,060,390
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-129
<PAGE> 303
AMERON BROADCASTING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
REVENUE..................................................... $2,087,508 $ 9,123,212
LESS Agency commissions..................................... 231,988 992,249
---------- -----------
Total net revenue................................. 1,855,520 8,130,963
---------- -----------
OPERATING EXPENSES:
Engineering and programming............................... 705,628 2,581,547
Selling, general and administrative....................... 910,090 3,276,141
Depreciation and amortization............................. 166,947 662,903
---------- -----------
Total operating expenses.......................... 1,782,665 6,520,591
---------- -----------
Income from operations............................ 72,855 1,610,372
---------- -----------
OTHER EXPENSE (INCOME):
Interest expense.......................................... 218,288 842,881
Interest income........................................... (3,825) (6,810)
Other, net................................................ 8,833 83,446
---------- -----------
Other expense, net................................ 223,296 919,517
---------- -----------
Net income (loss)................................. $ (150,441) $ 690,855
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-130
<PAGE> 304
AMERON BROADCASTING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT EQUITY
---------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995................ $1,316,002 $12,426,559 $(8,190,275) $5,552,286
Net income.............................. -- -- 690,855 690,855
Issuance of 500 shares of common
stock................................ 500 7,095 -- 7,595
---------- ----------- ----------- ----------
BALANCE, December 31, 1996................ 1,316,502 12,433,654 (7,499,420) 6,250,736
Net loss (unaudited).................... -- -- -- (150,441)
---------- ----------- ----------- ----------
BALANCE, March 31, 1997 (unaudited)....... $1,316,502 $12,433,654 $(7,499,420) $6,100,295
========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-131
<PAGE> 305
AMERON BROADCASTING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(150,441) $ 690,855
Adjustments to reconcile net income (loss) to cash
provided by operating activities --
Depreciation and amortization.......................... 166,947 663,106
Loss on sale of fixed assets........................... -- 592
Changes in net assets and liabilities --
Accounts receivable.................................... 353,278 (372,472)
Prepaid and other assets............................... (47,630) (41,068)
Accounts payable and accrued liabilities............... 84,341 (54,011)
--------- -----------
Net cash provided by operating activities......... 406,495 887,002
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (624) (177,444)
Proceeds from sale of fixed assets........................ -- 4,900
--------- -----------
Net cash used in investing activities............. (624) (172,544)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on note payable to related party........... (120,000) 390,000
Payments on long-term debt................................ (250,000) (1,000,000)
Decrease in outstanding check liability................... -- (57,916)
Proceeds from issuance of common stock.................... -- 7,595
--------- -----------
Net cash used in financing activities............. (370,000) (660,321)
--------- -----------
Net increase in cash.............................. 35,871 54,137
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD............... 54,237 100
--------- -----------
CASH AND CASH EQUIVALENTS END OF PERIOD..................... $ 90,108 $ 54,237
========= ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE INFORMATION -- Cash paid
during the period for interest............................ $ 301,928 $ 776,618
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-132
<PAGE> 306
AMERON BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
Ameron Broadcasting, Inc. (the Company), a Missouri corporation, operates
three radio stations in the Birmingham, Alabama, market. The Company operates in
a highly competitive market and revenues may fluctuate significantly based on
programming ratings of the stations within the market.
Unaudited Interim Financial Statements
The financial statements and notes, in so far as they are applicable to the
three-month period ended March 31, 1997, are not covered by the Report of
Independent Accountants. The unaudited interim financial statements reflect all
adjustments consisting of only normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation of financial position
and results of operations. Operating results for the three months ended March
31, 1997, are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Uncertainties and 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 may differ from those estimates.
On February 8, 1996, the President signed into law the Telecommunications
Act of 1996. Among other things, this legislation requires the Federal
Communications Commission to relax its numerical restrictions on local ownership
and affords renewal applicants significant new protections from competing
applications for their broadcast licenses. The ultimate effect of this
legislation on the competitive environment is currently indeterminable.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and other investments with
original maturities of three months or less.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
respective assets as follows:
<TABLE>
<CAPTION>
ASSET
LIFE
-----
<S> <C>
Buildings................................................... 30
Towers and transmitters..................................... 10
Leasehold improvements...................................... 10
Studio equipment............................................ 5-10
Office furniture............................................ 5
Automobiles................................................. 2-5
</TABLE>
F-133
<PAGE> 307
AMERON BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Property, plant and equipment consists of the following as of December 31,
1996:
<TABLE>
<S> <C>
Land........................................................ $ 465,370
Buildings and equipment..................................... 1,035,595
Towers and transmitters..................................... 1,673,707
Furniture and fixtures...................................... 512,593
Leasehold improvements and other............................ 262,581
----------
$3,949,846
==========
</TABLE>
Intangible Assets
Intangible assets are being amortized on a straight-line basis over the
life of the assets as follows:
<TABLE>
<CAPTION>
<S> <C>
Federal Communications Commission licenses.................. 40
Goodwill.................................................... 40
</TABLE>
Amortization expense on intangible assets totaled approximately $385,000
for the year ended December 31, 1996. Accumulated amortization aggregated
$2,106,649 at December 31, 1996.
Revenue Recognition
Broadcasting revenue is recognized when commercials are aired.
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 evaluation of its customers and maintains an
allowance for doubtful accounts based on factors surrounding the credit risk of
specific customers, historical trends and other information.
Barter Transactions
The Company enters into barter agreements involving the exchange of
advertising time for products or services. In accordance with industry
standards, all barter transactions are valued at the estimated fair value of the
products or goods received. Barter revenue is recorded when the advertisement is
broadcast and barter expenses are recorded when the products or services are
used.
Income Taxes
The Company has made an election to be treated as an S Corporation under
the provisions of the Internal Revenue Code. All income and losses flow through
to the stockholders who are responsible for all applicable income taxes.
Accordingly, no provision or credit is reflected in the financial statements for
federal and state income taxes.
F-134
<PAGE> 308
AMERON BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
The accounting methods used by the Company are substantially the same for
financial reporting and tax purposes with the exception of accounting for
depreciation and amortization expenses and the allowance for doubtful accounts.
The following summarizes the significant differences between the financial
reporting basis and federal income tax basis of certain assets and liabilities:
<TABLE>
<S> <C>
Assets:
FCC licenses and other intangible assets.................. $ 992,000
Accrued expenses.......................................... 28,000
Reserve for bad debts..................................... 13,000
----------
$1,033,000
==========
Liabilities:
Property, plant and equipment............................. $ (282,000)
==========
</TABLE>
3. LONG-TERM DEBT:
Long-term debt at December 31, 1996, consists of a term loan payable to
SouthTrust Bank of Alabama, N.A. (the "Bank") maturing on June 30, 2000.
Interest on this loan is at the Bank's base rate or LIBOR plus 1.75%, as elected
by the Company. In 1996, the Company changed its election from the Bank's base
rate to LIBOR plus 1.75%. At December 31, 1996, LIBOR plus 1.75% was 7.10%. The
term loan is secured by securities pledged by the primary stockholder of the
Company.
Long-term debt maturities as of December 31, 1996, are summarized as
follows:
<TABLE>
<S> <C>
1997........................................................ $1,000,000
1998........................................................ 1,000,000
1999........................................................ 1,000,000
2000........................................................ 2,812,500
2001........................................................ --
----------
Total debt........................................ 5,812,500
Less -- Current maturities.................................. 1,000,000
----------
Long-term debt.................................... $4,812,500
==========
</TABLE>
The carrying amount of the Company's debt approximates market value.
4. COMMITMENTS AND CONTINGENCIES:
The Company has entered into operating leases related to the stations'
corporate offices, tower and the studio facilities. Future minimum lease
payments excluding amounts payable for common area maintenance as of December
31, 1996, are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 90,007
1998........................................................ 90,007
1999........................................................ 90,007
2000........................................................ 67,506
2001........................................................ --
--------
$337,527
========
</TABLE>
F-135
<PAGE> 309
AMERON BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. COMMITMENTS AND CONTINGENCIES (CONTINUED):
Rent expense excluding amounts related to common area maintenance for the
year ended December 31, 1996, was approximately $76,000. The Company recognizes
rent expense on a straight-line method over the lease term. As of December 31,
1996, cumulative rent expense in excess of rent payments totaled $51,000 and is
included in accounts payable and accrued liabilities in the accompanying balance
sheet.
The Company is involved in certain legal proceedings and other claims
arising in the ordinary course of business. The Company's management believes
the final resolution of these matters will not have a material impact on the
financial statements.
5. BENEFIT PLANS:
The Company has a defined contribution plan which covers substantially all
full-time employees. The plan is a combined 401(k) plan with companies
affiliated by common ownership. Under the plan, employees are permitted to defer
receipt of a portion of their compensation. The Company's matching rate is
discretionary, with a current rate of 65% of each employee's contribution up to
6% of compensation. Additionally, the Company can make additional discretionary
contributions. Total matching contributions were $47,000 for the year ended
December 31, 1996. There were no additional discretionary contributions made in
1996.
6. RELATED-PARTY TRANSACTIONS:
The Company has a $4,320,000 short-term note payable due to Ameron Fund,
Inc., an entity related by common ownership. The note is a revolving line of
credit which is due upon demand and expires July 1999. Under the agreement,
borrowings up to $4,500,000 are available. Interest is payable monthly based on
the prime rate. The prime interest rate was 8.25% at December 31, 1996. The
Company paid approximately $403,000 in interest to Ameron Fund, Inc. during
1996. The carrying amount of the related party debt approximates market value.
The Company has a management agreement with a company owned by the
Company's principal stockholder. Management services include general management,
employee benefits administration, banking and financing services. The management
fee is based on a set agreement and totaled $40,000 in 1996. Management fees
payable to the management company totaled $10,000 at December 31, 1996, and are
included in accounts payable and accrued liabilities in the accompanying balance
sheet.
7. STOCK OPTIONS:
The Company has a stock option plan for key executives and certain board
members. The Company, at its discretion, offers the participant the option to
purchase a number of shares of common stock. The option expires 60 days after
the option date. With the exercise of these options, the participant receives
four additional options which are immediately exercisable, and expire seven
years from the issuance date or upon the participant's termination. All options
are exercisable at prices based upon a formula as defined in the agreement.
In addition, the Company has a stock agreement with an officer which allows
the officer to earn options to purchase up to 7% of the Company's outstanding
common stock at $1 per share based upon the Company achieving specified levels
of operating profits. As of December 31, 1996, 10,460 options have been earned
under the plan. The agreement also contains provisions allowing the Company and
the major stockholder a right of first refusal for any prospective sale of stock
earned under the agreement. In the event of the officer's employment
termination, he has the right to require the Company to repurchase all shares
purchased under the agreement and the Company has the right to require the
officer to sell all shares purchased under the agreement at a selling price
based on the appraised market value of the shares. Neither the officer nor the
Company may exercise these rights under the earlier of the sale of the
corporation to a third party or five years from the date of the agreement.
F-136
<PAGE> 310
AMERON BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCK OPTIONS (CONTINUED):
No compensation expense has been recorded since inception of the stock
option plans described above as the amount was not material to the financial
statements. During 1996, the Company adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Had compensation cost for the Company's stock option plan been
determined based on the fair value at the grant date for awards in 1996
consistent with the provisions of this statement, the Company's net income would
have been reduced by approximately $33,000 to arrive at pro forma net income for
December 31, 1996.
The fair value of each option has been estimated on the date of grant using
the estimated fair value of the Company divided by the total number of shares of
stock and options outstanding as of December 31, 1996. The fair value of the
Company is based upon the estimated prospective selling price of the Company's
assets net of reserves and other liabilities.
A summary of the combined activity and balances for the Company's stock
options for the two plans as of December 31, 1996, and changes during the year
ended on that date is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------ --------
<S> <C> <C>
Options outstanding, beginning of year...................... 40,680 $10.37
Options granted............................................. 2,500 12.15
Options exercised........................................... (500) 15.19
Options canceled............................................ -- --
------
Options outstanding, end of year............................ 42,680 10.60
======
Options exercisable at year-end............................. 42,680 10.60
Weighted average fair value of options granted during the
year...................................................... $13.40
======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1996 LIFE PRICE 1996 PRICE
--------------- ------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$ 1.00 to $ 4.36..................... 19,132 48.2 months $ 2.23 19,132 $ 2.23
$10.06 to $14.10..................... 6,672 36.2 months 12.24 6,672 12.24
$15.19 to $20.00..................... 16,876 36.6 months 19.43 16,876 19.43
------ ------
42,680 $10.60 42,680 $10.60
====== ======
</TABLE>
8. SUBSEQUENT EVENT:
On April 24, 1997, a contract was signed with another broadcast company for
the sale of the Company. The sale is expected to close in August 1997 pending
FCC approval.
F-137
<PAGE> 311
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Knight Quality Stations:
We have audited the accompanying combined balance sheet of Knight Quality
Stations as of December 31, 1996, and the related combined statements of
operations, stockholders' 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 Knight Quality Stations 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.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 8, 1997
F-138
<PAGE> 312
KNIGHT QUALITY STATIONS
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 1,752,647 $ 2,419,314
Short-term investments.................................... -- 78,298
Accounts receivable, net of reserves of approximately
$472,000 at December 31, 1996 and March 31, 1997....... 3,298,155 2,631,480
Prepaids and other current assets......................... 387,046 385,397
----------- -----------
Total current assets.............................. 5,437,848 5,514,489
----------- -----------
Property, Land and Equipment:
Land...................................................... 416,223 416,223
Buildings and improvements................................ 5,106,227 5,106,227
Furniture and fixtures.................................... 1,182,935 1,182,935
Equipment................................................. 8,388,183 8,439,431
Motor vehicles............................................ 538,222 534,222
----------- -----------
15,631,790 15,679,038
Less -- Accumulated depreciation and amortization......... 10,721,314 10,895,570
----------- -----------
4,910,476 4,783,468
----------- -----------
Other Assets:
Goodwill, net of accumulated amortization of approximately
$2,473,000 and $2,481,000 at December 31, 1996 and
March 31, 1997, respectively........................... 238,576 230,689
Other..................................................... 470,151 445,548
----------- -----------
$11,057,051 $10,974,194
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable.......................... $ 683,332 $ 848,332
Accrued expenses and accounts payable..................... 1,132,622 1,219,213
----------- -----------
Total current liabilities......................... 1,815,954 2,067,545
----------- -----------
Notes Payable, net of current portion....................... 8,081,228 7,772,893
----------- -----------
Commitments (Note 5)
Stockholders' Equity:
Common stock, no par value
Authorized -- 2,200 shares;
Issued and outstanding -- 2,200 shares................. 36,000 36,000
Retained earnings......................................... 1,123,869 1,097,756
----------- -----------
Total stockholders' equity........................ 1,159,869 1,133,756
----------- -----------
$11,057,051 $10,974,194
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-139
<PAGE> 313
KNIGHT QUALITY STATIONS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
1996 MARCH 31, 1997
------------ --------------
(UNAUDITED)
<S> <C> <C>
Broadcast Revenues.......................................... $18,452,001 $ 4,061,302
Less -- Agency commissions.................................. (1,855,089) (398,619)
----------- -----------
Net revenues...................................... 16,596,912 3,662,683
----------- -----------
National Commissions........................................ 1,242,505 293,045
Operating Expenses:
Technical................................................. 660,265 149,741
Program................................................... 3,041,634 784,504
Selling................................................... 6,051,723 1,287,469
General and administrative................................ 3,899,553 820,919
Depreciation and Amortization Expense....................... 1,005,427 205,580
----------- -----------
Income from operations............................ 695,805 121,425
Interest Expense, net....................................... (709,923) (165,281)
Realty Expense, net......................................... (102,221) (22,624)
Nonbroadcast Revenue........................................ 162,721 57,820
Gain on Sale of Property and Equipment...................... 567,762 6,414
----------- -----------
Net income (loss) before provision for state
income taxes.................................... 614,144 (2,246)
Provision for State Income Taxes............................ 76,660 23,867
----------- -----------
Net income (loss)................................. $ 537,484 $ (26,113)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-140
<PAGE> 314
KNIGHT QUALITY STATIONS
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------- ---------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 (unaudited).......... 2,200 $36,000 $1,230,643 $1,266,643
Net income.................................... -- -- 537,484 537,484
Distributions to stockholders................. -- -- (644,258) (644,258)
----- ------- ---------- ----------
Balance, December 31, 1996...................... 2,200 36,000 1,123,869 1,159,869
Net loss (unaudited).......................... -- -- (26,113) (26,113)
----- ------- ---------- ----------
Balance, March 31, 1997 (unaudited)............. 2,200 $36,000 $1,097,756 $1,133,756
===== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-141
<PAGE> 315
KNIGHT QUALITY STATIONS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)......................................... $ 537,484 $ (26,113)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Depreciation and amortization.......................... 1,024,774 205,580
Gain on sale of real estate............................ (567,762) (6,414)
Write-off of uncollectible note receivable............. 600,000 --
Changes in current assets and current liabilities --
Accounts receivable.................................. (617,810) 666,675
Prepaids and other current assets.................... (29,751) (198,351)
Accrued expenses and accounts payable................ 258,251 86,591
----------- ----------
Net cash provided by operating activities......... 1,205,186 727,968
----------- ----------
Cash Flows from Investing Activities:
Purchase of available-for-sale investments................ -- (78,298)
Purchase of property, land and equipment.................. (1,227,815) (67,003)
Proceeds from the sale of property and equipment.......... 818,905 14,000
(Issuance) repayment of notes receivable.................. (300,000) 200,000
Increase in other assets.................................. (5,454) --
----------- ----------
Net cash (used in) provided by investing
activities...................................... (714,364) 68,699
----------- ----------
Cash Flows from Financing Activities:
Distributions to stockholders............................. (644,258) --
Repayment of debt......................................... (5,015,202) (130,000)
Proceeds from issuance of debt............................ 4,850,000 --
----------- ----------
Net cash used in financing activities............. (809,460) (130,000)
----------- ----------
Net (Decrease) Increase in Cash and Cash Equivalents........ (318,638) 666,667
Cash and Cash Equivalents, beginning of period.............. 2,071,285 1,752,647
----------- ----------
Cash and Cash Equivalents, end of period.................... $ 1,752,647 $2,419,314
=========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for --
Interest............................................... $ 733,187 $ 173,220
=========== ==========
State income taxes..................................... $ 33,484 $ 23,867
=========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-142
<PAGE> 316
KNIGHT QUALITY STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
(INCLUDED DATA APPLICABLE TO UNAUDITED PERIODS)
(1) BACKGROUND INFORMATION
Knight Quality Stations (the Company) is the operating name of the
following entities' combined operations:
- Knight Broadcasting of New Hampshire, Inc. (KBNH) (a New Hampshire
corporation) operates the following radio stations:
-- WHEB-FM (Portsmouth, New Hampshire), which operates on a frequency of
100.3 MHz, utilizing a rock format.
-- WXHT-FM (Portsmouth, New Hampshire) formerly WCQL-FM, which operates
on a frequency of 95.3 MHz, utilizing a modern adult contemporary
format.
-- WTMN-AM (Portsmouth, New Hampshire) formerly WCQL-AM, which operates
on a frequency of 1380 kc, utilizing an all sports format.
- Knight Radio, Inc. (KRI) (a New Hampshire corporation) operates the
following stations:
-- WGIR-AM/FM (Manchester, New Hampshire), which operates on a frequency
of 610 kc and 101.1 MHz, utilizing a news, talk and sports format on
WGIR-AM and a rock format on WGIR-FM.
-- WEZF-FM (Burlington, Vermont), which operates on a frequency of 92.9
MHz, utilizing an adult contemporary format.
- Knight Communications Corporation (KCC) (a Massachusetts corporation)
operates the following stations:
-- WSRS-FM (Worcester, Massachusetts), which operates on a frequency of
96.1 MHz, utilizing a soft adult contemporary format.
-- WTAG-AM (Worcester, Massachusetts), which operates on a frequency of
580 kc, utilizing a news, talk and sports format.
In addition to its broadcast radio operations, the Company holds certain
real estate and properties for business purposes.
In February 1996, KCC sold certain real estate, for which the Company
received net proceeds of approximately $770,000 and realized a gain on the sale
of approximately $530,000, which is included in the accompanying combined
statements of operations for the year ended December 31, 1996.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Combination
The accompanying combined financial statements for the year ended December
31, 1996 and for the three months ended March 31, 1997 include the combined
operating results of the entities referred to in Note 1, as they are entities
under common control and common management. All material intercompany accounts
and transactions have been eliminated in the combination.
(b) Interim Financial Statements
The accompanying combined balance sheet as of March 31, 1997, the combined
statements of operations, cash flows and stockholders' equity for the three
months ended March 31, 1997 are unaudited, but in the opinion
F-143
<PAGE> 317
KNIGHT QUALITY STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
of management, include all adjustments (consisting of normal, recurring
adjustments) necessary for a fair presentation of the results for those interim
periods. The results of operations for the three months ended March 31, 1997 are
not necessarily indicative of results to be expected for the entire year.
(c) Management 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.
(d) Cash and Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with a remaining
maturity of 90 days or less from the date of purchase to be cash equivalents.
The Company accounts for its cash equivalents and short-term investments in
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities. Under SFAS No.
115, investments that the Company has the positive intent and ability to hold to
maturity are reported at amortized cost, which approximates fair market value,
and are classified as held-to-maturity. As of December 31, 1996 and March 31,
1997, the Company had approximately $1,073,000 and $882,000, respectively,
invested in repurchase agreements collateralized by government securities, which
the Company has deemed to be held-to-maturity investments and are included as
cash equivalents in the accompanying combined balance sheets. Short-term
investments have maturities of greater than three months and consist of equity
securities at March 31, 1997. These investments were purchased to be held for
indefinite periods of time and were not intended at the time of purchase to be
held to maturity; therefore, they are classified as available-for-sale. These
investments are carried at cost, which approximates fair market value.
(e) Depreciation and Amortization
The Company provides for depreciation and amortization on property and
equipment using both the straight-line and declining-balance methods by charges
to operations in amounts that allocate the cost of the assets over their
estimated useful lives as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
ASSET CLASSIFICATION LIFE
- -------------------- ----------------
<S> <C>
Buildings and improvements.................................. 18 - 39 years
Furniture and fixtures...................................... 5 - 7 years
Equipment................................................... 5 - 15 years
Motor vehicles.............................................. 5 - 7 years
</TABLE>
(f) Revenue Recognition
The Company recognizes broadcast revenues and records the related
commission during the period that the advertising is aired.
F-144
<PAGE> 318
KNIGHT QUALITY STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(g) Trade and Barter Transactions
Gross revenues and operating expenses include trade and barter transactions
at the fair market value of the product or service received. These transactions
represent the exchange of advertising time for merchandise and services. Trade
and barter transactions charged to operations were as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
<S> <C> <C>
Trade revenues............................................. $ 1,613,192 $ 401,430
Trade expenses............................................. (1,664,042) (313,773)
----------- ---------
Net barter transactions.......................... $ (50,850) $ 87,657
=========== =========
</TABLE>
(h) Prepaids and Other Current Assets
At December 31, 1996 and March 31, 1997, other current assets included
$300,000 and $100,000, respectively, of a note receivable bearing interest at 9%
which is payable monthly, and the note receivable matures in June 1997.
(i) Goodwill
Goodwill represents the excess of acquisition costs over the fair market
value of the assets acquired and is being amortized over 10 years. For the year
ended December 31, 1996 and for the three months ended March 31, 1997,
approximately $99,000 and $8,000, respectively, was charged to operations for
goodwill amortization and is included in depreciation and amortization expense
in the accompanying combined statements of operations. The Company assesses the
realizability of its long-lived assets, including goodwill, using the
undiscounted cash flows method, in accordance with SFAS No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of. As
of December 31, 1996 and March 31, 1997, the Company believes that the carrying
values have not been impaired.
(j) Other Assets
Other assets include the following:
- A noncompete agreement related to the acquisition of WEZF. In connection
with the acquisition of the station, the Company entered into a
noncompete agreement with the former owner. Total payments under this
agreement totaled $80,000 and $20,000 for the year ended December 31,
1996 and for the three months ended March 31, 1997, respectively.
- Approximately $433,000 related to Federal Communications Commission (FCC)
licenses acquired through the purchase of WCQL-AM/FM, which is being
amortized over 10 years. For the year ended December 31, 1996 and for the
three months ended March 31, 1997, approximately $44,000 and $11,000,
respectively, of amortization was charged to operations. As of December
31, 1996 and March 31, 1997, accumulated amortization totaled
approximately $97,000 and $108,000, respectively.
In 1996, the Company held a $600,000 note receivable from the owner of WEIM
for the purchase of station WEIM-AM in Fitchburg, Massachusetts, in July 1987.
In September 1996, management deemed this note to be uncollectible and charged
the balance of the note to operations. The write-off is included in general and
administrative expenses in the accompanying combined statement of operations.
F-145
<PAGE> 319
KNIGHT QUALITY STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(k) Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, investments, accounts receivable, accounts payable and notes
payable. The carrying amount of these financial instruments approximates their
fair value.
(l) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. Financial instruments, which potentially subject the Company to
concentrations of credit risk, are principally cash and cash equivalents,
investments, and accounts receivable. The company places its cash and
investments in highly rated institutions. No single customer accounted for
greater than 10% of revenues in any of the periods presented.
(m) Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued SFAS No.
129, Disclosure of Information About Capital Structure, which established
disclosure requirements for an entity's capital structure. SFAS No. 129 is
effective for fiscal years beginning after December 15, 1997. Management does
not believe the implementation of SFAS No. 129 will have a material effect on
its financial statements.
F-146
<PAGE> 320
KNIGHT QUALITY STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(3) NOTES PAYABLE
The following are the Company's outstanding notes payable as of December
31, 1996 and March 31, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ----------
<S> <C> <C>
WSRS --
Note payable to USTrust to borrow up to $4,550,000,
bearing interest at the bank's prime rate (8.50% at March
31, 1997), with principal payments of $65,000 plus
interest due monthly beginning in July 1997, secured by
the personal guarantee of all stockholders............... $4,030,000 $3,900,000
WHEB --
Note payable to The Bank of New Hampshire to borrow up to
$3,600,000, bearing interest at the bank's prime rate
(8.50% at March 31, 1997), with principal payments of
$90,000 plus interest due quarterly, secured by the real
estate of KBNH and the personal guarantee of a
stockholder.............................................. 3,330,000 3,330,000
WGIR --
Note payable to The Bank of New Hampshire to borrow up to
$1,500,000, bearing interest at the bank's prime rate
(8.50% at March 31, 1997), with principal payments of
$75,000 plus interest due quarterly, secured by the real
estate of KRI............................................ 975,000 975,000
Demand note payable to The Bank of New Hampshire to
borrow $300,000, bearing interest at the bank's prime
rate (8.50% at March 31, 1997), payable upon demand with
interest payable monthly and guaranteed by a
stockholder.............................................. 300,000 300,000
WEZF --
Obligation related to a noncompete agreement with the
former owner of WEZF, with quarterly payments of $20,000
due through June 1999.................................... 129,560 116,225
---------- ----------
Total Notes Payable.............................. 8,764,560 8,621,225
Less -- Current portion of notes payable................. 683,332 848,332
---------- ----------
Notes Payable, net of current portion............ $8,081,228 $7,772,893
========== ==========
</TABLE>
In accordance with certain debt agreements, the Company is required to
maintain certain financial and operating covenants. The combined financial
statements and the following table summarize approximate scheduled principal
payments required on the notes payable as of December 31, 1996:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- ----------
<S> <C>
1997..................................................... $ 683,000
1998..................................................... 1,364,000
1999..................................................... 1,463,000
2000..................................................... 1,365,000
2001..................................................... 1,140,000
Thereafter............................................... 2,750,000
----------
$8,765,000
==========
</TABLE>
F-147
<PAGE> 321
KNIGHT QUALITY STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. The Company has not recorded a deferred tax asset
in any period presented, as it was insignificant.
Each of the entities has elected to be taxed as an S corporation pursuant
to Section 1362(a) of the Internal Revenue Code for federal income tax purposes.
Therefore, taxable income and federal tax credits of the Company are included in
the tax returns of its stockholders.
During 1987, the Commonwealth of Massachusetts adopted legislation that
modified S corporation status for the Company on a combined basis after fiscal
1988, requiring it to pay ceratin taxes at a corporate level. In addition, New
Hampshire, New York and Vermont do not recognize S corporation status, and
therefore, taxes are paid at the corporate level in all of these states. For the
year ended December 31, 1996 and for the three months ended March 31, 1997, a
current state income tax provision of approximately $77,000 and $24,000,
respectively, has been recognized for certain corporate taxes for financial
reporting purposes.
(5) COMMITMENTS
The Company owns most of its buildings, land, towers and equipment, with
the exception of a radio tower in Vermont and certain office equipment, which
are leased. The Company's future minimum lease payments under operating leases
as of December 31, 1996 are approximately as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- --------
<S> <C>
1997...................................................... $111,000
1998...................................................... 28,000
1999...................................................... 4,000
--------
$143,000
========
</TABLE>
Payments under these leases totaled approximately $63,000 and $23,000 for
the year ended December 31, 1996 and for the three months ended March 31, 1997,
respectively.
(6) RELATED PARTY TRANSACTIONS
In January 1995, a new entity, KQS Radio Sales, LLC (KQS Sales), was
established by employees and stockholders of the Company to represent the
Company and other stations for national sales. For the year ended December 31,
1996 and for the three months ended March 31, 1997, the Company paid commissions
to KQS Sales of approximately $556,000 and $173,000, respectively, related to
national sales, which is included as commissions on the accompanying combined
statements of operations.
In 1996, these same employees and stockholders formed Knight Communications
of the Virgin Islands (KCVI). During the three months ended March 31, 1997, the
Company advanced $100,000 to KCVI, interest free. This advance is expected to be
repaid within twelve months and has been included in other current assets in the
accompanying combined balance sheet as of March 31, 1997.
(7) RETIREMENT PLAN
During 1996, the Company adopted a defined contribution retirement plan
(the Plan) under Section 401(k) of the Internal Revenue Code. The Plan provides
for a discretionary matching contributions by the Company. There were no
contributions made by the Company for the year ended December 31, 1996 or for
the three months ended March 31, 1997.
F-148
<PAGE> 322
KNIGHT QUALITY STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(8) ACCRUED EXPENSES AND ACCOUNTS PAYABLE
Accrued expenses and accounts payable in the accompanying combined balance
sheets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ----------
<S> <C> <C>
Accounts payable........................................... $ 359,135 $ 361,184
Accrued taxes.............................................. 99,561 99,561
Accrued payroll and payroll-related........................ 420,475 641,125
Other accrued expenses..................................... 253,451 117,343
---------- ----------
$1,132,622 $1,219,213
========== ==========
</TABLE>
(9) SUBSEQUENT EVENT
Subsequent to year-end, the Company entered into an asset purchase
agreement with Capstar Acquisition Company, Inc. ("Capstar"), whereby the
Company agreed to sell substantially all of its assets to Capstar in exchange
for approximately $55.0 million.
F-149
<PAGE> 323
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Quass Broadcasting Company
Cedar Rapids, Iowa
We have audited the accompanying balance sheet of Quass Broadcasting
Company as of December 31, 1996 and the related statements of income, common
stockholders' equity (deficit), 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 Quass Broadcasting Company
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.
McGLADREY & PULLEN, LLP
Cedar Rapids, Iowa
February 20, 1997, except for Note 6,
as to which the date is June 12, 1997
F-150
<PAGE> 324
QUASS BROADCASTING COMPANY
BALANCE SHEETS
ASSETS (Note 2)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current Assets
Cash and cash equivalents................................. $ 608,643 $ 54,530
Accounts receivable, less allowance for doubtful accounts
1996 $75,996; 1997 $37,568............................. 642,549 532,484
Inventories............................................... 3,636 3,687
Prepaid expenses.......................................... 41,476 28,787
Deferred income taxes (Note 4)............................ 35,000 35,000
---------- ----------
Total current assets.............................. 1,331,304 654,488
---------- ----------
Property and Equipment
Land...................................................... 241,786 241,786
Buildings and building improvements....................... 68,664 68,664
Transmitting equipment.................................... 851,754 851,754
Studio technical equipment................................ 604,065 604,065
Furniture and fixtures.................................... 111,058 111,058
Office and shop equipment................................. 156,793 159,248
---------- ----------
2,034,120 2,036,575
Less accumulated depreciation............................. 811,691 854,285
---------- ----------
1,222,429 1,182,290
---------- ----------
Intangibles
Broadcast rights, at cost, less accumulated amortization
1996 $227,097; 1997 $244,581........................... 2,122,392 2,104,908
Other intangibles, at cost, less accumulated amortization
1996 $298,852; 1997 $312,070........................... 281,201 267,983
---------- ----------
2,403,593 2,372,891
---------- ----------
$4,957,326 $4,209,669
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt (Note 2)............. $ 250,000 $ 250,000
Accounts payable.......................................... 53,764 37,897
Accrued payroll and payroll related expenses.............. 101,410 57,480
Other accrued liabilities................................. 51,419 43,454
Income taxes payable...................................... 13,766 30,097
---------- ----------
Total current liabilities......................... 470,359 418,928
---------- ----------
Long-Term Debt, including $100,000 due to stockholder (Note
2)........................................................ 4,155,000 3,417,500
---------- ----------
Deferred Income Taxes (Note 4).............................. 203,000 203,000
---------- ----------
Commitments (Note 3)
Redeemable Preferred Stock, $7.50 par value; 20,000 shares
authorized; 12% cumulative dividends; none issued......... -- --
---------- ----------
Stockholders' Equity (Notes 2 and 6)
Capital stock, common, no par or stated value; 80,000
shares authorized; issued and outstanding 17,000
shares................................................. 17,000 17,000
Additional paid-in capital................................ 133,000 133,000
Retained earnings (deficit)............................... (21,033) 20,241
---------- ----------
128,967 170,241
---------- ----------
$4,957,326 $4,209,669
========== ==========
</TABLE>
See Notes to Financial Statements.
F-151
<PAGE> 325
QUASS BROADCASTING COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ---------------------
1996 1996 1997
------------ --------- --------
(UNAUDITED)
<S> <C> <C> <C>
Broadcasting revenue...................................... $4,037,270 $ 894,066 $920,915
Operating expenses:
Broadcasting expenses................................... 3,272,713 707,665 688,961
Depreciation and amortization........................... 293,069 68,889 73,296
---------- --------- --------
Total operating expenses........................ 3,565,782 776,554 762,257
---------- --------- --------
Operating income, broadcasting.................. 471,488 117,512 158,658
---------- --------- --------
Net sales, signage........................................ 151,105 32,562 29,236
Cost of sales............................................. 79,009 20,071 17,721
Operating expenses........................................ 41,484 10,266 13,112
---------- --------- --------
Operating income (loss), signage................ 30,612 2,225 (1,597)
---------- --------- --------
Operating income................................ 502,100 119,737 157,061
Financial income (expense):
Interest expense........................................ (428,436) (103,377) (86,026)
Interest income......................................... 26,125 7,069 220
---------- --------- --------
Income before income taxes...................... 99,789 23,429 71,255
Federal and state income taxes (Note 4)................... 38,826 10,850 29,981
---------- --------- --------
Net income...................................... $ 60,963 $ 12,579 $ 41,274
========== ========= ========
Net income attributable to common stockholders............ $ 58,694 $ 10,310 $ 41,274
========== ========= ========
Earnings per common share................................. $ 3.45 $ 0.61 $ 2.43
========== ========= ========
Weighted average common shares outstanding................ 17,000 17,000 17,000
========== ========= ========
</TABLE>
See Notes to Financial Statements.
F-152
<PAGE> 326
QUASS BROADCASTING COMPANY
STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT) (NOTE 2)
YEAR ENDED DECEMBER 31, 1996 AND THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
CAPITAL ADDITIONAL RETAINED
STOCK, PAID-IN EARNINGS
COMMON CAPITAL (DEFICIT) TOTAL
------- ---------- --------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1995........................... $17,000 $133,000 $(79,727) $ 70,273
Dividends on preferred stock, $.11 per share....... -- -- (2,269) (2,269)
Net income......................................... -- -- 60,963 60,963
------- -------- -------- --------
Balance, December 31, 1996........................... 17,000 133,000 (21,033) 128,967
Net income (unaudited)............................. -- -- 41,274 41,274
------- -------- -------- --------
Balance, March 31, 1997 (unaudited).................. $17,000 $133,000 $ 20,241 $170,241
======= ======== ======== ========
</TABLE>
See Notes to Financial Statements.
F-153
<PAGE> 327
QUASS BROADCASTING COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED MARCH 31,
DECEMBER 31, ---------------------
1996 1996 1997
------------ --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income.............................................. $ 60,963 $ 12,579 $ 41,274
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation......................................... 170,374 38,215 42,594
Amortization......................................... 122,695 30,674 30,702
Provision for doubtful accounts...................... 63,889 7,756 (21,070)
Deferred income taxes................................ 25,000 -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable......... (164,944) (7,507) 131,135
(Increase) decrease in inventories................. 1,889 960 (51)
Decrease in prepaid expense........................ 10,425 13,986 12,689
(Increase) decrease in accounts payable............ 30,963 6,776 (15,867)
(Decrease) in accrued expenses..................... (10,223) (39,867) (51,895)
Increase in income taxes payable................... 13,766 10,850 16,331
--------- --------- ---------
Net cash provided by operating activities....... 324,797 74,422 185,842
--------- --------- ---------
Cash Flows from Investing Activities, purchase of property
and equipment........................................... (222,106) (142,553) (2,455)
--------- --------- ---------
Cash Flows from Financing Activities
Proceeds from long-term debt............................ -- -- 100,000
Repayments of long-term debt............................ (50,000) (12,500) (837,500)
Dividends paid.......................................... (2,269) (2,269) --
Redemption of preferred stock........................... (150,000) (150,000) --
--------- --------- ---------
Net cash (used in) financing activities......... (202,269) (164,769) (737,500)
--------- --------- ---------
(Decrease) in cash and cash equivalents......... (99,578) (232,900) (554,113)
Cash and cash equivalents, beginning...................... 708,221 708,221 608,643
--------- --------- ---------
Cash and cash equivalents, ending......................... $ 608,643 $ 475,321 $ 54,530
========= ========= =========
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest............................................. $ 431,919 $ 107,322 $ 90,355
Income taxes......................................... -- -- 13,650
</TABLE>
See Notes to Financial Statements.
F-154
<PAGE> 328
QUASS BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: The Company's primary business is the operation of
radio stations in Cedar Rapids, Iowa. The radio stations operated are KHAK-FM,
KDAT-FM and KTOF-AM. The Company also manufactures, produces and sells
multimedia signage, excluding neon, billboards and electric signs.
Accounting estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount 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.
The following is a summary of the Company's significant accounting
policies:
Cash and cash equivalents: For purposes of reporting cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
Inventories: Inventories, which are related to the sign business, are
valued at the lower of cost (first-in, first-out method) or market.
Property and equipment and depreciation: Property and equipment is carried
at cost. Depreciation of property and equipment for book purposes is computed by
the straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and building improvements......................... 31 1/2
Transmitting equipment...................................... 10-20
Studio technical equipment.................................. 10
Furniture and fixtures...................................... 10
Office and shop equipment................................... 5-10
</TABLE>
Intangibles: The intangibles are being amortized by the straight-line
method over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Broadcast rights............................................ 32-40
Other, primarily goodwill................................... 4-40
</TABLE>
Intangible assets are periodically reviewed for impairment based upon an
assessment of future operations to ensure that they are appropriately valued.
Revenue recognition: Revenue from the sale of time slots is recognized upon
airing of the slot.
Revenue from the sale of signage is recognized upon delivery.
Income taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
Earnings per common share: Earnings per common share are determined by
dividing net income less dividends on preferred stock by the weighted average
number of common shares outstanding during each of the periods presented.
F-155
<PAGE> 329
QUASS BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair value of financial instruments: The carrying amount of long-term debt
approximates fair value because these obligations bear interest at current
rates.
Interim financial information (unaudited): The financial statements and
notes related thereto as of March 31, 1997 and for the three-month periods ended
March 31, 1996 and 1997 are unaudited, but in the opinion of management include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial position and results of operations. The
operating results for the interim periods are not indicative of the operating
results to be expected for a full year or for other interim periods. Not all
disclosures required by generally accepted accounting principles necessary for a
complete presentation have been included.
Recently issued accounting standards: In February 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (SFAS 128), and SFAS No. 129,
"Disclosure of Information about Capital Structure" (SFAS 129). SFAS 128
specifies the computation, presentation and disclosure requirements for earnings
per share for entities with publicly-held common stock. Its objective is to
simplify the computation of earnings per share and to make the U.S. standard for
computing earnings per share more compatible with the standards of other
countries and with that of the International Accounting Standards Committee.
SFAS 129 incorporates related disclosure requirements from APB Opinion No. 10,
"Disclosure of Long-Term Obligations," and SFAS No. 47, "Disclosure of Long-Term
Obligations," for entities that were subject to the requirements for those
standards. Both statements are effective for fiscal years beginning after
December 15, 1997. The Company will adopt the statements effective December 31,
1997 and does not expect adoption of the statements to have a significant impact
on its current earnings per share calculation and disclosures.
NOTE 2. PLEDGED ASSETS AND LONG-TERM DEBT
Long-term debt at December 31, 1996 consists of the following:
<TABLE>
<S> <C>
Line of credit agreement(A)................................. $2,350,000
Subordinated debenture(B)................................... 100,000
Note payable to an individual(C)............................ 977,500
Note payable to an individual(C)............................ 977,500
----------
4,405,000
Less current maturities..................................... 250,000
----------
$4,155,000
==========
</TABLE>
- ---------------
(A) On December 24, 1996, the Company amended its note payable agreement with a
bank to provide for a variable balance line of credit agreement. Under this
agreement, the original loan balance of $2,350,000 is reduced by scheduled
principal payments through December 1999. The amount available to be
borrowed under this agreement will be reduced during the term of the
agreement by the scheduled principal payments. This agreement is
collateralized by substantially all of the Company's assets, an assignment
of the proceeds of a term life insurance policy on a stockholder, a second
lien on the assets of KTOF-AM and is guaranteed by one of the stockholders
of the Company. This stockholder has also pledged 11,000 shares of common
stock as additional collateral. All borrowings under this agreement bear
interest at 9.5% and will be due in varying quarterly installments through
December 1999. The agreement contains various restrictions, including, among
others, restrictions on the payment of any dividends other than preferred
dividends as well as maintaining various financial ratios. Every other year,
the Company is also required to provide to the bank an updated appraisal of
the Company. The Company was in compliance with these covenants at December
31, 1996 and March 31, 1997.
F-156
<PAGE> 330
QUASS BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(B) The subordinated debenture payable is due to a stockholder, is unsecured,
bears interest at 12% and is due December 1999.
(C) These notes payable are collateralized by substantially all of the assets of
KTOF-AM and the assignment of the proceeds of a term life insurance policy
on a stockholder. The loans bear interest at 9.5% and require interest only
total payments of $15,477 per month through December 1997 and total
principal and interest payments of $17,000 per month through November 2004
with the balances due December 2004. The agreements contain various
restrictions, including, among others, restrictions on the payment of any
dividends other than preferred dividends as well as maintaining various
financial ratios. The Company was in compliance with these covenants at
December 31, 1996 and March 31, 1997.
Aggregate maturities required on long-term debt at December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997........................................................ $ 250,000
1998........................................................ 319,324
1999........................................................ 1,921,010
2000........................................................ 23,096
2001........................................................ 25,388
Thereafter.................................................. 1,866,182
----------
$4,405,000
==========
</TABLE>
NOTE 3. LEASE COMMITMENT AND TOTAL RENT EXPENSE
The Company leases its offices and studio space under various agreements
which expire between June 30, 1997 and January 31, 1998 and require that the
lessee pay property taxes plus various annual rentals.
The total minimum rental commitment at December 31, 1996 under the leases
mentioned above is $24,296 which is due as follows:
During the year ending December 31:
<TABLE>
<S> <C>
1997........................................................ $23,396
1998........................................................ 900
-------
$24,296
=======
</TABLE>
The total rental expense included in the income statement for the year
ended December 31, 1996 is $87,432.
NOTE 4. INCOME TAX MATTERS
Net deferred tax liabilities consist of the following components as of
December 31, 1996:
<TABLE>
<S> <C>
Deferred tax liabilities:
Property and equipment.................................... $ 24,000
Broadcasting rights....................................... 189,000
--------
213,000
--------
Deferred tax assets:
Accrued expenses.......................................... 5,000
Receivable allowances..................................... 30,000
Noncompete agreement...................................... 10,000
--------
45,000
--------
$168,000
========
</TABLE>
F-157
<PAGE> 331
QUASS BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The deferred tax amounts mentioned above have been classified on the
accompanying balance sheet as of December 31, 1996 as follows:
<TABLE>
<S> <C>
Noncurrent liabilities...................................... $203,000
Current asset............................................... (35,000)
--------
$168,000
========
</TABLE>
The provision for income taxes charged to operations for the year ended
December 31, 1996 consists of the following:
<TABLE>
<S> <C>
Current income tax expense.................................. $ 13,826
Deferred income tax expense................................. 25,000
--------
$ 38,826
========
</TABLE>
The income tax provision differs from the amount of income tax determined
by applying the U. S. Federal income tax rate to pretax income from continuing
operations for the year ended December 31, 1996 due to the following:
<TABLE>
<S> <C>
Computed "expected" tax expense............................. $ 34,900
Increase (decrease) in income taxes resulting from:
Nondeductible items....................................... 3,400
State taxes net of federal benefit........................ 3,000
Other..................................................... (2,474)
--------
$ 38,826
========
</TABLE>
NOTE 5. PROFIT-SHARING PLAN
The Company has a profit-sharing plan that includes 401(k) provisions.
Under the terms of the plan, participants may elect to defer from 2% to 15% of
their compensation and matching contributions, equal to 50% of the deferred
compensation of all eligible participants, which will be made by the employer up
to 2% of each participant's compensation. The Company may also make
discretionary contributions. The Company's contribution for the year ended
December 31, 1996 was $35,000.
NOTE 6. EVENTS SUBSEQUENT TO DECEMBER 31, 1996
On June 12, 1997, all of the outstanding shares of stock of the Company
were acquired by Capstar Broadcasting Partners, Inc. pursuant to a stock
purchase agreement.
F-158
<PAGE> 332
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Mountain Lakes Broadcasting, L.L.C.
We have audited the accompanying balance sheets of Mountain Lakes
Broadcasting, L.L.C. as of December 31, 1996 and 1995, and the related
statements of operations and members 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 financial statements referred to above present fairly,
in all material respects, the financial position of Mountain Lakes Broadcasting,
L.L.C. at December 31, 1996 and 1995, and the results of their operations and
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 16, 1997
F-159
<PAGE> 333
MOUNTAIN LAKES BROADCASTING, L.L.C.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 217,151 $ 164,941
Accounts receivable, net of allowance for doubtful
accounts of $69,410 in 1996 and $13,012 in 1995........ 873,871 828,595
Prepaid expenses and other current assets................. 5,035 8,212
---------- ----------
Total current assets........................................ 1,096,057 1,001,748
Property and equipment, net, at cost........................ 214,200 274,777
Intangible assets, net, at cost............................. 1,352,815 1,723,606
Other asset................................................. 30,575 30,575
Total assets................................................ $2,693,647 $3,030,706
LIABILITIES AND STATION EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 231,036 $ 173,095
Current portion of noncompete payable..................... 394,646 370,791
Current portion of note payable........................... 122,000 122,000
Payable to affiliates..................................... 333,994 333,994
---------- ----------
Total current liabilities................................... 1,081,676 999,880
Long-term portion of noncompete payable..................... 958,169 1,352,815
Long-term portion of note payable........................... 138,885 260,885
Members equity.............................................. 514,917 417,126
---------- ----------
Total liabilities and station equity........................ $2,693,647 $3,030,706
========== ==========
</TABLE>
See accompanying notes.
F-160
<PAGE> 334
MOUNTAIN LAKES BROADCASTING, L.L.C.
STATEMENTS OF OPERATIONS AND STATION EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Gross advertising revenue............... $4,940,677 $4,580,139 $4,949,866
Less agency commission.................. 458,740 484,690 512,577
---------- ---------- ----------
Net broadcast revenue................... 4,481,937 4,095,449 4,437,289
Operating expenses:
Programming........................... 660,308 582,386 698,737
Technical............................. 94,165 105,443 102,410
Sales................................. 1,385,449 1,403,044 1,482,176
General and administrative............ 992,931 934,676 972,096
Depreciation and amortization......... 443,721 440,618 423,509
---------- ---------- ----------
Income from operations.................. 905,363 629,282 758,361
Other income (expense):
Interest income....................... 11,619 17,364 7,643
Interest expense...................... (136,660) (171,660) (189,958)
Other expense......................... (38,866) (39,830) (35,100)
---------- ---------- ----------
Net income.............................. 741,456 435,156 540,946
Members equity, beginning of the year... 417,126 361,970 281,024
Distributions to members................ (643,665) (380,000) (460,000)
---------- ---------- ----------
Members equity, end of the year......... $ 514,917 $ 417,126 $ 361,970
========== ========== ==========
</TABLE>
See accompanying notes.
F-161
<PAGE> 335
MOUNTAIN LAKES BROADCASTING, L.L.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................. $ 741,456 $ 435,156 $ 540,946
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 443,721 440,618 423,509
Gain on sale of equipment............. (1,800) (170) (4,900)
Change in current assets and
liabilities:
(Increase) decrease in accounts
receivable....................... (45,276) 19,635 (28,071)
Decrease in prepaid expenses and
other current assets............. 3,177 3,195 8,166
Increase (decrease) in accounts
payable and accrued expenses..... 57,941 (15,484) (46,683)
---------- --------- ---------
Total adjustments....................... 457,763 447,794 352,021
---------- --------- ---------
Net cash provided by operating
activities............................ 1,199,219 882,950 892,967
INVESTMENT ACTIVITIES
Payments to noncompete payable.......... (370,791) (348,477) (327,598)
Proceeds from the sale of property and
equipment............................. 1,800 1,049 4,898
Purchase of property and equipment...... (12,353) (54,863) (115,332)
Increase in other assets................ -- (30,000) (575)
---------- --------- ---------
Net cash used in investing activities... (381,344) (432,291) (438,607)
FINANCING ACTIVITIES
Payment of notes payable................ (122,000) (106,634) (101,840)
Increase in payable to affiliate........ -- 5,585 58,518
Distributions to members................ (643,665) (380,000) (460,000)
---------- --------- ---------
Net cash used in financing activities... (765,665) (481,049) (503,322)
Net increase (decrease) in cash......... 52,210 (30,390) (48,962)
Cash, beginning of year................. 164,941 195,331 244,293
---------- --------- ---------
Cash, end of year....................... $ 217,151 $ 164,941 $ 195,331
========== ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest.................. $ 136,660 $ 171,660 $ 189,958
========== ========= =========
</TABLE>
See accompanying notes.
F-162
<PAGE> 336
MOUNTAIN LAKES BROADCASTING, L.L.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. NATURE OF BUSINESS AND ORGANIZATION
Mountain Lakes Broadcasting, L.L.C. (the "Company") is a limited liability
company incorporated under the laws of the State of Alabama. The Company's sole
members, each representing a 50% ownership interest in the Company, are Dixie
Broadcasting, Inc. ("Dixie") and Radio WBHP, Inc. ("WBHP"). The Company was
established for the primary purpose of owning and operating radio stations
WDRM-FM, WBHP-AM and WHOS-AM in Huntsville, Alabama ( collectively, the
"Stations").
On November 20, 1996, both Dixie and WBHP entered into a Stock Purchase
Agreement for the sale of all of their issued and outstanding shares of common
stock and the assignment of the licenses, permits and other authorizations
issued to the Company by the Federal Communications Commission ("FCC") for the
purposes of operating the Stations and the assets utilized in connection with
the operation of the Stations to Osborn Communications Corporation ("Osborn")
for approximately $24.5 million (see Note 8).
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company's primary source of revenue is the sale of airtime to
advertisers. Revenue is recorded when the advertisements are broadcast.
Property and Equipment
Building, furniture and fixtures, vehicles, and studio and technical
equipment are recorded at cost and depreciated using a modified accelerated
method over their estimated useful lives varying from five to thirty years.
Leasehold improvements are recorded at cost and depreciated over the shorter of
their lease term or estimated useful life. Expenditures for maintenance and
repairs are charged to operations as incurred.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense for
the years ended December 31, 1996, 1995 and 1994 was approximately $146,000,
$251,000 and $252,000, respectively.
Intangible Assets
Intangible assets consist of noncompete agreements incurred in connection
with the acquisitions of the Stations which are being amortized on a
straight-line basis over the term of the related noncompete agreement (five or
ten years). Noncompete payable represents commitments due under the noncompete
agreements. Payments are due in monthly installments over the terms of the
noncompete agreements. The present value discount reduced this obligation by
$263,221 and $373,602 at December 31, 1996 and 1995, respectively. Interest
incurred from present valuing the salary obligation outstanding for the years
ended December 31, 1996, 1995 and 1994 was $110,380, $132,694 and $153,573,
respectively.
It is the Company's policy to account for the intangible assets at the
lower of amortized cost or fair value. As part of an ongoing review of the
valuation and amortization of the intangible assets, management assesses the
carrying value of the Company's intangible assets if facts and circumstances
suggest that there may be impairment. If this review indicates that the
intangibles will not be recoverable as determined by an undiscounted cash flow
analysis of the Company over the remaining amortization period, the carrying
value of the Company's intangible asset would be reduced to its estimated
realizable value.
During 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
("FAS 121") which established standards for the recognition
F-163
<PAGE> 337
MOUNTAIN LAKES BROADCASTING, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
and measurement of impairment losses on long-lived assets, certain intangible
assets and goodwill. The adoption of FAS 121 did not have a material effect on
the Company's combined financial statements.
Income Taxes
The Company has elected to be taxed as an "S Corporation" for federal
income tax purposes. All items of income, losses and credits are reported by the
S Corporation shareholders on their respective personal income tax returns.
Accordingly, current and deferred federal corporate income taxes have not been
provided in the accompanying financial statements.
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.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables. The
Company's revenue is principally derived from broadcast advertisers within the
Huntsville/Decatur area who are impacted by the local economy.
The Company routinely assesses the financial strength of its customers and
does not require collateral or other security to support customer receivables.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
Land........................................................ $ 75,389 $ 75,389
Building.................................................... 14,032 14,032
Furniture and fixtures...................................... 113,142 111,562
Vehicles.................................................... 20,841 28,425
Studio and technical equipment.............................. 529,922 519,148
Leasehold improvements...................................... 21,915 21,915
--------- ---------
775,241 770,471
Less accumulated depreciation and amortization.............. (561,041) (495,694)
--------- ---------
$ 214,200 $ 274,777
========= =========
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1996, 1995 and 1994 was approximately $73,000, $92,000 and $96,000,
respectively.
F-164
<PAGE> 338
MOUNTAIN LAKES BROADCASTING, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Noncompete agreements..................................... $ 2,710,008 $ 2,710,008
Less accumulated amortization............................. (1,357,193) (986,402)
----------- -----------
$ 1,352,815 $ 1,723,606
=========== ===========
</TABLE>
5. LEASES
The Company is committed to two non-cancelable operating lease covering its
antenna towers located in Harvest, AL and Decatur, AL which expire on April 30,
2000 and November 1, 2001, respectively. The Decatur, AL lease can be renewed
for an additional 5 years.
The Company incurred rental charges of approximately $91,000, $90,000 and
$83,000, during the years ended December 31, 1996, 1995 and 1994 respectively.
Future minimum rental commitments for noncancellable operating leases of
premises and equipment are as follows for the year ended December 31:
<TABLE>
<S> <C>
1997.............................................. $ 89,640
1998.............................................. 82,140
1999.............................................. 44,640
2000.............................................. 30,640
2001.............................................. 21,670
--------
$268,730
========
</TABLE>
6. NOTE PAYABLE
Note payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Note payable to the First Alabama Bank...................... $260,885 $382,885
Less current portion........................................ 122,000 122,000
-------- --------
$138,885 $260,885
======== ========
</TABLE>
The note is being repaid in monthly installments of $12,440 less the
applicable interest at a commercial base rate with the last payment due on
October 27, 1998. The interest rate was 8.25% at December 31, 1996. The average
interest rates accrued during 1996, 1995 and 1994 were 8.46%, 8.93% and 7.01%,
respectively. The note is collateralized by a 100% membership interest in the
Company.
7. PAYABLE TO AFFILIATES
The Company has amounts payable to Dixie and WBHP representing amounts
transferred to the Company at the time the Stations were acquired. The payable
to affiliates is due upon demand and does not accrue interest. The payable to
affiliates was $333,994 at December 31, 1996 and 1995.
F-165
<PAGE> 339
MOUNTAIN LAKES BROADCASTING, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. SUBSEQUENT EVENT (UNAUDITED)
In May 1997 both Dixie and WBHP completed a Stock Purchase Agreement
whereby they sold all of their issued and outstanding shares of common stock and
assigned the licenses, permits and other authorizations issued to the Company by
the FCC for the purposes of operating the Stations and the assets utilized in
connection with the operation of the Stations for approximately $24.5 million to
Osborn. No adjustments to the carrying value of the Company's assets and
liabilities have been made to the financial statements of the Company as of
December 31, 1996 in connection with the Stock Purchase Agreement.
F-166
<PAGE> 340
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
Q Broadcasting, Inc.
Stamford, Connecticut
We have audited the accompanying statements of operations and deficit and
cash flows of Q Broadcasting, Inc. for each of the three years in the period
ended September 30, 1995. 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, these financial statements referred to above present
fairly, in all material respects, the results of Q Broadcasting, Inc.'s
operations and its cash flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted accounting principles.
Holtz Rubenstein & Co., LLP
Certified Public Accountants
Melville, New York
February 12, 1996
F-167
<PAGE> 341
Q BROADCASTING, INC.
STATEMENTS OF OPERATIONS AND DEFICIT
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE............................................. $ 2,508,867 $ 2,267,625 $ 1,511,181
Less: Commissions and fees........................ 222,411 193,342 127,866
----------- ----------- -----------
2,286,456 2,074,283 1,383,315
----------- ----------- -----------
EXPENSES:
Broadcast and production (Note 8)................. 786,377 742,018 715,511
Selling and promotion............................. 1,500,873 880,429 844,004
General and administrative (Note 8)............... 823,312 703,908 764,768
Depreciation and amortization..................... 447,602 538,600 637,397
----------- ----------- -----------
3,558,164 2,864,955 2,961,680
----------- ----------- -----------
LOSS FROM OPERATIONS................................ (1,271,708) (790,672) (1,578,365)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (Note 9)......................... (493,578) (438,647) (257,732)
Other, net........................................ 153,871 51,805 13,705
----------- ----------- -----------
(339,707) (386,842) (244,027)
----------- ----------- -----------
NET LOSS............................................ (1,611,415) (1,177,514) (1,822,392)
DEFICIT, beginning of period........................ (3,217,713) (2,040,199) (217,807)
----------- ----------- -----------
DEFICIT, end of period.............................. $(4,829,128) $(3,217,713) $(2,040,199)
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-168
<PAGE> 342
Q BROADCASTING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $(1,611,415) $(1,177,514) $(1,822,392)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................. 447,602 538,600 637,397
Provision for doubtful accounts................ 29,702 75,655 25,150
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable....................... 111,743 (444,619) (9,557)
Prepaid expenses and other current
assets.................................. 337 (196) (690)
Other assets.............................. 17,963 (25,309) (3,853)
(Decrease) increase in liabilities:
Accounts payable.......................... 54,530 14,456 (22,712)
Accrued expenses.......................... 46,165 12,009 (31,444)
----------- ----------- -----------
Total adjustments....................... 708,042 170,596 594,291
----------- ----------- -----------
Net cash used in operating activities... (903,373) (1,006,918) (1,228,101)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................ (73,381) (23,118) (91,532)
----------- ----------- -----------
Net cash used in investing activities... (73,381) (23,118) (91,532)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayment of note payable............... -- -- (327,719)
Repayment of capital lease obligations............ (8,692) (9,823) (8,585)
Loans from stockholders........................... 967,397 1,111,592 1,632,185
Loans to related parties.......................... (37,447) (35,433) --
----------- ----------- -----------
Net cash provided by financing
activities........................... 921,258 1,066,336 1,295,881
----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents....................................... (55,496) 36,300 (23,752)
Cash and cash equivalents at beginning of period.... 56,327 20,027 43,779
----------- ----------- -----------
Cash and cash equivalents at end of period.......... $ 831 $ 56,327 $ 20,027
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-169
<PAGE> 343
Q BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
1. DESCRIPTION OF ORGANIZATION AND BUSINESS:
Q Broadcasting, Inc. ("Q Broadcasting") owns and operates two radio
broadcast stations in Stamford, Connecticut. These stations, WSTC-AM and
WKHL-FM, principally serve the Stamford metropolitan area.
2. BASIS OF PRESENTATION:
The financial statements have been prepared on a going concern basis which
contemplates continuity of operations and realization of assets and liquidation
of liabilities in the ordinary course of business. Q Broadcasting's ability to
continue as a going concern is dependent upon the continued financial support of
its shareholders.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Revenue recognition
Broadcasting revenue is recognized when commercials are aired. Barter
transactions are recorded at the estimated fair value of the merchandise or
services received.
b. Depreciation
Q Broadcasting provides for depreciation using the declining balance method
over the estimated useful lives of the fixed assets as follows:
<TABLE>
<S> <C>
Broadcast and other equipment............................... 5 years
Tower and antenna systems................................... 7 years
Transmitter equipment....................................... 7 years
Furniture and fixtures...................................... 7 years
</TABLE>
c. Amortization
Q Broadcasting provides for amortization using the straight-line method
over the estimated useful lives of the intangible assets as follows:
<TABLE>
<S> <C>
Broadcast license........................................... 25 years
Transmitter lease........................................... 23 years
Covenant not to compete..................................... 3 years
Organizational costs........................................ 5 years
</TABLE>
d. Income taxes
The shareholders of Q Broadcasting elected to be taxed as a "Small Business
Corporation," for federal and state income tax purposes pursuant to the Internal
Revenue Code. As a result of this election, the income of Q Broadcasting will be
taxed directly to the individual shareholders. Accordingly, no provision for
taxes is included in the financial statements of Q Broadcasting.
e. Statement of cash flows
For purposes of the statement of cash flows, Q Broadcasting considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
f. Advertising
Q Broadcasting charges to expense, advertising costs as incurred.
Advertising costs amounted to $112,226, $41,405 and $227,094 for the years ended
September 30, 1995, 1994 and 1993, respectively.
F-170
<PAGE> 344
Q BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. DUE FROM RELATED PARTIES:
Q Broadcasting advanced funds on behalf of three related entities.
Approximately $54,200 and $16,800 for two entities 100% owned by Q
Broadcasting's owners as of September 30, 1995 and 1994, respectively and
approximately $18,700 to an entity which Q Broadcasting's owners have a minority
interest as of September 30, 1995 and 1994.
5. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1995 1994
---------- ----------
<S> <C> <C>
Broadcast and office equipment.............................. $ 586,269 $ 583,853
Tower and antenna systems................................... 268,000 268,000
Transmitter equipment....................................... 75,000 75,000
Furniture and fixtures...................................... 300,484 229,519
---------- ----------
1,229,753 1,156,372
Less accumulated depreciation............................... 822,461 633,347
---------- ----------
$ 407,292 $ 523,025
========== ==========
</TABLE>
Included in furniture and fixtures was $41,975 related to assets recorded
under capital leases; the related amount included in accumulated depreciation is
$28,707 and $19,095 as of September 30, 1995 and 1994.
6. INTANGIBLES:
Intangibles, at cost, is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1995 1994
---------- ----------
<S> <C> <C>
Organizational costs........................................ $ 97,917 $ 97,917
Covenant not to compete..................................... 450,000 450,000
Broadcast license........................................... 1,000,000 1,000,000
Transmitter lease........................................... 1,700,000 1,700,000
---------- ----------
3,247,917 3,247,917
Less accumulated amortization............................... 872,722 614,234
---------- ----------
$2,375,195 $2,633,683
========== ==========
</TABLE>
F-171
<PAGE> 345
Q BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. CAPITAL LEASE OBLIGATIONS:
Included in property and equipment are assets recorded under capital
leases. The future minimum lease payments for these capital leases and the
present value of the net minimum lease payments as of September 30, 1995 are as
follows:
<TABLE>
<S> <C>
Fiscal Year
1996...................................................... $ 6,826
1997...................................................... 4,168
-------
Minimum lease payments...................................... 10,994
Less amount representing interest........................... 830
-------
Present value of net minimum lease payments................. $10,164
=======
</TABLE>
8. COMMITMENTS:
Q Broadcasting leases studio and office space and a transmitter tower site
under operating leases expiring in September 1999 and December 2017,
respectively. Rent expense for these leases was approximately $211,000, $186,000
and $179,000 for the years ended September 30, 1995, 1994 and 1993,
respectively.
Minimum rental commitments for the remaining terms of the operating leases
are as follows:
<TABLE>
<S> <C>
Year Ending September 30,
1996...................................................... $212,685
1997...................................................... 213,180
1998...................................................... 213,180
1999...................................................... 213,180
2000...................................................... 21,780
Thereafter.................................................. 430,939
</TABLE>
9. NOTE PAYABLE -- STOCKHOLDERS:
In connection with advances made by its stockholders for the acquisition of
assets and working capital, Q Broadcasting has issued an 8% demand note payable
to its stockholders. The stockholders have agreed not to demand payment until a
date subsequent to October 1, 1996. Interest expense for the years ended
September 30, 1995, 1994 and 1993 was $492,397, $435,895 and $238,187,
respectively.
10. SUBSEQUENT EVENT:
Q Broadcasting sold substantially all of its operating assets to Capstar
Radio Broadcasting Partners Inc., formerly Commodore Media, Inc. on May 30,
1996.
11. SUPPLEMENTARY INFORMATION -- STATEMENT OF CASH FLOWS:
Barter transactions resulted in sales and related expenses of $315,900,
$314,500 and $306,600 for the years ending September 30, 1995, 1994 and 1993,
respectively.
Cash paid during the years ended September 30, 1995, 1994 and 1993 for
interest was $493,578, $438,648 and $261,018, respectively.
F-172
<PAGE> 346
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Danbury Broadcasting Inc.
We have audited the accompanying statement of operations and accumulated
deficit and cash flows of Danbury Broadcasting, Inc. for the year ended June 30,
1995. 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 results of Danbury Broadcasting, Inc.'s operations
and its cash flows for the year ended June 30, 1995 in conformity with generally
accepted accounting principles.
Paneth, Haber & Zimmerman LLP
New York, NY
August 18, 1995
F-173
<PAGE> 347
DANBURY BROADCASTING INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1995
----------
<S> <C>
REVENUE
Broadcasting revenue...................................... $3,451,684
Less agency commissions................................... 311,768
----------
Net Revenue....................................... 3,139,916
----------
EXPENSES
Programming............................................... 502,299
Technical................................................. 106,475
Selling................................................... 865,381
General and Administrative................................ 903,627
Interest Expense.......................................... 347,578
Depreciation.............................................. 197,197
Amortization.............................................. 236,213
----------
Total Expenses.................................... 3,158,770
----------
NET LOSS.................................................... (18,854)
ACCUMULATED DEFICIT
Beginning of year......................................... (681,947)
Preferred stock dividends................................. (55,000)
----------
End of year............................................ $ (755,801)
==========
</TABLE>
See notes to financial statements.
F-174
<PAGE> 348
DANBURY BROADCASTING INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1995
-----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $ (18,854)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 433,410
Change in:
Accounts receivable.................................. (78,637)
Due from related party............................... 24,663
Prepaid expenses and other current assets............ (20,147)
Other assets......................................... (2,749)
Accounts payable..................................... (42,801)
Accrued expenses..................................... (71,465)
-----------
Net Cash Provided by Operating Activities......... 223,420
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances from affiliate................................... (6,100)
Purchases of property and equipment....................... (34,521)
-----------
Net Cash Used in Investing Activities............. (40,621)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Deferred financing costs.................................. (211,110)
Proceeds of notes payable................................. 3,404,106
Repayments of notes payable............................... (3,263,384)
Preferred stock dividends................................. (27,500)
-----------
Net Cash Used in Financing Activities............. (97,888)
-----------
NET INCREASE IN CASH.............................. 84,911
CASH
Beginning of year......................................... 92,716
-----------
End of year............................................... $ 177,627
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest Paid............................................. $ 434,894
Income Taxes Paid......................................... --
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Broadcast equipment acquired through trade-out
transactions........................................... $ 2,400
Broadcast equipment and property exchanged for favorable
tower lease (Note 7)................................... $ 190,248
Unpaid accrual of redeemable preferred stock dividends.... $ 41,250
</TABLE>
See notes to financial statements.
F-175
<PAGE> 349
DANBURY BROADCASTING INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Danbury Broadcasting Inc. ("Danbury"), a Connecticut corporation, operates
radio stations WRKI-FM and WINE-AM in Danbury, Connecticut. Its revenues are
derived from advertisers consisting primarily of local businesses. Credit is
extended to its advertisers in the normal course of business.
Depreciation and Amortization
Depreciation of property and equipment is computed over the estimated
useful lives of the respective assets using the straight-line method. Estimated
useful lives range from 5 to 20 years. Expenditures for repairs and maintenance
are charged to operations as incurred.
Goodwill, which is included in intangible assets, represents the cost of
acquired assets in excess of values ascribed to the net identified assets and is
being amortized using the straight-line method over 40 years. Costs incurred in
obtaining long-term financing were capitalized and are included in intangible
assets. They are being amortized using the straight-line method (that does not
differ materially from the interest rate method) over the term of the related
debt.
A covenant not to compete, which restricts the seller and the previous
owner from competing with Danbury in the Greater Danbury, Connecticut area for a
period of four years, is included in intangible assets. This covenant is being
amortized on a straight-line basis over its four year life.
The stations' broadcast license is being amortized using the straight-line
method over 25 years.
A favorable lease for broadcast tower rental is being amortized using the
straight-line method over its 30 year term.
Non-Monetary Transactions
Barter transactions represent the exchange of unsold advertising time for
merchandise or services. Barter transactions are reported at the estimated fair
value of the product or service received. Revenue is recognized when commercials
are broadcast and merchandise or services obtained are reported when received or
used. For merchandise or services received prior to the broadcast of the
commercial, a liability is provided; conversely, a receivable is established
when the commercial is broadcast prior to the receipt of the merchandise or
services.
Income Taxes
Danbury has adopted Statement of Financial Accounting Standards 109 ("SFAS
109") and recognizes deferred tax assets and liabilities for temporary
differences between amounts recorded for financial statement and tax purposes.
2. BARTER TRANSACTIONS
The accompanying financial statements include the following barter
transactions:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1995
----------
<S> <C>
Barter revenue.............................................. $271,253
========
Barter expenditures......................................... $182,821
========
</TABLE>
F-176
<PAGE> 350
DANBURY BROADCASTING INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. REDEEMABLE PREFERRED STOCK
The Series A cumulative preferred stock carries a liquidation preference of
$1,000 per share and a par value of $100 per share. Danbury may redeem the
shares at this price, plus accrued but unpaid dividends, at any time through
June 30, 1997. At the earlier of that date, or an event of default (as defined)
the holder can require Danbury to redeem the shares in full, with accrued but
unpaid dividends out of funds "legally available". An event of default occurred
during the year ended June 30, 1995 in that Danbury did not pay the full
dividend. This gives the holders of the shares the right to demand redemption.
The Series A cumulative preferred stock provides for an annual dividend of
$110 per share. Dividends of $55,000 were declared on the preferred stock and
$13,750 was paid for the year ended June 30, 1995.
4. LEASES
During 1995, Danbury leased space on a transmitting tower under a five year
lease renewable in five (5) year terms at Danbury's option from a related party
(Note 7). Automobiles under operating leases expire in various years through
1998.
Rent expense on the above, for the year ended June 30, 1995 was $46,500.
5. INCOME TAXES
Danbury has a net operating loss carryforward of approximately $284,000
which can be carried forward to the years 2008 and 2009 to offset taxable income
resulting in a deferred tax asset of $118,000. Other temporary differences
resulting from differences between book and tax amortization and depreciation
result in a deferred tax asset of approximately $81,000 at June 30, 1995. Total
deferred tax assets of approximately $199,000 at June 30, 1995 have been
completely offset by a valuation allowance. The valuation allowance decreased by
$25,000 during the year ended June 30, 1995.
Income tax benefit for the year ended June 30, 1995 differs from the
expected statutory rate for the following reasons:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Federal, at statutory rates................................. $ (6,500)
State, net of Federal benefit............................... (1,500)
Nondeductible expenses...................................... 10,000
Taxable gain on asset transfer.............................. 23,000
--------
25,000
Change in deferred tax asset valuation allowance............ (25,000)
--------
Tax provision............................................... $ --
========
</TABLE>
6. RETIREMENT PLAN
Employees of Danbury may participate in profit sharing/401(k) savings plan
and may elect to make contributions pursuant to a salary reduction agreement
upon meeting length of service and age requirements. Danbury can elect to make
discretionary contributions to the profit sharing plan but has not done so for
the year. Danbury has matched 20% of individual 401(k) contributions during the
year ended June 30, 1995. Danbury's cost amounted to approximately $4,500.
F-177
<PAGE> 351
DANBURY BROADCASTING INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED PARTY TRANSACTIONS
During the year ended June 30, 1995, Danbury exchanged its tower and
associated real property with a book value of $190,000 for a favorable lease
with a Partnership formed to improve and rent the tower to Danbury and others.
The Partnership has committed to the financing of tower improvements which will
improve the broadcast signal. Danbury's lease for placement of its antenna on
the tower at the optimal site is at below market rates. Danbury and the
Partnership are related through common control. The favorable lease has been
valued at $190,000, the book value of the property exchanged.
F-178
<PAGE> 352
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Adventure Communications -- Huntington
(Division of Adventure Communications, Inc.)
We have audited the accompanying balance sheet of Adventure
Communications-Huntington (Division of Adventure Communications, Inc.) as of
December 31, 1995, and the related statements of operations, division's deficit,
and cash flows for the year ended December 31, 1995. 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 Adventure
Communications-Huntington (Division of Adventure Communications, Inc.) as of
December 31, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Brown, Edwards & Company, LLP
Bluefield, West Virginia
May 1, 1996
F-179
<PAGE> 353
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
CURRENT ASSETS
Cash...................................................... $ 105,926
Accounts receivable, less allowance for doubtful accounts
of $66,000 on December 31, 1995 (Note 7)............... 647,986
Prepaid assets............................................ 1,325
Other receivables......................................... 43,120
Deferred income taxes (Note 5)............................ 26,400
----------
Total current assets.............................. 824,757
----------
PROPERTY AND EQUIPMENT, NET (Notes 3 and 7)................. 1,225,957
----------
INTANGIBLES, NET (Note 4)................................... 135,140
----------
$2,185,854
==========
LIABILITIES AND DIVISION'S EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses..................... $ 177,321
Inter-divisional transaction payable (Note 6)............. 2,282,170
----------
Total current liabilities......................... 2,459,491
----------
Commitment (Note 7)......................................... --
DIVISION'S DEFICIT.......................................... (273,637)
----------
$2,185,854
==========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
F-180
<PAGE> 354
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Advertising revenue......................................... $3,352,771
Agency commissions.......................................... (187,292)
----------
Net revenue............................................... 3,165,479
Other operating revenue..................................... 36,225
----------
Total revenue..................................... 3,201,704
----------
Operating expenses (Note 6):
Station operating expenses................................ 2,118,139
Corporate expenses........................................ 572,980
Depreciation.............................................. 230,600
Amortization.............................................. 13,587
----------
2,935,306
----------
Operating income....................................... 266,398
Interest income............................................. 7,273
----------
Income before taxes....................................... 273,671
Provision for income taxes (Note 5)......................... (75,640)
----------
Net income................................................ $ 198,031
==========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
F-181
<PAGE> 355
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
STATEMENT OF DIVISION'S DEFICIT
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Balance, January 1, 1995.................................... $(471,668)
1995 net income........................................... 198,031
---------
Balance, December 31, 1995.................................. $(273,637)
=========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
F-182
<PAGE> 356
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 198,031
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 244,187
Deferred income taxes.................................. (26,400)
Changes in current assets and liabilities:
(Increase) decrease in:
Accounts receivable.................................. (112,955)
Prepaid expenses and other receivables............... 4,027
Increase in:
Accounts payable and accrued expenses................ 28,473
-----------
Net cash provided by operating activities......... 335,363
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment........................ (366,455)
Purchase of intangible assets............................. (89,000)
-----------
Net cash used in investing activities............. (455,455)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in inter-divisional payable...................... 975,018
Repayment of inter-divisional payable..................... (1,020,000)
-----------
Net cash used in financing activities............. (44,982)
-----------
Decrease in cash.................................. (165,074)
CASH
Beginning................................................. 271,000
-----------
Ending.................................................... $ 105,926
===========
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
Barter revenue............................................ $ 233,219
===========
Barter expense............................................ $ 163,100
===========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
F-183
<PAGE> 357
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Nature of business:
Adventure Communications -- Huntington (the "Division") is a division of
Adventure Communications, Inc. ("Adventure"). Adventure's principal business is
the operation of AM and FM radio broadcasting stations in the areas of Bluefield
and Huntington, West Virginia; Statesville, North Carolina; and Hilton Head,
South Carolina. The Division operates WKEE-AM and FM, WBVB-FM, WZZW-AM and
WIRO-AM (the Stations).
Adventure also has joint operating and marketing agreements with other
radio stations located in the Huntington area. Under these agreements, Adventure
is responsible for various promotional and marketing activities of the Stations.
Revenue and expenses resulting from these agreements are included in the
Division's operations.
On April 8, 1996, Adventure entered into an asset purchase agreement to
sell substantially all the assets relating to the operations of the Stations
(Note 11).
Revenue recognition:
Advertising revenue is recognized in the accounting period which
corresponds with the broadcast of the advertisement. Barter revenue is reported
when advertisements are broadcast and barter merchandise or services received
are expensed when used. Barter transactions are valued at the market value of
the broadcast time which approximates the market value of the product or
services received.
Property and equipment:
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives using straight-line and accelerated methods.
Valuation of receivables:
The Division provides for bad debts under the reserve method which charges
current operations for estimated uncollectibles based upon the Division's
collection experience and an evaluation of the receivables at year end.
Intangible assets:
Acquisition costs (non-compete covenants and goodwill) in excess of the net
tangible assets of acquired radio stations are amortized on a straight-line
basis over periods of up to 15 years, and are included in the financial
statements at cost less accumulated amortization.
Income taxes:
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to the allowance for doubtful accounts which is not deductible
for income tax return purposes until the accounts are written off as
uncollectible. The deferred tax asset represents the future tax return
deduction.
Effective January 1, 1995, Adventure revoked its S Corporation election and
became a taxable entity. Previously, its income and losses were included in the
personal tax returns of the stockholders, and Adventure did not record an income
tax provision or benefit.
F-184
<PAGE> 358
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statement of cash flows:
Separate disclosures have not been made for cash paid for interest and
income taxes because these amounts are included in inter-divisional transactions
with Adventure.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
NOTE 2. ACQUISITIONS
In June 1995, Adventure purchased selected assets of an AM radio station in
Ironton, Ohio. The acquisition was accounted for by the purchase method, and the
statement of income includes the results of operations of this station from the
date of acquisition.
<TABLE>
<S> <C>
Property and equipment...................................... $211,000
Intangibles................................................. 89,000
--------
$300,000
========
</TABLE>
Pro forma results of operations from this acquisition were not material to
the Division's operations. Therefore, such information has not been presented.
NOTE 3. PROPERTY AND EQUIPMENT
Major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Land and improvements....................................... $ 60,000
Buildings and improvements.................................. 550,557
Broadcasting equipment...................................... 1,735,498
Furniture and fixtures...................................... 124,756
Transportation equipment.................................... 22,280
Computer and office equipment............................... 187,416
----------
2,680,507
Less accumulated depreciation............................... 1,454,550
----------
$1,225,957
==========
</TABLE>
F-185
<PAGE> 359
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INTANGIBLES
Intangibles are stated at cost, net of amortization and consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Non-compete covenant........................................ $ 20,000
Goodwill.................................................... 163,317
License fees................................................ 30,000
---------
213,317
Less accumulated amortization............................... 78,177
---------
$ 135,140
=========
</TABLE>
NOTE 5. INCOME TAXES
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Current expense............................................. $(102,040)
Deferred.................................................... 26,400
---------
Provision for income taxes................................ $ (75,640)
=========
</TABLE>
Income tax expense differs from the statutory federal rate of 34% as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Tax expense................................................. $(109,468)
Non-deductible items........................................ (4,172)
Change in tax status........................................ 38,000
---------
Provision for income taxes................................ $ (75,640)
=========
</TABLE>
As discussed in Note 1, Adventure changed its tax status from nontaxable to
taxable effective for 1995. Accordingly, the deferred tax asset of approximately
$38,000 at the date that the termination election became effective has been
recorded through a charge to the tax provision for 1995.
F-186
<PAGE> 360
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. INTER-DIVISIONAL TRANSACTIONS
Adventure has allocated to the Division various expenses it incurred for
corporate services, overhead and interest costs. The amounts included in
corporate services and overhead allocations are comprised mainly of corporate
office salaries, related payroll taxes and employee benefits, professional fees
and administrative expenses. These costs have been allocated based on revenues
of the Division compared to total revenues of Adventure. Management believes the
amounts allocated to the Division have been computed and charged to the Division
on a reasonable basis.
The Division is obligated to Adventure for monies received from Adventure
for the original purchase of the Stations as well as the allocated expenses
mentioned above. The Division, in return, transfers cash to Adventure that is in
excess of its operating needs. These transactions are conducted on an interest
free basis. The inter-divisional payable is analyzed below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Balance, beginning.......................................... $ 2,327,152
Allocations of corporate costs to the Division.............. 675,018
Purchase of Stations........................................ 300,000
Cash transfers.............................................. (1,020,000)
-----------
Balance, ending............................................. $ 2,282,170
===========
</TABLE>
NOTE 7. COMMITMENT
Adventure is obligated for long-term debt of approximately $6,900,000 for
which substantially all assets of Adventure (including the Division) are pledged
as collateral. At December 31, 1995, the book value of total assets of Adventure
exceeds the long-term debt. Approximately $3,700,000 of the debt is also secured
by a $4,000,000 life insurance policy on the majority stockholder of Adventure.
A note payable to the majority stockholder of Adventure of $2,400,000 is
included in the $6,900,000 debt referred to above.
NOTE 8. EMPLOYEE BENEFIT PLANS
Adventure has a contributory profit sharing plan covering all full time
employees with one or more years of service. The plan provides for annual
employer contributions on a discretionary basis as determined by the Board of
Directors. No contributions were made to the plan in 1995.
Adventure also has a 401(k) retirement plan, whereby participants may
contribute a percentage of their compensation.
Adventure's matching contribution percentage (which is determined annually
by Adventure) is limited to 10% of the participant's compensation for each plan
year. The Division's contribution was approximately $8,200 for the year ended
December 31, 1995.
NOTE 9. OPERATING LEASES
The Division leases certain transmission towers and automobiles under
non-cancelable lease agreements. These leases have been classified as operating
leases; and accordingly, all rents are charged to operations as incurred.
F-187
<PAGE> 361
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following is a schedule by years of future minimum rental payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 31, 1995:
<TABLE>
<S> <C>
Year ending December 31:
1996...................................................... $15,630
1997...................................................... 8,500
1998...................................................... 2,400
1999...................................................... 2,400
2000...................................................... 2,400
-------
Total minimum payments required................... $31,330
=======
</TABLE>
Lease expense was approximately $15,630 for 1995.
NOTE 10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the inter-divisional payable approximates fair
value. It is included in the financial statements as a current liability due to
the pending sales discussed in Note 11. The inter-divisional payable will be
satisfied by the proceeds of the sale. In the financial statements of Adventure,
all inter-divisional payables/receivables are eliminated.
NOTE 11. SUBSEQUENT EVENT
On April 8, 1996, Adventure entered into an asset purchase agreement to
sell substantially all the assets relating to the operations of the Stations for
$7,765,000. The sale of the Station is contingent on FCC consent. The buyer will
purchase all of the assets for the Stations, free and clear of any liabilities,
mortgages, liens, pledges, conditions or encumbrances except for the Stations'
cash, rights to refunds or deposits which relate to the period prior to closing
and accounts receivable. Also at closing, $475,000 of the sales price will be
deposited with the indemnification escrow agent. The indemnification period will
be for a period of two (2) years following the closing. The indemnification by
seller and buyer shall be for any losses, liabilities or damages resulting from
untrue representations, breach of warranty or non-fulfillment of covenants,
liabilities not expressly assumed by buyer, liabilities resulting from
operations prior to the closing date for the buyer or liabilities resulting from
operation after the closing date for the seller.
F-188
<PAGE> 362
ANNEX A TO PROSPECTUS
The following table hereto sets forth the market, FCC license
classification and frequency of each of the Company's stations (including those
with which the Company has or will have a JSA or LMA), assuming the consummation
of the Pending Acquisitions, and the date on which each station's FCC license
expires.
<TABLE>
<CAPTION>
EXPIRATION
FCC DATE OF
MARKET(1) STATION(2) CLASS FREQUENCY LICENSE
--------- ---------- ----- --------- ----------
<S> <C> <C> <C> <C>
NORTHEAST REGION
Allentown-Bethlehem, PA
WAEB-AM B 790 kHz 08-01-98
WAEB-FM B 104.1 MHz 08-01-98
WZZO-FM B 95.1 MHz 08-01-98
WKAP-AM(3) B 1470 kHz 08-01-98
WEEX-AM IV 1230 kHz 08-01-98
WODE-FM A 99.9 MHz 08-01-98
Wilmington, DE
WJBR-AM D 1290 kHz 08-01-98
WJBR-FM B 99.5 MHz 08-01-98
Roanoke, VA
WROV-AM C 1240 kHz 10-01-03
WROV-FM C1 96.3 MHz 10-01-03
WRDJ-FM C3 104.9 MHz 10-01-03
WJJS-FM A 106.1 MHz 10-01-03
WJLM-FM(3) A 93.5 MHz 10-01-03
Worcester, MA
WTAG-AM III 580 kHz 04-01-98
WSRS-FM B 96.1 MHz 04-01-98
Fairfield County, CT
WNLK-AM B 1350 kHz 04-01-98
WEFX-FM A 95.9 MHz 04-01-98
WSTC-AM C 1400 kHz 04-01-98
WKHL-FM A 96.7 MHz 04-01-98
WINE-AM D 940 kHz 04-01-98
WRKI-FM B 95.1 MHz 04-01-98
WPUT-AM D 1510 kHz 06-01-98
WAXB-FM A 105.5 MHz 06-01-98
Portsmouth-Rochester, NH
WHEB-FM B 100.3 MHz 04-01-98
WXHT-FM A 95.3 MHz 04-01-98
WTMN-AM III 1380 kHz 04-01-98
Huntington, WV-Ashland, KY
WTCR-AM B 1420 kHz 10-01-02
WTCR-FM B 103.3 MHz 10-01-02
WIRO-AM C 1230 kHz 10-01-02
WHRD-AM(3) D 1470 kHz 10-01-02
WZZW-AM D 1600 kHz 10-01-02
WKEE-AM D 800 kHz 10-01-02
WKEE-FM A 100.5 MHz 10-01-02
WAMX-FM A 106.3 MHz 10-01-02
WFXN-FM A 107.1 MHz 10-01-04
WBVB-FM A 97.1 MHz 10-01-04
Salisbury-Ocean City, MD
WWFG-FM B 99.9 MHz 10-01-02
WOSC-FM B1 95.9 MHz 08-01-98
Manchester, NH
WGIR-AM III 610 kHz 04-01-98
WGIR-FM B 101.1 MHz 04-01-98
</TABLE>
A-1
<PAGE> 363
<TABLE>
<CAPTION>
EXPIRATION
FCC DATE OF
MARKET(1) STATION(2) CLASS FREQUENCY LICENSE
--------- ---------- ----- --------- ----------
<S> <C> <C> <C> <C>
Wheeling, WV
WWVA-AM A 1170 kHz 10-01-03
WOVK-FM B 98.7 MHz 10-01-03
WKWK-FM B 97.3 MHz 10-01-03
WBBD-AM D 1400 kHz 10-01-03
WRIR-FM B1 105.5 MHz 10-01-03
WEGW-FM B 107.5 MHz 10-01-03
WEEL-FM(3) A 95.7 MHz 10-01-03
Winchester, VA
WUSQ-FM B 102.5 MHz 10-01-03
WFQX-FM A 99.3 MHz 10-01-03
WNTW-AM B 610 kHz 10-01-03
Burlington, VT
WEZF-FM C 92.9 MHz 04-01-98
Harrisburg-Lebanon-Carlisle, PA
WTCY-AM C 1400 kHz 08-01-98
WNNK-FM B 104.1 MHz 08-01-98
Dover, DE
WDSD-FM B 94.7 MHz 08-01-98
WSRV-FM A 92.9 MHz 08-01-98
WDOV-AM B 1410 kHz 08-01-98
Westchester-Putnam Counties, NY
WFAS-AM C 1230 kHz 06-01-98
WFAS-FM A 103.9 MHz 06-01-98
WZZN-FM A 106.3 MHz 06-01-98
Lynchburg, VA
WLDJ-FM B 102.7 MHz 10-01-03
WJJX-FM A 101.7 MHz 10-01-03
WJJS-AM B 1320 kHz 10-01-03
WYYD-FM C1 107.9 MHz 10-01-03
SOUTHEAST REGION
Birmingham, AL
WMJJ-FM C 96.5 MHz 04-01-04
WERC-AM B 960 kHz 04-01-04
WOWC-FM C 102.5 MHz 04-01-04
Greenville, SC
WJMZ-FM C 107.3 MHz 12-01-02
Columbia, SC
WCOS-FM C1 97.5 MHz 12-01-03
WHKZ-FM A 96.7 MHz 12-01-03
WVOC-AM B 560 kHz 12-01-03
WSCQ-FM A 100.1 MHz 12-01-03
WCOS-AM C 1400 kHz 12-01-03
WNOK-FM C 104.7 MHz 12-01-03
Daytona Beach, FL
WGNE-FM C1 98.1 MHz 02/01/04
Melbourne-Titusville-Cocoa, FL
WMMB-AM C 1240 kHz 02-01-04
WBVD-FM A 95.1 MHz 02-01-04
WMMV-AM B 1350 kHz 02-01-04
WLRQ-FM C2 99.3 MHz 02-01-04
WHKR-FM C2 102.7 MHz 02-01-04
Huntsville, AL
WDRM-FM C1 102.1 MHz 04-01-04
WHOS-AM D 800 kHz 04-01-04
WBHP-AM C 1230 kHz 04-01-04
WTAK-FM(3) C3 106.1 MHz 04-01-04
WXQW-FM(3) A 94.1 MHz 04-01-04
WWXQ-FM(3) A 92.5 MHz 04-01-04
</TABLE>
A-2
<PAGE> 364
<TABLE>
<CAPTION>
EXPIRATION
FCC DATE OF
MARKET(1) STATION(2) CLASS FREQUENCY LICENSE
--------- ---------- ----- --------- ----------
<S> <C> <C> <C> <C>
Ft. Pierce-Stuart-Vero Beach,
FL
WZZR-FM C2 92.7 MHz 02-01-04
WQOL-FM C2 103.7 MHz 02-01-04
WPAW-FM(3) C2 99.7 MHz 02-01-04
WBBE-FM C3 94.7 MHz 02-01-04
WAVW-FM A 101.7 MHz 02-01-04
WAXE-AM D 1370 kHz 02-01-04
Pensacola, FL
WMEZ-FM C 94.1 MHz 02-01-04
WXBM-FM C 102.7 MHz 02-01-04
WWSF-FM C1 98.1 MHz 04-01-04
Montgomery, AL
WZHT-FM C 105.7 MHz 04-01-04
WMCZ-FM A 97.1 MHz 04-01-04
WMHS-FM A 104.3 MHz 04-01-04
Savannah, GA
WCHY-AM D 1290 kHz 04-01-04
WCHY-FM C 94.1 MHz 04-01-04
WYKZ-FM C1 98.7 MHz 04-01-04
WAEV-FM C 97.3 MHz 04-01-04
WSOK-AM C 1230 kHz 04-01-04
WLVH-FM C2 101.1 MHz 12-01-03
Asheville, NC
WWNC-AM B 570 kHz 12-01-03
WKSF-FM C 99.9 MHz 12-01-03
Tuscaloosa, AL
WACT-AM D 1420 kHz 04-01-04
WACT-FM A 105.5 MHz 04-01-04
WTXT-FM C1 98.1 MHz 04-01-04
WZBQ-FM(3) C 94.1 MHz 04-01-04
Jackson, TN
WTJS-AM B 1390 kHz 08-01-04
WTNV-FM C1 104.1 MHz 08-01-04
WYNU-FM C 92.3 MHz 08-01-04
Statesville, NC
WFMX-FM C 105.7 MHz 12-01-03
WSIC-AM C 1400 kHz 12-01-03
Gadsden, AL
WAAX-AM B 570 kHz 04-01-04
WQEN-FM C 103.7 MHz 04-01-04
SOUTHWEST REGION
Baton Rouge, LA
WYNK-FM C 101.5 MHz 06-01-04
WYNK-AM B 1380 kHz 06-01-04
WJBO-AM B 1150 kHz 06-01-04
WLSS-FM C 102.5 MHz 06-01-04
KRVE-FM C2 96.1 MHz 06-01-04
WBIU-AM B 1210 kHz 06-01-04
Wichita, KS
KKRD-FM C1 107.3 MHz 06-01-05
KRZZ-FM C2 96.3 MHz 06-01-05
KNSS-AM C 1240 KHz 06-01-05
Jackson, MS
WJMI-FM C 99.7 MHz 06-01-04
WOAD-AM C 1300 kHz 06-01-04
WKXI-AM B 1400 kHz 06-01-04
WKXI-FM C1 107.5 MHz 06-01-04
Shreveport, LA
KRMD-FM C 101.1 MHz 06-01-04
KRMD-AM C 1340 kHz 06-01-04
</TABLE>
A-3
<PAGE> 365
<TABLE>
<CAPTION>
EXPIRATION
FCC DATE OF
MARKET(1) STATION(2) CLASS FREQUENCY LICENSE
--------- ---------- ----- --------- ----------
<S> <C> <C> <C> <C>
Beaumont, TX
KLVI-AM B 560 kHz 08-01-97
KYKR-FM C1 95.1 MHz 08-01-97
KKMY-FM C 104.5 MHz 08-01-97
KIOC-FM C 106.1 MHz 08-01-97
Corpus Christi, TX
KRYS-FM C1 99.1 MHz 08-01-97
KRYS-AM B 1360 kHz 08-01-97
KMXR-FM C1 93.9 MHz 08-01-97
KNCN-FM C1 101.3 MHz 08-01-97
Tyler-Longview, TX
KNUE-FM C 101.5 MHz 08-01-97
KISX-FM C2 107.3 MHz 08-01-97
KTYL-FM C1 93.1 MHz 08-01-97
KKTX-AM(3) IV 1240 kHz 08-01-97
KKTX-FM(3) C2 96.1 MHz 08-01-97
Killeen, TX
KIIZ-FM A 92.3 MHz 08-01-97
KLFX-FM(3) A 107.3 MHz 08-01-97
Fayetteville, AR
KEZA-FM C 107.9 MHz 06-01-04
KKIX-FM C1 103.9 MHz 06-01-04
KKZQ-FM C2 101.9 MHz 06-01-04
KJEM-FM(3) C1 93.3 MHz 06-01-04
Ft. Smith, AR
KWHN-AM B 1320 kHz 06-01-04
KMAG-FM C 99.1 MHz 06-01-04
KZBB-FM(3) C 97.9 MHz 06-01-04
Lubbock, TX
KFMX-FM C1 94.5 MHz 08-01-97
KKAM-AM C 1340 kHz 08-01-97
KZII-FM C1 102.5 MHz 08-01-97
KFYO-AM B 790 kHz 08-01-97
KRLB-FM C1 99.5 MHz 08-01-97
KKCL-FM
(3) C2 98.1 MHz 08-01-97
Waco, TX
KBRQ-FM C1 102.5 MHz 08-01-97
KKTK-AM B 1460 kHz 08-01-97
WACO-FM C 99.9 MHz 08-01-97
KCKR-FM C1 90.5 MHz 08-01-97
KWTX-FM C 97.5 MHz 08-01-97
KWTX-AM C 1230 kHz 08-01-97
Texarkana, TX
KKYR-AM B 790 kHz 06-01-04
KKYR-FM C1 102.5 MHz 08-01-97
KLLI-FM C2 95.9 MHz 08-01-97
KYGL-FM C1 106.3 MHz 06-01-04
Lawton, OK
KLAW-FM
(3) C1 101.5 MHz 06-01-05
KZCD-FM
(3) C2 94.1 MHz 06-01-05
Lufkin, TX
KYKS-FM C1 105.1 MHz 08-01-97
KAFX-FM C1 95.5 MHz 08-01-97
Victoria, TX
KIXS-FM C1 107.9 MHz 08-01-97
KLUB-FM C3 106.9 MHz 08-01-97
</TABLE>
A-4
<PAGE> 366
<TABLE>
<CAPTION>
EXPIRATION
FCC DATE OF
MARKET(1) STATION(2) CLASS FREQUENCY LICENSE
--------- ---------- ----- --------- ----------
<S> <C> <C> <C> <C>
MIDWEST REGION
Grand Rapids, MI
WGRD-FM B 97.9 MHz 10-01-04
WRCV-AM B 1410 kHz 10-01-04
WLHT-FM B 95.7 MHz 10-01-04
WQFN-FM A 100.5 MHz 10-01-04
Des Moines, IA
KHKI-FM C1 97.3 MHz 02-01-05
KGGO-FM C 94.9 MHz 02-01-05
KDMI-AM B 1460 kHz 02-01-05
Madison, WI
WIBA-AM B 1310 kHz 12-01-04
WIBA-FM B 101.5 MHz 12-01-04
WMAD-FM A 92.1 MHz 12-01-04
WTSO-AM B 1070 kHz 12-01-04
WZEE-FM B 104.1 MHz 12-01-04
WMLI-FM B1 96.3 MHz 12-01-04
Springfield, IL
WFMB-AM C 1450 kHz 12-01-04
WFMB-FM B 104.5 MHz 12-01-04
WCVS-FM A 96.7 MHz 12-01-04
Cedar Rapids, IA
KHAK-FM C1 98.1 MHz 02-01-05
KDAT-FM C1 104.5 MHz 02-01-05
KTOF-AM B 1360 kHz 02-01-05
Battle Creek-Kalamazoo, MI
WBCK-AM B 930 kHz 10-01-04
WBXX-FM A 95.3 MHz 10-01-04
WRCC-AM C 1400 kHz 10-01-04
WWKN-FM A 104.9 MHz 10-01-04
WEST REGION
Honolulu, HI
KSSK-AM B 590 kHz 02-01-98
KSSK-FM C 92.3 MHz 02-01-98
KUCD-FM C 101.9 MHz 02-01-98
KHVH-AM B 830 kHz 02-01-98
KKLV-FM C1 98.5 MHz 02-01-98
KIKI-AM B 990 kHz 02-01-98
KIKI-FM C1 93.9 MHz 02-01-98
Fresno, CA
KBOS-FM B 94.9 MHz 12-01-97
KCBL-AM C 1340 kHz 12-01-97
KRZR-FM B 103.7 MHz 12-01-97
KRDU-AM B 1130 kHz 12-01-97
KJOI-FM B 98.9 MHz 12-01-97
Stockton, CA
KVFX-FM A 96.7 MHz 12-01-97
KJAX-AM B 1280 kHz 12-01-97
Modesto, CA
KJSN-FM A 102.3 MHz 12-01-97
KFIV-AM B 1360 kHz 12-01-97
Reno, NV
KRNO-FM C 106.9 MHz 10-01-97
KWNZ-FM C 97.3 MHz 10-01-97
KCBN-AM IV 1230 kHz 10-01-97
</TABLE>
A-5
<PAGE> 367
<TABLE>
<CAPTION>
EXPIRATION
FCC DATE OF
MARKET(1) STATION(2) CLASS FREQUENCY LICENSE
--------- ---------- ----- --------- ----------
<S> <C> <C> <C> <C>
Anchorage, AK
KBFX-FM C3 100.5 MHz 02-01-98
KENI-AM A 650 kHz 02-01-98
KYAK-AM C2 101.3 MHz 02-01-98
KGOT-FM C1 98.9 MHz 02-01-98
KYMG-FM C1 107.5 MHz 02-01-98
KASH-FM B 550 kHz 02-01-98
Fairbanks, AK
KIAK-FM C 102.5 MHz 02-01-98
KIAK-AM B 970 kHz 02-01-98
KAKQ-FM C2 101.1 MHz 02-01-98
Farmington, NM
KKFG-FM C 104.5 MHz 10-01-97
KDAG-FM C 96.9 MHz 10-01-97
KCQL-AM C 1340 kHz 10-01-97
KTRA-FM C 102.1 MHz 10-01-97
Yuma, AZ
KYJT-FM A 100.9 MHz 10-01-97
KTTI-FM C 95.1 MHz 10-01-97
KBLU-AM B 560 kHz 10-01-97
</TABLE>
- ---------------
* Not licensed -- Construction Permit only.
(1) Actual city of license may be different from metropolitan market served.
Market may be different from market definition used under FCC multiple
ownership rules.
(2) The table does not include (i) station WING-FM in Dayton, Ohio, which is
owned by the Company and for which an unrelated third party, who has an
option to purchase such station, currently provides certain sales,
programming and marketing services pursuant to an LMA, (ii) station KASH-AM
in Anchorage, Alaska, which the Company will own upon consummation of the
Community Pacific Acquisition, but expects to dispose of subsequent thereto
to remain in compliance with the station ownership limitations under the
Communications Act, and (iii) stations WESC-FM, WFNQ-FM, and WESC-AM which
will be exchanged for stations owned by SFX in the SFX Exchange. See "The
Acquisitions."
(3) The Company provides certain sales and marketing services to stations
WKAP-AM in Allentown, Pennsylvania, WPAW-FM in Ft. Pierce-Stuart-Vero
Beach, Florida, WEEL-FM in Wheeling, West Virginia and KLFX-FM in Killeen,
Texas pursuant to JSAs. The Company provides certain sales, programming and
marketing services to station WHRD-AM in Huntington, West Virginia; and
pending the consummation of the respective acquisitions, to stations
WTAK-FM, WXQW-FM and WWXQ-FM in Huntsville, Alabama, WZBQ-FM in Tuscaloosa,
Alabama, KKTX-AM and KKTX-FM in Tyler-Longview, Texas, KZBB-FM in Ft.
Smith, Arkansas, KJEM-FM in Fayetteville, Arkansas, KLAW-FM and KZCD-FM in
Lawton, Oklahoma and WJLM-FM in Roanoke, Virginia pursuant to LMAs.
A-6
<PAGE> 368
- ------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE
INITIAL PURCHASER OF THE OLD NOTES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Summary Historical Financial Data........................... 14
Summary Pro Forma Financial Data............................ 15
Risk Factors................................................ 17
Use of Proceeds............................................. 23
Capitalization.............................................. 24
Unaudited Pro Forma Financial
Information............................................... 25
Selected Historical Financial Data.......................... 47
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 48
Business.................................................... 58
The Acquisitions............................................ 85
Management.................................................. 94
Security Ownership of Certain Beneficial Owners............. 108
Certain Transactions........................................ 110
Description of Capital Stock................................ 117
Description of Other Indebtedness........................... 123
The Exchange Offer.......................................... 136
Description of the New Notes................................ 143
Certain United States Federal Income Tax Considerations..... 163
Book-Entry, Delivery and Form............................... 163
Plan of Distribution........................................ 165
Legal Matters............................................... 165
Experts..................................................... 165
Available Information....................................... 167
Glossary of Certain Terms and Market and Industry Data...... 168
Index to Financial Statements............................... F-1
Annex A -- Table of Additional Station Information.......... A-1
</TABLE>
---------------------
UNTIL DECEMBER 10, 1997 (90 DAYS AFTER THE EXPIRATION DATE), ALL DEALERS
EFFECTING TRANSACTIONS IN THE NOTES OFFERED HEREBY, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
CAPSTAR LOGO
$200,000,000
CAPSTAR RADIO BROADCASTING
PARTNERS, INC.
9 1/4% SENIOR SUBORDINATED NOTES DUE 2007
PROSPECTUS
August 12, 1997
- ------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
