-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GoCiDH9Wou3yLLYRr88J8JTXj9R3P+5My+cMkFFxpiJJnmuyqnJNSIepLjRBpXN8 vt6JbV5pC8TFJzw2w7WcAg== 0000950134-00-001921.txt : 20000315 0000950134-00-001921.hdr.sgml : 20000315 ACCESSION NUMBER: 0000950134-00-001921 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLEAR CHANNEL COMMUNICATIONS INC CENTRAL INDEX KEY: 0000739708 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 741787536 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09645 FILM NUMBER: 569397 BUSINESS ADDRESS: STREET 1: 200 CONCORD PLAZA STREET 2: STE 600 CITY: SAN ANTONIO STATE: TX ZIP: 78216 BUSINESS PHONE: 2108222828 MAIL ADDRESS: STREET 1: 200 CONCORD PLAZA SUITE 600 STREET 2: 200 CONCORD PLAZA SUITE 600 CITY: SAN ANTONIO STATE: TX ZIP: 78216 10-K 1 FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 1999 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [x] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1999, or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to _________. COMMISSION FILE NUMBER 1-9645 CLEAR CHANNEL COMMUNICATIONS, INC. (Exact name of registrant as specified in its charter) Texas 74-1787539 (State of Incorporation) (I.R.S. Employer Identification No.) 200 Concord Plaza, Suite 600 San Antonio, Texas 78216 Telephone (210) 822-2828 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.10 par value per share. Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO[ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] On March 10, 2000, the aggregate market value of the Common Stock beneficially held by non-affiliates of the Company was approximately $19.5 billion. (For purposes hereof, directors, executive officers and 10% or greater shareholders have been deemed affiliates). On March 10, 2000, there were 338,870,380 outstanding shares of Common Stock, excluding 12,829 shares held in treasury. DOCUMENTS INCORPORATED BY REFERENCE Portions of our Definitive Proxy Statement for the 2000 Annual Meeting, expected to be filed within 120 days of our fiscal year end, are incorporated by reference into Part III. 2 CLEAR CHANNEL COMMUNICATIONS, INC. INDEX TO FORM 10-K
Page Number ------ PART I. Item 1. Business....................................................................................... 3 Item 2. Properties.................................................................................... 47 Item 3. Legal Proceedings............................................................................. 48 Item 4. Submission of Matters to a Vote of Security Holders........................................... 48 PART II. Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.......................... 49 Item 6. Selected Financial Data....................................................................... 50 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 51 Item 7A. Quantitative and Qualitative Disclosures about Market Risk .................................. 61 Item 8. Financial Statements and Supplementary Data .................................................. 63 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................................................... 93 PART III. Item 10. Directors and Executive Officers of the Registrant........................................... 94 Item 11. Executive Compensation....................................................................... 96 Item 12. Security Ownership of Certain Beneficial Owners and Management............................... 96 Item 13. Certain Relationships and Related Transactions............................................... 96 PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................. 97
2 3 PART I ITEM 1. BUSINESS THE COMPANY Clear Channel Communications, Inc., is a diversified media company with two business segments: broadcasting and outdoor advertising. We were incorporated in Texas in 1974. As of December 31, 1999, we owned, programmed, or sold airtime for 507 domestic radio stations, 2 international radio stations and 24 domestic television stations and we were one of the world's largest outdoor advertising companies based on total advertising display inventory of 133,097 domestic display faces and 422,060 international display faces. During 1999, we derived approximately 53% of our net revenue from broadcasting operations and approximately 47% from outdoor advertising operations. Our principal executive offices are located at 200 Concord Plaza, Suite 600, San Antonio, Texas 78216 (telephone: 210-822-2828). BROADCASTING As of December 31, 1999, we owned, programmed or sold airtime for 173 AM and 334 FM radio stations, and 24 television stations in 123 domestic markets and two international radio stations. Our radio stations employ a wide variety of programming formats, such as News/Talk/Sports, Country, Adult Contemporary, Urban and Album Rock. We own two international radio stations located in Denmark and broadcast Adult Contemporary and Oldies formats to the Copenhagen market and one cable audio channel that reaches most of Denmark. We also provide programming to and sell airtime under exclusive sales agency agreements for three radio stations in Mexico. In addition, we operate several radio networks serving Oklahoma, Texas, Iowa, Kentucky, Virginia, Alabama, Tennessee, Florida and Pennsylvania. In addition, we currently own the following interests in radio broadcasting companies: o a 50% equity interest in the Australian Radio Network Pty., Ltd., which operates radio stations in Australia; o a 33% equity interest in New Zealand Radio Network, which operates radio stations in New Zealand; o a 26% non-voting equity interest in Hispanic Broadcasting Corporation, formerly Heftel Broadcasting Corporation, (Nasdaq: HBCCA) a leading domestic Spanish-language radio broadcaster; o a 40% equity interest in Grupo Acir Communicaciones, S.A. de C.V., one of the largest radio broadcasters in Mexico; o a 50% equity interest in Radio 1, which owns seven radio stations in Norway; o a 32% equity interest in Golden Rose, which owns two radio stations in England; and 3 4 o a 50% equity interest in Radio Bonton, a.s., which owns an FM radio station in the Czech Republic. Our television stations are affiliated with various television networks, including FOX, UPN, ABC, NBC and CBS. The primary sources of programming for our ABC, NBC and CBS affiliated television stations are their respective networks, which produce and distribute programming in exchange for each station's commitment to air the programming at specified times and for commercial announcement time during the programming. We supply the majority of programming to our FOX and UPN affiliates by selecting and purchasing syndicated television programs. OUTDOOR ADVERTISING As of December 31, 1999, we owned a total of 549,257 advertising display faces, and operated 5,900 display faces under license management agreements. We currently provide outdoor advertising services in over 43 domestic markets and over 23 international markets. Domestic display faces include billboards of various sizes and various small display faces on the interior and exterior of various public transportation vehicles. International display faces include street furniture, transit displays and billboards of various sizes. We also operate numerous smaller displays such as cube displays in retail malls and convenience store window displays. Additionally, we currently own the following interests in outdoor advertising companies: o a 50% equity interest in Hainan White Horse Advertising Media Investment Co. Ltd., which operates street furniture displays in China; o a 50% equity interest in Sirocco International SA, which is developing a new 8 square meter format network and obtaining concessions for 2 square meter format panels in France; o a 50% equity interest in Adshel Street Furniture Pty., Limited, which operates street furniture displays in Australia and New Zealand; o a 30% equity interest in Capital City Posters Pty., Ltd, which operates street furniture and billboard displays in Singapore; o a 50% equity interest in Buspak, which operates bus and tram displays in Hong Kong; and o a 31.9% equity interest in Master & More Co., Ltd, which operates billboard displays in Thailand. COMPANY STRATEGY Since our inception, we have focused on helping our clients distribute their marketing messages in the most efficient ways possible. We believe our ultimate success is measured by how well we assist our clients in selling their products and services. To this end, we have assembled a variety of media assets designed to provide the most efficient and cost-effective ways for our clients to reach consumers. These assets are comprised of broadcasting assets and outdoor advertising displays. In the past we have combined these assets with the talent and motivation of our entrepreneurial personnel to create strong internal growth. We plan to continue this effort in order to serve our advertisers, our listeners and viewers, and our equity and debt stakeholders. 4 5 In the past, a portion of our growth has been achieved through the acquisition of additional assets within our two business segments. We have found that the addition of assets to our portfolio gives our clients more flexibility in the distribution of their messages, and therefore allows us to provide these clients with a higher level of service. In addition, given our experience in the industries in which we operate, we are often able to improve the operations of assets we acquire, thus further enhancing the value they have as an advertising venue, as well as the value those assets hold for our stakeholders. We evaluate potential acquisitions based on the returns they can potentially provide on invested capital by themselves, as well as the positive effects they might have on our existing business. Additionally, we seek to create situations in which we own more than one type of medium in the same market. Aside from the provision of added flexibility to our clients, this "cross-ownership" allows us ancillary benefits, such as the use of otherwise vacant outdoor advertising space to promote our broadcasting assets, or the sharing of on-air talent across radio and television assets. These are only two examples of the benefits of cross-ownership, but there are others as well. Our management believes that growth within the "out-of-home" advertising business (predominantly radio and outdoor advertising) will be strong in coming years. We believe the increasing commute times to which Americans are subjected is one factor supporting such growth. In addition, we believe that "in-home" media, including broadcast television, cable and the Internet, increasingly compete against one another for advertising revenues in the home. Therefore, we have dramatically expanded the "out-of-home" aspects of our business by continuing our growth, both internal and external, in the radio and outdoor advertising businesses. The core to our investment approach has been the pursuit of attractive business models, which we believe best serve our stakeholders. We think that the combination of historically stable revenue growth within the industries in which we operate, coupled with a fixed expense structure and minimal requirements for ongoing capital expenditures, gives us an excellent forum in which to generate free cash flow and provide value to our investors. We intend to continue this creation of value. BROADCASTING STRATEGY Our broadcasting strategy entails the ongoing operation of existing stations as well as the acquisition of under-performing stations, on favorable terms, for the purpose of improving their performance. Our management seeks to improve performance of these stations through effective programming, reduction of costs and aggressive promotion, marketing and sales. We emphasize direct sales to local customers rather than through advertising agencies and other intermediaries. We believe that this focus enables our stations to achieve market revenue shares exceeding their audience shares. We believe that clustering broadcasting assets together in markets leads to substantial operating advantages. We attempt to cluster radio stations in each of our principal markets because we believe that we can offer advertisers more attractive packages of advertising options if we control a larger share of the total advertising inventory in a particular market. We also believe that by clustering we can operate our stations with more highly skilled local management teams and eliminate duplicative operating and overhead expenses. We believe that owning multiple broadcasting stations in a market allows us to provide a more diverse programming selection for our listeners and a more efficient means for our advertisers to reach those listeners. 5 6 OUTDOOR ADVERTISING STRATEGY Our outdoor advertising strategy involves expanding our market presence in the outdoor advertising business and improving our operating results through application of the following principles: o managing the advertising rates and occupancy levels of our displays to maximize revenues; o attracting new categories of advertisers to the outdoor medium through significant investments in sales, marketing, creative and research services; o constructing new displays and upgrading our existing displays; o taking advantage of technological advances which increase sales force productivity, production department efficiency, and quality of product; o acquiring additional displays in our existing markets; and o expanding into additional markets where we already have a broadcasting presence as well as into the country's largest media markets and their surrounding regional areas. To support our broadcasting and outdoor operating strategies, we have decentralized our operating structure in order to place authority, autonomy and accountability at the market level and to provide local management with the tools necessary to oversee sales, product development, administration and production and to identify possible acquisition candidates. We also maintain fully-staffed sales and marketing offices in New York which service national advertising accounts and support our local sales force in each market. We believe that one of our strongest competitive advantages is our unique blend of highly experienced corporate and local market management. RECENT DEVELOPMENTS AMFM Inc. Merger AMFM is a large national radio broadcasting and related media company with operations in radio broadcasting, media representation and the Internet, which as of December 31, 1999 consisted of: a radio station portfolio that, assuming completion of announced transactions, consists of 444 radio stations (320 FM and 124 AM) in 63 markets throughout the continental United States, including 6 stations operated under time brokerage or joint sales agreements, which allow AMFM to program another person's station and/or sell the advertising; Katz Media, a full-service media representation firm that sells national spot advertising time for its clients in the radio and television industries primarily throughout the United States and for AMFM's portfolio of radio stations; and AMFM's Internet initiative which focuses on developing AMFM's Internet web sites, streaming online broadcasts of AMFM's on-air programming and other media, and promoting emerging Internet and new media concerns. In addition, AMFM owns an approximate 30% equity interest in Lamar Advertising Company, one of the largest owners and operators of outdoor advertising structures in the United States. 6 7 The AMFM Merger Agreement On October 2, 1999, we entered into a merger agreement with AMFM. Pursuant to the merger agreement, we will merge our wholly-owned subsidiary with and into AMFM which will survive as our wholly-owned subsidiary. Each share of AMFM common stock will convert into 0.94 shares of our common stock. Based on the number of shares outstanding as of December 31, 1999 and assuming that no additional shares of AMFM common stock are issued before the completion of the merger other than shares currently contemplated to be issued in connection with the conversion of AMFM's convertible preferred stock, we will issue approximately 202.8 million shares of our common stock in the merger to the shareholders of AMFM. Pursuant to the merger agreement, at the completion of the merger, our board of directors will be expanded to include five members who currently serve on the AMFM board of directors. Registration Rights Agreement In connection with the merger agreement, we entered into a registration rights agreement with certain shareholders of AMFM. As a result of the registration rights agreement, we may be required to file registration statements with the SEC to register for resale our common stock received by such AMFM stockholders in the merger. Shareholders Agreement In connection with the merger, several significant stockholders of us and AMFM entered into a shareholders agreement with us which imposes standstill and transfer restrictions on the stockholders and obligates those AMFM stockholders to take various actions regarding regulatory approvals. Mr. Thomas O. Hicks and seven entities affiliated with Hicks, Muse, Tate & Furst Incorporated comprise the AMFM stockholders who have entered into the shareholders agreement and will sometimes be referred to as the Hicks Muse stockholders in this discussion of the shareholders agreement. Mr. Hicks and these affiliates of Hicks Muse will be entitled to receive our common stock in exchange for their AMFM common stock at the effective time of the merger. Our stockholders who have entered into the shareholders agreement include L. Lowry Mays and 4-M Partners, Ltd., a limited partnership of which Mr. L. Mays is the general partner. Mr. L. Mays and the affiliated partnership will sometimes be referred to as the L. Mays stockholders in this discussion of the shareholders agreement. The shareholder agreement imposes standstill and voting restrictions on the Hicks Muse stockholders and the L. Mays stockholders regarding their acquisition of our voting securities and their rights to initiate and participate in business combination transactions, tender and exchange offers, and proxy or consent solicitations following the merger. The Hicks Muse stockholders also agreed to facilitate the receipt of all regulatory approvals required to complete the merger by providing assistance to us, refraining from action that would hinder or delay the receipt of regulatory approvals and using their best efforts to prevent the equity interest in RCN Corporation, an affiliate of Hicks Muse, held by any of them or their affiliates from hindering or delaying the receipt of regulatory approvals. They also agreed that they and their affiliates will divest assets, terminate existing relationships and contractual arrangements and take other actions, as necessary to prevent interests in other media-related ventures held by the Hicks Muse stockholders and their affiliates from hindering our future acquisitions of additional media holdings and pursuit of media-related relationships and activities. However, we have agreed that these obligations do not require divestiture of various designated assets currently held by the Hicks Muse stockholders and their affiliates, nor do the obligations require divestiture of assets other than radio and television assets located in the U.S. and outdoor advertising located anywhere in the world but South America. These obligations continue until interests in other media-related ventures held by the Hicks Muse stockholders and their affiliates are not attributable to us under the rules and regulations of the FCC, any antitrust agency or any other governmental authority. 7 8 Conditions to the AMFM Merger The completion of the AMFM merger cannot occur until the satisfaction of numerous conditions, including the following: o the receipt of approvals from our shareholders and the shareholders of AMFM; o the absence of any law or court order prohibiting the merger; o receipt of regulatory approvals under the federal communications laws and the completion of the review of the merger by the federal and state antitrust authorities; and o receipt of a legal opinion for us and AMFM and its common shareholders that the merger will be tax-free. Some conditions may be waived by the company entitled to assert the condition. Required Regulatory Approvals Before the merger can be completed, Clear Channel and AMFM must satisfy all regulatory requirements and obtain the approval of all regulatory agencies having jurisdiction over the merger. To facilitate the regulatory review and approval process, Clear Channel and AMFM have each agreed to promptly make all necessary filings, seek all required approvals of relevant regulatory agencies and use reasonable efforts to take all actions necessary to complete the merger. Accordingly, Clear Channel and AMFM have made their initial filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the Communications Act of 1934, as amended (the "Communications Act"). Clear Channel and AMFM will also make any other filings or submissions and seek the approval of all applicable regulatory agencies, including the FCC, the U.S. Federal Trade Commission (the "FTC"), the U.S. Department of Justice (the "DOJ"), state antitrust enforcement authorities and other governmental authorities under antitrust or competition laws as necessary. Furthermore, Clear Channel and AMFM will each make reasonable efforts to resolve objections to the merger raised by regulatory agencies. However, the merger agreement does not require either party to take any action for the purpose of obtaining the approval of the FCC or any governmental entity with regulatory jurisdiction over enforcement of any applicable antitrust laws if such action would have a material adverse effect on the consolidated businesses, assets or operations of Clear Channel and AMFM as a result of a material change to the Communications Act or FCC policy in enforcing the Communication Act or in the policies of any governmental entity with regulatory jurisdiction over enforcement of any applicable antitrust laws. A "material change" means a change in the Communications Act, in FCC policies in implementing or enforcing the Communications Act or in the policies of any governmental entity with regulatory jurisdiction over enforcement of any applicable antitrust laws, adopted after October 2, 1999, which impose an implicit or explicit national limit on the number of radio stations that may be owned by a person or the effect of any such changed policies or laws is to impose a national limit on the number of radio stations that may be owned by a person. 8 9 During the regulatory review process, each party will consult with the other, permit the other to review all material communications with regulatory agencies and give the other the opportunity to participate in all conferences and meetings with regulatory agencies. Clear Channel and AMFM must comply with all applicable antitrust and FCC laws and regulations before the merger can be completed. The DOJ will review the potential effects of the merger on competition in the markets where the combined company will operate. If the DOJ determines that the merger will substantially reduce competition, it can challenge all or certain aspects of the merger and seek to block the merger or impose restrictive conditions on the merger. In addition, the FCC must approve the transfer of control of AMFM's FCC licenses from AMFM's existing stockholders to Clear Channel. As part of the FCC's determination whether to approve the merger, the FCC will examine whether the combined company will comply with the FCC's limits on the number of radio and television stations that a company is permitted to own in a single market. The FCC also may conduct additional ownership concentration analysis and assess its effect on competition, diversity or other FCC public interest considerations. In recent years, the practice in radio acquisitions and mergers has been for the DOJ to first resolve its issues before the FCC will grant its approval of the transaction. It can be a lengthy process to obtain the requisite clearances and approvals needed from the DOJ and the FCC, sometimes taking more than one year in large transactions such as the AMFM merger. Therefore, Clear Channel and AMFM quickly initiated the formal process of obtaining the required regulatory approvals. In October 1999, Clear Channel and AMFM commenced discussion with the DOJ to try to identify their specific concerns about the merger and to discuss possible solutions as early as possible and Clear Channel and AMFM filed notification and report forms required for antitrust purposes with the DOJ and the FTC on November 29, 1999. Clear Channel and AMFM filed their applications for the consent to transfer control of AMFM's FCC licenses with the FCC on November 16, 1999 (the earliest day on which Clear Channel and AMFM were permitted to file the applications). From the outset, Clear Channel recognized that the merger would result in the combined company exceeding FCC limitations in approximately 26 markets or geographical areas on the number of radio stations that one company may own in those particular markets or areas and also recognized that the combined company would have to divest approximately 110 to 115 stations in the aggregate in those markets or areas to comply with the FCC's numerical limits and to satisfy antitrust concerns. In addition, the FCC has announced its intention to conduct additional ownership concentration analysis of the merger as it relates to numerous local markets, including various markets in which AMFM, but not Clear Channel, currently operates. Five petitions to deny Clear Channel's and AMFM's applications for the merger also were filed at the FCC by various parties. The FCC is required to consider those petitions. Clear Channel and AMFM responded to those petitions and advised the FCC why those petitions should be denied. Although Clear Channel does not expect that these or any other third party petitions will be a significant obstacle to completion of the merger, Clear Channel can give no assurances in this regard. Moreover, Clear Channel's and AMFM's applications for FCC approval of necessary radio station divestitures (either to third-party buyers or to trusts), once filed, could also be subject to FCC additional ownership concentration analysis and/or petitions to deny. Such ownership concentration analysis and petitions to deny, whether currently known or encountered in the future, could delay receipt of FCC approval. The merger also implicates the FCC's television/radio cross-ownership rule. This rule, which was revised effective November 16, 1999, limits the number of radio stations a company may own or control in markets where the company also owns one or more television stations. The merger implicates the 9 10 television/radio cross-ownership rule in approximately 23 markets or geographical areas in which Clear Channel, AMFM and/or Hicks Muse television companies operate, and the rule may require additional divestitures of Clear Channel or AMFM assets before the merger can be completed. Additionally, the merger may implicate the FCC's television duopoly rule in two markets, which limits the number of television stations a company may own or program in a single market. This rule may require further divestitures of Clear Channel or AMFM assets or termination of existing time brokerage agreements and local marketing agreements before the merger can be completed. Proposals are currently pending to restructure certain Hicks Muse television companies so that Thomas O. Hicks and others with attributable interest in AMFM would no longer be attributable to those television companies. These restructurings, if approved by the FCC and accomplished prior to the merger closing, would reduce the number of divestitures (and terminations of existing time brokerage and local marketing agreements) necessary for the merger to comply with the television/radio cross-ownership and the television duopoly rule. For FCC purposes, Clear Channel and AMFM must divest the necessary number of radio stations to comply with FCC limits prior to completion of the merger. If Clear Channel and AMFM cannot complete such transactions in a timely manner, Clear Channel and AMFM will have to transfer those assets or the assets of other Clear Channel or AMFM stations into an FCC approved trust prior to closing the merger. Clear Channel also recognized that if the DOJ had concerns about the concentration of the radio advertising market held by the combined company in those markets where the combined company would exceed the FCC's numerical limits, then Clear Channel and AMFM would have to discuss with the DOJ which stations needed to be divested to come within their antitrust guidelines. Clear Channel and AMFM also needed to determine if there were any other markets that concerned the DOJ notwithstanding that they would be within FCC guidelines in those markets. Clear Channel and AMFM currently contemplate that they may need to divest between 110 and 115 radio stations in the aggregate to satisfy antitrust concerns and comply with FCC rules. At March 13, 2000, we have signed definitive agreements to sell 110 of these radio stations for an aggregated sales price of $4.3 billion. These definitive agreements are subject to the closing of the AMFM merger, regulatory approvals and other closing conditions. The DOJ has issued a second request for information about the effect of the merger in affected markets. Until Clear Channel and AMFM either arrange and complete satisfactory divestitures to qualified parties, comply with the second request, or enter into a consent decree with the DOJ where Clear Channel would agree to complete the divestiture of agreed upon stations within a specified period of time following the merger, Clear Channel and AMFM will not be able to proceed with the merger for antitrust purposes. While Clear Channel agreed in the merger agreement to take any such action as may be necessary to timely complete the merger, Clear Channel and AMFM currently hope to resolve the antitrust issues without entering into any consent decrees. The DOJ is evaluating the competitive effects of the Clear Channel merger in several different areas, with respect to its radio broadcasting business. While Clear Channel is hopeful that the proposed divestiture of radio stations will meet all FCC multiple ownership rules and antitrust concerns regarding radio station overlaps, it is still possible that the DOJ, the FCC and/or a state antitrust agency could require Clear Channel and AMFM to divest additional assets or to agree to various operating restrictions. This could happen before or after the merger is completed. Another area being examined by the DOJ relates to the potential overlap between Clear Channel's current ownership of outdoor advertising assets and AMFM's approximate 30% ownership interest in Lamar, which also has significant outdoor advertising assets. If AMFM and Clear Channel fail to alleviate the DOJ's concerns, it is possible that the DOJ will require Clear Channel or AMFM to dispose of AMFM's interest in Lamar, sell outdoor assets in 10 11 overlapping markets, or agree to various operating or other restrictions. This could happen after the merger is completed. The DOJ is also examining competition issues relating to certain television markets and AMFM's ownership interest in Z-Spanish Media Corporation. There is no guarantee that the DOJ will not raise concerns in other areas. In addition, private persons may assert antitrust claims against Clear Channel and AMFM in certain circumstances. If any of those events occur, Clear Channel may incur substantial expense in litigating any such claims and/or the combined company may be adversely affected by any operating restrictions that might be imposed upon it. Termination of the Merger Agreement and Termination Fees AMFM and Clear Channel can jointly agree to terminate the merger agreement at any time without completing the merger, even after obtaining stockholder approval. In addition, either company can terminate the merger agreement if: o the merger is not completed by March 31, 2001; o the stockholders of either company fail to approve such company's merger proposal; o the board of directors of the other company withdraws or changes its recommendation; or o it receives and intends to accept a superior acquisition proposal. AMFM must pay us a termination fee of $700 million plus reasonably documented expenses up to $25 million if the merger agreement terminates under specified conditions. Similarly, we must pay AMFM a termination fee of $1 billion plus reasonably documented expenses up to $25 million if the merger agreement terminates under specified conditions. AMFM Options and Warrants After the Merger We will assume all options and warrants to purchase AMFM common stock outstanding at the effective time of the merger, whether or not exercisable at the effective time of the merger, and each of these AMFM options and warrants will become an option or warrant to acquire our common stock on the same terms and conditions as were applicable prior to the effective time of the merger. We will register with the SEC and reserve for issuance a sufficient number of shares of our common stock for delivery upon the exercise of the AMFM options assumed by us in the merger. Ownership of Clear Channel After the AMFM Merger Based on the number of shares outstanding as of December 31, 1999 and assuming that no additional shares of AMFM or our common stock are issued before the completion of the merger other than shares currently contemplated to be issued in connection with the conversion of AMFM's convertible preferred stock, we will issue approximately 202.8 million shares of our common stock to the shareholders of AMFM in the merger. Assuming the issuance of such number of shares of our common stock in the merger, the shares of our common stock held by our existing shareholders at the time of the merger will represent approximately 62.6% of our outstanding common stock after the merger. Based upon the same assumptions, the shares of our common stock to be received by the AMFM shareholders in the merger will represent approximately 37.4% of our common stock outstanding after the merger. 11 12 Accounting Treatment We expect to account for the merger as a purchase. Under this accounting method, we will record AMFM's assets and liabilities at their fair market values, and, if the purchase price exceeds the total of these fair market values, we will record this excess as goodwill. We will include the revenues and expenses of AMFM in our financial statements following the merger. Business of AMFM GENERAL AMFM is a large national pure-play radio broadcasting and related media company with operations in radio broadcasting and media representation and growing Internet operations, which focus on developing AMFM's Internet web sites, streaming online broadcasts of AMFM's on-air programming and other media, and promoting emerging Internet and new media concerns. In addition, AMFM owns an approximate 30% equity interest in Lamar Advertising Company, one of the largest owners and operators of outdoor advertising structures in the United States. AMFM RADIO GROUP As of December 31, 1999, AMFM owned and operated, programmed or sold air time for 444 radio stations (320 FM and 124 AM) in 63 markets in the continental United States including 6 radio stations programmed under time brokerage or joint sales agreements. AMFM also operates a national radio network, The AMFM Radio Networks, which broadcasts advertising and syndicated programming shows to a national audience of approximately 68 million listeners in the United States (including approximately 59 million listeners from AMFM's portfolio of stations). The AMFM Radio Networks' syndicated programming shows include, among others, American Top 40 with Casey Kasem, Rockline, The Dave Koz Show, The Bob and Tom Morning Show and special events such as the Kentucky Derby. Additionally, AMFM operates the Chancellor Marketing Group, a full service sales promotion firm developing integrated marketing programs for Fortune 1000 companies. The following table sets forth selected information with regard to each of AMFM's 126 AM and 330 FM radio stations that it owned and operated or programmed, or for which it sold airtime, as of December 31, 1999.
MARKET AM STATIONS* FM STATIONS* TOTAL* ------ ------------ ------------ ------ ALABAMA Birmingham 1 4 5 Gadsden 1 1 2 Huntsville 2 4 6 Montgomery 0 3 3 Tuscaloosa 1 3 4 ALASKA Anchorage 2 4 6 Fairbanks 1 3 4 ARIZONA Phoenix 3 5 8 Tucson 2 2 4 Yuma 1 2 3
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MARKET AM STATIONS* FM STATIONS* TOTAL* ------ ------------ ------------ ------ ARKANSAS Fayetteville 0 4 4 Ft. Smith 1 3 4 CALIFORNIA Fresno 3 6 9 Los Angeles 2 5 7(a) Modesto/Stockton 2 4 6(b) Riverside/San Bernardino 1 1 2 Sacramento 2 2 4 San Diego 0 2 2 San Francisco 2 5 7 COLORADO Colorado Springs 0 2 2 Denver 1 5 6 CONNECTICUT Hartford 1 4 5 New Haven 0 1 1(b) DELAWARE Wilmington 2 2 4 FLORIDA Ft. Pierce/Stuart/Vero Beach 1 4 5 Melbourne/Titusville/Cocoa Beach 2 3 5 Miami/Ft. Lauderdale 1 0 1 Orlando 0 4 4 Pensacola 0 3 3 GEORGIA Savannah 2 4 6 HAWAII Honolulu 3 4 7 ILLINOIS Chicago 1 5 6 Springfield 1 2 3 INDIANA Indianapolis 1 2 3 IOWA Cedar Rapids 0 3 3 Des Moines 1 2 3 KANSAS Wichita 0 4 4 LOUISIANA Alexandria 1 3 4 Baton Rouge 3 3 6 Shreveport 1 2 3 MARYLAND Frederick 1 1 2 MASSACHUSETTS Boston 1 2 3
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MARKET AM STATIONS* FM STATIONS* TOTAL* ------ ------------ ------------ ------ MASSACHUSETTS (CONT.) Springfield 1 2 3 Worcester 1 1 2 MICHIGAN Battle Creek/Kalamazoo 2 2 4 Detroit 2 5 7 Grand Rapids 1 3 4 MINNESOTA Minneapolis/St. Paul 2 5 7 MISSISSIPPI Biloxi 0 2 2 Jackson 1 4 5 NEBRASKA Lincoln 0 4 4 Ogallala 1 2 3 Omaha/Council Bluffs 1 3 4 NEW HAMPSHIRE Manchester 1 1 2 Portsmouth/Dover/Rochester 3 4 7 NEW MEXICO Farmington 1 4 5(b) NEW YORK Albany/Schenectady/Troy 2 4 6 Nassau/Suffolk (Long Island) 1 1 2 New York City 0 5 5 NORTH CAROLINA Asheville 1 1 2 Charlotte 0 3 3 Greensboro 1 2 3 Raleigh 0 4 4 Statesville 1 1 2 OHIO Cincinnati 2 2 4 Cleveland 3 4 7 OKLAHOMA Lawton 0 2 2 PENNSYLVANIA Allentown 2 2 4 Harrisburg/Lebanon/Carlisle 1 3 4 Philadelphia 1 5 6 Pittsburgh 1 5 6 PUERTO RICO 0 8 8(d) RHODE ISLAND Providence 1 2 3 SOUTH CAROLINA Columbia 2 4 6 Greenville 1 3 4
14 15
MARKET AM STATIONS* FM STATIONS* TOTAL* ------ ------------ ------------ ------ TENNESSEE Jackson 1 2 3 Nashville 1 4 5 TEXAS Amarillo 1 3 4 Austin 1 3 4 Beaumont 1 3 4 Corpus Christi 2 4 6 Dallas 1 5 6 Houston 3 5 8 Killeen 0 3 3(c) Lubbock 2 4 6 Lufkin 1 3 4 Odessa/Midland 0 3 3 Texarkana 1 3 4 Tyler 1 4 5 Victoria 0 2 2 Waco 1 4 5 VERMONT Burlington 1 3 4(e) VIRGINIA Richmond 0 4 4 Roanoke/Lynchburg 2 7 9 Winchester 1 2 3 WASHINGTON Richland/Kennewick/Pasco 2 4 6(f) Spokane 2 4 6(b) WASHINGTON DC 3 5 8 WEST VIRGINIA/KENTUCKY Huntington/Ashland 5 5 10(e) Wheeling 2 5 7(b) WISCONSIN Madison 2 4 6 Milwaukee 1 1 2 ---------- ---------- ---------- 126 330 456 ========== ========== ==========
- ---------- * AMFM currently contemplates that AMFM and Clear Channel will be required to divest as many as approximately 110 to 115 stations in the aggregate to obtain antitrust and FCC approval of the merger. (a) Includes one FM and one AM station programmed pursuant to a local marketing agreement. AMFM does not own the FCC licenses. (b) Includes one FM station programmed pursuant to a local marketing agreement. AMFM does not own the FCC license. (c) Includes one FM station on which AMFM sells the commercial time pursuant to a joint sales agreement. AMFM does not own the FCC license. 15 16 (d) Includes eight FM stations that were sold subsequent to December 31, 1999. (e) Includes one AM station programmed pursuant to a local marketing agreement. AMFM does not own the FCC license. (f) Includes two FM stations and two AM station that were sold subsequent to December 31, 1999 and two FM stations programmed pursuant to a local marketing agreement, which was assigned to a third party subsequent to December 31, 1999. AMFM NEW MEDIA GROUP Media Representation. AMFM entered into the media representation business with the acquisition of Katz Media Group, Inc. Katz Media is a full-service media representation firm that sells national spot advertising time for its clients in the radio and television industries primarily throughout the United States and for AMFM's portfolio of stations. Internet Initiative. AMFM has initiated a broad-based Internet strategy intended to leverage the value of its national radio station portfolio, proprietary content, advertiser relationships and listener base. AMFM intends to develop and position Internet web sites representing AMFM's portfolio of radio stations as highly trafficked Internet destinations designed to further AMFM's relationship with its listening audience. These web sites are expected to encompass a variety of functions including online streaming of AMFM's on-air programming and other media. In addition, AMFM intends to promote emerging Internet and new media businesses. LAMAR ADVERTISING COMPANY INVESTMENT AMFM completed the sale of its outdoor advertising business to Lamar Advertising Company on September 15, 1999. Lamar is one of the largest and most experienced owners and operators of outdoor advertising structures in the United States. AMFM now owns an approximate 30% equity interest in Lamar. AMFM is required to retain the shares of Lamar class A common stock representing its 30% equity interest in Lamar until September 15, 2000. Dame Media Acquisition On July 1, 1999, we closed our merger with Dame Media, Inc. Pursuant to the terms of the agreement, we exchanged approximately 954,100 shares of our common stock for 100% of the outstanding stock of Dame Media, valuing this merger at approximately $65.0 million. In addition, we assumed $32.7 million of long term debt, which was immediately refinanced utilizing our domestic credit facility. Dame Media's operations include 21 radio stations in 5 markets located in New York and Pennsylvania. We began consolidating the results of operations on July 1, 1999. Dauphin Acquisition On June 11, 1999, we acquired a 50.5% equity interest in Dauphin a French company engaged in outdoor advertising. In August 1999 we completed our tender offer for over 99% of the remaining shares outstanding. At December 31, 1999, all of the shares had been surrendered for an aggregate cost of approximately $487.2 million. Dauphin's operations include approximately 103,000 outdoor advertising display faces in France, Spain, Italy, and Belgium. This acquisition is being accounted for as a purchase with resulting goodwill of approximately $449.7 million, which is being amortized over 25 years on a 16 17 straight-line basis. The purchase price allocation is preliminary pending completion of appraisals and other fair value analysis of assets and liabilities, which we anticipate will be completed during the second quarter of 2000. We began consolidating the results of operations on the date of acquisition. Jacor Merger On May 4, 1999, we closed our merger with Jacor. Pursuant to the terms of the agreement, each share of Jacor common stock was exchanged for 1.1573151 shares of our common stock or approximately 60.9 million shares valued at $4.2 billion. In addition, we assumed approximately $1.4 billion of Jacor's long-term debt, as well as Jacor's Liquid Yield Option Notes with a fair value of approximately $490.1 million, which are convertible into approximately 7.1 million shares of our common stock. We also assumed options, stock appreciation rights and common stock warrants with a fair value of $414.9 million, which are convertible into approximately 9.2 million shares of our common stock. We refinanced $850.0 million of Jacor's long-term debt at the closing of the merger using our credit facility. Subsequent to the merger, we tendered an additional $22.1 million of Jacor's long-term debt. Included in the purchase price of Jacor is $83 million of restricted cash related to the disposition of Jacor assets in connection with the merger. This merger has been accounted for as a purchase with resulting goodwill of approximately $3.1 billion, which is being amortized over 25 years on a straight-line basis. This purchase price allocation is preliminary pending completion of appraisals and other fair value analysis of assets and liabilities, which we anticipate will be completed during the second quarter of 2000. The results of operations of Jacor have been included in our financial statements beginning May 4, 1999. In order to comply with governmental directives regarding the Jacor merger, we divested certain assets valued at $205.8 million and swapped other assets valued at $35 million in transactions with various third parties, resulting in a gain on sale of stations of $138.7 million and an increase in income tax expense (at our statutory rate of 38%) of $52.0 million during 1999. We anticipate deferring the majority of this tax expense based on our ability to replace the stations sold with qualified assets. The proceeds from divestitures are being held in restricted trusts until suitable replacement properties are identified. The following table details the reconciliation of divestiture and acquisition activity in the restricted trust accounts: In thousands of dollars Restricted cash resulting from Clear Channel divestitures $ 201,500 Restricted cash purchased in Jacor Merger 83,000 Restricted cash from disposition of assets held in trust 4,300 Restricted cash used in acquisitions (246,228) Restricted cash refunded (41,451) Other changes to restricted cash 3,228 --------- Restricted cash balance at December 31, 1999 $ 4,349 =========
SFX Entertainment, Inc. Merger On February 28, 2000, we entered into a definitive agreement to merge with SFX Entertainment, Inc. ("SFX"). SFX is one of the world's largest diversified promoter, producer and venue operator for live entertainment events. This merger will be a tax-free, stock-for-stock transaction. Each SFX Class A shareholder will receive 0.6 shares of our common stock for each SFX share and each SFX Class B shareholder will receive one share of our common stock for each SFX share, on a fixed exchange basis, 17 18 valuing the merger at approximately $3.3 billion plus the assumption of SFX's debt. This merger is subject to regulatory and other closing conditions, including the approval from the SFX shareholders. We anticipate that this merger will close during the second half of 2000. Future Acquisitions We frequently evaluate strategic opportunities both within and outside our existing lines of business and from time to time enter into letters of intent. Although we have no definitive agreements with respect to significant acquisitions not set forth in this report, we expect from time to time to pursue additional acquisitions and may decide to dispose of certain businesses. Such acquisitions or dispositions could be material. Public Offerings On January 21, 1999 we completed an equity offering of 1,725,000 shares of common stock. Net proceeds of $80.2 million were used to reduce the outstanding balance on our credit facility. On May 20, 1999 and June 23, 1999 we completed equity offerings of 4,997,457 shares and 1,325,300 shares of common stock, respectively. Net proceeds of $342.6 million and $90.1 million, respectively, were used to reduce the outstanding balance on our credit facility. On November 20, 1999 and December 13, 1999 we sold $900.0 million and $100.0 million principal amount, respectively, of 1.50% Senior Convertible Notes due December 1, 2002. Net proceeds of $886.3 million and $98.5 million, respectively, were used to reduce the outstanding balance on our credit facility. To facilitate possible future acquisitions as well as public offerings, we filed a registration statement on Form S-3 on April 12, 1999 covering a combined $2 billion of debt securities, junior subordinated debt securities, preferred stock, common stock, warrants, stock purchase contracts and stock purchase units (the "shelf registration statement"). The shelf registration statement also covers preferred securities that may be issued from time to time by our three Delaware statutory business trusts and guarantees of such preferred securities. After completing the debt offerings during November and December 1999, the amount of securities available under the shelf registration statement at December 31, 1999 was $1.0 billion. On December 14, 1999 we completed a tender offer for our 10.125% Senior Subordinated Notes due June 15, 2006; 9.75% Senior Subordinated Notes due December 15, 2006; 8.75% Senior Subordinated Notes due June 15, 2007; and 8.0% Senior Subordinated Notes due February 15, 2010. An agent acting on our behalf redeemed notes with a face value of approximately $516.6 million. Cash settlement of the amount due to the agent was completed on January 14, 2000. Including premiums, discounts, and agency fees, we are recognizing approximately $13.2 million as an extraordinary charge against net income, after tax of approximately $8.1 million. Amounts due under the redeemed Senior Subordinated Notes will be disclosed in long-term debt. After redemption, approximately $1.2 million of the notes remain outstanding. EMPLOYEES At February 29, 2000 we had approximately 13,800 domestic employees and 3,850 international employees: 11,600 in broadcasting operations, 5,825 in outdoor operations and 225 in corporate activities. 18 19 OPERATING SEGMENTS Clear Channel consists of two principal operating segments -- broadcasting and outdoor advertising. The broadcasting segment includes both radio and television stations for which we are the licensee and radio and television stations for which we program and/or sell air time under local marketing agreements or joint sales agreements. The broadcasting segment also operates radio networks. The outdoor advertising segment includes advertising display faces for which we own and/or operate under lease management agreements. Information relating to the operating segments of our broadcasting and outdoor advertising operations for 1999, 1998 and 1997 are included in "Note K: Segment Data" in the Notes to Consolidated Financial Statements in Item 8 filed herewith. BROADCASTING The following table sets forth certain selected information with regard to each of our 173 AM and 336 FM radio stations; 20 television stations and four satellite television stations that we owned, programmed, or for which we sold airtime, as of December 31, 1999. Excluded from the following table are the one AM and two FM Mexican radio stations for which we provide programming to and sell airtime under exclusive sales agency arrangements.
RADIO TELEVISION ----- ---------- AM FM NETWORK MARKET STATIONS STATIONS TOTAL STATION AFFILIATION ------ -------- -------- ----- ------- ----------- DOMESTIC: ALABAMA Mobile.................................... 2 4 (b) 6 -- -- Mobile, AL/Pensacola, FL.................. -- -- WPMI-TV NBC WJTC-TV (a) UPN ARIZONA Phoenix................................... -- 4 4 Tucson.................................... -- -- -- KTTU-TV (b) UPN ARKANSAS KLRT-TV FOX Little Rock............................... -- 5 5 KASN-TV (a) UPN CALIFORNIA Lancaster................................. 1 2 3 -- -- Los Angeles............................... 2 4 6 -- -- Monterey.................................. 2 4 6 -- -- Riverside................................. 2 -- 2 -- -- San Diego................................. 3 5 8 -- -- San Francisco............................. -- 1 1 -- -- San Jose.................................. -- 3 3 -- -- Santa Barbara............................. 3(f) 4(f) 7 -- -- Santa Clarita............................. 1 -- 1 -- -- Thousand Oaks............................. 1 -- 1 -- -- Walnut Creek.............................. -- 1 1 -- --
19 20
RADIO TELEVISION ----- ---------- AM FM NETWORK MARKET STATIONS STATIONS TOTAL STATION AFFILIATION ------ -------- -------- ----- ------- ----------- COLORADO Denver.................................... 3 5 8 -- -- Ft. Collins-Greeley....................... 2 2 4 -- -- CONNECTICUT New Haven................................. 2 1 3 -- -- FLORIDA Daytona Beach............................. -- 1 1 -- -- Florida Keys.............................. 1 (a) 7 8 -- -- Ft. Myers................................. 2 6 8 -- -- Ft. Pierce/Vero Beach 1 1 2 -- -- Jacksonville.............................. 2 (d) 7 (d) 9 WAWS-TV FOX WTEV-TV (a) UPN Miami..................................... 2 5 7 -- -- Orlando................................... 2 4 6 -- -- Panama City............................... 1 5 6 -- -- Pensacola................................. -- 2 (d) 2 -- -- Sarasota.................................. 2 4 6 -- -- Tallahassee............................... 1 4 5 -- -- Tampa/St. Petersburg...................... 3 5 8 -- -- West Palm Beach........................... 3 3 6 -- -- GEORGIA Atlanta................................... 2 4 (f) 6 -- -- Helen..................................... -- 1 1 -- -- Hogansville............................... 1 1 2 -- -- IDAHO Boise..................................... 2 4 6 -- -- Idaho Falls............................... 1 1 2 -- -- Pocatello................................. 1 2 3 -- -- Twin Falls................................ 1 2 3 -- -- IOWA Ames...................................... 1 1 2 -- -- Burlington................................ 1 1 2 -- -- Cedar Rapids.............................. 2 2 4 -- -- Des Moines................................ 1 3 4 -- -- Ft. Dodge................................. 1 1 2 -- -- Ft. Madison............................... 1 1 2 -- -- KANSAS Hoisington................................ -- -- -- KBDK-TV (e) (k) n/a Salina.................................... -- -- -- KAAS-TV (e) FOX Wichita................................... -- -- -- KSAS-TV KSCC-TV (a) (k) FOX KENTUCKY Lexington................................. 2 5 (f) 7 -- -- Louisville................................ 3 5 8 -- --
20 21
RADIO TELEVISION ----- ---------- AM FM NETWORK MARKET STATIONS STATIONS TOTAL STATION AFFILIATION ------ -------- -------- ----- ------- ----------- LOUISIANA New Orleans............................... 2 5 7 -- -- Shreveport................................ 2 4 (f) 6 -- -- MARYLAND Baltimore................................. 1 2 3 -- -- MASSACHUSETTS Springfield............................... 2 1 3 -- -- MICHIGAN Grand Rapids.............................. 2 5 7 -- -- MINNESOTA Bemidji................................... -- -- -- KFTC-TV (l) FOX Minneapolis............................... -- -- -- WFTC-TV FOX MISSISSIPPI Jackson................................... 2 3 5 -- -- MISSOURI St. Louis................................. 1 5 6 -- -- NEVADA Las Vegas................................. -- 4 4 -- -- NEW MEXICO Albuquerque............................... -- 5 5 -- -- NEW YORK Albany.................................... 2 5 7 -- -- Albany/Schenectady/Troy................... -- -- -- WXXA-TV FOX Rochester................................. 2 5 7 -- -- Syracuse.................................. 2 4 (f) 6 -- -- Utica..................................... 3 3 6 -- -- NORTH CAROLINA Greensboro................................ 2 2 4 -- -- Morehead City............................. 1 -- 1 -- -- Raleigh-Durham............................ 1 4 5 -- -- NORTH DAKOTA Bismarck.................................. 1 1 2 -- -- Grand Forks............................... 1 4 5 -- -- OHIO Chillicothe............................... 2 2 (f) 4 -- -- Cincinnati................................ 4 4 8 WKRC-TV CBS Cleveland................................. 1 5 6 -- -- Columbus.................................. 2 3 5 -- -- Dayton.................................... 1 5 6 -- -- Defiance.................................. -- 1 1 -- -- Findlay................................... -- 2 2 -- -- Greenville................................ -- 1 1 -- -- Hillsboro................................. 1 1 2 -- -- Lima...................................... 1 3 4 -- --
21 22
RADIO TELEVISION ----- ---------- AM FM NETWORK MARKET STATIONS STATIONS TOTAL STATION AFFILIATION ------ -------- -------- ----- ------- ----------- OHIO (CONT.) Marion.................................... 1 2 3 -- -- Sandusky.................................. 1 2 3 -- -- Springfield............................... 1 -- 1 -- -- Tiffin.................................... 1 1 2 -- -- Toledo.................................... 2 3 5 -- -- Washington Court House.................... 1 1 2 -- -- Youngstown................................ 3 (f) 5 (g) (d) 8 -- -- OKLAHOMA Guymon.................................... 1 (a) -- 1 -- -- Oklahoma City............................. 3 (f) 4 7 -- -- Tulsa..................................... 2 4 6 KOKI-TV FOX KTFO-TV (a) UPN OREGON Corvallis................................. 3 3 6 -- -- Medford................................... 1 4 5 -- -- Portland.................................. 2 3 (c) 5 -- -- PENNSYLVANIA Allentown................................. 1 1 2 -- -- Lancaster................................. 1 1 2 -- -- Johnstown................................. 1 1 2 -- -- Newcastle................................. 2 1 3 -- -- Reading................................... 1 1 2 -- -- Harrisburg/Lebanon/Lancaster/York......... 3 3 6 WHP-TV CBS WLHY-TV (a) UPN Williamsport.............................. 2 2 4 -- -- RHODE ISLAND WPRI-TV CBS Providence................................ -- 2 2 WNAC-TV (a) FOX SOUTH CAROLINA Barnwell.................................. 1 -- 1 -- -- Charleston................................ 1 4 5 -- -- Columbia.................................. 1 3 4 -- -- Greenville................................ 1 (b) 3 4 -- -- TENNESSEE Cookeville................................ 2 2 4 -- -- Crossville/Sparta......................... 4 (f) 2 6 -- -- Jackson................................... -- -- -- WMTU-TV (a) (m) UPN McMinnville............................... 2 2 4 -- -- Memphis................................... 3 4 7 WPTY-TV ABC WLMT-TV (a) UPN TEXAS Austin.................................... 1 3 4 -- -- Dallas.................................... -- 2 2 -- --
22 23
RADIO TELEVISION ----- ---------- AM FM NETWORK MARKET STATIONS STATIONS TOTAL STATION AFFILIATION ------ -------- -------- ----- ------- ----------- TEXAS (CONT.) El Paso................................... 2 3 5 -- -- Houston................................... 3 (h) 7 (d) 10 -- -- San Antonio............................... 3 (f) 4 7 -- -- UTAH Salt Lake City............................ 3 4 7 -- -- VIRGINIA Charlottesville........................... -- 3 3 -- -- Norfolk................................... -- 4 4 -- -- Richmond.................................. 3 3 6 -- -- WASHINGTON Centralia................................. 1 1 2 -- -- Yakima.................................... 2 3 5 -- -- WISCONSIN Milwaukee................................. 1 3 4 -- -- WYOMING Casper.................................... 2 (c) 4 (j) 6 -- -- Cheyenne 1 4 5 -- -- INTERNATIONAL: DENMARK Copenhagen................................ -- 2 2 -- -- ----- ----- ----- --- Total........................... 173 336 509 24 ===== ===== ===== ===
- ---------- * Clear Channel currently contemplates that AMFM and Clear Channel will be required to divest as many as approximately 110 to 115 stations in the aggregate to obtain antitrust and FCC approval of the merger. (a) Station programmed pursuant to a local marketing agreement (FCC licenses not owned by Clear Channel). (b) Station programmed by another party pursuant to a local marketing agreement. (c) Includes one station for which Clear Channel holds a construction permit but which is not yet operating. (d) Includes one station for which Clear Channel sells airtime pursuant to a joint sales agreement (FCC license not owned by Clear Channel). (e) Satellite station of KSAS-TV in Wichita, Kansas. (f) Includes one station programmed pursuant to a local marketing agreement (FCC license not owned by Clear Channel). (g) Includes two stations programmed pursuant to local marketing agreements (FCC licenses not owned by Clear Channel). (h) Includes two stations that are owned by CCC-Houston AM, Ltd., in which Clear Channel owns an 80% interest. 23 24 (i) Includes four AM and two FM stations programmed pursuant to a local marketing agreement (FCC license not owned by Clear Channel). (j) Includes three stations programmed pursuant to a local marketing agreement (FCC license not owned by Clear Channel). (k) Station for which there is a construction permit but which is not yet operating. (l) Satellite station of WFTC-TV in Minneapolis, Minnesota. (m) Satellite station of WLMT-TV in Memphis, Tennessee. Clear Channel also owns the Kentucky News Network based in Louisville, Kentucky, the Virginia News Network based in Richmond, Virginia, the Oklahoma News Network based in Oklahoma City, Oklahoma, the Voice of Southwest Agriculture Network based in San Angelo, Texas, the Clear Channel Sports Network based both in College Station, Texas, and Des Moines, Iowa, the Alabama Radio Network based in Birmingham, Alabama, the Tennessee Radio Network based in Nashville, Tennessee, the Florida Radio Network based in Orlando, Florida, the University of Florida Sports Network based in Gainesville, Florida and Orlando, Florida, and the Penn State Sports Network based in State College, Pennsylvania. Clear Channel produces more than 100 syndicated programs and services for more than 6,500 radio stations including Rush Limbaugh, The Dr. Laura Schlessinger Show and The Rick Dees Weekly Top 40, which are three of the top rated radio programs in the United States. In addition, we own a 50% equity interest in the Australian Radio Network Pty., Ltd., which operates ten radio stations in Australia, a 33% equity interest in the New Zealand Radio Network, which operates 52 radio stations throughout New Zealand, a 50% equity interest in Radio Bonton, a.s., which operates a radio station in the Czech Republic, a 40% equity interest in Group Acir Communicaciones, S.A. de C. V., which operates or is affiliated with 157 radio stations in Mexico, a 32% interest in Golden Rose, which operates two radio stations in England, a 50% interest in Radio 1, which operates seven in Norway and a 26% non-voting equity interest in Hispanic Broadcasting Corporation, a leading domestic Spanish-language broadcaster which operates 39 radio stations in 12 domestic markets. Our radio stations employ various formats for their programming. A station's format is important in determining the size and characteristics of its listening audience. Advertising rates charged by a radio station are based primarily on the station's ability to attract audiences having certain demographic characteristics in the market area which advertisers want to reach, as well as the number of stations competing in the market. Advertisers often tailor their advertisements to appeal to selected population or demographic segments. We pay the cost of producing the programming for each station. Generally, we design formats for our own stations, but have also used outside consultants and program syndicators for program material. Most of our radio revenue is generated from the sale of local advertising. Additional revenue is generated from the sale of national advertising, network compensation payments and barter and other miscellaneous transactions. We have focused our radio sales effort on selling directly to local advertisers. Direct contact with our customers has aided our sales personnel in developing long-standing customer relationships that we believe are a competitive advantage. Our sales personnel are paid on a commission basis, which emphasizes this direct local focus. We believe that this focus has enabled some of our stations to achieve 24 25 market revenue shares exceeding their audience shares in a given year. Each of our radio stations also engages independent sales representatives to assist us in obtaining national advertising. The representatives obtain advertising through national advertising agencies and receive a commission from us based on our net revenue from the advertising obtained. In February 1996, we formed an alliance with one of the nation's largest national advertising representation firms, whereby the firm will dedicate certain personnel to work exclusively for our radio stations. We believe this arrangement has helped our stations achieve higher shares of national advertising revenue. We purchase the broadcast rights for the majority of our television programming for our FOX and UPN affiliates from various syndicators. We compete with other television stations within each market for these broadcast rights. These programming costs are expected to increase slightly in the foreseeable future. The primary sources of programming for our ABC, CBS and NBC affiliated television stations are their respective networks, which produce and distribute programming in exchange for each station's commitment to air the programming at specified times and for commercial announcement time during the programming. For 1999, the FOX, NBC and ABC networks' primary programming was intended to appeal primarily to a target audience of 18-49 year old adults, while the CBS network's primary programming was intended to appeal primarily to a target audience of 25-54 year old adults. The second source of programming is the production of local news programming on the FOX, CBS, ABC and NBC affiliate stations in Jacksonville, Florida; Harrisburg, Pennsylvania; Memphis, Tennessee; Mobile, Alabama; Providence, Rhode Island; Cincinnati, Ohio; and Albany, New York. Local news programming traditionally has appealed to a target audience of adults 25 to 54 years of age. Because these viewers generally have increased buying power relative to viewers in other demographic groups, they are one of the most sought-after target audiences for advertisers. With such programming, these stations are able to attract advertisers to which they otherwise would not have access. Each FOX station other than WXXA-TV Albany, New York, which expired in December 1999, is currently operating under the current contract, which expired December 31, 1998. However, we are currently negotiating a new ten year contract that we anticipate signing in 2000. Based on the performance of our FOX-affiliated stations to date, we expect we will continue to be able to renew our FOX contracts, although no assurances in this regard can be given. The network affiliation agreements with ABC (for WPTY-TV in Memphis, Tennessee, effective December 1, 1995), CBS (for WHP-TV in Harrisburg, Pennsylvania, renewed and effective December 18, 1995), NBC (for WPMI-TV in Mobile, Alabama, effective January 1, 1996) and UPN (for KTTU-TV in Tucson, Arizona, entered into in 1995) run for ten-year terms. Also, WTEV, WLMT, WJTC, KTFO, WLYH, and KASN hold network affiliation agreements with UPN which expire on December 31, 2002. Television revenue is generated primarily from the sale of local and national advertising, as well as from fees received from the affiliate television networks. Advertising rates depend primarily on the quantitative and qualitative characteristics of the audience we can deliver to the advertiser. Local advertising is sold by our sales personnel, while national advertising is sold by independent national sales representatives. Our broadcasting revenue is seasonal, with the fourth quarter typically generating the highest level of revenue and the first quarter typically generating the lowest. The fourth quarter generally reflects higher advertising in preparation for the holiday season and the effect of political advertising in election years. Our broadcasting results are dependent on a number of factors, including the general strength of the economy, population growth, ability to provide popular programming, relative efficiency of radio and 25 26 television broadcasting compared to other advertising media, signal strength, technological capabilities and developments and governmental regulations and policies. The major costs associated with radio and television broadcasting are related to personnel and programming. In an effort to monitor these costs, corporate management routinely reviews staffing levels and programming costs. Combined with the centralized accounting functions, this monitoring enables us to effectively control expenses. Corporate management also advises local station managers on programming and other broad policy matters and is responsible for long-range planning, allocating resources and financial reporting and controls. OUTDOOR ADVERTISING The following table sets forth certain selected information with regard to our outdoor advertising display faces as of December 31, 1999.
TOTAL DISPLAY MARKET FACES (a) ------ --------- DOMESTIC: ARIZONA Phoenix.................................................................... 375 Tucson..................................................................... 1,421 CALIFORNIA Los Angeles (b)............................................................ 12,213 North California (c)....................................................... 4,941 DELAWARE Wilmington................................................................. 1,043 FLORIDA Tampa - St. Petersburg..................................................... 2,520 Atlantic Coast............................................................. 827 Orlando.................................................................... 1,930 Jacksonville............................................................... 1,045 Miami...................................................................... 2,004 Ocala - Gainesville........................................................ 1,051 GEORGIA Atlanta.................................................................... 2,089 ILLINOIS Chicago.................................................................... 11,521 INDIANA Indianapolis............................................................... 1,636 IOWA Des Moines................................................................. 635 MARYLAND Baltimore.................................................................. 4,480
26 27
TOTAL DISPLAY MARKET FACES (a) ------ --------- MARYLAND (CONT.) Salisbury - Ocean City..................................................... 1,112 Washington, DC............................................................. 1,398 MICHIGAN Detroit.................................................................... 166 MINNESOTA Minneapolis................................................................ 1,746 NEW YORK New York................................................................... 2,910 Hudson Valley.............................................................. 410 OHIO Cleveland (d).............................................................. 2,273 PENNSYLVANIA Philadelphia............................................................... 14,453 SOUTH CAROLINA Myrtle Beach............................................................... 1,272 TENNESSEE Chattanooga................................................................ 1,593 Memphis.................................................................... 2,450 TEXAS Dallas..................................................................... 4,748 San Antonio................................................................ 3,353 Houston.................................................................... 4,961 El Paso.................................................................... 1,290 WISCONSIN Milwaukee.................................................................. 1,678 OTHER OUT-OF-HOME Various.................................................................... 31,653 UNION PACIFIC SOUTHERN PACIFIC(E) Various.................................................................... 5,900 INTERNATIONAL: Australia - New Zealand.................................................... 7,692 Belgium.................................................................... 15,684 Canada..................................................................... 252 China...................................................................... 13,806 Denmark.................................................................... 5,932 Finland.................................................................... 1,618 France..................................................................... 109,955 Great Britain.............................................................. 43,572 Hong Kong.................................................................. 2,400 India...................................................................... 5 Ireland.................................................................... 5,559 Italy...................................................................... 5,742 Norway..................................................................... 26,510 Peru....................................................................... 498
27 28
TOTAL DISPLAY MARKET FACES (a) ------ --------- INTERNATIONAL (CONT.) Poland..................................................................... 6,635 Singapore.................................................................. 566 Spain...................................................................... 5,824 Sweden..................................................................... 15,860 Switzerland................................................................ 12,775 Taiwan..................................................................... 1,606 Thailand................................................................... 388 Turkey..................................................................... 1,733 Small Transit displays (f) ................................................ 137,448 --------- Total............................................................ 555,157 =========
- ---------- (a) Domestic display faces primarily include 20'x60' bulletins, 14'x48' bulletins, 12'x25' Premier Panels(TM), 25'x25' Premier Plus Panels(TM), 12'x25' 30-sheet posters, 6'x12' 8-sheet posters, and various transit displays. International display faces include street furniture, various transit displays and billboards of various sizes. (b) Includes Los Angeles, San Diego, Orange, Riverside, San Bernardino and Ventura counties. (c) Includes San Francisco, Oakland, San Jose, Santa Cruz, Sacramento and Solano counties. (d) Includes Akron and Canton. (e) Represents licenses managed under Union Pacific Southern Pacific License Management Agreement. (f) Represents small display faces on the interior and exterior of various public transportation vehicles. DOMESTIC: The outdoor advertising industry is comprised of several large outdoor advertising and media companies with operations in multiple markets, as well as many smaller and local companies operating a limited number of structures in a single or few local markets. While the industry has experienced some consolidation within the past few years, the Outdoor Advertising Association of America estimates that there are still approximately 800 companies in the outdoor advertising industry operating approximately 396,000 billboard displays. We expect the trend of consolidation in the outdoor advertising industry to continue. We focus our efforts on local sales. Local advertisers tend to have smaller advertising budgets and require greater assistance from our production and creative personnel to design and produce advertising copy. In local sales, we often expend more sales efforts on educating customers regarding the benefits of outdoor media and helping potential customers develop an advertising strategy using outdoor advertising. While price and availability are important competitive factors, service and customer relationships are also critical components of local sales. We operate the following types of outdoor advertising billboards and displays: o Bulletins generally are 14 feet high by 48 feet wide or 20 feet high by 60 feet wide and consist of panels on which advertising copy is displayed. Bulletin advertising copy is either printed with computer-generated graphics on a single sheet of vinyl that is "wrapped" around an outdoor advertising structure, or is hand painted and attached to the structure. Bulletins also include "wallscapes" that are 28 29 painted on vinyl surfaces or directly on the sides of buildings, typically four stories or less. Because of their greater impact and higher cost, bulletins are usually located on major highways and freeways. In addition, wallscapes are located on major freeways, commuter and tourist routes and in downtown business districts. o Premier Panels(TM) generally are 12 feet high by 25 feet wide and have vinyl wrapped around the display face. Premier Panels (TM) are built on superior 30-sheet poster locations that deliver a "bulletin-like" display. We also offer unique Premier Plus (TM) panels, 25 feet high by 25 feet wide (625 square feet), which consist of two stacked 30-sheet posters that are converted into one larger individual display face. o Thirty-sheet posters are generally 12 feet high by 25 feet wide and are the most common type of billboard. Advertising copy for 30-sheet posters consists of lithographed or silk-screened paper sheets supplied by the advertiser that are pasted and applied like wallpaper to the face of the display. Thirty-sheet posters are typically concentrated on major highway arteries. o Eight-sheet posters are usually 6 feet high by 12 feet wide. Displays are prepared and mounted in the same manner as 30-sheet posters. Most 8-sheet posters, because of their smaller size, are concentrated on city streets targeting pedestrian traffic. Billboards are generally mounted on structures we own and are located on sites that are either owned or leased by us or on which we have acquired a permanent easement. Bus shelters are usually constructed, owned and maintained by the outdoor service provider under revenue-sharing arrangements with a municipality or transit authority. Over 90% of our bulletin inventory has been retrofitted for vinyl. Advertising rates are based on a particular display's exposure, or number of "impressions" delivered, in relation to the demographics of the particular market and its location within that market. The number of "impressions" delivered by a display is measured by the number of vehicles passing the site during a defined period and is weighted to give effect to such factors as its proximity to other displays, the speed and viewing angle of approaching traffic, the national average of adults riding in vehicles and whether the display is illuminated. The number of impressions delivered by a display is verified by independent auditing companies. We have a diversified customer base in our outdoor advertising segment of over 8,000 advertisers and advertising agency clients. The size and geographic diversity of our markets allow us to attract national advertisers, often by packaging displays in several of our markets in a single contract to allow a national advertiser to simplify its purchasing process and present its message in several markets. National advertisers generally seek wide exposure in major markets and therefore tend to make larger purchases. We compete for national advertisers primarily on the basis of price, location of displays, availability and service. 29 30 INTERNATIONAL: We have operations in Europe, South America and Asia with a presence in over 23 countries operating more than 300,000 outdoor advertising faces and over 100,000 transport-advertising panels. Our goal is to develop strong, autonomous business units in each country, which are managed by local people, reflecting local advertising requirements. During the past year, our main focus has been on building our outdoor advertising businesses in Europe. In each of our separate country markets we compete with a broad range of local and international outdoor advertising companies. Our aim is to consolidate each market and develop a combination of billboard, street furniture and transit media for our advertisers. We operate the following types of outdoor advertising billboards and displays: o Billboards vary by market and location. Billboards are located in towns and city centers, and on the arterial roads which surround them. They vary in size from 40 feet wide by 10 feet high to 12 feet wide by 10 feet high. Some of our billboards are illuminated, and located at busy traffic interchanges to offer maximum visual impact to vehicular audiences. Billboards are mounted on the sides of buildings, or are constructed as free-standing structures. o Transit advertising incorporates all advertising on or in transit systems, including the interiors and exteriors of buses, advertising at rail stations and on / in trains, trams and taxis and airport advertising. Transit advertising posters range from vinyl sheets, which are applied directly to transit vehicles, to billboards and panels mounted in station or airport locations. o Street furniture panels are developed and marketed under our global Adshel brand. Street furniture panels include bus shelters, free standing units, pillars and columns. The most numerous are bus shelters which measure 5.5 feet high by 3.5 feet wide, are back illuminated and reach vehicular and pedestrian audiences. Street furniture is growing in popularity with local authorities. Billboards are generally mounted on structures we own and are located ion sites that are either owned or leased by us. Lease contracts are negotiated with both public and private landlords. Street furniture contracts are usually won in a competitive tender and last between 10 and 15 years. Tenders are won on the basis of revenues and community-related products offered to municipalities, including bus shelters, public toilets and information kiosks. Transit advertising contracts are negotiated with public transit authorities and private transit operators, either on a fixed revenue guarantee or a revenue-share basis. We target a broad range of advertisers with specific arguments about the efficacy of outdoor media in meeting their communications needs. Strong outdoor categories include food and drink, fashion, automotive, telecommunications and other media providers. In most of our international markets, our sales are predominantly to national advertisers. However, we are increasing our efforts to develop local outdoor advertising sales, targeting local and regional press advertisers. COMPETITION Our two business segments are in highly competitive industries, and we may not be able to maintain or increase our current audience ratings and advertising revenues. Our radio and television stations and outdoor advertising properties compete for audiences and advertising revenues with other radio and television stations and outdoor advertising companies, as well as with other media, such as newspapers, magazines, cable television, and direct mail, within their respective markets. Audience ratings 30 31 and market shares are subject to change, which could have an adverse effect on our revenues in that market. Other variables that could affect our financial performance include: o economic conditions, both general and relative to the broadcasting industry; o shifts in population and other demographics; o the level of competition for advertising dollars; o fluctuations in operating costs; o technological changes and innovations; o changes in labor conditions; and o changes in governmental regulations and policies and actions of federal regulatory bodies. REGULATION OF OUR BUSINESS Existing Regulation and 1996 Legislation Television and radio broadcasting are subject to the jurisdiction of the FCC under the Communications Act of 1934. The Communications Act prohibits the operation of a television or radio broadcasting station except under a license issued by the FCC and empowers the FCC, among other things, to: o issue, renew, revoke and modify broadcasting licenses; o assign frequency bands; o determine stations' frequencies, locations, and power; o regulate the equipment used by stations; o adopt other regulations to carry out the provisions of the Communications Act; o impose penalties for violation of such regulations; and o impose fees for processing applications and other administrative functions. The Communications Act prohibits the assignment of a license or the transfer of control of a licensee without prior approval of the FCC. Under the Communications Act, the FCC also regulates certain aspects of the operation of cable television systems and other electronic media that compete with broadcasting stations. The Telecommunications Act of 1996 represented the most comprehensive overhaul of the country's telecommunications laws in more than 60 years. The Communications Act originated at a time when telephone and broadcasting technologies were quite distinct and addressed different consumer needs. As a consequence, both the statute and its implementing regulatory scheme were designed to compartmentalize the various sectors of the telecommunications industry. The 1996 Act removed or relaxed the statutory barriers to telephone company entry into the video programming delivery business, to cable company provision of telephone service, and to common ownership of broadcast television and cable properties. 31 32 The 1996 Act also significantly changed both the process for renewal of broadcast station licenses and the broadcast ownership rules. The 1996 Act established a "two-step" renewal process that limits the FCC's discretion to consider applications filed in competition with an incumbent's renewal application. The 1996 Act also substantially liberalized the national broadcast ownership rules, eliminating the national radio limits and easing the national restrictions on TV ownership. The 1996 Act also relaxed local radio ownership restrictions, but left local TV ownership restrictions in place pending further FCC review. This new regulatory flexibility has engendered aggressive local, regional, and/or national acquisition campaigns. Removal of previous station ownership limitations on leading media companies, such as existing networks and major station groups, has increased sharply the competition for and the prices of attractive stations. License Grant and Renewal Prior to the passage of the 1996 Act, television and radio broadcasting licenses generally were granted or renewed for periods of five and seven years, respectively, upon a finding by the FCC that the "public interest, convenience, and necessity" would be served thereby. At the time an application is made for renewal of a television or radio license, parties in interest may file petitions to deny the application, and others may object informally to grant of the application. Such parties, including members of the public, may comment upon matters related to whether renewal is warranted, including the service the station has provided during the preceding license term. Prior to passage of the 1996 Act, any person or entity also was permitted to file a competing application for authority to operate on the station's channel and replace the incumbent licensee. Renewal applications were granted without a hearing if there were no competing applications and if issues raised by petitioners to deny or informal objectors to such applications were not serious enough to cause the FCC to order a hearing. If competing applications were filed, or if sufficiently serious issues were raised by a petitioner or objector, a full comparative hearing was required. Under the 1996 Act, the statutory restriction on the length of broadcast licenses has been amended to allow the FCC to grant broadcast licenses to both television and radio stations for terms of up to eight years. The 1996 Act also requires renewal of a broadcast license if the FCC finds that o the station has served the public interest, convenience, and necessity; o there have been no serious violations of either the Communications Act or the FCC's rules and regulations by the licensee; and o there have been no other serious violations which taken together constitute a pattern of abuse. In making its determination, the FCC may still consider petitions to deny and informal objections, and may order a hearing if such petitions or objections raise sufficiently serious issues, but cannot consider whether the public interest would be better served by a person or entity other than the renewal applicant. Instead, under the 1996 Act, competing applications for the same frequency may be accepted only after the FCC has denied an incumbent's application for renewal of license. 32 33 Although in the vast majority of cases broadcast licenses are renewed by the FCC even when petitions to deny or informal objections are filed, there can be no assurance that any of our stations' licenses will be renewed at the expiration of their terms. Multiple Ownership Restrictions The FCC has promulgated rules that, among other things, limit the ability of individuals and entities to own or have an "attributable interest" in broadcast stations, as well as other specified mass media entities. Prior to the passage of the 1996 Act, these rules included limits on the number of radio and television stations that could be owned on both a national and local basis. On a national basis, the rules generally precluded any individual or entity from having an attributable interest in more than 20 AM radio stations, 20 FM radio stations and 12 television stations. Moreover, the aggregate audience reach of the co-owned television stations could not exceed 25% of all U.S. television households. The 1996 Act completely revised the television and radio ownership rules via changes the FCC implemented in two orders issued on March 8, 1996. With respect to television, the 1996 Act and the FCC's subsequently issued orders eliminated the 12-station national limit for station ownership and increased the national audience reach limitation from 25% to 35%. On a local basis, however, the 1996 Act did not alter current FCC rules prohibiting an individual or entity from holding an attributable interest in more than one television station in a market. The 1996 Act did require the FCC to conduct a rulemaking proceeding, however, to determine whether to retain or modify this so-called "TV duopoly rule," including narrowing the rule's geographic scope and permitting some two-station combinations at least in certain (large) markets. In August 1999, the FCC completed this rulemaking and adopted a revised TV duopoly rule. Under the new rule, permissible common ownership of television stations is dictated by Nielsen Designated Market Areas, or "DMAs." A company may own two television stations in a DMA if the stations' Grade B contours do not overlap. Conversely, a company may own television stations in separate DMAs even if the stations' service contours do overlap. Conversely, a company may own television stations in separate DMAs even if the stations' service contours do overlap. Furthermore, a company may own two television stations in a DMA with overlapping Grade B contours if (i) at least eight independently owned and operating full-power television stations will remain in the DMA after the combination; and (ii) at least one of the commonly owned stations is not among the top four stations in the market in terms of audience share. The FCC will presumptively waive these criteria and allow the acquisition of a second same-market television station where the station being acquired is shown to be "failed" or "failing" (under specific FCC definitions of those terms), or authorized but unbuilt. A buyer seeking such a waiver must also demonstrate that it is the only buyer ready, willing, and able to operate the station, and that sale to an out-of-market buyer would result in an artificially depressed price. With respect to radio licensees, the 1996 Act and the FCC's subsequently issued rule changes eliminated the national ownership restriction, allowing one entity to own nationally any number of AM or FM broadcast stations. The 1996 Act and the FCC's implementing rules also greatly eased local radio ownership restrictions. The maximum allowable number of stations that may be commonly owned in a market varies depending on the number of radio stations within that market, as determined using a method prescribed by the FCC. In markets with more than 45 stations, one company may own, operate, or control eight stations, with no more than five in any one service (AM or FM). In markets of 30-44 stations, one company may own seven stations, with no more than four in any one service; in markets with 15-29 stations, one entity may own six stations, with no more than four in any one service. In markets with 14 commercial stations or less, one company may own up to five stations or 50% of all of the stations, whichever is less, with no more than three in any one service. These new rules permit common ownership of substantially more stations in the same market than did the FCC's prior rules, which at most allowed ownership of no more than two AM stations and two FM stations even in the largest markets. 33 34 Irrespective of FCC rules governing radio ownership, however, the Antitrust Division of the United States Department of Justice and the Federal Trade Commission have the authority to determine that a particular transaction presents antitrust concerns. Following the passage of the 1996 Act, the Antitrust Division has become more aggressive in reviewing proposed acquisitions of radio stations, particularly in instances where the proposed acquirer already owns one or more radio stations in a particular market and seeks to acquire another radio station in the same market. The Antitrust Division has, in some cases, obtained consent decrees requiring radio station divestitures in a particular market based on allegations that acquisitions would lead to unacceptable concentration levels. The FCC has also been more aggressive in independently examining issues of market concentration when considering radio station acquisitions. The FCC has delayed its approval of numerous proposed radio station purchases by various parties because of market concentration concerns, and generally will not approve radio acquisitions where the Antitrust Division has expressed concentration concerns, even if the acquisition complies with the FCC's numerical station limits. Moreover, in recent months the FCC has followed a policy of giving specific public notice of its intention to conduct additional ownership concentration analysis, and soliciting public comment on "the issue of concentration and its effect on competition and diversity," with respect to certain applications for consent to radio station acquisitions (including our application for approval of our merger with AMFM as it relates to various local markets) based on advertising revenue shares or other criteria. In 1992, the FCC adopted rules with respect to so-called local marketing agreements, or "LMAs", by which the licensee of one radio station provides substantially all the programming for another licensee's station in the same market and sells all of the advertising within that programming. Under these rules, in determining the number of radio stations that a single entity may control, an entity that owns one or more radio stations in a market and programs a station in the same market pursuant to an LMA is required, under certain circumstances, to count the LMA station toward its local radio ownership limits even though it does not own the station. As a result, in a market where we own one or more radio stations, we generally cannot provide programming under an LMA to another radio station if we cannot acquire that station under the local radio ownership rules. In August 1999, the FCC adopted rules for television LMAs similar to those that govern radio LMAs. As is the case for radio LMAs, an entity that owns a television station and programs more than 15% of the broadcast time on another television station in the same market is now required to count the LMA station toward its television ownership limits even though it does not own the station. Thus, in the future with respect to markets in which we own television stations, we generally will not be able to enter into an LMA with another television station in the same market if we cannot acquire that station under the revised television duopoly rule. In adopting these new rules concerning television LMAs, however, the FCC provided "grandfathering" relief for LMAs that were in effect at the time of the rule change. Television LMAs that were in place at the time of the new rules and were entered into before November 5, 1996, were allowed to continue at least through 2004, when the FCC is scheduled to undertake a comprehensive review and re-evaluation of its broadcast ownership rules. Such LMAs entered into after November 5, 1996, were allowed to continue until August 5, 2001, at which point they must be terminated unless they comply with the revised television duopoly rule. 34 35 We provide programming under LMAs to television stations in eight markets where we also own a television station. In one additional market, a third party which owns a television station in that market also programs our station under an LMA. Each of our television LMAs was entered into before November 5, 1996. Therefore, under the FCC's August 1999 decision, each of our television LMAs is permitted to continue through at least the year 2004. Moreover, beginning in September 2000, we will have the opportunity to obtain permanent grandfathering of our television LMAs by demonstrating to the FCC, among other things, the public interest benefits the LMAs have produced and the extent to which the LMAs have enabled the stations involved to convert to digital operation. Finally, in five markets in which we own a television station and program a second station under an LMA, the FCC's revised television duopoly rule permits us to own two television stations. Accordingly, we have applied for FCC approval to acquire our LMA stations in these five markets. A number of cross-ownership rules pertain to licensees of television and radio stations. FCC rules, the Communications Act or both generally prohibit an individual or entity from having an attributable interest in both a television station and a daily newspaper or cable television system that is located in the same market served by the television station. Prior to August 1999, FCC rules also generally prohibited common ownership of a television station and one or more radio stations in the same market, although the FCC in many cases allowed such combinations under waivers of the rule. In August 1999, however, the FCC comprehensively revised its radio/television cross-ownership rule. The revised rule permits the common ownership of one television and up to seven same-market radio stations, or up to two television and six same-market radio stations, if the market will have at least twenty separately owned broadcast, newspaper and cable "voices" after the combination. Common ownership of up to two television and four radio stations is permissible when ten "voices" will remain, and common ownership of up to two television and one radio station is permissible in all markets regardless of voice count. The radio/television limits, moreover, are subject to the compliance of the television and radio components of the combination with the television duopoly rule and the local radio ownership limits, respectively. Waivers of the radio/television cross-ownership rule are available only where the station being acquired is "failed" (i.e., off the air for at least four months or involved in court-supervised involuntary bankruptcy or insolvency proceedings). A buyer seeking such a waiver must also demonstrate that it is the only buyer ready, willing, and able to operate the station, and that sale to an out-of-market buyer would result in an artificially depressed price. There are nine markets where we own both radio and television stations under temporary and conditional waivers of the prior radio/television cross-ownership rule. In some of these markets, the number of radio stations we own complies with the limit imposed by the revised rule, and we have asked the FCC to permanently authorize our common ownership of our radio and television stations in such markets. In those markets where our number of radio stations exceeds the limit under the revised rule, we are nonetheless authorized to retain our present television/radio combinations at least until 2004, when the FCC is scheduled to undertake a comprehensive review and re-evaluation of its broadcast ownership rules. As with grandfathered television LMAs, beginning in September 2000 we will have the opportunity to obtain permanent authorization for our non-compliant radio/television combinations by demonstrating to the FCC, among other things, the public interest benefits the combinations have produced and the extent to which the combinations have enabled the television stations involved to convert to digital operation. The 1996 Act eliminated a statutory prohibition against common ownership of television broadcast stations and cable systems serving the same area, but left the current FCC rule in place. The 1996 Act stipulates that the FCC should not consider the repeal of the statutory ban in any review of its applicable rules. The legislation also eliminated the FCC's former network/cable cross-ownership limitations, but 35 36 allowed the FCC to adopt regulations if necessary to ensure carriage, appropriate channel positioning, and nondiscriminatory treatment of non-affiliated broadcast stations on network-owned cable systems. The FCC eliminated the restriction and determined that additional safeguards were not necessary at this time. The 1996 Act did not alter the FCC's newspaper/broadcast cross-ownership restrictions. However, the FCC is considering whether to change the policy pursuant to which it considers waivers of the radio/newspaper cross-ownership rule. Finally, the 1996 Act and the FCC's subsequently issued rule changes revised the long-standing "dual network" rule to permit television broadcast stations to affiliate with an entity that maintains two or more networks, unless the combination is composed of (a) two of the four existing networks (ABC, CBS, NBC or FOX) or (b) any of the four existing networks and one of the two emerging networks (WB or UPN). Expansion of our broadcast operations in particular areas and nationwide will continue to be subject to the FCC's ownership rules and any further changes the FCC or Congress may adopt. Significantly, the 1996 Act requires the FCC to review its remaining ownership rules biennially as part of its regulatory reform obligations to determine whether its various rules are still necessary. The first such biennial review commenced March 13, 1998, with the FCC's adoption of a notice of inquiry soliciting comment on its ownership rules. In this notice of inquiry, the FCC has requested specific comment on o the manner in which the FCC counts stations for purposes of the local radio multiple ownership rule; o the "UHF discount," under which UHF television stations are attributed with only 50% of their reach for purposes of the national television audience reach limit; o the prohibition on common ownership of a daily newspaper and a radio or TV broadcast station in the same market; and o the prohibition on common ownership of a television station and a cable system in the same market. We cannot predict the impact of the biennial review process or any other agency or legislative initiatives upon the FCC's broadcast rules. Further, the 1996 Act's relaxation of the FCC's ownership rules has increased the level of competition in many markets in which our stations are located. Under the FCC's ownership rules, a direct or indirect purchaser of certain types of our securities could violate FCC regulations or policies if that purchaser owned or acquired an "attributable" interest in other media properties in the same areas as stations owned by us or in a manner otherwise prohibited by the FCC. All officers and directors of a licensee and any direct or indirect parent, as well as general partners, limited partners and limited liability company members who are not properly "insulated" from management activities, and stockholders who own five percent or more of the outstanding voting stock of a licensee, either directly or indirectly, generally will be deemed to have an attributable interest in the license. Certain institutional investors who exert no control or influence over a licensee may own up to twenty percent of such outstanding voting stock before attribution occurs. Under current FCC regulations, debt instruments, non-voting stock, properly insulated limited partnership and limited liability company interests as to which the licensee certifies that the interest holders are not "materially involved" in the management and operation of the subject media property, and voting stock held by minority stockholders in cases in which there is a single majority stockholder generally are not subject to attribution unless such interests implicate the FCC's recently-adopted "equity/debt plus," or "EDP," rule. Under the EDP rule, an aggregate interest in excess of 33% of a licensee's total asset value (equity plus debt) is attributable if the interest holder is either a major program supplier (providing over 15% of the licensee's station's total weekly broadcast programming hours) or a same-market media owner (including broadcasters, cable operators, and newspapers). To the best of our knowledge at present, none of our officers, directors or five percent 36 37 stockholders holds an interest in another television station, radio station, cable television system or daily newspaper that is inconsistent with the FCC's ownership rules and policies. Alien Ownership Restrictions The Communications Act restricts the ability of foreign entities or individuals to own or hold certain interests in broadcast licenses. Foreign governments, representatives of foreign governments, non-U.S. citizens, representatives of non-U.S. citizens, and corporations or partnerships organized under the laws of a foreign nation are barred from holding broadcast licenses. Non-U.S. citizens, collectively, may directly or indirectly own or vote up to twenty percent of the capital stock of a corporate licensee. In addition, a broadcast license may not be granted to or held by any corporation that is controlled, directly or indirectly, by any other corporation more than one-fourth of whose capital stock is owned or voted by non-U.S. citizens or their representatives, by foreign governments or their representatives, or by non-U.S. corporations, if the FCC finds that the public interest will be served by the refusal or revocation of such license. The FCC has interpreted this provision of the Communications Act to require an affirmative public interest finding before a broadcast license may be granted to or held by any such corporation, and the FCC has made such an affirmative finding only in limited circumstances. Since we serve as a holding company for subsidiaries that serve as licensees for our stations, we may be restricted from having more than one-fourth of our stock owned or voted directly or indirectly by non-U.S. citizens, foreign governments, representatives of non-foreign governments, or foreign corporations. Other Regulations Affecting Broadcast Stations General. The FCC has significantly reduced its past regulation of broadcast stations, including elimination of formal ascertainment requirements and guidelines concerning amounts of certain types of programming and commercial matter that may be broadcast. There are, however, FCC rules and policies, and rules and policies of other federal agencies, that regulate matters such as network-affiliate relations, the ability of stations to obtain exclusive rights to air syndicated programming, cable systems' carriage of local television stations and of syndicated and network programming on distant stations, political advertising practices, application procedures and other areas affecting the business or operations of broadcast stations. Children's Television Programming. The FCC has adopted rules to implement the Children's Television Act of 1990, which, among other provisions, limits the permissible amount of commercial matter in children's programs and requires each television station to present "educational and informational" children's programming. The FCC also has adopted renewal processing guidelines effectively requiring television stations to broadcast an average of three hours per week of children's educational programming. Closed Captioning. The FCC has adopted rules requiring closed captioning of broadcast television programming. The rules require generally that (i) 100% of all new programming first published or exhibited on or after January 1, 1998 must be closed captioned within eight years, and (ii) 75% of "old" programming which first aired prior to January 1, 1998 must be closed captioned within 10 years, subject to certain exemptions. 37 38 Television Violence. The 1996 Act contains a number of provisions relating to television violence. First, pursuant to the 1996 Act, the television industry has developed a ratings system which the FCC has approved. Furthermore, also pursuant to the 1996 Act, the FCC has adopted rules requiring certain television sets to include the so-called "V-chip," a computer chip that allows blocking of rated programming. Under these rules, half of all television receiver models with picture screens 13 inches or greater were required to have the "V-chip" by July 1, 1999, and all such models were required to have the "V-chip" by January 1, 2000. In addition, the 1996 Act requires that all television license renewal applications filed after May 1, 1995 contain summaries of written comments and suggestions received by the station from the public regarding violent programming. Recent Developments, Proposed Legislation and Regulation Equal Employment Opportunity. In April 1998, the U.S. Court of Appeals for the D.C. Circuit concluded that the affirmative action requirements of the FCC's Equal Employment Opportunity ("EEO") regulations were unconstitutional. The FCC responded to the court's ruling in September 1998 by suspending its requirements for the filing by broadcasters of annual employment reports and program reports. In January 2000, the FCC adopted new EEO rules, which (1) require broadcast licensees to widely disseminate information about job openings to all segments of the community; and (2) give broadcasters the choice of implementing two FCC-suggested supplemental recruitment measures or, alternatively, designing their own broad recruitment/outreach program. The Commission also reinstated its requirement that broadcasters file annual employment reports and other EEO-related forms with the FCC. Distribution of Video Services by Telephone Companies. Recent actions by Congress, the FCC and the courts all presage significant future involvement in the provision of video services by telephone companies. We cannot predict either the timing or the extent of such involvement. These developments all relate to a former provision of the Communications Act that prohibited a local telephone company from providing video programming directly to subscribers within the company's telephone service areas. As applied by government regulators historically, the former provision prevented telephone companies from providing cable service over either the telephone network or a separate cable system located within the telephone service area. That provision has now been superseded by the 1996 Act, which provides for telephone company entry into the distribution of video services either under the laws and rules applicable to cable systems as operators of so-called "wireless cable systems", as common carriers or under new rules devised by the FCC for "open video systems" subject to certain common carrier requirements. The 1996 Act also eliminated the FCC's "video dialtone" rules, which allowed telephone companies to provide a transport "platform" to multiple video programmers, including, potentially, competing program packages, on a non-discriminatory, common carrier basis. The legislation does not affect any video dialtone systems approved prior to enactment of the 1996 Act. Congress instead has determined that telephone companies may offer video programming either as a traditional cable operator, as a so-called "wireless cable" operator, as a common carrier, or through operation of an "open video system." Although Congress specifically preempted the FCC's video dialtone rules, the legislation's directives for open video systems resemble the rules adopted or proposed for video dialtone systems in certain respects. These include the requirements that the operator of an open video system offer carriage capacity to various video programming providers under nondiscriminatory rates, terms, and conditions; and if demand for carriage exceeds the channel capacity of the open video system, the operator generally is barred from devoting more than one-third of the system's capacity to programming provided by itself or an affiliate. 38 39 The 1992 Cable Act. On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992, which, among other matters, includes provisions respecting the carriage of television stations' signals by cable television systems. The signal carriage, or "must carry," provisions of the 1992 Cable Act require cable operators to carry the signals of local commercial and non-commercial television stations and certain low power television stations. Systems with 12 or fewer usable activated channels and more than 300 subscribers must carry the signals of at least three local commercial television stations. A cable system with more than 12 usable activated channels, regardless of the number of subscribers, must carry the signals of all local commercial television stations, up to one-third of the aggregate number of usable activated channels of such a system. The 1992 Cable Act also includes a retransmission consent provision that prohibits cable operators and other multi-channel video programming distributors from carrying broadcast signals without obtaining the station's consent in certain circumstances. The "must carry" and retransmission consent provisions are related in that a local television broadcaster, on a cable system-by-cable system basis, must make a choice once every three years whether to proceed under the "must carry" rules or to waive the right to mandatory but uncompensated carriage and negotiate a grant of retransmission consent to permit the cable system to carry the station's signal, in most cases in exchange for some form of consideration from the cable operator. Cable systems and other multi-channel video programming distributors must obtain retransmission consent to carry all distant commercial stations other than "super stations" delivered via satellite. In March 1997, the U.S. Supreme Court upheld the constitutionality of the must-carry provisions of the 1992 Cable Act. As a result, the regulatory scheme promulgated by the FCC to implement the must-carry provisions of the 1992 Cable Act remains in effect. Whether and to what extent such must-carry rights will extend to the new digital television signals (see below) to be broadcast by licensed television stations, including those owned by us, over the next several years is still a matter to be determined in an ongoing rulemaking proceeding initiated by the FCC in July 1998. Our television stations are highly dependent on their carriage by cable systems in the areas they serve. Thus, FCC rules that impose no or limited obligations on cable systems and other multi-channel video programming distributors to carry the digital signals of television broadcast stations in their local markets could adversely affect our operations. The 1992 Cable Act was amended in several important respects by the 1996 Act. Most notably, as discussed above, the 1996 Act repealed the cross-ownership ban between cable and telephone entities and the FCC's former video dialtone rules. These actions, among other regulatory developments, permit involvement by telephone companies in providing video services. We cannot predict the impact that telephone company entry into video programming will have upon the broadcasting industry. The 1996 Act also repealed or curtailed several cable-related ownership and cross-ownership restrictions. For example, as noted above, the 1996 Act eliminated the broadcast network/cable cross-ownership limitations and the statutory prohibition on TV/cable cross-ownership. Advanced Television Service. The FCC has taken a number of steps to implement digital television broadcasting service in the United States. In December 1996, the FCC adopted a digital television broadcast standard and, in April 1997, adopted decisions in several pending rulemaking proceedings that establish service rules and a plan for implementing digital television. The FCC adopted a digital television table of allotments that provides all authorized television stations with a second channel on which to broadcast a digital television signal. The FCC has attempted to provide digital television coverage areas that are comparable to stations' existing service areas. The FCC has ruled that television broadcast licensees may use their digital channels for a wide variety of services such as high-definition television, multiple standard definition television programming, audio, data, and other types of communications, subject to the requirement that each broadcaster provide at least one free video channel equal in quality to the current technical standard. 39 40 Digital television channels will generally be located in the range of channels from channel 2 through channel 51. Stations must construct their DTV facilities and be on the air with a digital signal according to a schedule by the FCC based on the type of station and the size of the market in which it is located. For example, all ABC, CBS, NBC and FOX network affiliates in the 10 largest markets were required to be on the air with a digital signal by May 1, 1999. Affiliates of the four major networks in the top 30 markets were required to be transmitting digital signals by November 1, 1999. (Our WFTC-TV in Minneapolis, Minnesota is awaiting a construction permit for its DTV facilities from the FCC and, therefore, did not meet this deadline.) All other commercial broadcasters must follow suit by May 1, 2002. The FCC's plan calls for the digital television transition period to end in the year 2006, at which time the FCC expects that television broadcasters will cease non-digital broadcasting and return one of their two channels to the government, allowing that spectrum to be recovered for other uses. Under the Balanced Budget Act, however, the FCC is authorized to extend the December 31, 2006 deadline for reclamation of a television station's non-digital channel if, in any given case: o one or more television stations affiliated with ABC, CBS, NBC or FOX in a market is not broadcasting digitally, and the FCC determines that such stations have "exercised due diligence" in attempting to convert to digital broadcasting; or o less than 85% of the television households in the station's market subscribe to a multichannel video service that carries at least one digital channel from each of the local stations in that market, and less than 85% of the television households in the market can receive digital signals off the air using either a set-top converter box for an analog television set or a new digital television set. The FCC is currently considering whether cable television system operators should be required to carry local stations' digital television signals in addition to the currently required carriage of such stations' analog signals. In July 1998, the FCC issued a Notice of Proposed Rulemaking posing seven different options for the carriage of digital signals and solicited comments from all interested parties. The FCC has yet to issue a decision on this matter. The FCC also is considering the impact of low power television ("LPTV") stations on digital broadcasting. Currently, stations in the LPTV service are authorized with "secondary" frequency use status, and, as such, may not cause interference to, and must accept interference from, full service television stations. With the conversion to DTV now underway, LPTV stations, which already were required to protect existing analog television stations, are now required to protect the new DTV stations and allotments as well. Thus, if an LPTV station causes interference to a new DTV station, the LPTV station must either find a suitable replacement channel or, if unable to do so, cease operating. In recognition of the consequences the DTV transition could have on many LPTV stations, legislation enacted in November 1999 created a new "Class A" LPTV service that will afford some measure of primary status (i.e., interference protection) to certain qualifying LPTV stations. Thus, in the future, full service television stations will have to provide interference protection to all LPTV stations certified as Class A. In accordance with the recently enacted law, in January 2000, the FCC sought comment on proposed rules for the new Class A television service. Congress has directed the FCC to finalize its rules by March 28, 2000. We cannot predict the form of the new rules or the impact of such rules on our operation. In December 1999, the FCC commenced a proceeding seeking comment on the public interest obligations of digital television broadcasters. Specifically, the Commission is requesting information in 40 41 four general areas: (1) the new flexibility and capabilities of digital television, such as multiple channel transmission; (2) service to local communities in terms of providing information on public interest activities and disaster relief; (3) enhancing access to the media by persons with disabilities and using DTV to encourage diversity in the digital era; and (4) enhancing the quality of political discourse. The FCC stated that it was not proposing new rules or policies, but merely seeking to create a forum for public debate on how broadcasters can best serve the public interest during and after the transition to DTV. Implementation of digital television will improve the technical quality of television signals received by viewers and will give television broadcasters the flexibility to provide new services, including high definition television or multiple programs of standard definition television and data transmission. However, the implementation of digital television will also impose substantial additional costs on television stations because of the need to replace equipment and because some stations will need to operate at higher utility costs. There can be no assurance that our television stations will be able to increase revenue to offset such costs. In addition, the 1996 Act allows the FCC to charge a spectrum fee to broadcasters who use the digital spectrum to offer subscription-based services. The FCC has adopted rules that require broadcasters to pay a fee of 5% of gross revenues received from ancillary or supplementary uses of the digital spectrum for which they charge subscription fees. We cannot predict what future actions the FCC might take with respect to digital television, nor can we predict the effect of the FCC's present digital television implementation plan or such future actions on our business. We will incur considerable expense in the conversion to digital television and are unable to predict the extent or timing of consumer demand for digital television services. Digital Audio Radio Service. In January 1995, the FCC adopted rules to allocate spectrum for satellite digital audio radio service. Satellite digital audio radio service systems potentially could provide for regional or nationwide distribution of radio programming with fidelity comparable to compact discs. The FCC has issued two authorizations to launch and operate satellite digital audio radio service. The FCC also has undertaken an inquiry regarding rules for the terrestrial broadcast of digital audio radio service signals, addressing, among other things, the need for spectrum outside the existing FM band and the role of existing broadcasters. We cannot predict the impact of either satellite digital audio radio service or terrestrial digital audio radio service on our business. Low Power FM Radio Service. In January 2000, the FCC created two new classes of noncommercial low power FM radio stations ("LPFM"). One class (LP100) will operate with a maximum power of 100 watts and a service radius of about 3.5 miles. The other class (LP10) will operate with a maximum power of 10 watts and a service radius of about 1 to 2 miles. In establishing the new LPFM service, the FCC said that its goal is to create a class of radio stations designed "to serve very localized communities or underrepresented groups within communities." We cannot predict the impact of low power FM radio stations on our business. Direct Broadcast Satellite Systems. There are currently in operation several direct broadcast satellite systems that serve the United States, and it is anticipated that additional systems will become operational over the next several years. Direct broadcast satellite systems provide programming on a subscription basis to those who have purchased and installed a satellite signal receiving dish and associated decoder equipment. Direct broadcast satellite systems claim to provide visual picture quality comparable to that found in movie theaters and aural quality comparable to digital audio compact discs. We cannot predict the impact of direct broadcast satellite systems on our business. Congress and the FCC currently have under consideration, and may in the future adopt, new laws, regulations and policies regarding a wide variety of matters that could affect, directly or indirectly, the 41 42 operation and ownership of our broadcast properties. In addition to the changes and proposed changes noted above, such matters include, for example, the license renewal process, spectrum use fees, political advertising rates, and potential restrictions on the advertising of certain products such as beer and wine. Other matters that could affect our broadcast properties include technological innovations and developments generally affecting competition in the mass communications industry, such as direct broadcast satellite service, the continued establishment of wireless cable systems and low power television stations, digital television and radio technologies, the establishment of a low power FM radio service, and the advent of telephone company participation in the provision of video programming service. The foregoing is a brief summary of certain provisions of the Communications Act, the 1996 Act, the 1992 Cable Act, and specific regulations and policies of the FCC thereunder. This description does not purport to be comprehensive and reference should be made to the Communications Act, the 1996 Act, the 1992 Cable Act, the FCC's rules and the public notices and rulings of the FCC for further information concerning the nature and extent of federal regulation of broadcast stations. Proposals for additional or revised regulations and requirements are pending before and are being considered by Congress and federal regulatory agencies from time to time. Also, various of the foregoing matters are now, or may become, the subject of court litigation, and we cannot predict the outcome of any such litigation or its impact on our broadcast business. Outdoor Advertising The outdoor advertising industry is subject to extensive governmental regulation at the federal, state and local level. Compliance with existing and future regulations could have a significant financial impact on us. Federal law, principally the Highway Beautification Act of 1965, encourages states to implement legislation to restrict billboards located within 660 feet of, or visible from, highways except in commercial or industrial areas. Every state has implemented regulations at least as restrictive as the Highway Beautification Act, including a ban on the construction of new billboards along federally-aided highways and the removal of any illegal signs on these highways at the owner's expense and without any compensation. States and local jurisdictions have, in some cases, passed additional regulations on the construction, size, location and, in some instances, advertising content of outdoor advertising structures adjacent to federally-aided highways and other thoroughfares. From time to time governmental authorities order the removal of billboards by the exercise of eminent domain and certain jurisdictions have also adopted amortization of billboards in varying forms. Amortization permits the billboard owner to operate its billboard only as a non-conforming use for a specified period of time, after which it must remove or otherwise conform its billboards to the applicable regulations at its own cost without any compensation. We or our acquired companies have agreed to remove certain billboards in Jacksonville, Florida. Furthermore, Tampa, Houston and San Francisco, which are municipalities within our existing markets, have adopted amortization ordinances. We can give no assurance that we will be successful in negotiating acceptable arrangements in circumstances in which our displays are subject to removal or amortization, and what effect, if any, such regulations may have on our operations. In addition, we are unable to predict what additional regulations may be imposed on outdoor advertising in the future. Legislation regulating the content of billboard advertisements and additional billboard restrictions have been introduced in Congress from time to time in the past. Changes in laws and regulations affecting outdoor advertising at any level of government, including laws of the foreign jurisdictions in which we operate, could have a material adverse effect on us. 42 43 Tobacco and Alcohol Advertising Regulations, potential legislation and recent settlement agreements related to outdoor tobacco advertising could have a material adverse effect on our operations. The major U.S. tobacco companies that are defendants in numerous class action suits throughout the country recently reached an out-of-court settlement with 46 states that includes a ban on outdoor advertising of tobacco products. The settlement agreement was finalized on November 23, 1998, but must be ratified by the courts in each of the 46 states participating in the settlement. In addition to the mass settlement, the tobacco industry previously had come to terms with the remaining four states individually. The terms of such individual settlements also included bans on outdoor advertising of tobacco products. The elimination of billboard advertising by the tobacco industry will cause a reduction in our direct revenues from such advertisers and may simultaneously increase the available space on the existing inventory of billboards in the outdoor advertising industry. This industry-wide increase in space may in turn result in a lowering of outdoor advertising rates or limit the ability of industry participants to increase rates for some period of time. For the year ended December 31, 1999, approximately 1.5% of our revenues came from the outdoor advertising of tobacco products. In addition to the above settlement agreements, state and local governments are also regulating the outdoor advertising of alcohol and tobacco products. For example, several states and cities have laws restricting tobacco billboard advertising near schools and other locations frequented by children. Some cities have proposed even broader restrictions, including complete bans on outdoor tobacco advertising on billboards, kiosks, and private business window displays. It is possible that state and local governments may propose or pass similar ordinances to limit outdoor advertising of alcohol and other products or services in the future. Legislation regulating tobacco and alcohol advertising has also been introduced in a number of European countries in which we conduct business, and could have a similar impact. Antitrust Matters An important element of our growth strategy involves the acquisition of additional radio and television stations and outdoor advertising display faces, many of which are likely to require preacquisition antitrust review by the Federal Trade Commission and the Antitrust Division. Following passage of the 1996 Act, the Antitrust Division has become more aggressive in reviewing proposed acquisitions of radio stations and radio station networks, particularly in instances where the proposed acquiror already owns one or more radio stations in a particular market and the acquisition involves another radio station in the same market. Recently, the Antitrust Division, in some cases, has obtained consent decrees requiring radio station divestitures in a particular market based on allegations that acquisitions would lead to unacceptable concentration levels. There can be no assurance that the Antitrust Division or the FTC will not seek to bar us from acquiring additional radio and television stations or outdoor advertising display faces in any market where our existing stations or display faces already have a significant market share. In addition, the anitirust laws of foreign jurisdictions will apply if we acquire international broadcasting properties. Environmental Matters As the owner, lessee or operator of various real properties and facilities, we are subject to various federal, state and local environmental laws and regulations. Historically, compliance with such laws and regulations has not had a material adverse effect on our business. There can be no assurance, however, that compliance with existing or new environmental laws and regulations will not require us to make significant expenditures in the future. 43 44 FINANCIAL LEVERAGE We currently use a significant portion of our operating income for debt service. Our leverage could make us vulnerable to an increase in interest rates or a downturn in the operating performance of our broadcast properties or outdoor advertising properties or a decline in general economic conditions. At December 31, 1999, we had borrowings under our credit facility and other long-term debt outstanding of approximately $4.1 billion and shareholders' equity of $10.1 billion. We expect to continue to borrow funds to finance acquisitions of broadcasting and outdoor advertising properties, as well as for other purposes. We may borrow up to $2 billion under our domestic credit facility at floating rates currently equal to the London InterBank Offered Rate plus .40% and an additional $1 billion under our multi-currency credit facility at floating rates currently equal to the London InterBank Offered Rate plus .625%. DEPENDENCE ON KEY PERSONNEL Our business is dependent upon the performance of certain key employees, including our chief executive officer and other executive officers. We also employ or independently contract with several on-air personalities with significant loyal audiences in their respective markets. Although we have entered into long-term agreements with certain of our executive officers and key on-air talent to protect their interests in those relationships, we can give no assurance that all such key personnel will remain with us or will retain their audiences. INTERNATIONAL BUSINESS RISKS Doing business in foreign countries carries with it certain risks that are not found in doing business in the United States. We currently derive a portion of our revenues from international radio and outdoor operations in Europe, Asia, Mexico, Australia and New Zealand. The risks of doing business in foreign countries which could result in losses against which we are not insured include: o potential adverse changes in the diplomatic relations of foreign countries with the United States; o hostility from local populations; o the adverse effect of currency exchange controls; o restrictions on the withdrawal of foreign investment and earnings; o government policies against businesses owned by foreigners; o expropriations of property; o the potential instability of foreign governments; o the risk of insurrections; o risks of renegotiation or modification of existing agreements with governmental authorities; o foreign exchange restrictions; and o changes in taxation structure. 44 45 EXCHANGE RATE RISK Because we own assets overseas and derive revenues from our international operations, we may incur currency translation losses due to changes in the values of foreign currencies and in the value of the U.S. dollar. We cannot predict the effect of exchange rate fluctuations upon future operating results. To reduce a portion of our exposure to the risk of international currency fluctuations, we maintain a hedge by incurring debt in some other currencies. We review this hedge position monthly. We currently maintain no other derivative instruments to reduce the exposure to translation and/or transaction risk, but may adopt other hedging strategies in the future. OUR ACQUISITION STRATEGY COULD POSE RISKS Operational Risks. We intend to grow through the acquisition of broadcasting companies and assets, outdoor advertising companies, individual outdoor advertising display faces, and other assets that we believe will assist our customers in marketing their products and services. Our acquisition strategy involves numerous risks, including: o Certain of such acquisitions may prove unprofitable and fail to generate anticipated cash flows; o To successfully manage a rapidly expanding and significantly larger portfolio of broadcasting and outdoor advertising properties, we may need to recruit additional senior management and expand corporate infrastructure; o We may encounter difficulties in the integration of operations and systems; o Our management's attention may be diverted from other business concerns; and o We may lose key employees of acquired companies or stations. Capital Requirements Necessary for Additional Acquisitions. We will face stiff competition from other broadcasting and outdoor advertising companies for acquisition opportunities. If the prices sought by sellers of these companies continue to rise, we may find fewer acceptable acquisition opportunities. In addition, the purchase price of possible acquisitions could require additional debt or equity financing on our part. We can give no assurance that we will obtain the needed financing or that we will obtain such financing on attractive terms. Additional indebtedness could increase our leverage and make us more vulnerable to economic downturns and may limit our ability to withstand competitive pressures. Additional equity financing could result in dilution to our stockholders. NEW TECHNOLOGIES MAY AFFECT OUR BROADCASTING OPERATIONS The FCC is considering ways to introduce new technologies to the radio broadcasting industry, including satellite and terrestrial delivery of digital audio broadcasting and the standardization of available technologies which significantly enhance the sound quality of AM broadcasts. We are unable to predict the effect such technologies will have on our broadcasting operations, but the capital expenditures necessary to implement such technologies could be substantial. We also face risks in implementing the conversion of our television stations to digital television, which the FCC has ordered and for which it has established a timetable. We will incur considerable expense in the conversion to digital television and are unable to 45 46 predict the extent or timing of consumer demand for any such digital television services. Moreover, the FCC may impose additional public service obligations on television broadcasters in return for their use of the digital television spectrum. This could add to our operational costs. One issue yet to be resolved is the extent to which cable systems will be required to carry broadcasters' new digital channels. Our television stations are highly dependent on their carriage by cable systems in the areas they serve. Thus, FCC rules that impose no or limited obligations on cable systems to carry the digital television signals of television broadcast stations in their local markets could adversely affect our television operations. OUR SYSTEMS MUST BE YEAR 2000 COMPLIANT We are exposed to the risk that the year 2000 issue could cause system failures or miscalculations in our broadcasting, outdoor and corporate locations which could cause disruptions of operations, including, among other things, a temporary inability to produce broadcast signals, process financial transactions, or engage in similar normal business activities. As a result, we determined that we were required to modify or replace portions of our software and certain hardware so that those systems would properly utilize dates beyond December 31, 1999. We did not experience any significant system failures at the turning of the new millennium. We presently believe that with our modifications or replacements of existing software and certain hardware, the year 2000 issue has been mitigated. The amounts incurred and expensed for developing and carrying out the plans to complete the year 2000 modifications did not have a material effect on our operations. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Year 2000." FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE This report contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 about us. Although we believe that, in making any such statements, our expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. When used in this document, the words "anticipates," "believes," "expects," "intends," and similar expressions, as they relate to us or our management, are intended to identify such forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties. Important factors that could cause actual results to differ materially from those in forward-looking statements, certain of which are beyond our control, include: o the impact of general economic conditions in the U.S. and in other countries in which we currently do business; o industry conditions, including competition; o fluctuations in exchange rates and currency values; o capital expenditure requirements; o legislative or regulatory requirements; o interest rates; 46 47 o taxes; and o access to capital markets. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. Accordingly, we cannot be certain that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on us. ITEM 2. PROPERTIES Our corporate headquarters is in San Antonio, Texas. The lease agreement for the approximately 20,000 square feet of office space in San Antonio expires on April 30, 2000. On May 1, 2000 we intend to move into our Company owned, newly constructed 50,000 square foot, corporate office building. The types of properties required to support each of our radio and television stations and outdoor advertising branches listed in Item 1 above include offices, studios, transmitter sites, antenna sites and production facilities. A radio or television station's studios are generally housed with its offices in downtown or business districts. A radio or television station's transmitter sites and antenna sites are generally located in a manner that provides maximum market coverage. An outdoor branch and production facility is generally located in an industrial/warehouse district. The studios and offices of our radio and television stations and outdoor advertising branches are located in leased or owned facilities. These leases generally have expiration dates that range from one to twenty years. We either own or lease our transmitter and antenna sites. These leases generally have expiration dates that range from five to fifteen years. We do not anticipate any difficulties in renewing those leases that expire within the next several years or in leasing other space, if required. We own substantially all of the equipment used in our broadcasting and outdoor businesses. We own or have permanent easements on relatively few parcels of real property that serve as the sites for our outdoor displays. Our remaining outdoor display sites are leased. Our leases are for varying terms ranging from month-to-month to year-to-year and can be for terms of ten years or longer, and many provide for renewal options. There is no significant concentration of displays under any one lease or subject to negotiation with any one landlord. We believe that an important part of our management activity is to negotiate suitable lease renewals and extensions. As noted in Item 1 above, as of December 31, 1999, we own or program 509 radio stations and 24 television stations, and own or lease approximately 555,000 outdoor advertising display faces in various markets throughout the world. See "Business -- Industry Segments." Therefore, no one property is material to our overall operations. We believe that our properties are in good condition and suitable for our operations. ITEM 3. LEGAL PROCEEDINGS From time to time we become involved in various claims and lawsuits incidental to our business, including defamation actions. In the opinion of our management, after consultation with counsel, any 47 48 ultimate liability arising out of currently pending claims and lawsuits will not have a material effect on our financial condition or operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On December 28, 1999, Jacor Communications Company, a subsidiary of Clear Channel, completed a consent solicitation and cash tender offer to acquire all of its outstanding 10 1/8% Senior Subordinated Notes due 2006, 9 3/4% Senior Subordinated Notes due 2006, 8 3/4% Senior Subordinated Notes due 2007, and 8% Senior Subordinated Notes due 2010 (collectively, the "Senior Subordinated Notes"). In connection with the tender offer, holders of not less than 51% in aggregate principal amount of each series of the Senior Subordinated Notes consented to certain amendments to the indentures governing the Senior Subordinated Notes, and the material restrictive covenants in the indentures were deleted. 48 49 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock trades on the New York Stock Exchange under the symbol "CCU." There were approximately 2,588 shareholders of record as of March 10, 2000. This figure does not include an estimate of the indeterminate number of beneficial holders whose shares may be held of record by brokerage firms and clearing agencies. The following table sets forth, for the calendar quarters indicated, the reported high and low sales prices of the common stock as reported on the NYSE. The prices have been adjusted to reflect a two-for-one stock split in July 1998.
CLEAR CHANNEL COMMON STOCK ------------ MARKET PRICE ------------ HIGH LOW ---- --- 1998 First Quarter..................... $ 50.0315 $ 36.7190 Second Quarter.................... 54.5625 44.0625 Third Quarter..................... 61.7500 40.3750 Fourth Quarter.................... 54.5000 36.1250 1999 First Quarter..................... 67.4375 53.1250 Second Quarter.................... 74.0000 65.0625 Third Quarter..................... 79.8750 64.3750 Fourth Quarter.................... 90.2500 71.2500
DIVIDEND POLICY Presently, we expect to retain our earnings for the development and expansion of our business and do not anticipate paying cash dividends in 2000. However, any future decision by our Board of Directors to pay cash dividends will depend on, among other factors, our earnings, financial position, capital requirements and loan covenant restrictions. Our current bank credit agreement allows for the payment of dividends subject to certain loan covenant restrictions. There are no restrictions on dividends payable wholly in our capital stock. 49 50 ITEM 6. SELECTED FINANCIAL DATA In thousands of dollars, except per share data
As of and for the Years ended December 31, (2) ---------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- RESULTS OF OPERATIONS INFORMATION: Gross revenue $ 2,992,018 $ 1,522,551 $ 790,178 $ 398,094 $ 283,357 =========== =========== =========== =========== =========== Net revenue $2,678,160 $1,350,940 $697,068 $351,739 $250,059 Operating expenses 1,632,115 767,265 394,404 198,332 137,504 Depreciation and amortization 722,233 304,972 114,207 45,790 33,769 Corporate expenses 70,146 37,825 20,883 8,527 7,414 ----------- ----------- ----------- ----------- ----------- Operating income 253,666 240,878 167,574 99,090 71,372 Interest expense 192,321 135,766 75,076 30,080 20,752 Gain on sale of stations 138,659 -- -- -- -- Other income (expense) - net 20,209 12,810 11,579 2,230 (803) ----------- ----------- ----------- ----------- ----------- Income before income taxes, equity in earnings (loss) of nonconsolidated affiliates and extraordinary item 220,213 117,922 104,077 71,240 49,817 Income taxes 150,635 72,353 47,116 28,386 20,292 ----------- ----------- ----------- ----------- ----------- Income before equity in earnings (loss) of nonconsolidated affiliates and extraordinary item 69,578 45,569 56,961 42,854 29,525 Equity in earnings (loss) of non- consolidated affiliates 16,077 8,462 6,615 (5,158) 2,489 ----------- ----------- ----------- ----------- ----------- Income before extraordinary item 85,655 54,031 63,576 37,696 32,014 Extraordinary item (13,185) -- -- -- -- ----------- ----------- ----------- ----------- ----------- Net income $ 72,470 $ 54,031 $ 63,576 $ 37,696 $ 32,014 =========== =========== =========== =========== =========== Net income per common share (1) Basic: Income before extraordinary item $ .27 $ .23 $ .36 $ .26 $ .23 Extraordinary item (.04) -- -- -- -- ----------- ----------- ----------- ----------- ----------- Net income $ .23 $ .23 $ .36 $ .26 $ .23 =========== =========== =========== =========== =========== Diluted: Income before extraordinary item $ .26 $ .22 $ .33 $ .25 $ .23 Extraordinary item (.04) -- -- -- -- ----------- ----------- ----------- ----------- ----------- Net income $ .22 $ .22 $ .33 $ .25 $ .23 =========== =========== =========== =========== =========== Cash dividends per share $ -- $ -- $ -- $ -- $ -- =========== =========== =========== =========== =========== BALANCE SHEET DATA: Current assets $ 925,109 $ 409,960 $ 210,742 $ 113,164 $ 70,485 Property, plant and equipment - net 2,478,124 1,915,787 746,284 147,838 99,885 Total assets 16,821,512 7,539,918 3,455,637 1,324,711 563,011 Current liabilities 685,515 258,144 86,852 43,462 36,005 Long-term debt, net of current maturities 4,093,543 2,323,643 1,540,421 725,132 334,164 Shareholders' equity 10,084,037 4,483,429 1,746,784 513,431 163,713
(1) All per share amounts have been adjusted to reflect two-for-one stock splits effected in July 1998, December 1996 and November 1995. (2) Acquisitions and dispositions significantly impact the comparability of the historical consolidated financial data reflected in this schedule of Selected Financial Data. The Selected Financial Data should be read in conjunction with Management's Discussion and Analysis. 50 51 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Following is a discussion of the key factors that have affected our business over the last three years. This commentary should be read in conjunction with our financial statements and our five-year summary of operations that appear in this report. RESULTS OF OPERATIONS Management's discussion and analysis of results of operations for 1999 vs. 1998 and 1998 vs. 1997, have been presented on an as-reported basis except for net revenue, operating expenses, operating income before depreciation and amortization, depreciation and amortization, and operating income explanations, which have been presented on an as-reported and a pro forma basis. The pro forma results for the 1999 vs. 1998 assumes our acquisitions of Jacor Communications, Dame Media, Dauphin OTA, More Group Plc, and Universal Outdoor Holdings, Inc. had occurred on January 1, 1998. The pro forma results for the 1998 vs. 1997 assumes our acquisitions of More Group Plc., Universal Outdoor Holdings, Inc., Paxson Radio and Eller Media Corporation had occurred on January 1, 1997. A complete list of material acquisitions during the three-year period ended December 31, 1999 is as follows:
Date Included in Business Acquired Segment As-Reported ----------------- ------- ----------- Dauphin Outdoor July, 1999 Dame Media Broadcasting July, 1999 Jacor Broadcasting May, 1999 More Group Outdoor July 1998 Universal Outdoor April 1998 Paxson Broadcasting October 1997 Eller Outdoor April 1997
CONSOLIDATED (In thousands of dollars, except per share data)
1999 vs. 1998 1998 vs. 1997 ------------------------ ------------------------ Years Ended December 31, As-Reported Pro Forma As-Reported Pro Forma ------------------------ % Increase % Increase % Increase % Increase 1999 1998 1997 (Decrease) (Decrease) (Decrease) (Decrease) ---- ---- ---- ---------- ---------- ---------- ---------- Net revenue $2,678,160 $1,350,940 $697,068 98.2% 17.2% 93.8% 21.7% Operating expenses 1,632,115 767,265 394,404 112.7% 15.9% 94.5% 21.2% Operating income before depreciation and amortization and corporate expenses 1,046,045 583,675 302,664 79.2% 19.6% 92.8% 22.5% Depreciation and amortization 722,233 304,972 114,207 136.8% 22.6% 167.0% 22.7% Operating income 253,666 240,878 167,574 5.3% 11.2% 43.7% 20.9% Interest expense 192,321 135,766 75,076 41.7% 80.8% Gain on sale of stations 138,659 -- -- N/A N/A Other income (expense) - net 20,209 12,810 11,579 57.8% 10.6% Income taxes 150,635 72,353 47,116 108.2% 53.6% Equity in earnings (loss) of nonconsolidated affiliates 16,077 8,462 6,615 90.0% 27.9% Net income 72,470 54,031 63,576 34.1% (15.0)% Net income per share: (1) Basic $ .23 $ .23 $ .36 0.0% (36.1)% Diluted $ .22 $ .22 $ .33 0.0% (33.3)% Effective tax rate 66% 58% 45%
(1) Adjusted for a two-for-one stock split effective July 28, 1998 51 52 CHANGE IN OPERATING REVENUE AND EXPENSE The growth from 1998 to 1999 in "as reported" net revenue and operating expenses was primarily due to the acquisitions of Universal in April of 1998, More Group in July 1998, Jacor in May 1999 and Dame Media and Dauphin in July 1999. The acquisitions of Jacor and Dame Media added approximately 230 radio stations and Premier Radio Network and contributed 27% of 1999 net revenue. The acquisition of Dauphin added approximately 103,000 display faces, including joint ventures, and contributed 5% of 1999 net revenue. On a pro forma basis, net revenue increased due to improved advertising rates in our broadcasting segment and improved occupancy, increased advertising rates and other less significant acquisitions within our outdoor segment. Pro forma operating expenses increased primarily from the incremental selling costs related to the additional revenues. The majority of the growth from 1997 to 1998 in "as-reported" net revenue and operating expenses was due to the additional revenue and expenses associated with the operations of Universal and More Group during 1998 and the inclusion of the full year's operations of Eller and Paxson. The acquisition of Universal and More Group added approximately 34,000 and 119,000 display faces, respectively, including joint ventures, and contributed 27.6% of 1998 net revenue. On a pro forma basis, net revenue increased due to improved advertising rates in our broadcasting segment and improved occupancy and increased advertising rates within our outdoor segment. Pro forma operating expenses increased primarily from the incremental selling costs related to the additional revenues. In addition to the above mentioned acquisitions, "as-reported" and "pro forma" information includes the operations of certain broadcast and outdoor assets, which we acquired, net of dispositions, since January 1, 1997, for the period we owned and operated the assets. These acquisitions include 13 radio stations and approximately 75,000 outdoor displays in 1999; 34 radio stations and approximately 25,000 outdoor displays in 1998; and 25 radio stations and approximately 2,000 outdoor displays in 1997. Resulting from these net acquisitions was an increase in net revenue and operating expense during 1999, 1998 and 1997; however, the effects of which, individually and in the aggregate, were not material to our consolidated financial position or results of operations. CHANGE IN DEPRECIATION AND AMORTIZATION The majority of the increase in "as reported" depreciation and amortization from 1998 to 1999 was primarily due to the acquisition of the tangible and intangible assets associated with the above-mentioned business combinations. The majority of the increase in operating income from 1998 to 1999 was due to improved operations during 1999 for both the broadcasting and outdoor segments, which was partially offset by an increase in depreciation and amortization. The tangible and intangible assets associated with the above mentioned business acquisitions account for the majority of the increase in the "as-reported" depreciation and amortization for 1998 over 1997. CHANGE IN INTEREST EXPENSE, TAXES AND NET INCOME Interest expense increased primarily due to an increase in the average amount of debt outstanding, which resulted from the above-mentioned business combinations. Income tax expense increased primarily from the increase in the average effective tax rate from 58% in 1998 to 66% in 1999. The effective tax rate increased as a result of the increase in nondeductible amortization expenses principally associated with the acquisition of Jacor. The majority of the increase in net income from 1998 to 1999 was due to a $138.7 million gain realized during 1999 relating to the divestiture of certain stations we were required to make by governmental directives regarding the Jacor merger. This was partially offset by the increase in interest expense for the year. 52 53 Interest expense increased during 1998 as a result of greater average borrowing levels as a result of the aforementioned acquisitions, but was partially offset by lower average borrowing rates, 5.9% in 1998 versus 6.6% in 1997. Our average borrowing rate was lowered in 1998 as a result of the issuance of 2.625% senior convertible notes dated April 1, 1998. Other income rose due to realized gains on the sale of available-for-sale marketable securities and was offset by charges related to the purchase of certain subsidiary options and losses on sale of assets. Income tax expense increased primarily from the increase in the average effective tax rate from 45% in 1997 to 58% in 1998. The effective tax rate increased as a result of the increase in nondeductible amortization expense principally associated with the acquisition of Universal. The majority of the increase in net income was primarily due to the inclusion of operations resulting from the aforementioned business acquisitions, partially offset by an increase in corporate related expenses. CHANGE IN EQUITY IN EARNINGS OF NONCONSOLIDATED AFFILIATES Equity earnings of nonconsolidated affiliates increased in 1999 over 1998 primarily due to the improvement in the operating results of Hispanic Broadcasting Communications (formerly known as Heftel Broadcasting, "HBC") and Grupo Acir Comunicaciones, ("Acir"). We own a 26% equity interest in HBC and a 40% equity interest in Acir. Equity in earnings of nonconsolidated affiliates increased in 1998 over 1997 due to the inclusion of several investments held by More Group, which are accounted for under the equity method and the inclusion of a partial month of More Group's operations, which was accounted for under the equity method prior to consolidation. This was partially offset by the transfer of our investment in American Tower Corporation, which merged with American Tower Systems, Inc. in June 1998, the result of which diluted our investment from 30% to 8%. Prospectively, we have accounted for this investment using the cost method. The remainder of the increase in equity in earnings (loss) of nonconsolidated affiliates was due to the continued solid financial performance by HBC, of which we owned a 29.1% equity interest. BROADCASTING SEGMENT (In thousands of dollars)
1999 vs. 1998 1998 vs. 1997 ------------------------ ------------------------ Years Ended December 31, As-Reported Pro Forma As-Reported Pro Forma ------------------------ % Increase % Increase % Increase % Increase 1999 1998 1997 (Decrease) (Decrease) (Decrease) (Decrease) ---- ---- ---- ---------- ---------- ---------- ---------- Net revenue $1,426,683 $648,877 $489,633 119.9% 15.1% 32.5% 14.3% Operating expenses 848,734 373,452 286,314 127.3% 12.8% 30.4% 7.2% Operating income before depreciation and amortization and corporate expenses 577,949 275,425 203,319 109.8% 19.0% 35.5% 25.6% Depreciation and amortization 349,935 107,343 66,383 226.0% 12.1% 61.7% 22.2% Operating income 188,807 148,571 122,971 27.1% 45.5% 20.8% 31.0%
1999 vs. 1998 The majority of the increase in as-reported net revenue, operating expenses and depreciation and amortization was due to the aforementioned broadcasting acquisitions. Net revenue also increased due to increased advertising rates associated with improved station ratings within the radio stations. At December 31, 1999, our broadcasting segment included 486 radio stations and 15 television stations for which we are the licensee and 26 radio stations and nine television stations programmed under local marketing or time brokerage agreements. Of these stations, 534 operate in 123 domestic markets and two stations operate in one international markets. We also operate 14 radio networks. 53 54 Pro forma net revenue increased due to improved advertising rates at the core Clear Channel radio stations as well as within the radio stations obtained through the Jacor acquisition. Excluding the effect of acquisitions completed during the last twelve months, other than Jacor, the broadcasting segment experienced a 14% increase in net revenues during 1999 as compared to 1998. Pro forma operating expenses increased primarily from the incremental selling costs related to the additional revenues. The majority of the increase in pro forma operating income was due to improved operations within the broadcasting segment. Excluding the effect of acquisitions made during the last twelve months, except for Jacor, the broadcasting segment experienced a 23% increase in operating income during 1999 as compared to 1998. 1998 vs. 1997 The majority of the increase in as-reported net revenue, operating expenses and depreciation and amortization was due to the aforementioned broadcasting acquisitions. Net revenue also increased due to increased advertising rates associated with improved ratings at most of our television and radio stations. At December 31, 1998, our broadcasting segment included 193 radio stations and 11 television stations for which we own the Federal Communications Commission license and 11 radio stations and 7 television stations programmed under local marketing or time brokerage agreements, in 47 domestic markets. We also own two radio stations in one international market. The majority of the increase in pro forma net revenue is due to improved advertising rates associated with improved ratings at most of the television and radio stations. The majority of the increase in pro forma operating expenses is due to the increase in selling and promotional expenses associated with the increase in revenue. OUTDOOR SEGMENT (In thousands of dollars)
1999 vs. 1998 1998 vs. 1997 ------------------------ ------------------------ Years Ended December 31, As-Reported Pro Forma As-Reported Pro Forma ------------------------ % Increase % Increase % Increase % Increase 1999 1998 1997 (Decrease) (Decrease) (Decrease) (Decrease) ---- ---- ---- ---------- ---------- ---------- ---------- Net revenue $1,251,477 $702,063 $207,435 78.3% 20.0% 238.4% 27.7% Operating expenses 783,381 393,813 108,090 98.9% 19.9% 264.3% 33.4% Operating income before depreciation and amortization and corporate expenses 468,096 308,250 99,345 51.9% 20.2% 210.3% 20.2% Depreciation and amortization 372,298 197,629 47,824 88.4% 37.3% 313.2% 22.9% Operating income 64,859 92,307 44,603 (29.7)% (31.3)% 106.9% 7.7%
1999 vs. 1998 The majority of the increase in as-reported net revenue, operating expenses and depreciation and amortization was due to the inclusion of a full year of Universal and More Group's operations and the inclusion of the partial year's operations of Dauphin, which was acquired in July 1999. In addition, increased occupancy and rates were achieved in 1999. At December 31, 1999, the outdoor segment owned approximately 127,000 display faces and operated 5,900 displays under lease management agreements in over 43 domestic markets, and approximately 422,000 display faces in over 23 international markets. The majority of the increase in pro forma net revenue and operating expenses is due to increased advertising and occupancy rates in 1999 and other less significant acquisitions. Pro forma depreciation and amortization increased in part due to the depreciation expenses associated with increased capital expenditures within the outdoor segment. The outdoor segment's capital expenditures were $154.1 million during 1999, vs. $95.1 million during 1998. 54 55 1998 vs. 1997 The majority of the increase in as-reported net revenue, operating expenses and depreciation and amortization was due to the inclusion of a full year of Eller's operations and the inclusion of the partial year's operations of Universal and More Group, which were acquired during 1998. These two acquisitions added approximately 124,000 display faces in 1998. In addition, increased occupancy and rates were achieved in 1998. At December 31, 1998, the outdoor segment owned 83,225 display faces and operated 5,783 displays under lease management agreements in 32 domestic markets, and 213,566 display faces in 14 international markets. The majority of the increase in pro forma net revenue and operating expenses is due to increased advertising and occupancy rates in 1998. Pro forma depreciation and amortization increased in part due to the depreciation expenses associated with increased capital expenditures within the outdoor segment. The outdoor segment's capital expenditures were $95.1 million during 1998, vs. $15.0 million in 1997. LIQUIDITY AND CAPITAL RESOURCES Our major sources of capital have been cash flow from operations, advances on our revolving long-term line of credit (the "credit facility"), and funds provided by various equity, convertible and other debt offerings, and other borrowings. As of December 31, 1999 and 1998, we had the following debt outstanding: In millions of dollars
December 31, ------------ 1999 1998 ---- ---- Credit facility - domestic $ 743.8 $ 1,007.5 Credit facility - multi-currency 483.9 -- Credit facility - international 120.4 103.7 Senior convertible notes 1,575.0 575.0 Liquid Yield Option Notes 490.8 -- Long-term bonds 1,171.4 600.0 Other borrowings 29.4 45.4 ---------- ---------- Total $ 4,614.7 $ 2,331.6 ========== ==========
In addition, we had $76.7 million in unrestricted cash and cash equivalents on hand at December 31, 1999. On April 26, 1999 we filed a registration statement on Form S-3 covering a combined $2 billion of debt securities, junior subordinated debt securities, preferred stock, common stock, warrants, stock purchase contracts and stock purchase units (the "shelf registration statement"). The shelf registration statement also covers preferred securities that may be issued from time to time by our three Delaware statutory business trusts and guarantees of such preferred securities by us. After completing the debt offerings during November and December 1999, the amount of securities available under the shelf registration statement at December 31, 1999 was $1.0 billion. 55 56 SOURCES OF FUNDS CREDIT FACILITY: DOMESTIC: We have a revolving credit facility for $2 billion, of which $743.8 million is outstanding and, taking into account other letters of credit, $1.2 billion is available for future borrowings at December 31, 1999 . The credit facility converts into a reducing revolving line of credit on the last business day of September 2000, and will be automatically and permanently reduced at the end of each quarter during the subsequent five year period, with the remaining balance to be repaid by the last business day of June 2005. During 1999, we made principal payments on the credit facility totaling $2.1 billion including $80.2 million, $342.6 million, $90.1 million, $886.3 million and $98.5 million from the net proceeds of our equity offerings in January 1999, May 1999 and June 1999, and our convertible debt offerings in November 1999 and December 1999, respectively, and drew down $1.8 billion primarily to fund acquisitions or pay off assumed acquisition debt. Funding for the majority of our acquisitions and the refinancing of long-term debt in the acquisition of Jacor was provided by our credit facility. In January 2000, $572.0 million was drawn to settle the tender of the Jacor senior subordinated notes. MULTI-CURRENCY: On August 11, 1999 we entered into a 364-day multi-currency revolving credit facility for $1 billion. This credit facility matures on August 10, 2000 at which time we have the option to convert this facility to a four-year term loan. This credit facility allows for borrowings in various foreign currencies, which we intend to use to hedge net assets in those currencies. At December 31, 1999, we had Euro 478.9, or approximately $483.9 million outstanding and approximately $516.1 million available for future borrowings under this facility. INTERNATIONAL: We have a (pound)100 million, or approximately $161.2 million, revolving credit facility with a group of international banks. This international credit facility allows for borrowings in various foreign currencies, which are used to hedge net assets in those currencies. At December 31, 1999, approximately $62.9 million, was available for future borrowings and $98.3 million, was outstanding. This credit facility converts into a reducing revolving facility on January 10, 2000 with annual payments of (pound)12 million due in 2000 and 2001. The credit facility expires on January 10, 2002. At December 31, 1999, interest rates varied from 3.97% to 7.35%. SENIOR CONVERTIBLE NOTES: On November 19, 1999 and December 9, 1999, we completed an offering of $900.0 million and $100.0 million, respectively, principal amounts of 1 1/2% Senior convertible Notes due December 1, 2002 under the shelf registration statement. Our aggregated net proceeds of approximately $984.8 million were used to pay down the outstanding balance under our credit facility. The notes are convertible into our common stock at a conversion rate of 9.45 shares per each $1,000 principal amount of convertible notes, subject to adjustment in certain circumstances. This is equivalent to a conversion price of $105.78 per share. Interest on the notes is payable semiannually on each June 1 and December 1, beginning June 1, 2000. LIQUID YIELD OPTION NOTES: We assumed Liquid Yield Option Notes ("LYONs") as a part of the merger with Jacor. We assumed 4 3/4% LYONs due 2018 and 5 1/2% LYONs due 2011 with an aggregated fair value of $490.1 million. Each LYON has a principal amount at maturity of $1,000 and is convertible, at the option of the holder, at any time on or prior to maturity, into our common stock at a conversion rate of 7.227 shares per LYON and 15.522 shares per LYON for the 2018 and 2011 issues, respectively. The LYONs aggregated balance at December 31, 1999 was $490.8 million. 56 57 LONG TERM BONDS: We have various bond issues outstanding. In addition, we assumed several issues of senior subordinated notes as part of our merger with Jacor, which are summarized as follows: In millions of dollars
Interest Bond Issue Interest Rate Face Value Fair Value Maturity Date Payment Terms ---------- ------------- ---------- ---------- ------------- ------------- Assumed in Jacor Merger: Senior subordinated notes 10.125% $ 100.0 $ 107.0 6/15/06 Semi-annual Senior subordinated notes 9.750% 170.0 182.4 12/15/06 Semi-annual Senior subordinated notes 8.750% 150.0 156.2 6/15/07 Semi-annual Senior subordinated notes 8.000% 120.0 124.5 2/15/10 Semi-annual
Subsequent to the merger with Jacor and prior to our tender offer, we redeemed $22.1 million of the senior subordinated notes. On December 14, 1999 we completed a tender offer for our 10.125% Senior Subordinated Notes due June 15, 2006; 9.75% Senior Subordinated Notes due December 15, 2006; 8.75% Senior Subordinated Notes due June 15, 2007; and 8.0% Senior Subordinated Notes due February 15, 2010. An agent acting on our behalf redeemed notes with a face value of approximately $516.6 million. Cash settlement of the amount due to the agent was completed on January 14, 2000. Including premiums, discounts, and agency fees, we are recognizing approximately $13.2 million as an extraordinary charge against net income, net of tax of approximately $8.1 million. Amounts due under the redeemed Senior Subordinated Notes will be will be disclosed in long-term debt. After redemption, approximately $1.2 million of the notes remain outstanding. EQUITY OFFERINGS: On January 21, 1999 we completed an equity offering of 1,725,000 shares of common stock. The net proceeds of $80.2 million were used to reduce the outstanding balance on our credit facility. On May 20, 1999 and June 23, 1999 we completed equity offerings of 4,997,457 shares and 1,325,300 shares of common stock, respectively. The net proceeds of $342.7 million and $90.1 million were used to reduce the outstanding balance on our credit facility. SHELF REGISTRATION: On April 26, 1999 we filed a registration statement on Form S-3 covering a combined $2 billion of debt securities, junior subordinated debt securities, preferred stock, common stock, warrants, stock purchase contracts and stock purchase units (the "shelf registration statement"). The shelf registration statement also covers preferred securities that may be issued from time to time by our three Delaware statutory business trusts and guarantees of such preferred securities by us. After completing the debt offerings during November and December 1999, the amount of securities available under the shelf registration statement at December 31, 1999 was $1.0 billion. USES OF FUNDS AND CAPITAL RESOURCES DAME MEDIA PURCHASE: On July 1, 1999, we closed our merger with Dame Media, Inc. Pursuant to the terms of the agreement, we exchanged approximately 954,100 shares of our common stock for 100% of the outstanding 57 58 stock of Dame Media, valuing this merger at approximately $65.0 million. In addition, we assumed $32.7 million of long term debt, which was immediately refinanced utilizing our domestic credit facility. Dame Media's operations include 21 radio stations in 5 markets located in New York and Pennsylvania. We began consolidating the results of operations on July 1, 1999. DAUPHIN PURCHASE: On June 11, 1999, we acquired a 50.5% equity interest in Dauphin a French company engaged in outdoor advertising. In August 1999 we completed our tender offer for over 99% of the remaining shares outstanding. At December 31, 1999, all of the shares had been surrendered for an aggregate cost of approximately $487.2 million. Dauphin's operations include approximately 103,000 outdoor advertising display faces in France, Spain, Italy, and Belgium. This acquisition is being accounted for as a purchase with resulting goodwill of approximately $449.7 million, which is being amortized over 25 years on a straight-line basis. The purchase price allocation is preliminary pending completion of appraisals and other fair value analysis of assets and liabilities, which we anticipate will be completed during the second quarter of 2000. We began consolidating the results of operations on the date of acquisition. JACOR PURCHASE: On May 4, 1999, we closed our merger with Jacor. Pursuant to the terms of the agreement, each share of Jacor common stock was exchanged for 1.1573151 shares of our common stock or approximately 60.9 million shares valued at $4.2 billion. In addition, we assumed approximately $1.4 billion of Jacor's long-term debt, as well as Jacor's Liquid Yield Option Notes with a fair value of approximately $490.1 million, which are convertible into approximately 7.1 million shares of our common stock. We also assumed options, stock appreciation rights and common stock warrants with a fair value of $414.9 million, which are convertible into approximately 9.2 million shares of our common stock. We refinanced $850.0 million of Jacor's long-term debt at the closing of the merger using our credit facility. Subsequent to the merger, we tendered an additional $22.1 million of Jacor's long-term debt. Included in the purchase price of Jacor is $83 million of restricted cash related to the disposition of Jacor assets in connection with the merger. We divested the broadcasting assets of 12 radio stations in 3 markets receiving proceeds of $205.8 million in connection with the Jacor merger and governmental directives. The proceeds from these divestitures are being held in restricted trusts until suitable replacement properties can be identified and purchased. The following table details the reconciliation of the divestiture and acquisition activity in the restricted trust accounts: IN THOUSANDS OF DOLLARS Restricted cash resulting from Clear Channel divestitures $ 201,500 Restricted cash purchased in Jacor Merger 83,000 Restricted cash from disposition of assets held in trust 4,300 Restricted cash used in acquisitions (246,228) Restricted cash refunded (41,451) Other changes in restricted cash 3,228 ---------- Restricted cash balance at December 31, 1999 $ 4,349 ===========
The Clear Channel and Jacor divestiture proceeds have been used to purchase the broadcasting assets of 69 radio stations in 22 domestic markets. In addition to the above mentioned broadcast 58 59 acquisitions, we have purchased the broadcasting assets of nine radio stations in six domestic markets for a total of $372.4 million. OTHER: In addition to the acquisition of Dauphin, we have acquired approximately 2,789 additional outdoor faces in 29 domestic markets and in malls throughout the U.S. and 72,326 additional display faces in 8 international markets for a total of $366.9 million. During 1999, we purchased capital equipment totaling $238.7 million. Capital expenditures within the Broadcasting Segment totaled $84.6 million. Capital expenditures within the Outdoor Segment totaled $154.1 million, including $88.8 million which was for new construction of display structures. Future acquisitions of broadcasting stations, outdoor advertising facilities and other media-related properties affected in connection with the implementation of our acquisition strategy are expected to be financed from increased borrowings under our credit facility, additional public equity and debt offerings and cash flow from operations. We believe that cash flow from operations as well as the proceeds from securities offerings made from time to time will be sufficient to make all required future interest and principal payments on our credit facility, senior convertible notes and bonds, and will be sufficient to fund all anticipated capital expenditures. From December 31, 1999 through February of 2000, we purchased the broadcasting assets of six radio stations for approximately $12.0 million and 17,723 outdoor display faces and the right to build an additional 7,400 display faces for $340.3 million. Our credit facility and cash flow from operations provided funding. Pending Transactions On October 2, 1999, we entered into a definitive agreement to merge with AMFM Inc. This merger will create the world's largest out-of-home media entity. After anticipated divestitures required to obtain regulatory approval, the combined company will own or program approximately 870 domestic radio stations. This merger is structured as a tax-free, stock-for-stock transaction. Each share of AMFM common stock will be exchanged for 0.94 shares of our common stock, valuing the merger at approximately $17.1 billion plus the assumption of AMFM's debt. At the exchange ratio of .94 and assuming that no additional shares of AMFM common stock are issued before the completion of the merger, we will issue approximately 202.8 million shares of our common stock in the merger to AMFM stockholders and, following the merger, the AMFM stockholders would own approximately 37.4% of our outstanding common stock. In addition, in connection with the AMFM merger, we will assume approximately $5.9 billion of AMFM's long-term debt. Numerous conditions must be satisfied before the completion of the merger, including the receipt of regulatory approvals and shareholder approvals from the stockholders of both companies and the completion of a review of the merger by the federal and state antitrust authorities. We intend to account for this merger as a purchase. See "Item 1. Business - Recent Developments - AMFM Inc. Merger." On February 28, 2000, we entered into a definitive agreement to merge with SFX Entertainment, Inc. SFX is one of the world's largest diversified promoter, producer and venue operator for live entertainment events. This merger will be a tax-free, stock-for-stock transaction. Each SFX Class A shareholder will receive 0.6 shares of our common stock for each SFX share and each SFX Class B shareholder will receive one share of our common stock for each SFX share, on a fixed exchange basis, valuing the merger at approximately $3.3 billion plus the assumption of SFX's debt. This merger is 59 60 subject to regulatory and other closing conditions, including the approval from the SFX shareholders. We anticipate that this merger will close during the second half of 2000 and we intend to account for this merger as a purchase. Future acquisitions of broadcasting stations, outdoor advertising facilities and other media-related properties affected in connection with the implementation of our acquisition strategy are expected to be financed from increased borrowings under the credit facility, additional public equity and debt offerings and cash flow from operations. We believe that cash flow from operations as well as the proceeds from our securities offerings made from time to time will be sufficient to make all required future interest and principal payments on our credit facility, senior convertible notes and bonds, and will be sufficient to fund all anticipated capital expenditures. Other
The ratio of earnings to fixed charges is as follows: Year Ended -------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- ---- 2.04 1.83 2.32 3.63 3.32 5.54
The ratio of earnings to fixed charges was computed on a total enterprise basis. Earnings represent income from continuing operations before income taxes less equity in undistributed net income (loss) of unconsolidated affiliates plus fixed charges. Fixed charges represent interest, amortization of debt discount and expense, and the estimated interest portion of rental charges. We had no preferred stock outstanding for any period presented. CAPITAL EXPENDITURES Capital expenditures of $238.7 million and $141.9 million during 1999 and 1998, respectively, included the following:
In millions Broadcasting Outdoor ------------------- ------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Land and buildings $ 29.6 $ 11.1 $ 3.0 $ 6.9 Broadcasting and other equipment 55.0 35.7 -- -- Display structures and other equipment -- -- 62.3 13.4 New construction of display structures -- -- 88.8 74.8 -------- -------- -------- -------- $ 84.6 $ 46.8 $ 154.1 $ 95.1 ======== ======== ======== ========
Broadcasting The increase in our capital outlays for land and buildings were primarily related to one-time expenditures for our new corporate headquarters and the consolidation of operations in certain markets in conjunction with the Jacor merger which are expected to result in improved operating results in such markets. Expenditures for broadcasting and other equipment in 1999 include approximately $10 million in non-recurring expenditures for the implementation of Year 2000 compliant systems and equipment for the integration of the Jacor stations. The remaining increase in 1999 versus 1998 in expenditures for broadcasting and other equipment is due to maintenance of a larger number of stations owned in 1999 versus 1998. 60 61 Outdoor Capital expenditures for display structures and other equipment increased due to the number of displays owned in 1999 versus 1998 as a result of the acquisitions of Universal and More Group in 1998 and Dauphin in 1999. Also included in the 1999 capital outlays for display structures and other equipment are one-time expenditures of approximately $5 million for the implementation of Year 2000 compliant systems and approximately $11 million for non-recurring expenditures for safety equipment and cranes. We anticipate funding capital outlays with cash generated from operations. We anticipate funding any subsequent broadcasting or outdoor acquisitions with the credit facility and cash flow generated from operations. OTHER Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging Activities. Statement 133 establishes new rules for the recognition and measurement of derivatives and hedging activities. Statement 133 is amended by Statement 137 Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, and is effective for years beginning after June 15, 2000. We plan to adopt this statement in fiscal year 2001. Management does not believe adoption of this statement will materially impact our financial position or results of operations. Inflation Inflation has affected our performance in terms of higher costs for wages, salaries and equipment. Although the exact impact of inflation is indeterminable, we believe we have offset these higher costs by increasing the effective advertising rates of most of our broadcasting stations and outdoor display faces. Year 2000 In prior years, we discussed the nature and progress of our plans to become Year 2000 ready. In late 1999, we completed our remediation and testing of systems. As a result of those planning and implementation efforts, we experienced no significant disruptions in mission critical information technology and non-information technology systems and we believe those systems successfully responded to the Year 2000 date changes. We expensed approximately $490,000 during 1999 in connection with remediating our systems. We are not aware of any material problems resulting from year 2000 issues, either with our products, our internal systems, or the products and services of third parties. We will continue to monitor our mission critical computer applications and those of our suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. INTEREST RATE RISK At December 31, 1999, approximately 46.9% of our long-term debt bears interest at variable rates. Accordingly, our interest expense and earnings are affected by changes in interest rates. Assuming the current level of borrowings at variable rates and assuming a two percentage point change in the 1999 average interest rate under these borrowings, it is estimated that our 1999 interest expense would have changed by $38.4 million and that our 1999 net income would have changed by $23.0 million. In the event 61 62 of an adverse change in interest rates, management would likely take actions to further mitigate its exposure. However, due to the uncertainty of the actions that would be taken and their possible effects, the analysis assumes no such actions. Furthermore the analysis does not consider the effects of the change in the level of overall economic activity that could exist in such an environment. We currently hedge a portion of our outstanding debt with interest rate swap agreements that effectively fix the interest at rates from 4.5% to 8.0% on $60.6 million of our current borrowings. These agreements expire from April 2000 to December 2000. The fair value of these agreements at December 31, 1999 and settlements of interest during 1999 were not material. EQUITY PRICE RISK The carrying value of our available-for-sale equity securities is affected by changes in their quoted market prices. It is estimated that a 20% change in the market prices of these securities would change their carrying value at December 31, 1999 by $151.9 million and would change comprehensive income by $98.8 million. FOREIGN CURRENCY RISK We have operations in 36 countries throughout Europe, Asia and South America. All foreign operations are measured in their local currencies. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we have operations. To mitigate a portion of the exposure to risk of currency fluctuations throughout Europe and Asia to the British pound, we have a natural hedge through borrowings in some other currencies. Additionally, we have a natural hedge through borrowings in Euros to mitigate a portion of the exposure to risk of currency fluctuations in Western Europe. This hedge position is reviewed monthly. We maintain no derivative instruments to mitigate the exposure to translation and/or transaction risk. However, this does not preclude the adoption of specific hedging strategies in the future. Our foreign operations reported a loss of $51.1 million for the year ended December 31, 1999. It is estimated that a 5% change in the value of the U.S. dollar to the British pound would change net income for the year by $2.6 million. Our earnings are also affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies as a result of our investments in Australia, New Zealand and Mexico, all of which are accounted for under the equity method. It is estimated that the result of a 10% fluctuation in the value of the dollar relative to these foreign currencies at December 31, 1999 would change our 1999 net income by $1.7 million. This analysis does not consider the implications that such fluctuations could have on the overall economic activity that could exist in such an environment in the U.S. or the foreign countries or on the results of operations of these foreign entities. 62 63 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS The consolidated financial statements and notes related thereto were prepared by and are the responsibility of management. The financial statements and related notes were prepared in conformity with accounting principles generally accepted in the United States and include amounts based upon management's best estimates and judgments. It is management's objective to ensure the integrity and objectivity of its financial data through systems of internal controls designed to provide reasonable assurance that all transactions are properly recorded in our books and records, that assets are safeguarded from unauthorized use, and that financial records are reliable to serve as a basis for preparation of financial statements. The financial statements have been audited by our independent auditors, Ernst & Young LLP, to the extent required by auditing standards generally accepted in the United States and, accordingly, they have expressed their professional opinion on the financial statements in their report included herein. The Board of Directors meets with the independent auditors and management periodically to satisfy itself that they are properly discharging their responsibilities. The independent auditors have unrestricted access to the Board, without management present, to discuss the results of their audit and the quality of financial reporting and internal accounting controls. Lowry Mays Chairman/Chief Executive Officer Herbert W. Hill, Jr. Senior Vice President/Chief Accounting Officer 63 64 REPORT OF ERNST & YOUNG LLP SHAREHOLDERS AND BOARD OF DIRECTORS CLEAR CHANNEL COMMUNICATIONS, INC. We have audited the accompanying consolidated balance sheets of Clear Channel Communications, Inc. and subsidiaries (the Company) as of December 31, 1999 and 1998, and the related consolidated statements of earnings, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. 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. The financial statements of Hispanic Broadcasting Corporation (formerly Heftel Broadcasting Corporation), in which the Company has a 26% equity interest, have been audited by other auditors whose reports have been furnished to us; insofar as our opinion on the consolidated financial statements relates to data included for Hispanic Broadcasting Corporation for 1999, 1998 and 1997, it is based solely on their reports. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Clear Channel Communications, Inc. and subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG LLP San Antonio, Texas March 13, 2000 64 65 CONSOLIDATED BALANCE SHEETS ASSETS In thousands of dollars, except share data
December 31, --------------------------------- 1999 1998 -------------- ------------- CURRENT ASSETS Cash and cash equivalents $ 76,724 $ 36,498 Accounts receivable, less allowance of $26,095 in 1999 and $13,508 in 1998 724,900 307,372 Other current assets 123,485 66,090 -------------- ------------- TOTAL CURRENT ASSETS 925,109 409,960 PROPERTY, PLANT AND EQUIPMENT Land, buildings and improvements 338,764 158,089 Structures and site leases 1,870,731 1,627,704 Transmitter and studio equipment 427,063 235,099 Furniture and other equipment 222,581 101,681 Construction in progress 89,901 52,038 -------------- ------------- 2,949,040 2,174,611 Less accumulated depreciation 470,916 258,824 -------------- ------------- 2,478,124 1,915,787 INTANGIBLE ASSETS Contracts 817,227 393,748 Licenses and goodwill 11,809,882 4,223,432 Other intangible assets 80,102 66,528 -------------- ------------- 12,707,211 4,683,708 Less accumulated amortization 758,889 310,012 -------------- ------------- 11,948,322 4,373,696 OTHER Restricted cash 4,349 -- Notes receivable 53,675 53,675 Investments in, and advances to, nonconsolidated affiliates 380,918 324,835 Other assets 251,604 127,055 Other investments 779,411 334,910 -------------- ------------- TOTAL ASSETS $ 16,821,512 $ 7,539,918 ============== =============
See Notes to Consolidated Financial Statements 65 66 LIABILITIES AND SHAREHOLDERS' EQUITY In thousands of dollars, except share data
December 31, --------------------------------- 1999 1998 -------------- ------------- CURRENT LIABILITIES Accounts payable $ 196,222 $ 60,855 Accrued interest 16,449 13,168 Accrued expenses 337,939 148,318 Accrued income taxes 29,769 4,554 Current portion of long-term debt 30,361 7,964 Other current liabilities 74,775 23,285 -------------- ------------- TOTAL CURRENT LIABILITIES 685,515 258,144 Long-term debt 4,093,543 2,323,643 Liquid Yield Option Notes 490,809 -- Deferred income taxes 1,289,783 383,564 Other long-term liabilities 149,032 75,533 Minority interest 28,793 15,605 SHAREHOLDERS' EQUITY Preferred Stock - Class A, par value $1.00 per share, authorized 2,000,000 shares, no shares issued and outstanding -- -- Preferred Stock, - Class B, par value $1.00 per share, authorized 8,000,000 shares, no shares issued and outstanding -- -- Common Stock, par value $.10 per share, authorized 900,000,000 and 600,000,000 shares, issued and outstanding 338,609,503 and 263,698,206 shares in 1999 and 1998, respectively 33,861 26,370 Additional paid-in capital 9,216,957 4,067,297 Common stock warrants 252,862 -- Retained earnings 296,132 223,662 Other comprehensive income 282,745 163,148 Other 2,304 4,925 Cost of shares (11,612 in 1999 and 104,278 in 1998) held in treasury (824) (1,973) -------------- ------------- TOTAL SHAREHOLDERS' EQUITY 10,084,037 4,483,429 -------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 16,821,512 $ 7,539,918 ============== =============
See Notes to Consolidated Financial Statements 66 67 CONSOLIDATED STATEMENTS OF EARNINGS In thousands of dollars, except per share data
Year Ended December 31, ---------------------------------------------------- 1999 1998 1997 ------------- ------------- ------------- REVENUE Gross revenue $ 2,992,018 $ 1,522,551 $ 790,178 Less: agency commissions 313,858 171,611 93,110 ------------- ------------- ------------- Net revenue 2,678,160 1,350,940 697,068 EXPENSE Operating expenses 1,632,115 767,265 394,404 Depreciation and amortization 722,233 304,972 114,207 Corporate expenses 70,146 37,825 20,883 ------------- ------------- ------------- Operating income 253,666 240,878 167,574 Interest expense 192,321 135,766 75,076 Gain on sale of stations 138,659 -- -- Other income (expense) - net 20,209 12,810 11,579 ------------- ------------- ------------- Income before income taxes, equity in earnings of nonconsolidated affiliates and extraordinary item 220,213 117,922 104,077 Income taxes 150,635 72,353 47,116 ------------- ------------- ------------- Income before equity in earnings of nonconsolidated affiliates and extraordinary item 69,578 45,569 56,961 Equity in earnings of nonconsolidated affiliates 16,077 8,462 6,615 ------------- ------------- ------------- Income before extraordinary item 85,655 54,031 63,576 Extraordinary item (13,185) -- -- ------------- ------------- ------------- Net income 72,470 54,031 63,576 Other comprehensive income, net of tax: Foreign currency translation adjustments (47,814) 5,801 (5,064) Unrealized gains on securities: Unrealized holding gains arising during period 182,315 162,925 23,754 Less: reclassification adjustment for gains included in net income (14,904) (25,494) -- ------------- -------------- ------------- Comprehensive income $ 192,067 $ 197,263 $ 82,266 ============= ============= ============= PER SHARE DATA Net income per common share: Basic: Income before extraordinary item $ .27 $ .23 $ .36 Extraordinary item (.04) -- -- ------------- ------------- ------------- Net income $ .23 $ .23 $ .36 ============= ============= ============= Diluted: Income before extraordinary item $ .26 $ .22 $ .33 Extraordinary item (.04) -- -- ------------- ------------- ------------- Net income $ .22 $ .22 $ .33 ============= ============= =============
See Notes to Consolidated Financial Statements 67 68 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY In thousands of dollars
Additional Common Other Common Paid-in Stock Retained Comprehensive Treasury Stock Capital Warrants Earnings Income Other Stock Total --------- ---------- ---------- --------- --------- --------- ------- --------- Balances at December 31, 1996 $ 7,699 $ 398,622 $ -- $ 106,055 $ 1,226 $ -- $ (171) $ 513,431 Net income for year 63,576 63,576 Proceeds from sale of Common Stock 1,409 790,310 791,719 Common Stock and stock options issued for business acquisitions 665 348,023 6,633 355,321 Exercise of stock options 50 4,910 (397) (516) 4,047 Currency translation adjustment (5,064) (5,064) Unrealized gains on investments, net of tax 23,754 23,754 --------- ---------- ---------- --------- --------- --------- ------- --------- Balances at December 31, 1997 9,823 1,541,865 -- 169,631 19,916 6,236 (687) 1,746,784 Net income for year 54,031 54,031 Proceeds from sale of Common Stock 2,100 1,279,318 1,281,418 Common Stock issued related to Eller put/call agreement 13 5,820 5,833 Common Stock and stock options issued for business acquisitions 1,929 1,199,928 1,201,857 Exercise of stock options 89 52,782 (1,311) (1,286) 50,274 Currency translation adjustment 5,801 5,801 Unrealized gains on investments, net of tax 137,431 137,431 Stock split 12,416 (12,416) -- --------- ---------- ---------- --------- --------- --------- ------- --------- Balances at December 31, 1998 26,370 4,067,297 -- 223,662 163,148 4,925 (1,973) 4,483,429 Net income for year 72,470 72,470 Proceeds from sale of Common Stock 805 512,112 512,917 Common Stock issued related to Eller put/call agreement 190 130,440 130,630 Common Stock, stock options and common stock warrants issued for business acquisitions 6,180 4,413,530 253,428 4,673,138 Conversion of Liquid Yield Option Notes 10 3,271 3,281 Exercise of stock options and common stock warrants 306 90,307 (566) (2,621) (2,953) 84,473 Charitable donation of treasury shares 4,102 4,102 Currency translation adjustment (47,814) (47,814) Unrealized gains on investments, net of tax 167,411 167,411 --------- ---------- ---------- --------- --------- --------- ------- ----------- Balances at December 31, 1999 $ 33,861 $9,216,957 $ 252,862 $ 296,132 $ 282,745 $ 2,304 $ (824) $10,084,037 ========= ========== ========== ========= ========= ========= ======= ===========
See Notes to Consolidated Financial Statements 68 69 CONSOLIDATED STATEMENTS OF CASH FLOWS In thousands of dollars
Year Ended December 31, ----------------------------------------- 1999 1998 1997 ----------- ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 72,470 $ 54,031 $ 63,576 Reconciling Items: Depreciation 263,242 134,042 51,700 Amortization of intangibles 458,991 170,930 62,507 Deferred taxes 32,495 35,329 18,300 Amortization of film rights 19,609 17,250 16,735 Amortization of deferred financing charges 4,075 2,444 35 Amortization of bond premiums (8,826) -- -- Accretion of note discounts 10,418 -- -- Payments on film liabilities (18,410) (17,524) (17,289) Recognition of deferred income 18,647 (11,371) (1,460) Loss (gain) on disposal of assets (141,556) 13,845 (1,129) Gain on sale of other investments (22,930) (39,221) (3,819) Equity in (earnings) loss of non- consolidated affiliates (10,775) (4,471) (2,778) Charitable donation of treasury shares 4,102 -- -- Increase (decrease) minority interest 1,686 (1,512) (617) Exchange loss (gain) 7,660 (4,688) -- Extraordinary item 13,185 -- -- Changes in operating assets and liabilities: Decrease (increase) in accounts receivable (87,529) (47,699) (20,752) Increase (decrease) in accounts payable, accrued expenses and other 1,757 9,663 (3,643) Increase (decrease) in accrued interest (10,778) (12,309) 3,598 Increase (decrease) in accrued income taxes 31,873 (19,750) 1,533 ----------- ---------- ----------- Net cash provided by operating activities 639,406 278,989 166,497
69 70
Year Ended December 31, --------------------------------------------------- 1999 1998 1997 ------------ ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in restricted cash (4,349) -- -- (Increase) decrease in notes receivable, net -- (18,302) 17,377 Investments in and advances to nonconsolidated affiliates, net (36,647) (91,527) (38,317) Purchases of investments (174,698) (44,931) (25,101) Proceeds from sale of investments 29,659 56,408 6,333 Purchases of property, plant and equipment (238,738) (141,938) (30,956) Proceeds from disposal of assets 218,003 7,977 2,410 Acquisitions of broadcasting assets (372,413) (209,327) (784,204) Acquisitions of outdoor assets (854,135) (1,102,668) (490,345) Other, net (40,852) (58,010) (3,025) ------------ ---------- ----------- Net cash used in investing activities (1,474,170) (1,602,318) (1,345,828) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 3,420,310 2,835,668 2,013,160 Payments on long-term debt (3,088,520) (2,825,744) (1,614,821) Payments of current maturities (5,989) (1,137) (5,176) Proceeds from exercise of stock options and common stock warrants 36,273 44,965 2,405 Proceeds from issuance of common stock 512,916 1,281,418 791,719 ----------- ---------- ----------- Net cash provided by financing activities 874,990 1,335,170 ------------ ---------- ----------- 1,187,287 Net increase in cash and cash equivalents 40,226 11,841 7,956 Cash and cash equivalents at beginning of year 36,498 24,657 16,701 ------------ ---------- ----------- Cash and cash equivalents at end of year $ 76,724 $ 36,498 $ 24,657 ============ ========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 201,127 $ 130,049 $ 71,399 Income taxes 58,005 10,856 49,741
See Notes to Consolidated Financial Statements 70 71 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS: Clear Channel Communications, Inc., is a diversified media company with two business segments: broadcasting and outdoor advertising. The Company was incorporated in Texas in 1974. The Company owns, programs, or sells airtime for radio and television stations and is one of the world's largest outdoor advertising companies based on total advertising display inventory in the United States and internationally. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and its subsidiaries, substantially all of which are wholly-owned. Significant intercompany accounts have been eliminated in consolidation. Investments in nonconsolidated affiliates are accounted for using the equity method of accounting. Certain amounts in prior years have been reclassified to conform to the 1999 presentation. CASH AND CASH EQUIVALENTS: Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less. LAND LEASES AND OTHER STRUCTURE LICENSES: Most of the Company's outdoor advertising structures are located on leased land. Domestic land rents are typically paid in advance for periods ranging from one to twelve months. International land rents are paid both in advance and in arrears, for periods ranging from one to twelve months. Most international street furniture advertising display faces are licensed through municipalities for up to 20 years. The street furniture licenses often include a percent of revenue to be paid along with a base rent payment. Domestic prepaid land leases are recorded as an asset and expensed ratably over the related rental term. International license and rent payments in arrears are recorded as an accrued liability. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost. Depreciation is computed principally by the straight-line method at rates that, in the opinion of management, are adequate to allocate the cost of such assets over their estimated useful lives, which are as follows: Buildings - 10 to 30 years Structures and site leases - 2 to 20 years Transmitter and studio equipment - 7 to 15 years Furniture and other equipment - 2 to 10 years Leasehold improvements - generally life of lease Expenditures for maintenance and repairs are charged to operations as incurred, whereas expenditures for renewal and betterments are capitalized. INTANGIBLE ASSETS: Intangible assets are stated at cost and are being amortized using the straight-line method. Excess cost over the fair value of net assets acquired (goodwill) and certain licenses are amortized generally over 20 to 25 years. Transit and street furniture contracts are amortized over the respective lives of the agreements, 71 72 typically four to eleven years. Covenants not-to-compete are amortized over the respective lives of the agreements. Network affiliation agreements are amortized over 10 years. Leases are amortized over the remaining lease terms. The periods of amortization are evaluated annually to determine whether circumstances warrant revision. LONG-LIVED ASSETS: Long-lived assets (including related goodwill and other intangible assets) are reviewed on a regular basis for the existence of facts or circumstances, both internally and externally, that may suggest impairment. If such impairment is identified, the impairment loss will be measured by comparing the estimated future undiscounted cash flows to the asset's carrying value. To date, no such impairment has been indicated. OTHER INVESTMENTS: Other investments are composed primarily of equity securities. These securities are classified as available-for-sale and carried at fair value based on quoted market prices. Securities are carried at historical value when quoted market prices are unavailable. The net unrealized gains or losses on these investments, net of tax, are reported as a separate component of shareholders' equity. The average cost method is used to compute the realized gains and losses on sales of equity securities. EQUITY METHOD INVESTMENTS: Investments in companies in which the Company owns 20 percent to 50 percent of the voting common stock or otherwise exercises significant influence over operating and financial policies of the company are accounted for under the equity method. The Company does not recognize gains or losses upon the issuance of securities by any of its equity method investees. FINANCIAL INSTRUMENTS: Due to their short maturity and/or their insignificance, the carrying amounts of accounts and notes receivable, accounts payable, accrued liabilities, and short-term borrowings approximated their fair values at December 31, 1999 and 1998. The carrying amounts of long-term debt approximated their fair value at the end of 1999 and 1998, except as disclosed in Note D. INCOME TAXES: The Company accounts for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting bases and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled. REVENUE RECOGNITION: Broadcasting revenue is recognized as advertisements or programs are broadcast and is generally billed monthly. Outdoor advertising provides services under the terms of contracts covering periods up to three years, which are generally billed monthly. Revenue for outdoor advertising space rental is recognized ratably over the term of the contract. Revenues from design, production and certain other services are recognized as the services are provided. Payments received in advance of billings are recorded as deferred income. 72 73 Revenue from barter transactions is recognized when advertisements are broadcast or outdoor advertising space is utilized. Merchandise or services received are charged to expense when received or used. INTEREST RATE PROTECTION AGREEMENTS: Periodically, the Company enters into interest rate swap agreements to modify the interest characteristics of its outstanding debt. Each interest rate swap agreement is designated with all or a portion of the principal balance and term of a specific debt obligation. These agreements involve the exchange of amounts based on a fixed interest rate for amounts based on variable interest rates over the life of the agreement without an exchange of the notional amount upon which the payments are based. The differential to be paid or received as interest rate change is accrued and recognized as an adjustment to interest expense related to the debt. The fair value of the swap agreements and changes in the fair value as a result of changes in market interest rates are not recognized in these consolidated financial statements FOREIGN CURRENCY: Results of operations for foreign subsidiaries and foreign equity investees are translated into U.S. dollars using the average exchange rates during the year. The assets and liabilities of those subsidiaries and investees, other than those of operations in highly inflationary countries, are translated into U.S. dollars using the exchange rates at the balance sheet date. The related translation adjustments are recorded in a separate component of shareholders' equity, "Currency translation adjustment". Foreign currency transaction gains and losses, as well as translation of financial statements of subsidiaries and investees in highly inflationary countries, are included in operations. STOCK BASED COMPENSATION: The Company uses the intrinsic value method in accounting for its stock based employee compensation plans. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NEW ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging Activities. Statement 133 establishes new rules for the recognition and measurement of derivatives and hedging activities. Statement 133 is amended by Statement 137 Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, and is effective for years beginning after June 15, 2000. The Company plans to adopt this statement in fiscal year 2001. Management does not believe adoption of this statement will materially impact the Company's financial position or results of operations. 73 74 NOTE B - BUSINESS ACQUISITIONS 1999 ACQUISITIONS: AMFM On October 2, 1999, the Company entered into a definitive agreement to merge with AMFM Inc. ("AMFM"). This merger will create one of the world's largest out-of-home media entities. After anticipated divestitures required to gain regulatory approval, the combined company will own or program approximately 870 domestic radio stations. This merger is structured as a tax-free, stock-for-stock transaction. Each share of AMFM common stock will be exchanged for 0.94 shares of the Company's common stock. The Company will issue approximately 202.8 million shares of its common stock, valuing the merger at October 2, 1999 at approximately $17.1 billion plus the assumption of AMFM's debt. Consummation of this merger, which is subject to regulatory approval and various closing conditions, is expected during the second half of 2000. DAME MEDIA On July 1, 1999, the Company closed its merger with Dame Media, Inc. ("Dame Media"). Pursuant to the terms of the agreement, the Company exchanged approximately 954,100 shares of its common stock for 100% of the outstanding stock of Dame Media, valuing this merger at approximately $65.0 million. In addition the Company assumed $32.7 million of long term debt, which was immediately refinanced utilizing the domestic credit facility. Dame Media's operations include 21 radio stations in five markets located in New York and Pennsylvania. The Company began consolidating the results of operations on July 1, 1999. DAUPHIN On June 11, 1999, the Company acquired a 50.5% equity interest in Dauphin OTA, ("Dauphin") a French company engaged in outdoor advertising. In August 1999 the Company completed its tender offer for over 99% of the remaining shares outstanding. At December 31, 1999, all of the shares had been surrendered for an aggregate cost of approximately $487.2 million. Dauphin's operations include approximately 103,000 outdoor advertising display faces in France, Spain, Italy, and Belgium. This acquisition is being accounted for as a purchase with resulting goodwill of approximately $449.7 million, which is being amortized over 25 years on a straight-line basis. The purchase price allocation is preliminary pending completion of appraisals and other fair value analysis of assets and liabilities, which the Company anticipates will be completed during the second quarter of 2000. The Company began consolidating the results of operations on the date of acquisition. JACOR On May 4, 1999, the Company closed its merger with Jacor Communications, Inc. ("Jacor"). Pursuant to the terms of the agreement, each share of Jacor common stock was exchanged for 1.1573151 shares of the Company's common stock or approximately 60.9 million shares valued at $4.2 billion. In addition, the Company assumed approximately $1.4 billion of Jacor's long-term debt, as well as Jacor's Liquid Yield Option Notes with a fair value of approximately $490.1 million, which are convertible into approximately 7.1 million shares of the Company's common stock. The Company also assumed options, stock appreciation rights and common stock warrants with a fair value of $414.9 million, which are convertible into approximately 9.2 million shares of the Company's common stock. The Company refinanced $850.0 74 75 million of Jacor's long-term debt at the closing of the merger using the Company's credit facility. Subsequent to the merger, the Company tendered an additional $22.1 million of Jacor's long-term debt. Included in the Jacor assets acquired is $83 million of restricted cash related to the disposition of Jacor assets in connection with the merger. This merger has been accounted for as a purchase with resulting goodwill of approximately $3.1 billion, which is being amortized over 25 years on a straight-line basis. This purchase price allocation is preliminary pending completion of appraisals and other fair value analysis of assets and liabilities, which the Company anticipates will be completed during the second quarter of 2000. The results of operations of Jacor have been included in the Company's financial statements beginning May 4, 1999. In order to comply with governmental directives regarding the Jacor merger, the Company divested certain assets valued at $205.8 million and swapped other assets valued at $35 million in transactions with various third parties, resulting in a gain on sale of stations of $138.7 million and an increase in income tax expense (at the Company's statutory rate of 38%) of $52.0 million during 1999. The Company anticipates deferring the majority of this tax expense based on its ability to replace the stations sold with qualified assets. The proceeds from divestitures are being held in restricted trusts until suitable replacement properties are identified. The following table details the reconciliation of divestiture and acquisition activity in the restricted trust accounts: In thousands of dollars Restricted cash resulting from Clear Channel divestitures $ 201,500 Restricted cash purchased in Jacor Merger 83,000 Restricted cash from disposition of assets held in trust 4,300 Restricted cash used in acquisitions (246,228) Restricted cash refunded (41,451) Other changes to restricted cash 3,228 --------- Restricted cash balance at December 31, 1999 $ 4,349 =========
OTHER Also during 1999, the Company acquired substantially all of the assets of nine radio stations in six domestic markets, 2,789 outdoor display faces in 29 domestic markets and in malls throughout the U.S. and 72,326 outdoor display faces in eight international markets. The aggregate cash paid for these acquisitions was approximately $739.3 million. 1998 ACQUISITIONS: UNIVERSAL On April 1, 1998, the Company merged with Universal Outdoor Holdings, Inc. ("Universal"). Pursuant to the terms of the agreement, each share of Universal common stock was exchanged for .67 shares of the Company's common stock or approximately 19.3 million shares. Universal's operations include approximately 34,000 outdoor advertising display faces in 23 major metropolitan markets. In addition, the Company assumed approximately $615.3 million of Universal's long-term debt, $236.0 million of which was refinanced at the closing date using the Company's credit facility. In May 1998, the Company 75 76 completed a public tender offer for $374.9 million of Universal's 9.75% debentures using the Company's credit facility to fund the offer. This acquisition is being accounted for as a purchase with resulting goodwill of approximately $1.2 billion being amortized over 25 years on a straight-line basis. The results of operations of Universal have been included in the Company's financial statements beginning April 1, 1998. MORE GROUP On August 6, 1998, the Company completed the final closing of its tender offer for all of the issued and to be issued shares of More Group Plc., ("More Group"), an outdoor advertising company based in the United Kingdom. More Group's operations included approximately 90,000 outdoor advertising display faces in 22 countries. Through a series of transactions beginning in May 1998, the Company purchased all issued share capital of More Group for (pound)11.10 per share, totaling approximately $765.5 million. In addition, the Company assumed approximately $137.7 million in long-term debt from More Group. The Company has accounted for this acquisition as a purchase, which resulted in approximately $693.7 million additional goodwill being amortized over 25 years on a straight-line basis. Majority control of More Group was reached on June 25, 1998. The Company began consolidating the results of operations on July 1, 1998. 1997 ACQUISITIONS: ELLER MEDIA In April of 1997, the Company acquired approximately 93% of the outstanding stock of Eller Media, Inc. ("Eller"). Eller's operations included approximately 50,000 outdoor advertising display faces in 15 major metropolitan markets. As consideration for the stock acquired, the Company paid cash of approximately $329 million and issued common stock of the Company in the aggregate value of approximately $298 million. In addition, the Company issued options on the Company's common stock with an aggregate value of approximately $51 million in connection with the assumption of Eller's outstanding stock options. In addition, the Company assumed approximately $417 million of Eller's long-term debt, which was refinanced at the closing date using the Company's credit facility. This acquisition was accounted for as a purchase with resulting goodwill of approximately $655 million. PAXSON RADIO In December 1997 the Company acquired 43 radio stations, six news, sports and agricultural networks and approximately 350 display faces from Paxson Communications, Inc. ("Paxson") for approximately $629 million. 76 77 The following is a summary of the assets acquired and the consideration given for acquisitions: In thousands of dollars
1999 1998 1997 ------------- ------------- ------------- Property, plant and equipment $ 654,430 $ 1,185,813 $ 629,207 Accounts receivable 329,999 103,711 56,028 Equity investments -- 15,262 -- Licenses, goodwill and other assets 8,158,034 2,505,259 1,460,505 ------------- ------------- ------------- Total assets acquired 9,142,463 3,810,045 2,145,740 Less: Long term debt assumed (1,942,185) (753,065) -- Other liabilities assumed (490,138) (267,258) (526,938) Deferred tax (liability) asset (789,186) (273,708) 19,482 Minority interest (21,267) (2,162) (15,047) Common Stock issued (4,673,139) (1,201,857) (348,688) ------------- ------------- ------------- Cash paid for acquisitions $ 1,226,548 $ 1,311,995 $ 1,274,549 ============= ============= =============
The results of operations for 1999, 1998, and 1997 include the operations of each station, for which the Company purchased the license, as well as all other businesses acquired, from the respective date of acquisition. Unaudited pro forma consolidated results of operations, assuming each of the acquisitions had occurred at January 1, 1997, would have been as follows:
Pro Forma (Unaudited) Year Ended December 31, In thousands of dollars, except per share data 1999 1998 1997 ------------- ------------- ------------- Net revenue $ 3,082,640 $ 2,629,290 $ 2,187,030 Net loss $ (65,728) $ (125,633) $ (144,727) Net loss per common share: Basic $ (.20) $ (.41) $ (.52) Diluted $ (.20) $ (.41) $ (.52)
The pro forma information above is presented in response to applicable accounting rules relating to business acquisitions and is not necessarily indicative of the actual results that would have been achieved had the acquisitions of or mergers with Eller, Paxson, Universal, More Group, Dauphin, Dame and Jacor occurred at the beginning of 1997, nor is it indicative of future results of operations. The Company made other acquisitions during 1999, 1998 and 1997, the effects of which, individually and in aggregate, were not material to the Company's consolidated financial position or results of operations. 77 78 NOTE C - INVESTMENTS INVESTMENTS IN NON-CONSOLIDATED AFFILIATES: AUSTRALIAN RADIO NETWORK In May 1995, the Company purchased a fifty percent (50%) interest in Australian Radio Network ("ARN"), an Australian company that owns and operates radio stations, a narrowcast radio broadcast service and a radio representation company in Australia. HISPANIC BROADCASTING CORPORATION In May 1995, the Company purchased 21.4% of the outstanding common stock of Hispanic Broadcasting Corporation (formerly known as Heftel Broadcasting Corporation, "HBC"), a Spanish-language radio broadcaster in the United States. In August 1996, the Company purchased an additional 41.8% of the outstanding common stock of HBC. In early January 1997, the Company purchased certain interest from the Tichenor family, which was subsequently exchanged for HBC common stock at the time of HBC's merger with Tichenor Media System, Inc. ("Tichenor"), another Spanish-language radio broadcaster with stations in major Hispanic markets in the United States. In February of 1997, the Company sold 350,000 shares of its HBC common stock as a selling shareholder in a secondary stock offering in which HBC issued an additional 4.8 million shares of common stock. The Company recognized a gain of approximately $6.2 million as a result of this transaction. Also, HBC issued 5.6 million shares of its common stock in connection with its merger with Tichenor and another 5.1 million shares of its common stock in January of 1998, 2 million shares in June 1999 and 3.1 million in December 1999. After the above-described transactions, the Company's interest in HBC was 26% of the total number of shares of HBC's common stock outstanding at December 31, 1999, which had a fair market value of $1.3 billion at that date. GRUPO ACIR COMUNICACIONES In April 1998 the Company purchased a forty percent (40%) interest in Grupo Acir Comunicaciones ("Acir"), a Mexican radio broadcasting company. Acir owns and operates 157 radio stations throughout Mexico. WHITE HORSE In April 1998 the Company purchased a fifty percent (50%) interest in Hainan White Horse Advertising Media Investment Co. Ltd. ("White Horse"), a Chinese company that operates street furniture displays throughout China. 78 79 SUMMARIZED FINANCIAL INFORMATION The following table summarizes the Company's investments in these nonconsolidated affiliates: In thousands of dollars
White All ARN HBC Acir Horse Others Total --------- ---------- --------- --------- --------- ----------- At December 31, 1998 $ 61,947 $ 137,047 $ 54,352 $ 35,193 $ 36,296 $ 324,835 Acquisition of new investments -- -- -- -- 26,235 26,235 Additional investment, net (4,933) -- -- 5,542 9,803 10,412 Equity in net earnings (loss) 2,988 9,930 1,044 (223) (62) 13,677 Amortization of excess cost -- (202) (1,896) (460) (674) (3,232) Foreign currency transaction adjustment 330 -- -- -- -- 330 Foreign currency translation Adjustment 5,032 -- 765 (81) 2,945 8,661 --------- ---------- --------- --------- --------- ----------- At December 31, 1999 $ 65,364 $ 146,775 $ 54,265 $ 39,971 $ 74,543 $ 380,918 ========= ========== ========= ========= ========= ===========
These investments are not consolidated, but are accounted for under the equity method of accounting, whereby the Company records its investments in these entities in the balance sheet as "Investments in, and advances to, nonconsolidated affiliates." The Company's interests in their operations are recorded in the statement of earnings as "Equity in earnings (loss) of nonconsolidated affiliates." Other income derived from transactions with nonconsolidated affiliates consists of interest, management fees and other transaction gains, which aggregated $7.4 million in 1999, $5.8 million in 1998 and $6.4 million in 1997, less applicable income taxes of $2.1 million in 1999, $1.8 million in 1998 and $2.5 million in 1997 and are recorded in the Consolidated Statement of Earnings as "Equity in earnings (loss) of nonconsolidated affiliates." Undistributed earnings (loss) included in Retained Earnings for these investments was $10.8 million, $4.5 million and $2.1 million for December 31, 1999, 1998 and 1997, respectively. OTHER INVESTMENTS: Other investments at December 31, 1999 and 1998 include marketable equity securities recorded at market value of $759.7 million and $332.2 million (cost basis of $254.2 million and $84.2 million), respectively. During 1999 and 1998, realized gains of $22.9 million and $39.2 million were recorded in "Other income (expense) - net." At December 31, 1999 and 1998, unrealized gains, net of tax, of $328.6 million and $161.2 million, respectively, were recorded as a separate component of shareholders' equity. 79 80 NOTE D - LONG-TERM DEBT Long-term debt at December 31, 1999 and 1998 consisted of the following: In thousands of dollars
December 31, ------------------------------- 1999 1998 ------------- -------------- Debentures (1) $ 300,000 $ 300,000 2.625% Convertible Notes (2) 575,000 575,000 6.6250% Senior Notes (3) 125,000 125,000 6.875% Senior Debentures (4) 175,000 175,000 1.5% Convertible Notes (5) 1,000,000 -- Domestic revolving long-term line of credit facility (6) 743,750 1,007,500 Multi-currency revolving long-term line of credit facility (7) (9) 483,868 -- Various Senior Subordinated Notes (8) 571,405 -- Other long-term debt (9) 149,881 149,107 ------------- -------------- 4,123,904 2,331,607 Less: current portion 30,361 7,964 ------------- -------------- Total long-term debt $ 4,093,543 $ 2,323,643 ============= ==============
(1) Debentures, 7.25%, interest payable semiannually on April 15 and October 15, beginning April 15, 1998, principal to be paid in full on October 15, 2027. Proceeds from issuance of debentures totaled $294.3 million, net of fees and initial offering discount of $5.7 million. The fees and initial offering discount are being amortized as interest expense over 30 years. The market value of the debentures was approximately $258.2 million at December 31, 1999. (2) Convertible notes, 2.625%, interest payable semiannually on April 1 and October 1, beginning October 1, 1998, principal to be paid in full on April 1, 2003. Proceeds from issuance of convertible notes totaled $566.5 million, net of fees and initial offering discount of $8.5 million. The fees and initial offering discount are being amortized as interest expense over three and five years, respectively. The notes are convertible into the Company's common stock at any time following the date of original issuance, unless previously redeemed, at a conversion price of $61.95 per share, subject to adjustment in certain events. The Company has reserved 9,281,679 of its common stock for the conversion of these notes. The notes are redeemable, in whole or in part, at the option of the Company at any time on or after April 1, 2001 and until March 31, 2002 at 101.050%; on or after April 1, 2002 and until March 31, 2003 at 100.525%; and on or after April 1, 2003 at 100%, plus accrued interest. The market value of the 2.625% convertibles notes was approximately $853.2 million at December 31, 1999. (3) Senior notes, 6.6250%, interest payable semiannually on June 15 and December 15, beginning December 15, 1998, principal to be paid in full on June 15, 2008. Proceeds from issuance of notes totaled $124.1 million, net of fees and initial offering discount of $0.9 million. The fees and initial offering discount are being amortized as interest expense over 10 years. The market value of the 6.625% senior notes was approximately $114.4 million at December 31, 1999. (4) Senior debentures, 6.875%, interest payable semiannually on June 15 and December 15, beginning December 15, 1998, principal to be paid in full on June 15, 2018. Proceeds from issuance of debentures totaled $171.9 million, net of fees and initial offering discount of $3.1 million. The fees and initial offering discount are being amortized as interest expense over 20 years. The market value of the 6.875% senior debentures was approximately $149.2 million at December 31, 1999. 80 81 (5) Convertible notes, 1.5%, interest payable semiannually on June 1 and December 1, beginning June 1, 2000, principal to be paid in full on December 1, 2002. Proceeds from issuance of convertible notes totaled $984.8 million, net of fees and initial offering discount of $15.2 million. The fees and initial offering discount are being amortized as interest expense over three and five years, respectively. The notes are convertible into the Company's common stock at any time prior to maturity, at a conversion price of 9.45 shares per each $1,000 principal amount of convertible notes, subject to adjustment in certain circumstances. The Company has reserved 9,453,582 of its common stock for the conversion of these notes. The carrying value of the 1.5% convertible notes approximated fair value at December 31, 1999. (6) Domestic revolving long-term line of credit facility payable to banks, interest only through September 2000, payable quarterly, rate based upon prime, LIBOR or Fed funds rate, at the Company's discretion, principal to be paid in full by June 2005, secured by 100% of the Common Stock of the Company's wholly owned subsidiaries. This $2 billion facility converts into a reducing revolving line of credit on the last business day of September 2000, with quarterly repayment of the principal to begin on that date and continue quarterly through the last business day of June 2005, when the commitment must be paid in full. Of the $1.3 billion undrawn, $12.1 million is unavailable due to letters of credit. This leaves $1.2 billion available at December 31, 1999 for future borrowings under the credit facility. (7) Multi-currency revolving long-term line of credit facility with interest payable quarterly, rate based upon prime or LIBOR for U. S. dollar borrowings and for offshore currencies, based on offered quotations in the applicable currency and Interbank Market. $516.1 million remains undrawn, secured by 100% of the Common Stock of the Company's wholly owned subsidiaries. The $1 billion facility matures on August 10, 2000 at which time the Company has the option to convert this facility to a four-year tem loan. This credit facility allows for borrowings in various foreign currencies, which the Company intends to use to hedge net assets in those currencies. (8) On December 14, 1999 the Company completed a tender offer for the 10.125% senior subordinated notes due June 15, 2006; 9.75% senior subordinated notes due December 15, 2006; 8.75% senior subordinated notes due June 15, 2007; and 8.0% senior subordinated notes due February 15, 2010. An agent acting on behalf of the Company redeemed notes with a face value of approximately $516.6 million. Cash settlement of the amount due to the agent was completed on January 14, 2000 and was funded through the domestic credit facility. Including premiums, discounts, and agency fees, the Company is recognizing approximately $13.2 million as an extraordinary charge against net income, net of tax of approximately $8.1 million. After redemption, approximately $1.2 million of the notes remain outstanding. (9) Approximately $604.3 million and $103.7 million of the Company's debt is denominated in foreign currencies at December 31, 1999 and 1998, respectively. This debt acts as a natural hedge of a portion of the Company's investment in net assets of foreign subsidiaries. Currency translation gains and (losses) related to such debt was $24.4 million, $(3.0) million and $-0- in 1999, 1998 and 1997, respectively. The Company's current line of credit agreement with banks contains certain covenants that substantially restrict, among other matters, the payment of cash dividends and the pledging of assets. 81 82 Future maturities of long-term debt at December 31, 1999 are as follows: In thousands of dollars 2000 $ 30,361 2001 1,726 2002 1,209 2003 1,037,026 2004 1,106,775 Thereafter 1,946,807 ------------- $ 4,123,904 =============
The Company currently hedges a portion of its outstanding debt with interest rate swap agreements that effectively fix the interest at rates from 4.5% to 8.0% on $60.6 million of its current borrowings. These agreements expire from April 2000 to December 2000. The fair value of these agreements at December 31, 1999, and settlements of interest during 1999 were not material. NOTE E - LIQUID YIELD OPTION NOTES The Company assumed two issues of Liquid Yield Option Notes ("LYONs") as a part of the merger with Jacor on May 4, 1999. LYONs due 2018: The Company assumed 4 3/4% LYONs due 2018 with a fair value of $225.4 million. Each LYON has a principal amount at maturity of $1,000 and is convertible, at the option of the holder, at any time on or prior to maturity, into the Company's common stock at a conversion rate of 7.227 shares per LYON. The LYONs due 2018, had a balance, net of redemptions, conversions to common stock, amortization of premium, and accretion of interest, at December 31, 1999, of $229.9 million and approximate fair value of $286.0 million. At December 31, 1999, approximately 3.1 million shares of common stock were reserved for the conversion of the LYONs due 2018. The LYONs due 2018 are not redeemable by the Company prior to February 9, 2003. Thereafter, the LYONs are redeemable for cash at any time at the option of the Company in whole or in part, at redemption prices equal to the issue price plus accrued original issue discount to the date of redemption. The LYONs due 2018 can be purchased by the Company, at the option of the holder, on February 9, 2003, February 9, 2008, and February 9, 2013, for a purchase price of $494.52, $625.35 and $790.79, respectively, representing a 4 3/4% yield per annum to the holder on such date. The Company, at its option, may elect to pay the purchase price on any such purchase date in cash or common stock, or any combination thereof. LYONs due 2011: The Company assumed 5 1/2% LYONs due 2011 with a fair value of $264.8 million. Each LYON has a principal amount at maturity of $1,000 and is convertible, at the option of the holder, at any time on or prior to maturity, into the Company's common stock at a conversion rate of 15.522 shares per LYON. The LYONs due 2011 had a balance, net of redemptions, conversions to common stock, amortization of premium, and accretion of interest, at December 31, 1999, of $260.9 million and approximate fair value of 82 83 $344.8 million. At December 31, 1999, approximately 3.9 million shares of common stock were reserved for the conversion of the LYONs due 2011. The LYONs due 2011 are not redeemable by the Company prior to June 12, 2001. Thereafter, the LYONs are redeemable for cash at any time at the option of the Company in whole or in part, at redemption prices equal to the issue price accrued plus original issue discount to the date of redemption. The LYONs due 2011 can be purchased by the Company, at the option of the holder, on June 12, 2001 and June 12, 2006 for a purchase price of $581.25 and $762.39, respectively, representing a 5 1/2 yield per annum to the holder on such date. The Company, at its option, may elect to pay the purchase price on any such purchase date in cash or common stock, or any combination thereof. NOTE F - COMMITMENTS The Company leases office space, certain broadcasting facilities, equipment and the majority of the land occupied by its outdoor advertising structures under long-term operating leases. Some of the lease agreements contain renewal options and annual rental escalation clauses (generally tied to the consumer price index or a maximum of 5%), as well as provisions for the payment of utilities and maintenance by the Company. As of December 31, 1999, the Company's future minimum rental commitments, under noncancelable lease agreements with terms in excess of one year, consist of the following: In thousands of dollars 2000 $ 160,910 2001 140,884 2002 116,985 2003 88,319 2004 73,420 Thereafter 464,070 ------------ $ 1,044,588 ============
Rent expense charged to operations for 1999, 1998 and 1997 was $306.4 million, $200.6 million and $76.5 million, respectively. NOTE G - CONTINGENCIES From time to time, claims are made and lawsuits are filed against the Company, arising out of the ordinary business of the Company. In the opinion of the Company's management, liabilities, if any, arising from these actions are either covered by insurance or accrued reserves, or would not have a material adverse effect on the financial condition of the Company. In various areas in which the Company operates, outdoor advertising is the object of restrictive and, in some cases, prohibitive zoning and other regulatory provisions, either enacted or proposed. The impact to the Company of loss of displays due to governmental action has been somewhat mitigated by federal and state laws mandating compensation for such loss and constitutional restraints. 83 84 NOTE H - INCOME TAXES Significant components of the provision for income taxes are as follows: In thousands of dollars
1999 1998 1997 ----------- ---------- ----------- Current - federal $ 82,452 $ 36,084 $ 28,321 Deferred - domestic 43,386 35,329 18,299 Deferred - foreign (10,049) -- -- State 14,547 3,156 3,012 Foreign 14,324 (373) -- ----------- ---------- ----------- Total $ 144,660 $ 74,196 $ 49,632 =========== ========== ===========
Included in current-federal is $2.1 million, $1.8 million and $2.5 million for 1999, 1998 and 1997, respectively, related to taxes on other income from nonconsolidated affiliates, which has been included as a reduction in equity in earnings (loss) of nonconsolidated affiliates. Also, $8.1 million of benefit related to the extraordinary loss resulting from early extinguishment of long-term debt is included in current - federal for 1999. The remaining $150.7 million, $72.4 million and $47.1 million for 1999, 1998 and 1997, respectively, have been reflected as income tax expense. Significant components of the Company's deferred tax liabilities and assets as of December 31, 1999 and 1998 are as follows: In thousands of dollars
1999 1998 ------------- ------------- Deferred tax liabilities: Fixed assets $ 297,772 $ 227,432 Intangibles 860,916 41,493 Unrealized gain in marketable securities 181,114 86,792 Foreign 98,720 94,366 Other 1,235 1,473 Deferred income 377 -- ------------- ------------- Total deferred tax liabilities 1,440,134 451,556 Deferred tax assets: Deferred income -- 3,355 Operating loss carryforwards 84,934 67,155 Accrued expenses 10,651 13,165 Bad debt reserves 6,271 3,160 Accrued interest 8,006 -- Bond premiums 76,864 -- Other 1,242 994 ------------- ------------- Total gross deferred tax assets 187,968 87,829 Valuation allowance 37,617 19,837 ------------- ------------- Total deferred tax assets 150,351 67,992 ------------- ------------- Net deferred tax liabilities $ 1,289,783 $ 383,564 ============= =============
84 85 The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense is: In thousands of dollars
1999 1998 1997 ---------------------- ---------------------- ---------------------- Amount Percent Amount Percent Amount Percent -------- ------- ------- ------- -------- ------- Income tax expense at statutory rates $ 75,996 35% $ 44,880 35% $ 38,772 35% State income taxes, net of federal tax benefit 18,084 8% 5,108 4% 1,958 2% Amortization of goodwill 54,279 25% 21,365 17% 7,093 6% Other, net (3,699) (2)% 2,843 2% 1,809 2% --------- ---- --------- ------ --------- ------ $ 144,660 66% $ 74,196 58% $ 49,632 45% ========= ==== ========= ====== ========= ======
The Company has certain net operating loss carryforwards amounting to $228.4 million, which expire in the year 2018. Approximately $162.4 million in operating loss carryforwards was generated by certain acquired companies prior to their acquisition by the Company. During the current year, the Company did not utilize any net operating loss carryforwards. The Company established a valuation allowance against its operating loss carryforwards generated by certain companies acquired during 1998 and 1999 following an assessment of the likelihood of realizing such amounts. The amount of the valuation allowance was based on past operating history as well as statutory restrictions on the use of operating losses from acquisitions, tax planning strategies and its expectation of the level and timing of future taxable income. NOTE I - CAPITAL STOCK STOCK SPLITS AND DIVIDENDS: In May 1998 the Board of Directors authorized a two-for-one stock split distributed on July 28, 1998 to stockholders of record on July 21, 1998. A total of 124.2 million shares were issued in connection with the stock split. All share, per share, stock price and stock option amounts shown in the financial statements (except the Consolidated Statement of Changes in Shareholders' Equity) and related footnotes have been restated to reflect the stock split. ELLER PUT/CALL AGREEMENT: The Company granted to the former Eller stockholders certain demand and piggyback registration rights relating to the shares of common stock received by them. The holders of the approximately 7% of the outstanding capital stock of Eller, not purchased by the Company in April 1997, had the right to put such stock to the Company for approximately 2.2 million shares of the Company's common stock until April 10, 2002. During 1998, the former Eller stockholders exercised their put right for 260,000 shares of the Company's common stock. In June 1999, the former Eller stockholders and the Company terminated the put rights agreement and at which time the Eller stockholders received the remaining 1.9 million shares of the Company's common stock. 85 86 RECONCILIATION OF EARNINGS PER SHARE: In thousands of dollars, except per share data
1999 1998 1997 ----------- ----------- ----------- NUMERATOR: Net income before extraordinary item $ 85,655 $ 54,031 $ 63,576 Extraordinary item (13,185) -- -- ----------- ----------- ----------- Net income 72,470 54,031 63,576 Effect of dilutive securities: Eller put/call option agreement (2,300) (4,299) (2,577) Convertible debt - 2.625% issued in 1998 9,811* 7,358 -- Convertible debt - 1.5% issued in 1999 964* -- -- LYONs - 1996 issue (311) -- -- LYONs - 1998 issue 2,944* -- -- Less: Anti-dilutive items (13,719) -- -- ----------- ----------- ----------- (2,611) 3,059 (2,577) Numerator for net income per common share - diluted $ 69,859 $ 57,090 $ 60,999 =========== =========== =========== DENOMINATOR: Weighted-average common shares 312,610 236,060 176,960 Effect of dilutive securities: Stock options and common stock warrants 8,395 4,098 4,440 Eller put/call option agreement 847 1,972 1,630 Convertible debt - 2.625% issued in 1998 9,282* 6,993 -- Convertible debt - 1.5% issued in 1999 927* -- -- LYONs - 1996 issue 2,556 -- -- LYONs - 1998 issue 2,034* -- -- Less: Anti-dilutive items (12,243) -- -- ----------- ----------- ----------- 11,798 13,063 6,070 Denominator for net income per common share - diluted 324,408 249,123 183,030 =========== =========== =========== Net income per common share: Basic: Net income before extraordinary item $ .27 $ .23 $ .36 Extraordinary item (.04) -- -- ----------- ----------- ----------- Net income $ .23 $ .23 $ .36 =========== =========== =========== Diluted: Net income before extraordinary item $ .26 $ .22 $ .33 Extraordinary item (.04) -- -- ----------- ----------- ----------- Net income $ .22 $ .22 $ .33 =========== =========== ===========
* Denotes items that are anti-dilutive to the calculation of earnings per share. 86 87 STOCK OPTIONS The Company has granted options to purchase its common stock to employees and directors of the Company and its affiliates under various stock option plans at no less than the fair market value of the underlying stock on the date of grant. These options are granted for a term not exceeding ten years and are forfeited in the event the employee or director terminates his or her employment or relationship with the Company or one of its affiliates. All option plans contain antidilutive provisions that require the adjustment of the number of shares of the Company common stock represented by each option for any stock splits or dividends. The following table presents a summary of the Company's stock options outstanding at and stock option activity during the years ended December 31, 1999, 1998 and 1997. In thousands, except per share data
Weighted Average Exercise Price Options (1) Per Share ----------- --------- Options outstanding at January 1, 1997 3,276 5.00 Options granted in acquisitions 2,936 7.00 Options granted 692 22.00 Options exercised (990) 3.00 Options forfeited (56) 17.00 ------ Options outstanding at December 31, 1997 5,858 8.00 ====== Weighted-average fair value of options granted during 1997 18.00 Options outstanding at January 1, 1998 5,858 8.00 Options granted in acquisitions 215 25.00 Options granted 1,401 44.00 Options exercised (1,339) 5.00 Options forfeited (128) 43.00 ------ Options outstanding at December 31, 1998 6,007 17.00 ====== Weighted-average fair value of options granted during 1998 21.00 Options outstanding at January 1, 1999 6,007 17.00 Options granted in acquisitions 3,666 28.00 Options granted 1,580 63.00 Options exercised (2,989) 13.00 Options forfeited (214) 38.00 ------ Options outstanding at December 31, 1999 (2) 8,050 32.00 ====== Weighted-average fair value of options granted during 1999 26.00
(1) Adjusted to reflect two-for-one stock split paid on July 1998. (2) Vesting dates range from February 2000 to December 2004, and expiration dates range from February 2000 to February 2009 at exercise prices ranging from $2.08 to $86.00, with an average contractual 87 88 remaining life of five years. Of the 8.1 million options outstanding at December 31, 1999, 5.0 million were exercisable at a weighted-average exercise price of $25.10. There were 8.7 million shares available for future grants under the various option plans at December 31, 1999. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1999, 1998 and 1997: risk-free interest rates of 6.0%, 5.0% and 6.0% for 1999, 1998 and 1997, respectively; a dividend yield of 0%; the volatility factors of the expected market price of the Company's common stock used was 30%, 36% and 31% for 1999, 1998 and 1997, respectively; and the weighted-average expected life of the option was six, six and five years for 1999, 1998 and 1997, respectively. Pro forma net income and earnings per share, assuming that the Company had accounted for its employee stock options using the fair value method and amortized such to expense over the options' vesting period is as follows:
1999 1998 1997 ---- ---- ---- Net income before extraordinary item (in thousands) As reported $ 85,655 $ 54,031 $ 63,576 Pro forma $ 70,781 $ 47,982 $ 61,739 Net income before extraordinary item per common share Basic: As reported $ .27 $ .23 $ .36 Pro forma $ .23 $ .20 $ .35 Diluted: As reported $ .26 $ .22 $ .33 Pro forma $ .21 $ .20 $ .33
In February 1991, CCTV, a wholly owned subsidiary of the Company, adopted the 1991 Non-Qualified Stock Option Plan which authorized the granting of options to purchase 50,000 shares of CCTV Common Stock. In February 1993, CCTV elected to discontinue the granting of options under this plan. In 1998, the Company offered to repurchase the outstanding options. Options were valued at $7.1 million by an outside consulting firm and recorded in "Other income (expense) - net" as compensation expense in 1998. Option holders were paid in January 1999. At December 31, 1999, common shares reserved for future issuance under the Company's various stock option plans aggregated 16.9 million shares including 8.1 million options currently granted. COMMON STOCK RESERVED FOR FUTURE ISSUANCE Common stock is reserved for future issuances of, approximately 16.9 million shares for issuance upon the various stock option plans to purchase the Company's common stock, 9.3 million shares for issuance upon conversion of the Company's 2?% Senior Convertible Notes, 9.5 million for issuance upon conversion of the Company's 1 1/2% Senior Convertible Notes, 7.0 million for issuance upon conversion of the Company's LYONs, 5.5 million for issuance upon conversion of the Company's Common Stock Warrants and approximately 243.6 million shares are reserved for issuance upon consummation of pending mergers. 88 89 NOTE J - EMPLOYEE BENEFIT PLANS The Company has various 401(K) savings and other plans for the purpose of providing retirement benefits for substantially all employees. Both the employees and the Company make contributions to the plan. The Company matches a portion of an employee's contribution. Company matched contributions vest to the employees based upon their years of service to the Company. Contributions to these plans of $7.9 million, $3.8 million and $1.2 million were charged to expense for 1999, 1998 and 1997, respectively. NOTE K - OTHER INFORMATION In thousands of dollars
For the year ended December 31, ---------------------------------------------- 1999 1998 1997 ----------- ---------- --------- The following details the components of "Other income (expense) - net": Realized gains on sale of marketable securities $ 22,930 $ 39,221 $ 10,019 Gain (loss) on disposal of fixed assets 2,897 (13,845) 1,129 Minority interest (2,769) (327) (848) Interest income from notes receivable 5,403 2,635 -- Compensation expense relating to subsidiary options -- (8,791) -- IRS and legal settlements -- (7,400) -- Charitable contribution of treasury shares (4,102) -- -- Other (4,150) 1,317 1,279 ----------- ---------- --------- Total Other Income (Expense) - net $ 20,209 $ 12,810 $ 11,579 =========== ========== ========= The following details the income tax expense (benefit) on items of other comprehensive income: Foreign currency translation adjustments $ 3,036 $ 3,124 $ (2,727) Unrealized gains on securities: Unrealized holding gains arising during period $ 98,170 $ 87,729 $ 12,791 Less: reclassification adjustments for gains included in net income $ (8,026) $ (13,727) -- As of December 31, ----------------------------- 1999 1998 ----------- --------- The following details the components of "Other current assets": Current film rights $ 19,584 $ 14,468 Inventory 42,672 9,937 Prepaid expenses 35,791 34,035 Other 25,438 7,650 ----------- --------- Total Other Current Assets $ 123,485 $ 66,090 =========== =========
89 90 The following details the components of "Other current liabilities": Deferred income - current $ 54,113 $ 7,628 Current portion of film rights liability 20,662 15,657 ---------- ---------- Total Other Current Liabilities $ 74,775 $ 23,285 ========== ========== The following details the components of "Other comprehensive income": Cumulative currency translation adjustment $ (45,851) $ 1,963 Cumulative unrealized gain on investments 328,596 161,185 ---------- ---------- Total Other Comprehensive Income $ 282,745 $ 163,148 ========== ==========
NOTE L - SUBSEQUENT EVENTS AMFM Merger: In order to obtain FCC approval to close the AMFM merger, the Company may need to divest between 110 and 115 radio stations in the aggregate in approximately 37 markets or geographical areas. The Company may need to make additional divestitures of radio stations or other assets or interests in order to gain the approval of the federal and state antitrust authorities for the merger. At March 13, 2000, the Company has signed definitive agreements to sell 110 of these radio stations for an aggregated sales price of $4.3 billion. These definitive agreements are subject to the closing of the AMFM merger, regulatory approvals and other closing conditions. SFX Merger: On February 28, 2000, the Company entered into a definitive agreement to merge with SFX Entertainment, Inc. ("SFX"). SFX is one of the world's largest diversified promoter producer and venue operator of live entertainment events. This merger will be a tax-free, stock-for-stock transaction. Each SFX Class A shareholder will receive 0.6 shares of the Company's common stock for each SFX share and each SFX Class B shareholder will receive one share of the Company's common stock for each SFX share, on a fixed exchange basis, valuing the merger at approximately $3.3 billion plus the assumption of SFX's debt. This merger is subject to regulatory and other closing conditions, including the approval from the SFX shareholders. The Company anticipates that this merger will close during the second half of 2000. NOTE M - SEGMENT DATA The Company is managed based on two principal business segments -- broadcasting and outdoor advertising. At December 31, 1999, the broadcasting segment included 486 radio stations and 15 television stations for which the Company is the licensee and 26 radio stations and nine television stations operated under lease management or time brokerage agreements. Of these stations, 534 operate in 123 domestic markets and two stations operate in one international market. The broadcasting segment also operates 14 radio networks. At December 31, 1999, the outdoor segment owned 549,257 advertising display faces and operated 5,900 displays under lease management agreements. Of these 555,157 display faces, 133,097 are in over 43 domestic markets and the remaining 422,060 displays are in over 23 international markets. Substantially all revenues represent income from unaffiliated companies. 90 91 In thousands of dollars
1999 1998 1997 ----------- ----------- ---------- Net revenue Broadcasting $ 1,426,683 $ 648,877 $ 489,633 Outdoor 1,251,477 702,063 207,435 ----------- ----------- ---------- Consolidated $2,678,160 $ 1,350,940 $ 697,068 Operating expenses Broadcasting $ 848,734 $ 373,452 $ 286,314 Outdoor 783,381 393,813 108,090 ----------- ----------- ---------- Consolidated $1,632,115 $ 767,265 $ 394,404 Depreciation Broadcasting $ 62,159 $ 36,581 $ 24,815 Outdoor 201,083 97,461 26,885 ----------- ----------- ---------- Consolidated $ 263,242 $ 134,042 $ 51,700 Amortization of intangibles Broadcasting $ 287,776 $ 70,762 $ 41,568 Outdoor 171,215 100,168 20,939 ----------- ----------- ---------- Consolidated $ 458,991 $ 170,930 $ 62,507 Operating income Broadcasting $ 188,807 $ 148,571 $ 122,971 Outdoor 64,859 92,307 44,603 ----------- ----------- ---------- Consolidated $ 253,666 $ 240,878 $ 167,574 Total identifiable assets Broadcasting $11,764,963 $ 2,652,428 $2,151,601 Outdoor 5,056,549 4,887,490 1,304,036 ----------- ----------- ---------- Consolidated $16,821,512 $ 7,539,918 $3,455,637 Capital expenditures Broadcasting $ 84,605 $ 46,814 $ 15,924 Outdoor 154,133 95,124 15,032 ----------- ----------- ---------- Consolidated $ 238,738 $ 141,938 $ 30,956
Net revenue of $567,189, $175,132 and -0- and identifiable assets of $1,324,970, $1,245,132 and -0- derived from the Company's foreign operations are included in the data above for the years ended December 31, 1999, 1998 and 1997, respectively. 91 92 NOTE N - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) In thousands of dollars, except per share data
March 31, June 30, September 30, December31, -------------------- -------------------- -------------------- ----------------- 1999 1998 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ---- ---- ---- ---- Gross revenue $ 421,607 $ 229,849 $ 696,130 $ 360,961 $ 887,854 $ 434,597 $ 986,427 $ 497,144 Net revenue $ 376,787 $ 203,642 $ 617,691 $ 320,028 $ 796,157 $ 385,885 $ 887,525 $ 441,385 Operating expenses 244,822 123,774 356,549 165,568 495,800 228,220 534,944 249,703 Depreciation and amortization 110,648 43,011 154,379 70,428 208,627 87,982 248,579 103,551 Corporate expenses 12,447 5,909 15,884 7,870 16,254 11,960 25,561 12,086 --------- --------- --------- --------- --------- --------- --------- --------- Operating income 8,870 30,948 90,879 76,162 75,476 57,723 78,441 76,045 Interest expense 31,832 25,701 47,010 28,032 54,090 40,822 59,389 41,211 Gain on sale of stations -- -- 136,925 -- -- -- 1,734 -- Other income (expenses) 10,919 2,795 4,048 7,403 907 3,218 4,335 (606) --------- --------- --------- --------- --------- --------- --------- --------- Income (loss) before income, taxes, equity in earnings (loss) of non-consolidated affiliates and extraordinary items (12,043) 8,042 184,842 55,533 22,293 20,119 25,121 34,228 Income taxes 2,889 4,259 79,962 32,360 23,695 12,147 44,089 23,587 --------- --------- --------- --------- --------- --------- --------- --------- Income (loss) before equity in earnings (loss) of non- consolidated affiliates and extraordinary items (14,932) 3,783 104,880 23,173 (1,402) 7,972 (18,968) 10,641 Equity in earnings (loss) of nonconsolidated affiliates 2,196 1,796 1,620 4,736 2,925 3,530 9,336 (1,600) --------- --------- --------- --------- --------- --------- --------- --------- Income (loss) before extraordinary item (12,736) 5,579 106,500 27,909 1,523 11,502 (9,632) 9,041 Extraordinary item -- -- -- -- -- -- (13,185) -- --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss) $ (12,736) $ 5,579 $ 106,500 $ 27,909 $ 1,523 $ 11,502 $(22,817) $ 9,041 ========= ========= ========= ========= ========= ========= ======== ========= Net income (loss) per common share: (1) Basic: Income (loss) before extraordinary item $ (.05) $ .03 $ .35 $ .11 $ .00 $ .05 $ (.03) .04 Extraordinary item -- -- -- -- -- -- (.04) -- --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss) $ (.05) $ .03 $ .35 $ .11 $ .00 $ .05 $ (.07) $ .04 ========= ========= ========= ========= ========= ========= ======== ========= Diluted: Income (loss) before extraordinary item $ (.05) $ .02 $ .33 $ .11 $ .00 $ .05 $ (.03) $ .04 Extraordinary item -- -- -- -- -- -- (.04) -- --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss) $ (.05) $ .02 $ .33 $ .11 $ .00 $ .05 $ (.07) $ .04 ========= ========= ========= ========= ========= ========= ======== ========= Stock price: (1) High $ 67.4375 $ 50.0315 $ 74.0000 $ 54.5625 $ 79.8750 $ 61.7500 $ 90.2500 $ 54.5000 Low 53.1250 36.7190 65.0625 44.0625 64.3750 40.3750 71.2500 36.1250
(1) Adjusted for two-for-one stock split declared by Board of Directors in May 1998. The Company's Common Stock is traded on the New York Stock Exchange under the symbol CCU. 92 93 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable 93 94 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT We believe that one of our most important assets is our experienced management team. With respect to our operations, general managers are responsible for the day-to-day operation of their respective broadcasting stations or outdoor branch locations. We believe that the autonomy of our general managers enables us to attract top quality managers capable of implementing our aggressive marketing strategy and reacting to competition in the local markets. Most general managers have options to purchase our common stock. As an additional incentive, a portion of each manager's compensation is related to the performance of the profit centers for which he or she is responsible. In an effort to monitor expenses, corporate management routinely reviews staffing levels and operating costs. Combined with the centralized accounting functions, this monitoring enables us to control expenses effectively. Corporate management also advises local general managers on broad policy matters and is responsible for long-range planning, allocating resources, and financial reporting and controls. The information required by this item with respect to the directors and nominees for election to our Board of Directors is incorporated by reference to the information set forth under the caption "Election of Directors" and "Compliance With Section 16(A) of the Exchange Act," in our Definitive Proxy Statement, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year end. The following information is submitted with respect to our executive officers as of December 31, 1999.
Age on December 31, Officer Name 1999 Position Since L. Lowry Mays 64 Chairman/Chief Executive Officer 1972 Mark P. Mays 36 President/ Chief Operating Officer 1989 Randall T. Mays 34 Executive Vice President/Chief Financial Officer 1993 Herbert W. Hill, Jr. 40 Senior Vice President/Chief Accounting Officer 1989 Kenneth E. Wyker 38 Senior Vice President/Legal Affairs 1993 W. A. Ripperton Riordan 42 Executive Vice President/Chief Operating Officer - 1995 Television Karl Eller 71 Chief Executive Officer - Eller Media 1997 Mark Hubbard 50 Senior Vice President/Corporate Development 1998 Roger Parry 46 Chief Executive Officer - Clear Channel International 1998 Paul Meyer 57 President/Chief Operating Officer - Eller Media 1999 Juliana F. Hill 30 Vice President/Finance and Strategic Development 1999 Randy Michaels 47 President of Radio 1999
The officers named above serve until the next Board of Directors meeting immediately following the Annual Meeting of Shareholders. Mr. L. Mays is our founder and was our President and Chief Executive Officer from 1972 to February 1997. Since that time, Mr. L. Mays has served as our Chairman and Chief Executive Officer. He has been one of our directors since our inception. Mr. L. Mays is the father of Mark P. Mays and 94 95 Randall T. Mays, who serve as our President/Chief Operating Officer and our Executive Vice President/Chief Financial Officer, respectively. Mr. M. Mays was our Senior Vice President of Operations from February 1993 until his appointment as our President/Chief Operating Officer in February 1997. He has been one of our directors since May 1998. Mr. M. Mays is the son of L. Lowry Mays, our Chairman/Chief Executive Officer and the brother of Randall T. Mays, our Executive Vice President/Chief Financial Officer. Mr. R. Mays was appointed Executive Vice President/Chief Financial Officer in February 1997. Prior thereto, he was our Vice President/Treasurer since he joined us in January 1993. Mr. R. Mays is the son of L. Lowry Mays, our Chairman/Chief Executive Officer and the brother of Mark P. Mays, our President/Chief Operating Officer. Mr. Hill was appointed Senior Vice President/Chief Accounting Officer in February 1997. Prior thereto, he was our Vice President/Controller since January 1989. Mr. Wyker was appointed Senior Vice President for Legal Affairs in February 1997. Prior thereto he was Vice President for Legal Affairs since he joined us in July 1993. Mr. Riordan was appointed Executive Vice President/Chief Operating Officer - Television in November 1995. Prior thereto he was the Vice President/General Manager of Clear Channel Television for the remainder of the relevant five-year period. Mr. Eller was appointed Chief Executive Officer - Eller Media in April 1997. Prior thereto, he was the Chief Executive Officer of Eller Media Company from August 1995 to April 1997 and he was the Chief Executive Officer of Eller Outdoor Advertising for the remainder of the relevant five-year period. Mr. Eller is the father of Scott Eller, who served as the President - Eller Media until March 1999 and who currently serves as the Vice-Chairman of Eller Media. Mr. Hubbard was appointed Senior Vice President/Corporate Development in April 1998. Prior thereto he had worked as an independent consultant in the broadcasting industry from July 1994. Prior thereto, he was President of Fairmont Communications for the remainder of the relevant five-year period. Mr. Parry was appointed Chief Executive Officer - Clear Channel International in June 1998. Prior thereto, he was the Chief Executive of More Group plc from October 1995 to June 1998 and he was the Group Vice President of Carat North America for the remainder of the relevant five-year period. Mr. Meyer was appointed President - Eller Media in March 1999. Prior thereto he was the Executive Vice President and General Counsel of Eller Media Company from March 1996 to March 1999 and he was the Managing Partner of Meyer, Hendricks Bivens & Moyes for the remainder of the relevant five-year period. Ms. Hill was appointed Vice President/Finance and Strategic Development in March 1999. Prior thereto she was an Associate at US WEST Communications from August 1998 to March 1999 and she was a student at J.L. Kellogg Graduate School of Management, Northwestern University from September 1996 to June 1998. She was an Audit Manager of Ernst & Young LLP for the remainder of the relevant five-year period. 95 96 Mr. Michaels was appointed President of Radio in May 1999. Prior thereto he was the Chief Executive Officer of Jacor Communications, Inc. from November 1996 to May 1999 and he was President and Company Chief Operating Officer of Jacor Communications, Inc. for the remainder of the relevant five-year period. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the information set forth under the caption "Executive Compensation" in our Definitive Proxy Statement, expected to be filed within 120 days of our fiscal year end. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to our Definitive Proxy Statement under the headings "Security Ownership of Certain Beneficial Owners and Management", expected to be filed within 120 days of our fiscal year end. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to our Definitive Proxy Statement under the heading "Certain Transactions", expected to be filed within 120 days of our fiscal year end. 96 97 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a)1. Financial Statements. The following consolidated financial statements are included in Item 8. Consolidated Balance Sheets as of December 31, 1999 and 1998 Consolidated Statements of Earnings for the Years Ended December 31, 1999, 1998 and 1997. Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1999, 1998 and 1997. Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997. Notes to Consolidated Financial Statements (a)2. Financial Statement Schedule. The following financial statement schedule for the years ended December 31, 1999, 1998 and 1997 and related report of independent auditors are filed as part of this report and should be read in conjunction with the consolidated financial statements. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 97 98 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Allowance for Doubtful Accounts In thousands of dollars
Charges Balance at to Costs, Write-off Balance Beginning Expenses of Accounts at end of Description of period and other Receivable Other (1) Period --------------- ------------- ------------- --------------- ------------- --------- Year ended December 31, 1997 $ 6,067 $ 4,006 $ 4,474 $ 4,251 $ 9,850 ========= ========= ========= ======== ========= Year ended December 31, 1998 $ 9,850 $ 6,031 $ 7,840 $ 5,467 $ 13,508 ========= ========= ========= ======== ========= Year ended December 31, 1999 $ 13,508 $ 12,975 $ 15,640 $ 15,252 $ 26,095 ========= ========= ========= ======== =========
(1) Allowance for accounts receivable acquired in acquisitions net of deletions related to dispositions. 98 99 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Deferred Tax Asset Valuation Allowance In thousands of dollars
Charges Balance at to Costs, Balance Beginning Expenses at end of Description of period and other Deletions Other (1) Period --------------- ------------- ------------- --------------- ------------- --------- Year ended December 31, 1997 $ -- $ -- $ -- $ -- $ -- ========= ========= ========= ======== ========= Year ended December 31, 1998 $ -- $ -- $ -- $ 19,837 $ 19,837 ========= ========= ========= ======== ========= Year ended December 31, 1999 $ 19,837 $ -- $ -- $ 17,780 $ 37,617 ========= ========= ========= ======== =========
(1) Related to allowance for net operating loss carryforwards assumed in acquisitions. 99 100 (a)3. Exhibits.
EXHIBIT NUMBER DESCRIPTION 2.1 Agreement and Plan of Merger dated as of October 8, 1998, as amended on November 11, 1998, among Clear Channel Communications, Inc., CCU Merger Sub, Inc. and Jacor Communications, Inc. (incorporated by reference to Annex A to the Company's Registration Statement on Form S-4 (Reg. No. 333-72839) dated February 23, 1999). 2.2 Agreement and Plan of Merger dated as of October 2, 1999, among Clear Channel, CCU Merger Sub, Inc. and AMFM Inc. (incorporated by reference to the exhibits of Clear Channel's Current Report on Form 8-K filed October 5, 1999.) 2.3 Agreement and Plan of Merger dated as of February 28, 2000, among Clear Channel, CCU II Merger Sub, Inc. and SFX Entertainment, Inc. (incorporated by reference to the exhibits of Clear Channel's Current Report on Form 8-K filed February 29, 2000.) 3.1 Current Articles of Incorporation of the Company (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997). 3.2 Second Amended and Restated Bylaws of the Company (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997). 3.3 Amendment to the Company's Articles of Incorporation (incorporated by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 3.4 Second Amendment to Clear Channel's Articles of Incorporation (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999) 4.1 Buy-Sell Agreement by and between Clear Channel Communications, Inc., L. Lowry Mays, B. J. McCombs, John M. Schaefer and John W. Barger, dated May 31, 1977 (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-1 (Reg. No. 33-289161) dated April 19, 1984). 4.2 Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and The Bank of New York as Trustee (incorporated by reference to exhibit 4.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 4.3 First Supplemental Indenture dated March 30, 1998 to Senior Indenture dated October 1, 1997, by and between the Company and The Bank of New York, as Trustee (incorporated by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).
100 101
EXHIBIT NUMBER DESCRIPTION 4.4 Second Supplemental Indenture dated June 16, 1998 to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and the Bank of New York, as Trustee (incorporated by reference to the exhibits to the Company's Current Report on Form 8-K dated August 27, 1998). 4.5 Third Supplemental Indenture dated June 16, 1998 to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and the Bank of New York, as Trustee (incorporated by reference to the exhibits to the Company's Current Report on Form 8-K dated August 27, 1998). 4.6 Fourth Supplement Indenture dated November 24, 1999 to Senior Indenture dated October 1, 1997, by and between Clear Channel and The Bank of New York as Trustee. 10.1 Incentive Stock Option Plan of Clear Channel Communications, Inc. as of January 1, 1984 (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-1 (Reg. No. 33-289161) dated April 19, 1984). 10.2 Clear Channel Communications, Inc. 1994 Incentive Stock Option Plan (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.3 Clear Channel Communications, Inc. 1994 Nonqualified Stock Option Plan (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.4 Clear Channel Communications, Inc. Directors' Nonqualified Stock Option Plan (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.5 Option Agreement for Officer (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.6 First Amendment to the Credit Facility dated September 17, 1997 (incorporated by reference to exhibit 4.1 to the Company's Current Report on Form 8-K filed October 14, 1997). 10.7 Registration Rights Agreements dated as October 8, 1998, by and among the Company and the Zell/Chilmark Fund, L.P., Samstock, L.L.C., the SZ2 (IGP) Partnership and Samuel Zell (incorporated by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 10.8 Second Amendment to the Credit Facility dated November 7, 1997. (incorporated by reference to the exhibits to the Company's Annual Report on Form 10-K filed March 31, 1998.) 10.9 Third Amendment to the Credit Facility dated December 29, 1997. (incorporated by reference to the exhibits to the Company's Annual Report on Form 10-K filed March 31, 1998.)
101 102
EXHIBIT NUMBER DESCRIPTION 10.10 The Clear Channel Communications, Inc. 1998 Stock Incentive Plan (incorporated by reference to Appendix A to the Company's Definitive 14A Proxy Statement dated March 24, 1998). 10.11 Voting Agreement dated as of October 8, 1998, by and among Jacor Communications, Inc. and L. Lowry Mays, Mark P. Mays and Randall T. Mays and certain related family trusts (incorporated by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 10.12 Credit Agreement by and among Clear Channel, Bank of America, N.A. as administrative agent, BankBoston, N.A. as documentation agent, the Bank of Montreal and Chase Manhattan Bank, as co-syndication agents, and certain other lenders dated August 11, 1999 (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). 10.13 Shareholders Agreement dated October 2, 1999, by and among Clear Channel, L. Lowry Mays, 4-M Partners, Ltd., Hicks, Muse, Tate & Furst Equity Fund II, L.P., HM2/HMW, L.P., HM2/Chancellor, L.P., HM4/Chancellor, L.P., Capstar Broadcasting Partners, L.P., Capstar BT Partners, L.P., Capstar Boston Partners, L.L.C., and Thomas O. Hicks. 10.14 Registration Rights Agreement dated as of October 2, 1999, among Clear Channel and Hicks, Muse, Tate & Furst Equity Fund II, L.P., HM2/HMW, L.P., HM2/Chancellor, L.P., HM4/Chancellor, L.P., Capstar Broadcasting Partners, L.P., Capstar BT Partners, L.P., Capstar Boston Partners, L.L.C., Thomas O. Hicks, John R. Muse, Charles W. Tate, Jack D. Furst, Michael J. Levitt, Lawrence D. Stuart, Jr., David B Deniger and Dan H. Blanks. 10.15 Voting Agreement dated as of October 2, 1999, by and among Clear Channel and Thomas O. Hicks (incorporated by reference to exhibits to Amendment No. 6 to Schedule 13D of Thomas O. Hicks, et. Al., filed on October 14, 1999). 10.16 Voting Agreement dated as of October 2, 1999, by and among AMFM and L. Lowry Mays and 4-M Partners, Ltd. (incorporated by reference to exhibits to Schedule 13D of L. Lowry Mays, et. Al., filed on October 14, 1999). 10.17 Voting Agreement dated as of October 2, 1999, by and among Clear Channel and HM2/HMW, L.P., HM2/Chancellor, L.P., HM4/Chancellor, L.P. and Capstar Broadcasting Partners, L.P. (incorporated by reference to exhibits to Amendment No. 6 to Schedule 13D of Thomas O. Hicks, et Al., filed on October 14, 1999) 10.18 Employment Agreement by and between Clear Channel Communications, Inc. and L. Lowry Mays dated October 1, 1999. (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.) 10.19 Employment Agreement by and between Clear Channel Communications, Inc. and Mark P. Mays dated October 1, 1999. (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.)
102 103
EXHIBIT NUMBER DESCRIPTION 10.20 Employment Agreement by and between Clear Channel Communications, Inc. and Randall T. Mays dated October 1, 1999. (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. 11 Statement re: Computation of Per Share Earnings. 12 Statement re: Computation of Ratios. 21 Subsidiaries of the Company. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of KPMG LLP 24 Power of Attorney (included on signature page) 27 Financial Data Schedule 99.1 Report of Independent Auditors on Financial Statement Schedule - Ernst & Young LLP. 99.2 Report of Independent Auditors - KPMG LLP.
(b) Reports on Form 8-K. We filed a report on Form 8-K dated October 5, 1999 that reported that we had entered into an Agreement and Plan of Merger with AMFM Inc. pursuant to which our wholly-owned subsidiary would be merged with and into AMFM Inc. with our wholly-owned subsidiary surviving the merger and continuing its operations as a wholly-owned subsidiary of the Company. The AMFM Merger is described under the caption "Recent Developments" in Item 1 of Part I of this Form 10-K. We filed a report on Form 8-K dated November 19, 1999 which reported the Consolidated Balance Sheet of AMFM Inc., at December 31, 1998 and 1997, and the related Consolidated Statement of Operations and Shareholders' Equity and Consolidated Statement of Cash Flows for the years ended December 31, 1998 and 1997, with a Report of Independent Accountants dated February 10, 1999, except as to Note 16, which is as of March 15, 1999. Also included were unaudited quarterly financial information including the Condensed Consolidated Balance Sheets AMFM Inc. at September 30, 1999 and 1998, and the related Condensed Consolidated Statements of Operations and Shareholders' Equity and Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 1998. Also included were an unaudited Pro Forma Combined Condensed Balance Sheet of us and our subsidiaries at September 30, 1999, and unaudited Pro Forma Combined Condensed Statements for Operations for us and our subsidiaries for the year ended December 31, 1998 and the nine months ended September 30, 1999. 103 104 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 14, 2000. CLEAR CHANNEL COMMUNICATIONS, INC. By: /S/ L. Lowry Mays ---------------------------------------- L. Lowry Mays Chairman and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below authorizes L. Lowry Mays, Mark P. Mays, Randall T. Mays and Herbert W. Hill, Jr., or any one of them, each of whom may act without joinder of the others, to execute in the name of each such person who is then an officer or director of the Registrant and to file any amendments to this annual report on Form 10-K necessary or advisable to enable the Registrant to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, which amendments may make such changes in such report as such attorney-in-fact may deem appropriate. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE /S/ L. Lowry Mays Chairman, Chief Executive Officer and March 14, 2000 - ------------------------------------- Director L. Lowry Mays /S/ Mark P. Mays President and Chief Operating Officer and March 14, 2000 - ------------------------------------- Director Mark P. Mays /S/ Randall T. Mays Executive Vice President and Chief Financial March 14, 2000 - ------------------------------------- Officer (Principal Financial Officer) and Randall T. Mays Director /S/ Herbert W. Hill, Jr. Senior Vice President and Chief Accounting March 14, 2000 - ------------------------------------- Officer (Principal Accounting Officer) Herbert W. Hill, Jr. /S/ B. J. McCombs Director March 14, 2000 - ------------------------------------- B. J. McCombs
105
NAME TITLE DATE /S/ Alan D. Feld Director March 14, 2000 - ------------------------------------- Alan D. Feld /S/ Theodore H. Strauss Director March 14, 2000 - ------------------------------------- Theodore H. Strauss /S/ John H. Williams Director March 14, 2000 - ------------------------------------- John H. Williams /S/ Karl Eller Director March 14, 2000 - ------------------------------------- Karl Eller
106 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION 2.1 Agreement and Plan of Merger dated as of October 8, 1998, as amended on November 11, 1998, among Clear Channel Communications, Inc., CCU Merger Sub, Inc. and Jacor Communications, Inc. (incorporated by reference to Annex A to the Company's Registration Statement on Form S-4 (Reg. No. 333-72839) dated February 23, 1999). 2.2 Agreement and Plan of Merger dated as of October 2, 1999, among Clear Channel, CCU Merger Sub, Inc. and AMFM Inc. (incorporated by reference to the exhibits of Clear Channel's Current Report on Form 8-K filed October 5, 1999.) 2.3 Agreement and Plan of Merger dated as of February 28, 2000, among Clear Channel, CCU II Merger Sub, Inc. and SFX Entertainment, Inc. (incorporated by reference to the exhibits of Clear Channel's Current Report on Form 8-K filed February 29, 2000.) 3.1 Current Articles of Incorporation of the Company (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997). 3.2 Second Amended and Restated Bylaws of the Company (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997). 3.3 Amendment to the Company's Articles of Incorporation (incorporated by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 3.4 Second Amendment to Clear Channel's Articles of Incorporation (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999) 4.1 Buy-Sell Agreement by and between Clear Channel Communications, Inc., L. Lowry Mays, B. J. McCombs, John M. Schaefer and John W. Barger, dated May 31, 1977 (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-1 (Reg. No. 33-289161) dated April 19, 1984). 4.2 Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and The Bank of New York as Trustee (incorporated by reference to exhibit 4.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 4.3 First Supplemental Indenture dated March 30, 1998 to Senior Indenture dated October 1, 1997, by and between the Company and The Bank of New York, as Trustee (incorporated by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).
107
EXHIBIT NUMBER DESCRIPTION 4.4 Second Supplemental Indenture dated June 16, 1998 to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and the Bank of New York, as Trustee (incorporated by reference to the exhibits to the Company's Current Report on Form 8-K dated August 27, 1998). 4.5 Third Supplemental Indenture dated June 16, 1998 to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and the Bank of New York, as Trustee (incorporated by reference to the exhibits to the Company's Current Report on Form 8-K dated August 27, 1998). 4.6 Fourth Supplement Indenture dated November 24, 1999 to Senior Indenture dated October 1, 1997, by and between Clear Channel and The Bank of New York as Trustee. 10.1 Incentive Stock Option Plan of Clear Channel Communications, Inc. as of January 1, 1984 (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-1 (Reg. No. 33-289161) dated April 19, 1984). 10.2 Clear Channel Communications, Inc. 1994 Incentive Stock Option Plan (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.3 Clear Channel Communications, Inc. 1994 Nonqualified Stock Option Plan (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.4 Clear Channel Communications, Inc. Directors' Nonqualified Stock Option Plan (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.5 Option Agreement for Officer (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.6 First Amendment to the Credit Facility dated September 17, 1997 (incorporated by reference to exhibit 4.1 to the Company's Current Report on Form 8-K filed October 14, 1997). 10.7 Registration Rights Agreements dated as October 8, 1998, by and among the Company and the Zell/Chilmark Fund, L.P., Samstock, L.L.C., the SZ2 (IGP) Partnership and Samuel Zell (incorporated by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 10.8 Second Amendment to the Credit Facility dated November 7, 1997. (incorporated by reference to the exhibits to the Company's Annual Report on Form 10-K filed March 31, 1998.) 10.9 Third Amendment to the Credit Facility dated December 29, 1997. (incorporated by reference to the exhibits to the Company's Annual Report on Form 10-K filed March 31, 1998.)
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EXHIBIT NUMBER DESCRIPTION 10.10 The Clear Channel Communications, Inc. 1998 Stock Incentive Plan (incorporated by reference to Appendix A to the Company's Definitive 14A Proxy Statement dated March 24, 1998). 10.11 Voting Agreement dated as of October 8, 1998, by and among Jacor Communications, Inc. and L. Lowry Mays, Mark P. Mays and Randall T. Mays and certain related family trusts (incorporated by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 10.12 Credit Agreement by and among Clear Channel, Bank of America, N.A. as administrative agent, BankBoston, N.A. as documentation agent, the Bank of Montreal and Chase Manhattan Bank, as co-syndication agents, and certain other lenders dated August 11, 1999 (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). 10.13 Shareholders Agreement dated October 2, 1999, by and among Clear Channel, L. Lowry Mays, 4-M Partners, Ltd., Hicks, Muse, Tate & Furst Equity Fund II, L.P., HM2/HMW, L.P., HM2/Chancellor, L.P., HM4/Chancellor, L.P., Capstar Broadcasting Partners, L.P., Capstar BT Partners, L.P., Capstar Boston Partners, L.L.C., and Thomas O. Hicks. 10.14 Registration Rights Agreement dated as of October 2, 1999, among Clear Channel and Hicks, Muse, Tate & Furst Equity Fund II, L.P., HM2/HMW, L.P., HM2/Chancellor, L.P., HM4/Chancellor, L.P., Capstar Broadcasting Partners, L.P., Capstar BT Partners, L.P., Capstar Boston Partners, L.L.C., Thomas O. Hicks, John R. Muse, Charles W. Tate, Jack D. Furst, Michael J. Levitt, Lawrence D. Stuart, Jr., David B Deniger and Dan H. Blanks. 10.15 Voting Agreement dated as of October 2, 1999, by and among Clear Channel and Thomas O. Hicks (incorporated by reference to exhibits to Amendment No. 6 to Schedule 13D of Thomas O. Hicks, et. Al., filed on October 14, 1999). 10.16 Voting Agreement dated as of October 2, 1999, by and among AMFM and L. Lowry Mays and 4-M Partners, Ltd. (incorporated by reference to exhibits to Schedule 13D of L. Lowry Mays, et. Al., filed on October 14, 1999). 10.17 Voting Agreement dated as of October 2, 1999, by and among Clear Channel and HM2/HMW, L.P., HM2/Chancellor, L.P., HM4/Chancellor, L.P. and Capstar Broadcasting Partners, L.P. (incorporated by reference to exhibits to Amendment No. 6 to Schedule 13D of Thomas O. Hicks, et al., file on October 14, 1999.) 10.18 Employment Agreement by and between Clear Channel Communications, Inc. and L. Lowry Mays dated October 1, 1999. (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.) 10.19 Employment Agreement by and between Clear Channel Communications, Inc. and Mark P. Mays dated October 1, 1999. (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.)
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EXHIBIT NUMBER DESCRIPTION 10.20 Employment Agreement by and between Clear Channel Communications, Inc. and Randall T. Mays dated October 1, 1999. (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.) 11 Statement re: Computation of Per Share Earnings. 12 Statement re: Computation of Ratios. 21 Subsidiaries of the Company. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of KPMG LLP 24 Power of Attorney (included on signature page) 27 Financial Data Schedule 99.1 Report of Independent Auditors on Financial Statement Schedule - Ernst & Young LLP. 99.2 Report of Independent Auditors - KPMG LLP
EX-4.6 2 4TH SUPPLEMENT INDENTURE DATED 11/24/99 1 EXHIBIT 4.6 ================================================================================ CLEAR CHANNEL COMMUNICATIONS, INC. AND THE BANK OF NEW YORK, as Trustee ---------------------- FOURTH SUPPLEMENTAL INDENTURE Dated as of November 24, 1999 TO SENIOR INDENTURE Dated as of October 1, 1997 ---------------------- 1 1/2% Senior Convertible Notes Due December 1, 2002 ================================================================================ 2 Fourth Supplemental Indenture, dated as of the 24th day of November 1999 (this "Fourth Supplemental Indenture"), between Clear Channel Communications, Inc., a corporation duly organized and existing under the laws of the State of Texas (hereinafter sometimes referred to as the "Company") and The Bank of New York, a New York banking corporation, as trustee (hereinafter sometimes referred to as the "Trustee") under the Indenture dated as of October 1, 1997, between the Company and the Trustee (the "Indenture"); as set forth in Section 7.01 hereto and except as otherwise set forth herein, all terms used and not defined herein are used as defined in the Indenture. WHEREAS, the Company executed and delivered the Indenture to the Trustee to provide for the future issuance of its Securities, to be issued from time to time in series as might be determined by the Company under the Indenture, in an unlimited aggregate principal amount which may be authenticated and delivered thereunder as in the Indenture provided; WHEREAS, pursuant to the terms of the Indenture, the Company desires to provide for the establishment of a new series of its Securities to be known as its 1 1/2% Senior Convertible Notes Due December 1, 2002 (said series being hereinafter referred to as the "Series 1 1/2% Notes"), the form of such Series 1 1/2% Notes and the terms, provisions and conditions thereof to be as provided in the Indenture and this Fourth Supplemental Indenture; WHEREAS, the Company desires and has requested the Trustee to join with it in the execution and delivery of this Fourth Supplemental Indenture, and all requirements necessary to make this Fourth Supplemental Indenture a valid instrument, enforceable in accordance with its terms, and to make the Series 1 1/2% Notes, when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company, have been performed and fulfilled, and the execution and delivery of this Supplemental Indenture and the Series 1 1/2% Notes have been in all respects duly authorized. 3 2 NOW, THEREFORE, in consideration of the purchase and acceptance of the Series 1 1/2% Notes by the holders thereof, and for the purpose of setting forth, as provided in the Indenture, the form of the Series 1 1/2% Notes and the terms, provisions and conditions thereof, the Company covenants and agrees with the Trustee as follows: ARTICLE I General Terms and Conditions of the Series 1 1/2% Notes SECTION 1.01. (a) There shall be and is hereby authorized a series of Securities designated the "1 1/2% Senior Convertible Notes Due December 1, 2002", limited in aggregate principal amount to $900,000,000 ($1,000,000,000 if the option described in Section 2(b) of the Underwriting Agreement relating to the Series 1 1/2% Notes dated November 18, 1999 between the Company and the Underwriters listed therein is exercised). The Series 1 1/2% Notes shall mature and the principal thereof shall be due and payable, together with all accrued and unpaid interest thereon on December 1, 2002. The Series 1 1/2% Notes shall be convertible into shares of Common Stock, $0.10 par value, of the Company, as such shares shall be constituted at the time of conversion ("Common Stock"), in accordance with Article IV. SECTION 1.02. (a) The Series 1 1/2% Notes shall be issued as Global Securities. Principal and interest on the Series 1 1/2% Notes issued in certificated form will be payable, the transfer of such Series 1 1/2% Notes will be registrable and such Series 1 1/2% Notes will be exchangeable for Series 1 1/2% Notes bearing identical terms and provisions at the office or agency of the Company in the Borough of Manhattan, The City and State of New York provided for that purpose; provided, however, that payment of interest may be made at the option of the Company by check mailed to the registered holder at such address as shall appear in the Security Register and that the payment of principal with respect to the Series 1 1/2% Notes will only be made upon surrender of the Series 1 1/2% Notes to the Trustee. SECTION 1.03. Each Series 1 1/2% Note will bear interest at the rate of 1 1/2% per annum from November 24, 1999 until the principal thereof becomes due and payable, payable (subject to the provisions of Article III) semi-annually in arrears on June 1 and December 1 of each year (each, an "Interest Payment Date", commencing on June 1, 2000), to the person in whose name such Series 1 1/2% Note (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest installment, which, except as set forth below, shall be, May 15 or November 15 next preceding the Interest Payment Date with respect to such interest installment. Any installment of interest not punctually paid or duly provided for shall forthwith cease to be payable to the registered holder of a Series 1 1/2% Note on such regular record date and may be paid to the person in whose name such Series 1 1/2% Note (or one or more Predecessor Securities) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof to be given to the registered holders of the Series 1 1/2% Notes not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on 4 3 which the Series 1 1/2% Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on the Series 1 1/2% Notes is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay). SECTION 1.04. The Series 1 1/2% Notes are not entitled to any sinking fund. ARTICLE II No Optional Redemption of the Series 1 1/2% Notes SECTION 2.01. The Company will have no right of optional redemption at any time prior to December 1, 2002. ARTICLE III Repurchase at Option of Holders upon Change In Control SECTION 3.01. In the event that a Change in Control (as hereinafter defined) shall occur, each Holder shall have the right, at the Holder's option, to require the Company to repurchase, and upon the exercise of such right the Company shall repurchase, all of such Holder's Series 1 1/2% Notes, or any portion of the principal amount thereof that is an integral multiple of $1,000 (provided that no single Series 1 1/2% Note may be repurchased in part unless the portion of the principal amount of such Series 1 1/2% Note to be outstanding after such repurchase is equal to $1,000 or an integral multiple of $1,000), on the date (the "Repurchase Date") that is 30 days after the date of the Company Notice (as defined in Section 3.02) for cash at a purchase price equal to 100% of the principal amount (the "Repurchase Price") plus interest accrued and unpaid to, but excluding, the Repurchase Date. If the Repurchase Date is between a record date for an Interest Payment Date and such Interest Payment Date, then the interest payable on such Interest Payment Date shall be paid to the Holder of record of the Series 1 1/2% Note on such Interest Payment Date. Whenever in this Fourth Supplemental Indenture there is a reference, in any context, to the principal of any Series 1 1/2% Note as of any time, such reference shall be deemed to include reference to the Repurchase Price payable in respect of such Series 1 1/2% Note to the extent that such Repurchase Price is, was or would be so payable at such time, and express mention of the Repurchase Price in any provision of this Fourth Supplemental Indenture shall not be construed as excluding the Repurchase Price in those provisions of this Fourth Supplemental Indenture when such express mention is not made. SECTION 3.02. (a) On or before the 15th day after the occurrence of a Change in Control, the Company or, at the written request of the Company on or before the tenth (10th) day after receipt of such request, the Trustee, shall give to all Holders of 5 4 Series 1 1/2% Notes notice (the "Company Notice") of the occurrence of the Change in Control and of the repurchase right set forth herein arising as a result thereof. The Company shall also deliver a copy of such notice of a repurchase right to the Trustee. Each notice of a repurchase right shall state: (1) the Repurchase Date; (2) the date by which the repurchase right must be exercised; (3) the Repurchase Price; (4) a description of the procedure which a Holder must follow to exercise a repurchase right; (5) that on the Repurchase Date the Repurchase Price will become due and payable upon each such Series 1 1/2% Note designated by the Holder to be repurchased, and that interest thereon shall cease to accrue on and after said date; (6) the Conversion Price, the date on which the right to convert the Series 1 1/2% Notes to be repurchased will terminate and the places where such Series 1 1/2% Notes may be surrendered for conversion; and (7) the place or places where such Series 1 1/2% Notes are to be surrendered for payment of the Repurchase Price and accrued interest, if any. No failure of the Company to give the foregoing notices or defect therein shall limit any Holder's right to exercise a repurchase right or affect the validity of the proceedings for the repurchase of Series 1 1/2% Notes. (b) To exercise a repurchase right, a Holder shall deliver to the Trustee or any Paying Agent on or before the 30th day after the date of the Company Notice (i) written notice of the Holder's exercise of such right, which notice shall set forth the name of the Holder, the principal amount of the Series 1 1/2% Notes to be repurchased (and, if any Series 1 1/2% Note is to be repurchased in part, the serial number thereof, the portion of the principal amount thereof to be repurchased and the name of the Person in which the portion thereof to remain outstanding after such repurchase is to be registered) and a statement that an election to exercise the repurchase right is being made thereby, and (ii) the Series 1 1/2% Notes with respect to which the repurchase right is being exercised. (c) In the event a repurchase right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid to the Trustee or the Paying Agent the Repurchase Price in cash, for payment to the Holder on the Repurchase Date, together with accrued and unpaid interest to, but excluding, the Repurchase Date payable with respect to the Series 1 1/2% Notes (or portion thereof) as to which the repurchase right has been exercised. (d) If any Series 1 1/2% Note (or portion thereof) surrendered for repurchase shall not be so paid on the Repurchase Date, the principal amount of such Series 1 1/2% Note (or portion thereof, as the case may be) shall, until paid, bear interest from the 6 5 Repurchase Date at the rate of 1 1/2% per annum, and each Series 1 1/2% Note shall remain convertible into Common Stock until the principal of such Series 1 1/2% Note (or portion thereof, as the case may be) shall have been paid or duly provided for. (e) Any Series 1 1/2% Note which is to be repurchased only in part shall be surrendered to the Trustee (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Series 1 1/2% Note without service charge, a new Series 1 1/2% Note or Series 1 1/2% Notes, containing identical terms and conditions, each in an authorized denomination in aggregate principal amount equal to and in exchange for the portion of the principal of the Series 1 1/2% Note so surrendered that was not repurchased. (f) Any Holder that has delivered to the Trustee its written notice exercising its right to require the Company to repurchase its Series 1 1/2% Notes upon a Change in Control shall have the right to withdraw such notice at any time prior to the close of business on the Repurchase Date by delivery of a written notice of withdrawal to the Trustee prior to the close of business on such date. A Series 1 1/2% Note in respect of which a Holder is exercising its option to require repurchase upon a Change in Control may be converted into Common Stock only if such Holder withdraws its notice in accordance with the preceding sentence. SECTION 3.03. For purposes of this Article III: (a) the term "beneficial owner" shall be determined in accordance with Rule l3d-3 promulgated by the Commission pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"); and (b) the term "Person" shall include any syndicate or group which would be deemed to be a "Person" under Section 13(d)(3) of the Exchange Act. SECTION 3.04. A "Change in Control" shall be deemed to have occurred at such time after the original issuance of the Series 1 1/2% Notes as: (a) any Person, other than the Company, any subsidiary of the Company or any entity Controlled (as defined below) by the foregoing, or any employee benefit plan of the Company or any such subsidiary, L. Lowry Mays, B. J. McCombs or their Affiliates, is or becomes the beneficial owner, directly or indirectly, through a purchase or other acquisition transaction or series of transactions (other than a merger or consolidation involving the Company), of shares of capital stock of the Company entitling such Person to exercise in excess of 50% of the total voting power of all shares of capital stock of the Company entitled to vote generally in the election of directors; (b) there occurs any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company, or any sale or transfer of the assets of the Company as, or substantially as, an entirety to another Person (other than (i) any such transaction pursuant to which the Holders of the Common Stock immediately prior to such transaction have, directly or indirectly, shares of capital stock of the continuing or surviving corporation immediately after such transaction which 7 6 entitle such Holders to exercise in excess of 50% of the total voting power of all shares of capital stock of the continuing or surviving corporation entitled to vote generally in the election of directors and (ii) any merger (1) which does not result in any reclassification, conversion, exchange or cancelation of outstanding shares of Common Stock or (2) which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock and separate series of Common Stock carrying substantially the same relative rights as the Common Stock); or (c) a change in the Board of Directors of the Company in which the individuals who constituted the Board of Directors of the Company at the beginning of the one-year period immediately preceding such change (together with any other director whose election by the Board of Directors of the Company or whose nomination for election by the shareholders of the Company was approved by a vote of at least a majority of the directors then in office either who were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office; provided, however, that a Change in Control shall not be deemed to have occurred if either (a) the Closing Price (as defined in Section 4.05) per share of the Common Stock for any ten (10) Trading Days (as defined in Section 4.04) within the period of 20 consecutive Trading Days ending immediately before the Change in Control shall equal or exceed 105% of the Conversion Price (as defined in Section 4.05) in effect on each such Trading Day, or (b) (i) at least 90% of the consideration (excluding cash payments for fractional shares) in the transaction or transactions constituting the Change in Control consists of shares of Common Stock with full voting rights traded on a national securities exchange or quoted on the Nasdaq National Market (or which will be so traded or quoted when issued or exchanged in connection with such Change in Control) (such securities being referred to as "Publicly Traded Securities") and as a result of such transaction or transactions such Series 1 1/2% Notes become convertible solely into such Publicly Traded Securities and (ii) the consideration in the transaction or transactions constituting the Change of Control consists of cash, Publicly Traded Securities or a combination of cash and Publicly Traded Securities with an aggregate fair market value (which, in the case of Publicly Traded Securities, shall be equal to the average Closing Price of such Publicly Traded Securities during the ten (10) consecutive Trading Days, commencing with the third Trading Day, following consummation of the transaction or transactions constituting the Change in Control) is at least 105% of the Conversion Price in effect on the date immediately preceding the date of consummation of such Change in Control. The term "Controlled" shall mean ownership or control of more than 50% of the voting power of such entity. SECTION 3.05. In the case of any reclassification, change, consolidation, merger, combination, sale or conveyance to which Section 4.06 applies, in which the Common Stock of the Company is changed or exchanged as a result into the right to receive shares of stock and other securities or property or assets (including cash) which includes shares of Common Stock of the Company or Common Stock of another Person that are, or upon issuance will be, traded on a United States national securities exchange or approved for trading on an established automated over-the-counter trading market in the United States and such shares constitute at the time such change or exchange becomes effective in excess of 50% of the aggregate fair market value of such shares of stock and other securities, property and assets (including cash) (as determined by the Company, which determination shall be conclusive and binding), then the Person formed by such 8 7 consolidation or resulting from such merger or combination or which acquires the properties or assets (including cash) of the Company, as the case may be, shall execute and deliver to the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) modifying the provisions of this Fourth Supplemental Indenture relating to the right of Holders to cause the Company to repurchase the Series 1 1/2% Notes following a Change in Control and the definitions of the Common Stock and Change in Control, as appropriate, and such other related definitions set forth herein as determined in good faith by the Company (which determination shall be conclusive and binding), to make such provisions apply to the Common Stock and the issuer thereof if different from the Company and Common Stock of the Company (in lieu of the Company and the Common Stock of the Company). ARTICLE IV Conversion SECTION 4.01. Subject to and upon compliance with the provisions of this Fourth Supplemental Indenture, the Holder of any Series 1 1/2% Note shall have the right, at his option, at any time prior to the close of business on December 1, 2002 to convert the principal amount of any such Series 1 1/2% Note, or any portion of such principal amount which is $1,000 or an integral multiple thereof, into that number of fully paid and nonassessable shares of Common Stock obtained by dividing the principal amount of the Series 1 1/2% Note or portion thereof surrendered for conversion by the Conversion Price in effect at such time, by surrender of the Series 1 1/2% Note so to be converted in whole or in part in the manner provided, together with any required funds, in Section 4.02. A Holder of Series 1 1/2% Notes is not entitled to any rights of a Holder of Common Stock until such Holder has converted his Series 1 1/2% Notes to Common Stock, and only to the extent such Series 1 1/2% Notes are deemed to have been converted to Common Stock under this Article IV. SECTION 4.02. In order to exercise the conversion privilege, the beneficial Holder must complete the appropriate instruction form for conversion pursuant to the Depositary's book-entry conversion program, deliver by book-entry delivery an interest in such Series 1 1/2% Note in global form, furnish appropriate endorsements and transfer documents if required by the Company or the Trustee or Conversion Agent appointed by the Company (the "Conversion Agent"), and pay the funds, if any, required by this Section 4.02 and any transfer taxes if required pursuant to Section 4.07. As promptly as practicable after satisfaction of the requirements for conversion set forth above, subject to compliance with any restrictions on transfer if shares issuable on conversion are to be issued in a name other than that of the Holder of the Series 1 1/2% Note (as if such transfer were a transfer of the Series 1 1/2% Note or Series 1 1/2% Notes (or portion thereof) so converted), the Company shall issue and shall deliver to such Holder at the office or agency maintained by the Company for such purpose, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such Series 1 1/2% Note or portion thereof in accordance with the provisions of this Article and a check or cash in respect of any fractional interest in respect of a share of Common Stock arising upon such conversion, as provided in Section 4.03. In case any Series 1 1/2% Note of a denomination greater than $1,000 shall 9 8 be surrendered for partial conversion, and subject to Section 4.03, the Company shall execute and the Trustee shall authenticate and deliver to the Holder of the Series 1 1/2% Note so surrendered, without charge to him, a new Series 1 1/2% Note or Series 1 1/2% Notes in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Series 1 1/2% Note. Each conversion shall be deemed to have been effected as to any such Series 1 1/2% Note (or portion thereof) on the date on which the requirements set forth above in this Section 4.02 have been satisfied as to such Series 1 1/2% Note (or portion thereof), and the Person in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on said date the Holder of record of the shares represented thereby; provided, however, that if any such surrender occurs on any date when the stock transfer books of the Company shall be closed, the Person in whose name the certificates are to be issued as the record Holder thereof shall be deemed for all purposes to have become the Holder of record on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such Series 1 1/2% Note shall be surrendered. Any Series 1 1/2% Note or portion thereof surrendered for conversion during the period from the close of business on the Record Date for any Interest Payment Date to the close of business on the Business Day next preceding the following Interest Payment Date shall be accompanied by payment, in New York Clearing House funds or other funds acceptable to the Company, of an amount equal to the interest payable on such Interest Payment Date on the principal amount being converted; provided, however, that no such payment need be made if there shall exist at the time of conversion a default in the payment of interest on the Series 1 1/2% Notes, and provided that no such payment need be made if any Series 1 1/2% Note is surrendered for conversion during the period from the close of business on November 15, 2002 to the close of business on November 29, 2002, the Business Day next preceding December 1, 2002. No other adjustment shall be made for interest accrued on any Series 1 1/2% Note converted or for dividends on any shares issued upon the conversion of such Series 1 1/2% Note. SECTION 4.03. No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of Series 1 1/2% Notes. If more than one Series 1 1/2% Note shall be surrendered for conversion at one time by the same Holder, the number of full shares which shall be issuable upon conversion shall be computed on the basis of the aggregate principal amount of the Series 1 1/2% Notes (or specified portions thereof to the extent permitted hereby) so surrendered. If any fractional share of stock would be issuable upon the conversion of any Series 1 1/2% Note or Series 1 1/2% Notes, the Company shall make an adjustment and payment therefor in cash at the current market value thereof to the Holder of Series 1 1/2% Notes. The current market value of a share of Common Stock shall be the Closing Price on the first Trading Day immediately preceding the day on which the Series 1 1/2% Notes (or specified portions thereof) are deemed to have been converted. SECTION 4.04. The conversion price shall be $105.78 (herein called the "Conversion Price") subject to adjustment as provided in this Article IV. 10 9 SECTION 4.05. The Conversion Price shall be adjusted from time to time by the Company as follows: (a) In case the Company shall hereafter pay a dividend or make a distribution to all Holders of the outstanding Common Stock in shares of Common Stock, the Conversion Price in effect at the opening of business on the date following the date fixed for the determination of shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. If any dividend or distribution of the type described in this Section 4.05(a) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared. (b) In case the Company shall issue rights or warrants to all Holders of its outstanding shares of Common Stock entitling them (for a period expiring within 45 days after the date fixed for determination of shareholders entitled to receive such rights or warrants) to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price (as defined below) on the date fixed for determination of shareholders entitled to receive such rights or warrants, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date fixed for determination of shareholders entitled to receive such rights or warrants by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for determination of shareholders entitled to receive such rights and warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price, and of which the denominator shall be the number of shares of Common Stock outstanding on the date fixed for determination of shareholders entitled to receive such rights and warrants plus the total number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall be successively made whenever any such rights and warrants are issued, and shall become effective immediately after the opening of business on the day following the date fixed for determination of shareholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such date fixed for the determination of shareholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the Holders to subscribe for or purchase shares of Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any 11 10 consideration received by the Company for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. (c) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) In case the Company shall, by dividend or otherwise, distribute to all Holders of its Common Stock shares of any class of capital stock of the Company (other than any dividends or distributions to which Section 4.05(a) applies) or evidences of its indebtedness or assets (including securities, but excluding any rights or warrants referred to in Section 4.05(b), and excluding any dividend or distribution paid exclusively in cash (any of the foregoing hereinafter called the "Distributed Securities")), then, in each such case (unless the Company elects to reserve such Distributed Securities for distribution to the Holders upon the conversion of the Series 1 1/2% Notes so that any such Holder converting Series 1 1/2% Notes will receive upon such conversion, in addition to the shares of Common Stock to which such Holder is entitled, the amount and kind of such Distributed Securities which such Holder would have received if such Holder had converted its Series 1 1/2% Notes into Common Stock immediately prior to the Record Date (as defined in Section 4.05(h) for such distribution of the Distributed Securities)), the Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Conversion Price in effect on the Record Date (as defined below) with respect to such distribution by a fraction of which the numerator shall be the Current Market Price per share of the Common Stock on such Record Date less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) on the Record Date of the portion of the Distributed Securities so distributed applicable to one share of Common Stock and the denominator shall be the Current Market Price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day following such Record Date; provided, however, that in the event the then fair market value (as so determined) of the portion of the Distributed Securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder of a 1 1/2% Note shall have the right to receive upon conversion the amount of Distributed Securities such Holder would have received had such Holder converted each Series 1 1/2% Note on the Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 4.05(d) by reference to the actual or when issued trading market for any securities, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price of the Common Stock. 12 11 In the event the Company implements a shareholder rights plan, such rights plan shall provide that upon conversion of the Series 1 1/2% Notes the Holders will receive, in addition to the Common Stock issuable upon such conversion, the rights issued under such rights plan (notwithstanding the occurrence of an event causing such rights to separate from the Common Stock at or prior to the time of conversion). Rights or warrants distributed by the Company to all Holders of Common Stock entitling the Holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Trigger Event"): (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of Common Stock, shall be deemed not to have been distributed for purposes of this Section 4.05 (and no adjustment to the Conversion Price under this Section 4.05 will be required) until the occurrence of the earliest Trigger Event, whereupon such rights and warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the Conversion Price shall be made under this Section 4.05(d). If any such right or warrant, including any such existing rights or warrants distributed prior to the date of this Fourth Supplemental Indenture, are subject to events, upon the occurrence of which such rights or warrants become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall be deemed to be the date of distribution and record date with respect to new rights or warrants with such rights (and a termination or expiration of the existing rights or warrants without exercise by any of the Holders thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the Conversion Price under Section 4.05 was made, (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any Holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a Holder or Holders of Common Stock with respect to such rights or warrants (assuming such Holder had retained such rights or warrants), made to all Holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants which shall have expired or been terminated without exercise by any Holders thereof, the Conversion Price shall be readjusted as if such rights and warrants had not been issued. For purposes of this Section 4.05(d) and Sections 4.05(a) and (b), any dividend or distribution to which this Section 4.05(d) is applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets or shares of capital stock other than such shares of Common Stock or rights or warrants (and any further Conversion Price reduction required by this Section 4.05(d) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (and any further Conversion Price reduction required by Sections 4.05(a) and (b) with respect to such dividend or distribution shall then be made), except (A) the Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of shareholders entitled to receive such dividend or other 13 12 distribution" and "the date fixed for such determination" within the meaning of Sections 4.05(a) and (b), and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of Section 4.05(a). (e) In case the Company shall, by dividend or otherwise, distribute to all Holders of its Common Stock cash (excluding any cash that is distributed upon a merger or consolidation to which Section 4.06 applies or as part of a distribution referred to in Section 4.05(d)) in an aggregate amount that, combined together with (1) the aggregate amount of any other such distributions to all holders of its Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this Section 4.05(e) has been made, and (2) the aggregate of any cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) of consideration payable in respect of any tender offer by the Company for all or any portion of the Common Stock concluded within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to Section 4.05(f) has been made, exceeds 10% of the product of the Current Market Price (determined as provided in Section 4.05(h)) on the Record Date with respect to such distribution times the number of shares of Common Stock outstanding on such date, then, and in each such case, immediately after the close of business on such date, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on such Record Date by a fraction (i) the numerator of which shall be equal to the Current Market Price on the Record Date less an amount equal to the quotient of (x) the excess of such combined amount over such 10% and (y) the number of shares of Common Stock outstanding on the Record Date and (ii) the denominator of which shall be equal to the Current Market Price on such Record Date; provided, however, that, if the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder of a 1 1/2% Note shall have the right to receive upon conversion the amount of cash such Holder would have received had such Holder converted such Series 1 1/2% Note immediately prior to such Record Date. If such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. (f) In case a tender offer made by the Company or any of its subsidiaries for all or any portion of the Common Stock expires and such tender offer (as amended upon the expiration thereof) requires the payment to shareholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) that, combined together with (1) the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors), as of the expiration of such tender offer, of consideration payable in respect of any other tender offers, by the Company or any of its subsidiaries for all or any portion of the Common Stock expiring within the 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this Section 4.05(f) has been made and (2) the aggregate amount of any distributions to all Holders of the Common Stock made exclusively in cash within 12 months preceding the expiration of such tender offer and in respect of 14 13 which no adjustment pursuant to Section 4.05(e) has been made, exceeds 10% of the product of the Current Market Price (determined as provided in Section 4.05(h)) as of the last time (the "Expiration Time") tenders could have been made pursuant to such tender offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered shares) at the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the date of the Expiration Time by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered shares) at the Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to shareholders based on the acceptance (up to any maximum specified in the terms of the tender offer) of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction (if any) to become effective immediately prior to the opening of business on the day following the Expiration Time. If the Company is obligated to purchase shares pursuant to any such tender offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender offer had not been made. If the application of this Section 4.05(f) to any tender offer would result in an increase in the Conversion Price, no adjustment shall be made for such tender offer under this Section 4.05(f). (g) In case of a tender or exchange offer made by a Person other than the Company or any subsidiary of the Company for an amount which increases the offeror's ownership of Common Stock to more than 25% of the Common Stock outstanding and shall involve the payment by such Person of consideration per share of Common Stock having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) at the Expiration Time that exceeds the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, and in which, as of the Expiration Time the Board of Directors is not recommending rejection of the offer, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the Expiration Time by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to shareholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration 15 14 Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become effective as of immediately prior to the opening of business on the day following the Expiration Time. In the event that such Person is obligated to purchase shares pursuant to any such tender or exchange offer, but such Person is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender or exchange offer had not been made. Notwithstanding the foregoing, the adjustment described in this Section 4.05(g) shall not be made if, as of the Expiration Time, the offering documents with respect to such offer disclose a plan or intention to cause the Company to engage in any transaction described in Article Eight of the Indenture. (h) For purposes of this Fourth Supplemental Indenture, the following terms shall have the meaning indicated: (1) "Closing Price" with respect to any securities on any day shall mean the closing sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the New York Stock Exchange, or, if such security is not listed or admitted to trading on such Exchange, on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good faith by the Board of Directors or, to the extent permitted by applicable law, a duly authorized committee thereof, whose determination shall be conclusive. (2) "Current Market Price" shall mean the average of the daily Closing Prices per share of Common Stock for the ten consecutive Trading Days immediately prior to the date in question; provided, however, that (1) if the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 4.05(a), (b), (c). (d), (e), (f) or (g) occurs during such ten consecutive Trading Days, the Closing Price for each Trading Day prior to the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such other event, (2) if the "ex" date for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 4.05(a), (b), (c), (d), (e), (f) or (g) occurs on or after the "ex" date for the issuance or distribution requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event, and (3) if the "ex" date for the issuance or distribution requiring such computation is prior to the day in question, after taking into account any adjustment 16 15 required pursuant to clause (1) or (2) of this proviso, the Closing Price for each Trading Day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the fair market value (as determined by the Board of Directors or, to the extent permitted by applicable law, a duly authorized committee thereof in a manner consistent with any determination of such value for purposes of Section 4.05(d), (f) or (g), whose determination shall be conclusive and described in a resolution of the Board of Directors or such duly authorized committee thereof, as the case may be) of the evidences of indebtedness, shares of capital stock or assets being distributed applicable to one share of Common Stock as of the close of business on the day before such "ex" date. For purposes of any computation under Section 4.05(f) or (g), the Current Market Price of the Common Stock on any date shall be deemed to be the average of the daily Closing Prices per share of Common Stock for such day and the next two succeeding Trading Days; provided, however, that if the "ex" date for any event (other than the tender or exchange offer requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 4.05(a), (b), (c), (d), (e), (f) or (g) occurs on or after the Expiration Time for the tender or exchange offer requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event. For purposes of this paragraph, the term "ex" date, (1) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the relevant exchange or in the relevant market from which the Closing Price was obtained without the right to receive such issuance or distribution, (2) when used with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective, and (3) when used with respect to any tender or exchange offer means the first date on which the Common Stock trades regular way on such exchange or in such market after the Expiration Time of such offer. (3) "fair market value" shall mean the amount which a willing buyer would pay a willing seller in an arm's length transaction. (4) "Record Date" shall mean, with respect to any dividend, distribution or other transaction or event in which the Holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of shareholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). (5) "Trading Day" shall mean (x) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock Exchange or such other national security exchange is open for business or (y) if the applicable security is quoted on the Nasdaq National Market, a day on which trades may be made thereon or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. 17 16 (i) The Company may make such reductions in the Conversion Price, in addition to those required by Sections 4.05(a), (b), (c), (d), (e), (f) and (g), as the Board of Directors considers to be advisable to avoid or diminish any income tax to Holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. To the extent permitted by applicable law, the Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least 20 days, the reduction is irrevocable during the period and the Board of Directors shall have made a determination that such reduction would be in the best interests of the Company, which determination shall be conclusive. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to Holders of record of the Series 1 1/2% Notes a notice of the reduction at least 15 days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period during which it will be in effect. (j) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1.00% in such price; provided, however, that any adjustments which by reason of this Section 4.05(j) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under these Provisions shall be made by the Company and shall be made to the nearest cent or to the nearest one hundredth of a share, as the case may be. (k) Whenever the Conversion Price is adjusted as herein provided, the Company shall promptly file with the Trustee and any Conversion Agent other than the Trustee an Officers' Certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which each adjustment becomes effective and shall mail notice of such adjustment of the Conversion Price to the Holder of each Series 1 1/2% Note at his last address appearing on the Series 1 1/2% Note register, within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. (l) In any case in which this Section 4.05 provides that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (i) issuing to the Holder of any Series 1 1/2% Note converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above such conversion by reason of the adjustment required by such event and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such Holder any amount in cash in lieu of any fraction pursuant to Section 4.03. (m) For purposes of this Section 4.05, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of 18 17 shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. SECTION 4.06. If any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Common Stock (other than a subdivision or combination to which Section 4.05(c) applies), (ii) any consolidation, merger or combination of the Company with another corporation as a result of which Holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or (iii) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation as a result of which Holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) providing that such Series 1 1/2% Notes shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a Holder of a number of shares of Common Stock issuable upon conversion of such Series 1 1/2% Notes (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available to convert all such Series 1 1/2% Notes) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such Holder of Common Stock did not exercise his rights of election, if any, as to the kind or amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance (provided that, if the kind or amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("nonelecting share"), then for the purposes of this Section 4.06 the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the nonelecting shares. Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Fourth Supplemental Indenture. The Company shall cause notice of the execution of such supplemental indenture to be mailed to each Holder of Series 1 1/2% Notes, at his address appearing on the Series 1 1/2% Note register, within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture. The above provisions of this Section shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances. If this Section 4.06 applies to any event or occurrence, Section 4.05 shall not apply. 19 18 SECTION 4.07. The issue of stock certificates on conversions of Series 1 1/2% Notes shall be made without charge to the converting Holder of any Series 1 1/2% Note for any tax in respect of the issue thereof. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of stock in any name other than that of the Holder of any Series 1 1/2% Note converted, and the Company shall not be required to issue or deliver any such stock certificate unless and until the Person or Persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. SECTION 4.08. The Company shall reserve, free from preemptive rights, out of its authorized but unissued shares or shares held in treasury, sufficient shares of Common Stock to provide for the conversion of the Series 1 1/2% Notes from time to time as such Series 1 1/2% Notes are presented for conversion. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Series 1 1/2% Notes, the Company will take all corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue shares of such Common Stock at such adjusted Conversion Price. The Company covenants that all shares of Common Stock which may be issued upon conversion of Series 1 1/2% Notes will upon issue be fully paid and non-assessable by the Company and free from all taxes, liens and charges with respect to the issue thereof. The Company covenants that if any shares of Common Stock to be provided for the purpose of conversion of Series 1 1/2% Notes hereunder require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued upon conversion, the Company will in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be. The Company further covenants that so long as the Common Stock shall be listed or quoted on the New York Stock Exchange, the Nasdaq Stock Market (National Market), or any other national securities exchange the Company will, if permitted by the rules of such exchange, list and keep listed so long as the Common Stock shall be so listed on such market or exchange, all Common Stock issuable upon conversion of the Series 1 1/2% Notes. SECTION 4.09. The Trustee and any other Conversion Agent shall not at any time be under any duty or responsibility to any Holder of Series 1 1/2% Notes to either calculate the Conversion Price or determine whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed, or herein or in a Series 1 1/2% Note or any other supplemental indenture provided to be employed, in making the same. The Trustee and any other Conversion Agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at any time be issued or 20 19 delivered upon the conversion of any Series 1 1/2% Note and the Trustee and any other Conversion Agent make no representations with respect thereto. Subject to the provisions of Section 601 of the Indenture, neither the Trustee nor any Conversion Agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or cash upon the surrender of any Series 1 1/2% Note for the purpose of conversion or to comply with any of the duties, responsibilities or covenants of the Company contained in this Fourth Supplemental Indenture. Without limiting the generality of the foregoing, neither the Trustee nor any Conversion Agent shall be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture entered into pursuant to Section 4.06 relating either to the kind or amount of shares of stock or securities or property (including cash) receivable by Holders upon the conversion of their Series 1 1/2% Notes after any event referred to in such Section 4.06 or to any adjustment to be made with respect thereto, but, subject to the provisions of Section 601 of the Indenture, may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, the Officers' Certificate (which the Company shall be obligated to file with the Trustee prior to the execution of any such supplemental indenture) with respect thereto. SECTION 4.10. In case: (a) the Company shall declare a dividend (or any other distribution) on its Common Stock that would require an adjustment in the Conversion Price pursuant to Section 4.05; or (b) the Company shall authorize the granting to all or substantially all the Holders of its Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or (c) of any reclassification or reorganization of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (d) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company; the Company shall cause to be filed with the Trustee and to be mailed to each Holder of Series 1 1/2% Notes at his address appearing on the Series 1 1/2% Security Register for the Series 1 1/2% Notes, as promptly as possible but in any event at least 15 days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, or rights or warrants are to be determined, or (y) the date on which such 21 20 reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is expected to become effective or occur, and the date as of which it is expected that Holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. ARTICLE V Form of Series 1 1/2% Notes SECTION 5.01. The Series 1 1/2% Notes and the Trustee's Certificate of Authentication to be endorsed thereon are to be substantially in the following forms: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY IS A GLOBAL SECURITY AS REFERRED TO IN THE INDENTURE HEREINAFTER REFERENCED. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL SECURITIES REPRESENTED HEREBY, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. CLEAR CHANNEL COMMUNICATIONS, INC. 1 1/2% SENIOR CONVERTIBLE NOTE DUE DECEMBER 1, 2002 REGISTERED $[ ],000,000 NO. R-[ ] CUSIP 184502 AE2 CLEAR CHANNEL COMMUNICATIONS, INC., a corporation duly organized and existing under the laws of the State of Texas (herein called the "Company", which term includes any successor under the Indenture hereinafter referred to), for value received, hereby promises to pay to Cede & Co. 22 21 or registered assigns, the principal sum of $[ ],000,000 at the office or agency of the Company in the Borough of Manhattan, The City of New York, on December 1, 2002 in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest on said principal sum semiannually on June 1 and December 1 of each year, commencing June 1, 2000 (each an "Interest Payment Date"), at said office or agency, in like coin or currency, at the rate per annum specified in the title hereof, from the June 1 or the December 1, as the case may be, next preceding the date of this Note to which interest on the Notes has been paid or duly provided for (unless the date hereof is the date to which interest on the Notes has been paid or duly provided for, in which case from the date of this Note), or if no interest has been paid on the Notes or duly provided for, from November 24, 1999 until payment of said principal sum has been made or duly provided for. Notwithstanding the foregoing, if the date hereof is after the 15th day of any May or November and before the next succeeding June 1 or December 1, this Note shall bear interest from such June 1 or December 1, as the case may be; provided, however, that if the Company shall default in the payment of interest due on such June 1 or December 1, then this Note shall bear interest from the next preceding June 1 or December 1 to which interest on the Notes has been paid or duly provided for, or, if no interest has been paid on the Notes or duly provided for, from November 24, 1999. The interest so payable, and punctually paid or duly provided for, on any June 1 or December 1 will, except as provided in the Indenture dated as of October 1, 1997, as supplemented by the Fourth Supplemental Indenture dated as of November 24, 1999 (herein called the "Indenture"), duly executed and delivered by the Company and The Bank of New York, as Trustee (herein called the "Trustee"), be paid to the Person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on the next preceding May 15 or November 15, as the case may be (herein called the "Regular Record Date"), whether or not a Business Day, and may, at the option of the Company, be paid by check mailed to the registered address of such Person. Any such interest which is payable, but is not so punctually paid or duly provided for, shall forthwith cease to be payable to the registered Holder on such Regular Record Date and may be paid either to the Person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Notes not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed and upon such notice as may be required by such exchange, if such manner of payment shall be deemed practical by the Trustee, all as more fully provided in the Indenture. Notwithstanding the foregoing, in the case of interest payable at Stated Maturity, such interest shall be paid to the same Person to whom the principal hereof is payable. The Bank of New York will be the Paying Agent, Conversion Agent and the Security Registrar with respect to the Notes. The Company reserves the right at any time to vary or terminate the appointment of any Paying Agent, Conversion Agent or Security Registrar, to appoint additional or other Paying Agents and other Security Registrars or Conversion Agents, which may include the Company, and to approve any change in the office through which any Paying Agent, Conversion Agent or Security Registrar acts; provided that there will at all times be a Paying Agent and Conversion Agent in The City of New York and there will be no more than one Security Registrar for the Notes. 23 22 This Note is one of the duly authorized issue of debentures, notes, bonds or other evidences of indebtedness (hereinafter called the "Securities") of the Company, of the series hereinafter specified, all issued or to be issued under and pursuant to the Indenture, to which Indenture and any other indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee and any agent of the Trustee, any Paying Agent, the Company and the Holders of the Securities and the terms upon which the Securities are issued and are to be authenticated and delivered. The Securities may be issued in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest (if any) at different rates, may be subject to different redemption provisions (if any), may be subject to different sinking, purchase or analogous funds (if any), may be subject to different covenants and Events of Default and may otherwise vary as provided or permitted in the Indenture. This Note is one of the series of Securities of the Company issued pursuant to the Indenture and designated as the 1 1/2% Senior Convertible Notes Due December 1, 2002 (herein called the "Notes"). Subject to the provisions of the Indenture, the Holder hereof has the right, at its option, at any time prior to the close of business on the maturity date, to convert the principal hereof or any portion of such principal which is $1,000 or an integral multiple thereof, into that number of shares of the Company's Common Stock, as said shares shall be constituted at the date of conversion, obtained by dividing the principal amount of this Note or portion thereof to be converted by the Conversion Price of $105.78 or such Conversion Price as adjusted from time to time as provided in the Indenture, upon surrender of this Note, together with a conversion notice as provided in the Indenture, to the Company at the office or agency of the Company maintained for that purpose in New York, New York, and, unless the shares issuable on conversion are to be issued in the same name as this Note, duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the Holder or by his duly authorized attorney. No adjustment in respect of interest or dividends will be made upon any conversion; provided, however, that if this Note shall be surrendered for conversion during the period from the close of business on any record date for the payment of interest to the close of business on the Business Day preceding the interest payment date, this Note must be accompanied by an amount, in New York Clearing House funds or other funds acceptable to the Company, equal to the interest payable on such interest payment date on the principal amount being converted (provided, however, that no such payment need be made if there shall exist at the time of conversion a default in the payment of interest on the Notes, and provided that no such payment need be made if this Note is surrendered for conversion during the period from the close of business on November 15, 2002 to the close of business on November 29, 2002, the Business Day preceding December 1, 2002). No fractional shares will be issued upon any conversion, but an adjustment in cash will be made, as provided in the Indenture, in respect of any fraction of a share which would otherwise be issuable upon the surrender of any Note or Notes for conversion. Subject to the terms of the Indenture, in the event that a Change in Control shall occur, each Holder shall have the right, at the Holder's option, to require the Company to repurchase, and upon the exercise of such right the Company shall repurchase, all of such Holders Series 1 1/2% Notes, or any portion of the principal 24 23 amount thereof that is an integral multiple of $1,000 (provided that no single Note may be repurchased in part unless the portion of the principal amount of such Note to be outstanding after such repurchase is equal to $1,000 or an integral multiple of $1,000), on the Repurchase Date for cash at a purchase price equal to 100% of the principal amount plus interest accrued and unpaid to, but excluding, the Repurchase Date. If an Event of Default with respect to the Notes shall occur and be continuing, the principal of all of the Notes may be declared due and payable in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the Company and the Trustee to enter into supplemental indentures to the Indenture for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of modifying in any manner the rights of the Holders of the Securities of each series under the Indenture with the consent of the Holders of not less than a majority in principal amount of the Securities at the time Outstanding of each series to be affected thereby on behalf of the Holders of all Securities of such series. The Indenture also permits the Holders of a majority in principal amount of the Securities at the time Outstanding of each series, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults and their consequences with respect to such series under the Indenture. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange here for or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note or such other Notes. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Note at the place, rate and respective times and in the coin or currency herein and in the Indenture prescribed. As provided in the Indenture and subject to the satisfaction of certain conditions therein set forth, including the deposit of certain trust funds in trust, the Company shall be deemed to have paid and discharged the entire indebtedness represented by, and the obligations under, the Securities of any series and to have satisfied all the obligations (with certain exceptions) under the Indenture relating to the Securities of such series. The Notes are issuable in registered form without coupons in denominations of $1,000 and any integral multiple of $1,000. Notes may be exchanged for a like aggregate principal amount of Notes of other authorized denominations at the office or agency of the Company in the Borough of Manhattan, The City of New York, designated for such purpose and in the manner and subject to the limitations provided in the Indenture. Upon due presentment for registration of transfer of this Note at the office or agency of the Company in the Borough of Manhattan, The City of New York designated for such purpose, a new Note or Notes of authorized denominations for a like 25 24 aggregate principal amount will be issued to the transferee in exchange therefor, subject to the limitations provided in the Indenture. No charge shall be made for any such transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge imposed in connection therewith. The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note is overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. Unless otherwise defined herein, all terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. This Note shall be construed in accordance with and governed by the laws of the State of New York. Unless the certificate of authentication hereon has been manually executed by or on behalf of the Trustee under the Indenture, this Note shall not be entitled to any benefits under the Indenture, or be valid or obligatory for any purpose. 26 25 IN WITNESS WHEREOF, CLEAR CHANNEL COMMUNICATIONS, INC. has caused this Note to be duly executed. CLEAR CHANNEL COMMUNICATIONS, INC. by ------------------------------------- Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee, Dated: November 24, 1999 by ------------------------------------- Authorized Signatory 27 26 ------------------------ ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM--as tenants in common TEN ENT--as tenants by the entireties JT TEN--as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT--...........Custodian......... (Cust) (Minor) Under Uniform Gifts to Minors Act ---------------------------------------- (State) Additional abbreviations may also be used though not in the above list. -------------------------- FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s), and transfer(s) unto - ---------------------------------- : : : - ----------------------- : PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE: PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE: - ------------------------------------------------------------ __________________________________________________ the within Note and all rights thereunder, hereby irrevocably constituting and appointing - ---------------------------------------------------- 28 27 attorney to transfer said Note on the books of the Company, with full power of substitution in the premises. Dated: ------------------------ - ------------------------------- Signature (Signature must correspond with the name as written upon the face of the within instrument in every particular, without alteration or enlargement or any change whatever.) - ------------------------------ Signature Guaranty Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. 29 28 CONVERSION NOTICE To: CLEAR CHANNEL COMMUNICATIONS, INC. The undersigned registered owner of this Note hereby irrevocably exercises the option to convert this Note, or the portion hereof (which is $1,000 or an integral multiple thereof) below designated, into shares of Common Stock of Clear Channel Communications, Inc. in accordance with the terms of the Note, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Notes representing any unconverted principal amount hereof, be issued and delivered to the registered Holder hereof unless a different name has been indicated below. If shares or any portion of this Note not converted are to be issued in the name of a Person other than the undersigned, the undersigned will check the appropriate box below and pay all transfer taxes payable with respect thereto. Any amount required to be paid to the undersigned on account of interest accompanies this Note. Dated: ------------------ ------------- ------------- Signature(s) Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or Notes to be delivered, other than to and in the name of the registered Holder. ------------- Signature Guarantee 30 29 Fill in for registration of shares of Common Stock if to be issued, and Notes it to be delivered, other than to and in the name of the registered Holder: - ------------------------ (Name) - ------------------------ (Street Address) - ------------------------ (City, State and Zip Code) Please print name and address Principal amount to be converted (if less than all): $ ------------------------- ------------------------------------------------------ Social Security or Other Taxpayer Identification Number 31 30 OPTION TO ELECT REPURCHASE UPON A CHANGE IN CONTROL To: CLEAR CHANNEL COMMUNICATIONS, INC. The undersigned registered owner of this Note hereby irrevocably acknowledges receipt of a notice from Clear Channel Communications, Inc. (the Company") as to the occurrence of a Change in Control with respect to the Company and requests and instructs the Company to repay the entire principal amount of this Note, or the portion thereof (which is $1,000 or an integral multiple thereof) below designated, in accordance with the terms of the Note at the repurchase price, together with accrued interest to, but excluding, such date, to the registered Holder hereof. Dated: ---------------- ------------------------ ------------------------ Signature(s) NOTICE: The above signatures of the Holder(s) hereof must correspond with the name as written upon the face of the Note in every particular without alteration, enlargement or any change whatever. Principal amount to be repurchased (if less than all): $ ------------------------------- ---------------------------------- Social Security or Other Taxpayer Identification Number 32 31 ARTICLE VI Original Issue of Series 1 1/2% Notes SECTION 6.01. Series 1 1/2% Notes in the aggregate principal amount equal to $900,000,000 ($1,000,000,000 if the option described in Section 2(b) of the Underwriting Agreement relating to the Series 1 1/2% Notes dated November 18, 1999 between the Company and the Underwriters listed therein is exercised) may, upon execution of this Fourth Supplemental Indenture, be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and make available for delivery said Series 1 1/2% Notes to or upon a Company Order. ARTICLE VII Miscellaneous Provisions SECTION 7.01. Except as otherwise expressly provided in this Fourth Supplemental Indenture or in the form of Series 1 1/2% Note or otherwise clearly required by the context hereof or thereof, all terms used herein or in said form of Series 1 1/2% Note that are defined in the Indenture shall have the several meanings respectively assigned to them thereby. SECTION 7.02. The Indenture, as supplemented by this Fourth Supplemental Indenture, is in all respects ratified and confirmed. This Fourth Supplemental Indenture shall be deemed part of the Indenture in the manner and to the extent herein and therein provided. SECTION 7.03. The recitals herein contained are made by the Company and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representation as to the validity or sufficiency of this Fourth Supplemental Indenture. SECTION 7.04. This Fourth Supplemental Indenture may be executed in any number of counterparts each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. 33 32 IN WITNESS WHEREOF, the parties hereto have caused this Fourth Supplemental Indenture to be duly executed as of the day and year first above written. CLEAR CHANNEL COMMUNICATIONS, INC., by: /s/ Randall T. Mays ------------------------------------ Name: Randall T. Mays Title: Executive Vice President and Chief Financial Officer THE BANK OF NEW YORK, as Trustee by: /s/ Van K. Brown ------------------------------------ Name: Van K. Brown Title: Assistant Vice President EX-10.13 3 SHAREHOLDERS AGREEMENT DATED 10/2/99 1 EXHIBIT 10.13 SHAREHOLDERS AGREEMENT This SHAREHOLDERS AGREEMENT (this "Agreement") is entered into this 2nd day of October, 1999 by and among CLEAR CHANNEL COMMUNICATIONS, INC., a Texas corporation ("Parent"), L. LOWRY MAYS and 4-M PARTNERS, LTD., a Texas limited partnership (the "Existing Shareholders"), and the other parties listed on the signature page hereof (the "New Shareholders"). WITNESSETH: WHEREAS, Parent, CCU Merger Sub, Inc., a Delaware corporation ("Merger Sub"), and AMFM INC., a Delaware corporation (the "Company"), have entered into an Agreement and Plan of Merger of even date herewith (the "Merger Agreement"), pursuant to which the parties thereto have agreed, upon the terms and subject to the conditions set forth therein, to merge Merger Sub with and into the Company (the "Merger"); WHEREAS, as of the date hereof, the New Shareholders together are significant shareholders of the Company, and upon consummation of the Merger in accordance with the Merger Agreement, the New Shareholders will become significant shareholders of Parent immediately after the Merger; WHEREAS, as of the date hereof, the Existing Shareholders together are significant shareholders of Parent and together will continue to be significant shareholders of Parent immediately after the Merger; and WHEREAS, Parent, the Existing Shareholders and the New Shareholders wish to provide for and acknowledge certain arrangements and understandings respecting the share ownership of the Existing Shareholders and the New Shareholders and certain other matters. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent, the New Shareholders and the Existing Shareholders hereby agree as follows: ARTICLE 1 CERTAIN DEFINITIONS Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Merger Agreement. In addition, the following terms, as used in this Agreement, shall have the respective meanings set forth in this Article 1: "Affiliate" of any Person, means (i) another Person that, directly or indirectly, through one or more intermediaries controls, is controlled by, or is under common control with, such first Person; (ii) another Person whose assets are attributable to such first Person pursuant to the attribution rules and regulations of the Communications Act; or (iii) another Person who is a member of a 13d Group with such first Person. Notwithstanding the foregoing, for purposes of this Agreement, no Existing Shareholder shall constitute an "Affiliate" of any New Shareholder, and no New Shareholder shall constitute an "Affiliate" of any Existing Shareholder. "Beneficial owner" or "beneficially owned" or "beneficial ownership" shall have the meaning assigned to such term in Rule 13d-3 under the Exchange Act. "Board" or "Board of Directors" means the board of directors of Parent, as constituted from time to time. "Business Combination Transaction" shall mean (A) a (i) merger, (ii) consolidation, (iii) "business combination" as defined in Part Thirteen of the Texas Business Corporation Act as in effect on the date hereof, (iv) compulsory share exchange, (v) recapitalization, or (vi) a transaction in which Parent or any 1 2 successor or Subsidiary of Parent is a constituent corporation or to which Parent or any successor or Subsidiary of Parent is a party, or (B) a sale of a substantial portion of the assets of Parent or any successor, division or Subsidiary of Parent; provided, however, for purposes of this Agreement, none of the foregoing shall constitute a "Business Combination Transaction" if the beneficial ownership of the capital stock of Parent or the surviving entity (following a merger in which Parent ceases to exist) immediately after the consummation of the transaction is substantially the same as the beneficial ownership of the capital stock of Parent immediately prior to the transaction. "Buy-Sell Agreement" means that certain Buy-Sell Agreement, dated May 31, 1977, by and among Parent, L. Lowry Mays, and B.J. McCombs. "Common Stock" means the common stock of Parent, par value $0.10 per share. "Communications Act" means the Communications Act of 1934, as amended, and any regulations promulgated thereunder. "Effective Time" means the time at which the Merger becomes effective. "Exchange Act" means the Securities Exchange act of 1934, as amended, or any successor federal statute, as in effect from time to time. "FCC" means the Federal Communications Commission. "FCC Rule" means any FCC rule, regulation or policy regarding ownership of, control over, or any relationship with any medium of mass communication. "Governmental Entity" means any government or any agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign. "Independent Director" means, with respect to a matter presented to the Board of Directors for approval, any member of the Board of Directors who (i) is not a Director Nominee in Section 5.17 of the Merger Agreement and (ii) under the Texas Business Corporation Act, does not have an interest in the matter presented for approval. "Non-Listed Assets" means all radio, television, and outdoor advertising assets owned by any New Shareholder or any Affiliate of a New Shareholder from time to time that are not listed on Schedule 4.2 hereto. "Person" means any natural person, firm, individual, business trust, trust, association, corporation, partnership, joint venture, company, unincorporated entity or Governmental Entity. "Securities Act" means the Securities Act of 1933, as amended, or any successor federal statute, as in effect from time to time. "Subsidiary" or "Subsidiaries" of any Person means another Person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its board of directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first Person. "13d Group" means a group with in the meaning of Section 13(d)(3) of the Exchange Act. "Voting Power" means, with respect to Voting Securities, the maximum number of votes that the holders of Voting Securities are entitled (at the time of determination of Voting Power) to vote in the election of directors (except to the extent such voting rights are contingent upon dividend arrearages or similar circumstances). "Voting Securities" means the Common Stock and any other securities of Parent or its successors that are entitled by their terms to vote generally in the election of directors of Parent or its successors and all options, rights, warrants and other securities convertible into, or exercisable or exchangeable for, any shares of the Common Stock or other securities possessing such voting rights. 2 3 ARTICLE 2 SHAREHOLDER ACTIVITIES Section 2.1. Certain Agreements of the New Shareholders. (a) General. The New Shareholders jointly and severally covenant and agree that from and after the Effective Time, except as specifically permitted or contemplated by this Agreement or unless previously approved in writing by Parent upon the approval of a majority of the Independent Directors or with the approval of the Chief Executive Officer of Parent, the New Shareholders and their Affiliates will not in any manner, directly or indirectly, acting alone or in concert with others: (i) beneficially own or seek to beneficially own, directly or indirectly, Voting Securities of Parent such that the aggregate beneficial ownership of the New Shareholders and their Affiliates exceeds 20% of the total Voting Securities of Parent outstanding at any time (such 20% limitation of the total Voting Securities outstanding from time to time shall be referred to as the "Percentage Limitation"); (ii) acquire or offer, agree, attempt, seek, propose, or announce an intention to acquire, directly or indirectly, by purchase or otherwise, any Voting Securities (or any direct or indirect beneficial ownership, rights, options or interests therein), if after the consummation of such acquisition the New Shareholders and their Affiliates would have an aggregate beneficial ownership of Voting Securities in excess of the Percentage Limitation; (iii) acquire or offer, agree, attempt, seek, propose, or announce an intention to acquire, directly or indirectly, by purchase or otherwise, any assets of Parent or any of its successors or Subsidiaries; (iv) (A) solicit proxies or consents or become a "participant" in a "solicitation" (as such terms are defined or used in Regulation 14A under the Exchange Act) of proxies or consents with respect to securities of Parent or any of its successors or Subsidiaries; (B) initiate any shareholder proposal or "election contest" (as such term is defined or used in Rule 14a-11 under Exchange Act) with respect to Parent or any of its successors or Subsidiaries; or (C) directly or indirectly, advise, assist, encourage, induce, or act as a financing source for others to take any such action; (v) take any action for the purpose of (A) convening a meeting of the shareholders of Parent or any of its successors or Subsidiaries; (B) taking action by written consent of the shareholders of Parent or any of its successors or Subsidiaries; or (C) directly or indirectly, advise, assist, encourage, induce, or act as a financing source for others to take such action; (vi) except in connection with actions otherwise permitted by this Agreement, make any public announcement or disclosure relating to (A) the acquisition of Voting Securities that would result in the aggregate beneficial ownership of Voting Securities of the New Shareholders and their Affiliates exceeding the Percentage Limitation; (B) a proposal for a Business Combination Transaction; or (C) a tender offer or exchange offer for Voting Securities; (vii) except as permitted by Section 3.1, enter into or agree, offer, commence, propose or seek to enter into, discuss, or otherwise be involved in or part of, directly or indirectly, any (A) tender offer or exchange offer for Voting Securities or (B) any Business Combination Transaction; (viii) request or solicit any Person or negotiate with any Person to (A) make a tender offer or exchange offer for Voting Securities or (B) make a Business Combination Transaction; (ix) make any proposal (A) to Parent or its Board of Directors for a Business Combination Transaction or (B) for a tender offer or exchange offer for Voting Securities; (x) except in connection with bona fide estate planning activities undertaken by a New Shareholder who is an individual, deposit Voting Securities into a voting trust or subject Voting Securities to voting agreements, or grant any proxy with respect to any Voting Securities to any person not designated by Parent's Board of Directors, other than in connection with a bona fide pledge of Voting Securities by a New Shareholder who is an individual; 3 4 (xi) form, join or in any way participate in a 13d Group for the purpose of taking any action restricted or prohibited under any clause of this Subsection (a) of Section 2.1; (xii) disclose publicly any intention, plan or arrangement inconsistent with the foregoing or the other provisions of this Agreement relating to any Voting Securities; or (xiii) enter into any discussions, negotiations, arrangements or understandings with any third party with a view to, or advise, aid, abet, solicit, induce, encourage, or finance in whole or in part, any action prohibited by any clause of this Subsection (a) of Section 2.1 if such action were taken by the New Shareholders or their Affiliates or which action would be prohibited by any clause of this Subsection (a) of Section 2.1 if such third party were a New Shareholder or an Affiliate of a New Shareholder. (b) Suspension. The agreements contained in Subsection (a) of this Section 2.1 shall not apply during the pendency of a Business Combination Transaction approved by a majority of the Independent Directors. Section 2.2. Certain Agreements of the Existing Shareholders. (a) General. The Existing Shareholders jointly and severally covenant and agree that from and after the Effective Time, except as specifically permitted or contemplated by this Agreement or unless previously approved in writing by Parent upon the approval of a majority of the Board of Directors (not including any Existing Shareholder as a member of the Board of Directors for purposes of determining such approval), the Existing Shareholders will not in any manner, directly or indirectly acting alone or in concert with others: (i) beneficially own or seek to beneficially own, directly or indirectly, Voting Securities of Parent such that the aggregate beneficial ownership of the Existing Shareholders exceeds the Percentage Limitation; (ii) acquire or offer, agree, attempt, seek, propose, or announce an intention to acquire, directly or indirectly, by purchase or otherwise, any Voting Securities (or any direct or indirect beneficial ownership, rights, options or interests therein), if after the consummation of such acquisition the Existing Shareholders would have an aggregate beneficial ownership of Voting Securities in excess of the Percentage Limitation; (iii) acquire or offer, agree, attempt, seek, propose, or announce an intention to acquire, directly or indirectly, by purchase or otherwise, any assets of Parent or any of its successors or Subsidiaries; (iv) (A) solicit proxies or consents or become a "participant" in a "solicitation" (as such terms are defined or used in Regulation 14A under the Exchange Act) of proxies or consents with respect to securities of Parent or any of its successors or Subsidiaries; (B) initiate any shareholder proposal or "election contest" (as such term is defined or used in Rule 14a-11 under Exchange Act) with respect to Parent or any of its successors or Subsidiaries; or (C) directly or indirectly, advise, assist, encourage, induce, or act as a financing source for others to take any such action; (v) take any action for the purpose of (A) convening a meeting of the shareholders of Parent or any of its successors or Subsidiaries; (B) taking action by written consent of the shareholders of Parent or any of its successors or Subsidiaries; or (C) directly or indirectly, advise, assist, encourage, induce, or act as a financing source for others to take such action; (vi) except in connection with actions otherwise permitted by this Agreement, make any public announcement or disclosure relating to (A) the acquisition of Voting Securities that would result in the aggregate beneficial ownership of Voting Securities of the Existing Shareholders exceeding the Percentage Limitation; (B) a proposal for a Business Combination Transaction; or (C) a tender offer or exchange offer for Voting Securities; 4 5 (vii) except as permitted by Section 3.3, enter into or agree, offer, commence, propose or seek to enter into, discuss, or otherwise be involved in or part of, directly or indirectly, any (A) tender offer or exchange offer for Voting Securities or (B) any Business Combination Transaction; (viii) request or solicit any Person or negotiate with any Person to (A) make a tender offer or exchange offer for Voting Securities or (B) make a Business Combination Transaction; (ix) make any proposal for (A) any Business Combination Transaction to Parent or its Board of Directors or (B) a tender offer or exchange offer for Voting Securities; (x) except in connection with bona fide estate planning activities undertaken by an Existing Shareholder who is an individual, deposit Voting Securities into a voting trust or subject Voting Securities to voting agreements or grant any proxy with respect to any Voting Securities to any person not designated by Parent's Board of Directors, other than in connection with a bona fide pledge of Voting Securities by an Existing Shareholder who is an individual; (xi) form, join or in any way participate in a 13d Group for the purpose of taking any action restricted or prohibited under any clause of this Subsection (a) of Section 2.2; (xii) disclose publicly any intention, plan or arrangement inconsistent with the foregoing or the other provisions of this Agreement relating to any Voting Securities; or (xiii) enter into any discussions, negotiations, arrangements or understandings with any third party with a view to, or advise, aid, abet, solicit, induce, encourage, or finance in whole or in part, any action prohibited by any clause of this Subsection (a) of Section 2.2 if such action were taken by an Existing Shareholder or which action would be prohibited by any clause of this Subsection (a) of Section 2.2 if such third party were an Existing Shareholder. (b) Suspension. The agreements contained in Subsection (a) of this Section 2.2 shall not apply to prevent the parties to the Buy-Sell Agreement from exercising any and all rights thereunder and shall not apply during the pendency of a Business Combination Transaction approved by a majority of the Board of Directors. ARTICLE 3 RESTRICTIONS ON TRANSFER Section 3.1. Transfer Restrictions Applicable to the New Shareholders. The parties hereto agree that from and after the Effective Time the New Shareholders and their Affiliates may, at any time, directly or indirectly, sell, transfer any beneficial interest in, pledge, hypothecate or otherwise dispose, or offer or enter into any agreement or understanding to sell, any Voting Securities; provided, however, the New Shareholders agree that they and their Affiliates may not sell Voting Securities, to a Person who, after consummation of such sale, will beneficially own, directly or indirectly, more than 20% of the outstanding Voting Securities, except (a) upon the prior consent of a majority of the Independent Directors specifically expressed in a resolution; (b) in connection with a tender offer or exchange offer, Business Combination Transaction, or a similar transaction recommended by a majority of the Independent Directors; (c) in response to a tender offer or exchange offer not approved by the Independent Directors if (X) no New Shareholder or Affiliate of a New Shareholder, directly or indirectly, initiated or commenced or advised, assisted, encouraged, induced, or acted as a financing source for others to commence such tender offer or exchange offer; (Y) holders of no less than 51% (excluding the Voting Securities beneficially owned by the New Shareholders and their Affiliates) of the total outstanding Voting Securities (including the Voting Securities beneficially owned by the New Shareholders and their Affiliates) subject to the tender offer or exchange offer have affirmatively accepted such offer and deposited the Voting Securities in accordance with the terms of the offer; and (Z) no New Shareholder or Affiliate of a New Shareholder made any public or private disclosure of its intention to participate in the tender offer or exchange offer prior to acceptance by no less than 51% of the total outstanding Voting Securities as described in (Y) above; or (d) in connection with a Business Combination Transaction, whether or not recommended by a majority 5 6 of the Independent Directors, that occurred by operation of law provided that the New Shareholders and their Affiliates were otherwise in compliance with this Agreement. Section 3.2. Notice of Distributions. In connection with any dividend or distribution to the holders of equity interests of any New Shareholder that is a partnership, corporation or other entity, each New Shareholder that is a partnership, corporation or other entity severally agrees to provide Parent with at least ten (10) days prior written notice of such dividend or distribution to its equity holders. Section 3.3. Transfer Restrictions Applicable to the Existing Shareholders. The parties hereto agree that from and after the Effective Time the Existing Shareholders may, at any time, directly or indirectly, sell, transfer any beneficial interest in, pledge, hypothecate or otherwise dispose, or offer or enter into any agreement or understanding to sell, any Voting Securities; provided, however, the Existing Shareholders agree that they may not sell Voting Securities to a Person, who after consummation of such sale, will beneficially own, directly or indirectly, more than 20% of the outstanding Voting Securities of Parent, except (a) upon the prior consent of a majority of the Board of Directors specifically expressed in a resolution; (b) in connection with a tender offer or exchange offer, Business Combination Transaction, or a similar transaction recommended by the Board of Directors; (c) in response to a tender offer or exchange offer not approved by the Board of Directors if (X) no Existing Shareholder, directly or indirectly, initiated or commenced or advised, assisted, encouraged, induced, or acted as a financing source for others to commence such tender offer or exchange offer; (Y) holders of no less than 51% (excluding the Voting Securities beneficially owned by the Existing Shareholders) of the total outstanding Voting Securities (including the Voting Securities beneficially owned by the Existing Shareholders) subject to the tender offer or exchange offer have affirmatively accepted such offer and deposited the Voting Securities in accordance with the terms of the offer; and (Z) no Existing Shareholder made any public or private disclosure of its intention to participate in the tender offer or exchange offer prior to acceptance by no less than 51% of the total outstanding Voting Securities as described in (Y) above; or (d) in connection with a Business Combination Transaction, whether or not recommended by a majority of the Board of Directors, that occurred by operation of law, provided that the Existing Shareholders were otherwise in compliance with this Agreement. Section 3.4. Voting Restrictions. (a) Non-Class Voting. In connection with any matter in which a New Shareholder or Existing Shareholder has voting rights related to Voting Securities not entitled to vote separately as a class but that vote together with all other Voting Securities not entitled to vote separately as a class on such matter, the number of votes which such New Shareholder or Existing Shareholder, as the case may be, shall be entitled to cast at its sole discretion with respect to such matter shall not exceed one vote fewer than twenty percent (20%) of the aggregate number of votes entitled to be cast thereon by all securities of Parent entitled to vote on such matter, less (i) in the case of any New Shareholder, the votes entitled to be cast by all other New Shareholders and the votes entitled to be cast by all Affiliates of New Shareholders relating to Voting Securities not entitled to vote separately as a class and (ii) in the case of any Existing Shareholder, the votes entitled to be cast by any other Existing Shareholder not entitled to vote separately as a class. (b) Class Voting. In connection with any matter in which a New Shareholder or Existing Shareholder has voting rights which are entitled to be counted separately as part of a class of securities entitled to vote as a class on such matter, the number of votes which such New Shareholder or Existing Shareholder, as the case may be, shall be entitled to cast at its sole discretion with respect to such matter shall not exceed one vote fewer than twenty percent (20%) of the aggregate number of votes entitled to be cast thereon by all securities of such class, less (i) in the case of a New Shareholder, the votes entitled to be cast by all other New Shareholders and the votes entitled to be cast by all Affiliates of New Shareholders relating to Voting Securities of the same class and (ii) in the case of an Existing Shareholder, the votes entitled to be cast by all other Existing Shareholders relating to Voting Securities of the same class. 6 7 (c) Limitation. If any New Shareholder or Existing Shareholder would otherwise be entitled to cast votes in excess of the number calculated pursuant to clauses (a) and (b) above, then the balance of such votes shall be cast for, against or abstain in respect of such matter in the same proportion as the votes cast for, against or abstain by all other shareholders of Parent entitled to vote on the matter. ARTICLE 4 OTHER COVENANTS OF THE NEW SHAREHOLDERS Section 4.1. Facilitation of the Merger. The New Shareholders jointly and severally covenant and agree that from and after the date hereof the New Shareholders and their Affiliates will (a) use their commercially reasonable efforts to cooperate with and provide assistance to Parent so as to facilitate Parent's compliance with the provisions of Section 5.8 of the Merger Agreement; (b) refrain from taking any action which will cause the FCC or any Governmental Authority to restrain, enjoin, or otherwise prevent or materially delay the consummation of the Merger; and (c) use their best efforts (i) to avoid or prevent any Action (as defined in Section 4.2) resulting in any way from the attribution to Parent and its Affiliates of the ownership of assets of RCN Corporation, a Delaware corporation, due to the equity interest therein held by an Affiliate of a New Shareholder (the "RCN Interest") and (ii) to prevent the RCN Interest from preventing or materially delaying the consummation of the Merger beyond the Termination Date. Prior to the Effective Time, Section 4.1 governs the obligations of the New Shareholders and their Affiliates with respect to the RCN Interest, and from and after the Effective Time, Section 4.2 shall govern such obligations. This Section 4.1 shall not apply to any assets listed on Schedule 4.2. Section 4.2. Regulatory Compliance Responsibilities. In consideration for Parent's agreement to enter into the Merger Agreement and issue Common Stock to the New Shareholders in the Merger despite the potential for increased regulatory complications, the New Shareholders jointly and severally covenant and agree that from and after the date hereof: (a) the New Shareholders and their Affiliates will (i) sell or otherwise dispose of, or hold separate and agree to sell or otherwise dispose of, assets, categories of assets or businesses, (ii) amend or terminate existing relationships (including, but not limited to positional interests and debtor-creditor relationships) and contractual rights and obligations, (iii) amend or terminate existing licenses or other intellectual property agreements and enter into new licenses or other intellectual property agreements, and (iv) take any and all other action, if any of the foregoing is reasonably likely to be necessary for the purpose of avoiding or preventing any Action; provided that the foregoing clauses (i)-(iv) shall not apply to any assets listed on Schedule 4.2. As used herein, "Action" shall mean any action or inaction by the FCC or any Governmental Entity that (A) would adversely affect the ability of Parent and its Affiliates to acquire additional media properties, expand its media properties or enter into joint ventures or other relationships respecting media properties and media-related activities and (B) was caused by or resulted in any way from (i) the attribution to Parent and its Affiliates of the ownership of Non-Listed Assets of the New Shareholder and its Affiliates pursuant to the Communications Act which causes the Parent or New Shareholder to violate the FCC Rules or (ii) the ownership of Non-Listed Assets of the New Shareholder and its Affiliates under applicable federal, state and local antitrust laws or any other federal, state or local laws. For example, "Action" as used herein may include the FCC's failure to grant its consent to an application filed by Parent or an Affiliate of Parent seeking approval for an acquisition of new media of mass communication including, but not limited to, radio and television stations; and (b) the New Shareholders and their Affiliates shall take promptly, in the event that any permanent or preliminary injunction or other order is entered or becomes reasonably foreseeable to be entered in any proceeding that would make consummation of any agreement to which the Parent or an Affiliate of Parent is a party in accordance with its terms unlawful or that would prevent or delay consummation of such transaction, any and all steps (including the appeal thereof, the posting of a bond or the taking of the steps contemplated above) necessary to vacate, modify or suspend such 7 8 injunction or order so as to permit the consummation of such transaction prior to the deadline agreed upon by the parties to such transaction, provided that such injunction or order was caused by or resulted in any way from (x) the attribution to Parent and its Affiliates of the ownership of Non-Listed Assets of the New Shareholder and its Affiliates pursuant to the Communications Act which causes the Parent or New Shareholder or any of its Affiliates to violate the FCC Rules or (y) the ownership of Non-Listed Assets of the New Shareholder and its Affiliates under applicable federal, state and local antitrust laws or any other federal, state or local laws. The foregoing obligations of the New Shareholder and its Affiliates shall apply regardless of whether the conflict or violation results in whole or in part from actions of Parent or its Affiliates, actions of the New Shareholder or its Affiliates, or changes in any applicable laws. (c) Parent will promptly provide notice to the New Shareholders upon the execution of a definitive agreement for a new acquisition or other transaction which Parent reasonably believes will cause the New Shareholders or their Affiliates to incur obligations under this Section 4.2. Section 4.3. Scope. The foregoing obligations in Section 4.2 shall apply only to radio and television assets of the New Shareholders and their Affiliates which assets are located in the United States and outdoor advertising assets of the New Shareholders and their Affiliates which assets are located anywhere in the world excluding South America. Section 4.4. Survival. This Article 4 shall survive the termination of this Agreement for so long as the assets or actions of the New Shareholder or its Affiliates are attributable to or deemed to be owned or taken by Parent pursuant to attribution, control or ownership laws, rules or policies of any Governmental Entity; provided, however, if the Merger Agreement terminates prior to the consummation of the Merger, then this Article 4 shall terminate simultaneously with the termination of the Merger Agreement. Section 4.5. Liability Under Article IV. Thomas O. Hicks, a New Shareholder, shall not be personally liable for monetary damages arising from a breach or violation of this Article 4 by any New Shareholder; provided, however, all other New Shareholders shall be jointly and severally liable for any and all losses or damages, direct or indirect, consequential or otherwise, arising from a breach or violation of this Article 4. Except as set forth above, Thomas O. Hicks shall not in any way be released from the obligations of the New Shareholders hereunder. ARTICLE 5 REPRESENTATIONS AND WARRANTIES Section 5.1. Representations and Warranties of the New Shareholders. (a) Binding Agreement. Each New Shareholder severally represents and warrants as follows: (i) the New Shareholder, if not an individual, is duly organized and validly existing under the laws of the State of its organization; (ii) the New Shareholder has the capacity to execute and deliver this Agreement and to consummate the transactions contemplated hereby; and (iii) the New Shareholder has duly and validly executed and delivered this Agreement and this Agreement constitutes a legal, valid, and binding obligation of the New Shareholder, enforceable against the New Shareholder in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights generally and by general equitable principles (regardless of whether enforceability is considered in a proceeding in equity or at law). (b) No Conflict. Each New Shareholder severally represents and warrants that neither the execution and delivery of this Agreement, nor the compliance with any of the provisions hereof in each case by the New Shareholder (i) requires any consent, approval, authorization or permit of, registration, declaration, or filing with, or notification to, any Governmental Entity (except for filings or notifications under the Exchange Act or Communications Act), (ii) results in a default (or an event which, with notice or lapse of time or both, will result in a default) or gives rise to any right of termination by any third party, cancellation, amendment, or acceleration under any material contract, agreement, instrument, commitment, 8 9 arrangement, or understanding, or results in the creation of a security interest, lien, charge, encumbrance, equity, or claim with respect to any of the securities of the Company beneficially owned by the New Shareholder, (iii) requires any material consent, authorization, or approval of any person other than a Governmental Entity which has not been obtained, (iv) violates or conflicts with any order, writ, injunction, decree or law applicable to the New Shareholder or the securities of the Company beneficially owned by the New Shareholder, or (v) violates or conflicts with the organizational documents, if any, of the New Shareholder. (c) Share Ownership. Each New Shareholder severally represents and warrants that (i) except as set forth in Schedule 5.1, the New Shareholder is the record owner of the number of shares of common stock, par value $0.01 per share, of the Company set forth opposite his or its name on Schedule 5.1 (the "New Shareholder Shares"), free and clear of any security interests, liens, charges, encumbrances, options or restriction on the right to vote the New Shareholder Shares; (ii) the New Shareholder holds exclusive power to vote the New Shareholder Shares, subject to the limitations set forth in that certain Voting Agreement of even date herewith by and between the New Shareholder and Parent; and (iii) the New Shareholder Shares represent all of the shares of capital stock of the Company owned of record by the New Shareholder. Section 5.2. Representations and Warranties of the Existing Shareholders. (a) Binding Agreement. The Existing Shareholders represent and warrant as follows: (i) the Existing Shareholder, if not an individual, is duly organized and validly existing under the laws of its state of organization; (ii) the Existing Shareholder has the capacity to execute and deliver this Agreement and to consummate the transactions contemplated hereby, and (iii) the Existing Shareholder has duly and validly executed and delivered this Agreement, and this Agreement constitutes a legal, valid, and binding obligation of the Existing Shareholder, enforceable against the Existing Shareholder in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights generally and by general equitable principles (regardless of whether enforceability is considered in a proceeding in equity or at law). (b) No Conflict. Each Existing Shareholder represents and warrants that neither the execution and delivery of this Agreement, nor the compliance with any of the provisions hereof in each case by the Existing Shareholder (i) requires any consent, approval, authorization or permit of, registration, declaration or filing with, or notification to, any Governmental Entity (except for filings under the Exchange Act or Communications Act), (ii) results in a default (or an event which, with notice or lapse of time or both, will result in a default) or gives rise to any right of termination by any third party, cancellation, amendment, or acceleration under any material contract, agreement, instrument, commitment, arrangement, or understanding, or results in the creation of a security interest, lien, charge, encumbrance, equity, or claim with respect to any of the securities of Parent beneficially owned by the Existing Shareholder, (iii) requires any material consent, authorization, or approval of any person other than a Governmental Entity which has not been obtained, (iv) violates or conflicts with any order, writ, injunction, decree or law applicable to the Existing Shareholder or the securities of Parent beneficially owned by the Existing Shareholder, or (v) violates or conflicts with the organizational documents, if any, of the Existing Shareholder. (c) Share Ownership. Each Existing Shareholder represents and warrants that (i) except as set forth in Schedule 5.2, the Existing Shareholder is the record owner of the number of shares of Common Stock of Parent set forth on Schedule 5.2 (the "Existing Shareholder Shares"), free and clear of any security interests, liens, charges, encumbrances, options or restriction on the right to vote the Existing Shareholder Shares; (ii) the Existing Shareholder holds exclusive power to vote the Existing Shareholder Shares, subject to the limitations set forth in that certain Voting Agreement of even date herewith by and between the Existing Shareholder and the Company; and (iii) the Existing Shareholder Shares represent all of the shares of capital stock of Parent owned of record by the Existing Shareholder. 9 10 ARTICLE 6 MISCELLANEOUS Section 6.1. Termination. Except for Article 4, which shall survive for the period specified therein (but in no event after the termination of the Merger Agreement), this Agreement shall terminate upon the earlier to occur of the following: (i) the fifth anniversary of the Effective Time of the Merger, (ii) the termination of the Merger Agreement prior to consummation of the Merger, (iii) the agreement of the parties hereto to terminate this Agreement, or (iv) the date on which a person or group (not including the New Shareholder, the Existing Shareholder or their respective Affiliates) beneficially owns more than 50% of the Voting Power, whether by way of tender or exchange offer or otherwise. Section 6.2. Survival. The representations and warranties herein contained shall survive indefinitely following the termination of this Agreement, subject to applicable statutes of limitation, if any; provided, however, that no representations and warranties shall survive the termination of this Agreement pursuant to Section 6.1(ii). Section 6.3. Specific Enforcement. The parties hereto agree that if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached, irreparable damage would occur and it would be extremely impracticable and difficult to measure damages. Accordingly, in addition to any other rights and remedies to which the parties may be entitled by law or equity, each party shall be entitled to seek specific performance of the terms hereof. Further, the parties hereto expressly waive (a) the defense that a remedy in damages will be adequate and (b) any requirement, in an action for specific performance, for the posting of a bond. The New Shareholders further agree to use their best efforts to cause their respective partners, trustees, directors, officers, employees and agents to waive, any requirement for the posting of a bond in connection with such remedy. Section 6.4. No Waiver. The parties hereby agree that no failure or delay by a party to this Agreement, in exercising any right, power or privilege hereunder will operate as a waiver thereof, nor will a single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege hereunder. Section 6.5. Governing Law. This Agreement shall be governed and construed in all respects in accordance with the laws of the State of Texas (without giving effect to the provisions thereof relating to conflicts of law). Parent, the Existing Shareholders, and the New Shareholders hereby consent to personal jurisdiction in any action brought with respect to this Agreement and the transactions contemplated hereby in the United States District Court for the Western District of Texas sitting in Bexar County, Texas. Section 6.6. Successors and Assigns. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of and be binding upon, the successors, permitted assigns, heirs, executors and administrators of the parties hereto. Section 6.7. Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge, or termination is sought. Section 6.8 Interpretation. Headings of the Articles and Sections of this Agreement are for convenience of the parties only, and shall be given no substantive or interpretive effect whatsoever. 10 11 Section 6.9. Notices. Unless otherwise provided, any notice, request, demand or other communication required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified, or when sent by telex or telecopier (with receipt confirmed), or one business day following deposit with overnight courier or three business days following deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed as follows (or at such other address as a party may designate by notice to the other): If to Parent: Clear Channel Communications, Inc. 200 Concord Plaza Suite 600 San Antonio, Texas 78216-6940 Attention: Randall T. Mays Telephone: (210) 822-2828 Facsimile: (210) 822-2299 With a copy to: Akin, Gump, Strauss, Hauer & Feld L.L.P. 1700 Pacific Avenue Suite 4100 Dallas, Texas 75201-4675 Attention: Michael E. Dillard, P.C. Telephone: (214) 969-2800 Facsimile: (214) 969-4343 If to the New Shareholders: c/o Hicks, Muse, Tate & Furst Incorporated 200 Crescent Court Suite 1600 Dallas, Texas 75201 Attention: Thomas O. Hicks Telephone: (214) 740-7300 Facsimile: (214) 740-7313 With a copy to: Hicks, Muse, Tate & Furst Incorporated 200 Crescent Court Suite 1600 Dallas, Texas 75201 Attention: Lawrence D. Stuart, Jr. Telephone: (214) 740-7300 Facsimile: (214) 740-7313 Section 6.10. Assignment. Without the prior written consent of the other parties hereto, no party hereto may assign this Agreement or any of its rights or obligations hereunder, in whole or in part, by operation of law or otherwise except that Parent may, without the prior written consent of the other parties, assign this Agreement upon a merger, consolidation, "business combination" as defined in Part Thirteen of the Texas Business Corporation Act as in effect on the date hereof, compulsory share exchange, recapitalization or other similar transaction, provided that holders of the capital stock of Parent or the surviving entity immediately prior to such transaction hold at least a majority of the capital stock of Parent or the surviving entity immediately after such transaction. Section 6.11. Severability. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law but if any 11 12 provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. Section 6.12. Facsimile Signatures. Any signature page delivered by a fax machine or telecopy machine shall be binding to the same extent as an original signature page, with regard to any agreement subject to the terms hereof or any amendment thereto. Any party who delivers such a signature page agrees to later deliver an original counterpart to any party which requests it. Section 6.13. Counterparts. This Agreement may be executed in counterpart, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same Agreement. Section 6.14. Shareholder Capacity. No covenant or agreement of the Existing Shareholders contained herein is made by an Existing Shareholder in his capacity as a director or officer. No covenant or agreement of Thomas O. Hicks contained herein shall be deemed to be made by him in his capacity as a director or officer provided that he complies with the provisions of Section 2.1 and votes in his capacity as a director or officer. All New Shareholders other than Thomas O. Hicks shall be jointly and severally liable for any breach of this Agreement by any New Shareholder, including Thomas O. Hicks. Section 6.15. No Recourse Against Others. No past, present or future partner, director, officer, employee, member or stockholder of a New Shareholder or an Existing Shareholder or any of their respective partners, directors, officers, employees, members or stockholders (unless such person has executed this Agreement) shall have any liability for any obligations of the New Shareholders or the Existing Shareholders under this Agreement for any claim based on, in respect of or by reason of such obligations or their creation. 12 13 SHAREHOLDERS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties have caused this Shareholders Agreement to be duly executed as of the day and year first above written. CLEAR CHANNEL COMMUNICATIONS, INC., A TEXAS CORPORATION /s/ RANDALL T. MAYS ---------------------------------------- By: Randall T. Mays Title: Executive Vice President and Chief Executive Officer EXISTING SHAREHOLDERS: /s/ L. LOWRY MAYS ---------------------------------------- L. Lowry Mays 4-M PARTNERS, LTD., a Texas limited partnership By: /s/ L. LOWRY MAYS ------------------------------------- Name: L. Lowry Mays Title: General Partner NEW SHAREHOLDERS: HICKS, MUSE, TATE & FURST EQUITY FUND II, L.P. By: HM2/GP PARTNERS, L.P., its general partner By: HICKS, MUSE GP PARTNERS, L.P., its general partner By: HICKS, MUSE FUND II INCORPORATED, its general partner By: /s/ THOMAS O. HICKS ------------------------------------- Name: Thomas O. Hicks Title: President 13 14 SHAREHOLDERS AGREEMENT SIGNATURE PAGE -- (CONTINUED) HM2/HMW, L.P. By: HICKS, MUSE, TATE & FURST EQUITY FUND II, L.P., its general partner By: HM2/GP PARTNERS, L.P., its general partner By: HICKS, MUSE GP PARTNERS, L.P., its general partner By: HICKS, MUSE FUND II INCORPORATED, its general partner By: /s/ THOMAS O. HICKS ------------------------------------- Name: Thomas O. Hicks Title: President HM2/CHANCELLOR, L.P. By: HM2/CHANCELLOR GP, L.P., its general partner By: HM2/CHANCELLOR HOLDINGS, INC., its general partner By: /s/ THOMAS O. HICKS ------------------------------------- Name: Thomas O. Hicks Title: President HM4/CHANCELLOR, L.P. By: HICKS, MUSE FUND IV LLC, its general partner By: /s/ THOMAS O. HICKS ------------------------------------- Name: Thomas O. Hicks Title: President 14 15 SHAREHOLDERS AGREEMENT SIGNATURE PAGE -- (CONTINUED) CAPSTAR BROADCASTING PARTNERS, L.P. By: HM3/CAPSTAR PARTNERS, L.P., its general partner By: HM3/CAPSTAR, INC., its general partner By: /s/ THOMAS O. HICKS ------------------------------------- Name: Thomas O. Hicks Title: President CAPSTAR BT PARTNERS, L.P. By: HM3/GP PARTNERS, L.P., its general partner By: HICKS, MUSE GP PARTNERS III, L.P., its general partner By: HICKS, MUSE FUND III INCORPORATED, its general partner By: /s/ THOMAS O. HICKS ------------------------------------- Name: Thomas O. Hicks Title: President CAPSTAR BOSTON PARTNERS, L.L.C. By: HM3/GP PARTNERS, L.P., its managing member By: HICKS, MUSE GP PARTNERS III, L.P., its general partner By: HICKS, MUSE FUND III INCORPORATED, its general partner By: /s/ THOMAS O. HICKS ------------------------------------- Name: Thomas O. Hicks Title: President /s/ THOMAS O. HICKS ---------------------------------------- Thomas O. Hicks 15 EX-10.14 4 REGISTRATION RIGHTS AGREEMENT DATED 10/2/99 1 EXHIBIT 10.14 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT dated as of October 2, 1999 (this "Agreement"), among CLEAR CHANNEL COMMUNICATIONS, INC., a Texas corporation (the "Issuer"), and the other persons set forth on the signature pages hereto (including such persons' permitted transferees, the "Holders"). WITNESSETH: WHEREAS, this Agreement is being entered into in connection with the closing under the Merger Agreement referred to below. NOW, THEREFORE, in consideration of the foregoing and the mutual promises, representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE 1 DEFINITIONS Section 1.1 Definitions. Terms defined in the Agreement and Plan of Merger, dated as of October 2, 1999 (the "Merger Agreement"), among the Issuer, CCU Merger Sub, Inc., a Delaware corporation wholly owned by the Issuer, and AMFM Inc., a Delaware corporation (the "Company"), are used herein as defined therein. In addition, the following terms, as used herein, shall have the following respective meanings: "Commission" shall mean the Securities and Exchange Commission or any successor governmental body or agency. "Common Stock" shall mean the common stock, par value $.10 per share, of the Issuer. "Demand Registration" shall have the meaning ascribed thereto in Section 2.1(a). "Demand Request" shall have the meaning ascribed thereto in Section 2.1(a). "Disadvantageous Condition" shall have the meaning ascribed thereto in Section 2.4. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Excluded Registration" shall mean the sale of any securities pursuant to a registration statement that is not a firmly underwritten offering of Common Stock. "HMTF" shall mean Hicks, Muse, Tate & Furst Incorporated, a Delaware corporation. "Holders' Agent" shall have the meaning ascribed thereto in Section 4.11. "Holder" shall mean each of the Persons who are listed as signatories hereto other than the Issuer and their Included Transferees. "Included Transferee" shall mean any transferee in a Significant Disposition, as well as any subsequent transferees to the extent such subsequent transferees received shares in the manner set forth in the definition of "Significant Disposition," but in each case only with respect to shares of Registrable Securities received in a Significant Disposition. "Person" shall mean any natural person, firm, individual, business trust, association, corporation, partnership, joint venture, company, unincorporated entity or other entity. 1 2 "Registrable Securities" shall mean Common Stock acquired by the initial Holders pursuant to the Merger (and any shares of stock or other securities into which or for which such Common Stock may hereafter be changed, converted or exchanged and any other shares or securities issued to Holders of such Common Stock (or such shares of stock or other securities into which or for which such shares are so changed, converted or exchanged) upon any reclassification, share combination, share subdivision, share dividend, share exchange, merger, consolidation or similar transaction or event). The Person that issues the Registrable Securities shall be the "Issuer" hereunder. As to any particular Registrable Securities, such Registrable Securities shall cease to be Registrable Securities as soon as (i) such Registrable Securities have been sold or otherwise disposed of pursuant to a registration statement that was filed with the Commission in accordance with this Agreement and declared effective under the Securities Act, (ii) such Registrable Securities shall have been otherwise sold, transferred or disposed of by a Holder to any Person that is not a Holder, or (iii) such Registrable Securities shall have ceased to be outstanding. Any shares of Common Stock received by an Included Transferee pursuant to a Significant Disposition shall be deemed "Registrable Securities" for purposes of this Agreement. "Registration Expenses" shall mean any and all expenses incident to performance of or compliance with any registration of securities pursuant to Article 2, including, without limitation, (i) the fees, disbursements and expenses of the Issuer's counsel and accountants (including in connection with the delivery of opinions and/or comfort letters) in connection with this Agreement and the performance of the Issuer's obligations hereunder; (ii) all expenses, including filing fees, in connection with the preparation, printing and filing of one or more registration statements hereunder; (iii) the cost of printing or producing any agreements among underwriters, underwriting agreements, and blue sky or legal investment memoranda; (iv) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the securities to be disposed of; (v) transfer agents' and registrars' fees and expenses in connection with such offering; (vi) all security engraving and security printing expenses; and (vii) all fees and expenses payable in connection with the listing of the Registrable Securities on any securities exchange or automated interdealer quotation system on which the Common Stock is then listed; provided that Registration Expenses shall exclude (x) all underwriting discounts and commissions, selling or placement agent or broker fees and commissions, and transfer taxes, if any, in connection with the sale of any securities, (y) the fees and expenses of counsel for any Holder and (z) all costs and expenses of the Issuer incurred as contemplated in Section 2.6(g). "Rule 144" shall mean Rule 144 (or any successor rule to similar effect) promulgated under the Securities Act. "Rule 415 Offering" shall mean an offering on a delayed or continuous basis pursuant to Rule 415 (or any successor rule to similar effect) -- promulgated under the Securities Act. "Securities Act" shall mean the Securities Act of 1933, as amended. "Selling Holder" shall mean any Holder who sells Registrable Securities pursuant to a public offering registered hereunder. "Shareholders Agreement" shall mean that certain Shareholders Agreement dated the date hereof among the Issuer, L. Lowry Mays and the Holders and the other Persons named therein. "Significant Disposition" means any sale, exchange, disposition or other transfer to one Person to the extent that (a) such sale, exchange, disposition or transfer involves at least a majority of all the Registrable Securities then held by the initial Holders and (b) the value of the Registrable Securities received by such transferees was at least $2,000,000,000 based on the closing price of the Common Stock on the trading day immediately preceding the day of such sale, exchange, distribution, disposition or other transfer. If a transferee of Common Stock in a Significant Disposition makes a subsequent disposition or transfer of the entire amount of securities received as set forth above in a single transaction to one Person, such transferee (but not more than one Person) shall be deemed an Included Transferee and shall have 2 3 the rights of a Holder under this Agreement, and any subsequent transferee (but not more than one Person) of such entire block of shares of Common Stock shall be deemed an Included Transferee and shall have rights of a Holder under this Agreement. "Termination Date" shall have the meaning set forth in Article 3. Section 1.2 Internal References. Unless the context indicates otherwise, references to Articles, Sections and paragraphs shall refer to the corresponding articles, sections and paragraphs in this Agreement, and references to the parties shall mean the parties to this Agreement. ARTICLE 2 REGISTRATION RIGHTS Section 2.1 Demand Registration. (a) Upon written notice to the Issuer prior to the Termination Date from a Holder or Holders holding a majority in interest of the Registrable Securities (the "Demand Request") requesting that the Issuer effect the registration under the Securities Act of any or all of the Registrable Securities held by such requesting Holders (the "Requesting Holders" which term shall include parties deemed "Requesting Holders" pursuant to Section 2.1(d)) in a firmly underwritten public offering, the Issuer shall prepare as soon as practicable and, within 30 days after such request, file with the Commission a registration statement with respect to such Registrable Securities and thereafter use its reasonable best efforts to cause such registration statement to be declared effective under the Securities Act within 45 days after the filing of such registration statement. A registration effected pursuant to a Demand Request pursuant to this Section 2.1(a) shall be referred to herein as a "Demand Registration." Notwithstanding any other provision of this Agreement to the contrary: (i) the Holders may collectively exercise their rights to request Demand Registrations on not more the one occasion in any 12-month period; (ii) the method of disposition requested by Holders in connection with any Demand Registration may not, without the Issuer's written consent, be a Rule 415 Offering; and (iii) the Issuer shall not be required to effect a Demand Registration hereunder unless the aggregate offering size for such offering is at least $500 million. (b) Notwithstanding any other provision of this Agreement to the contrary, a Demand Registration requested by Holders pursuant to this Section 2.1 shall not be deemed to have been effected, and, therefore, not requested and the rights of each Holder shall be deemed not to have been exercised for purposes of paragraph (a) above, if (i) such Demand Registration has not become effective under the Securities Act or (ii) such Demand Registration, after it became effective under the Securities Act, was not maintained effective under the Securities Act (other than as a result of any stop order, injunction or other order or requirement of the Commission or other government agency or court solely on the account of a material misrepresentation or omission of a Holder) for at least 90 days (or such shorter period ending when all the Registrable Securities covered thereby have been disposed of pursuant thereto) and, as a result thereof, the Registrable Securities requested to be registered cannot be distributed in accordance with the plan of distribution set forth in the related registration statement. So long as a Demand Request is made by the Holders prior to the Termination Date, the Holders shall not lose their right to their Demand Registration under Section 2.1(a) if the Demand Registration related to such Demand Request is delayed or not effected in the circumstances set forth in this Section 2.1(b) or Section 2.4. (c) The Issuer shall have the right to cause the registration of additional equity securities for sale for the account of the Issuer or any other Person to whom the Issuer has granted registration rights from time to time, in the registration of Registrable Securities requested by the Holders pursuant to Section 2.1(a) 3 4 above, provided that if such Holders are advised in writing (with a copy to the Issuer) by the lead or managing underwriter referred to in Section 2.3(b) that, in such underwriter's good faith view, all or a part of such Registrable Securities and additional equity securities cannot be sold and the inclusion of such Registrable Securities and additional equity securities in such registration would be likely to have an adverse effect on the price, timing or distribution of the offering and sale of the Registrable Securities and additional equity securities then contemplated (referred to herein as a "Material Adverse Effect"), then the number of securities that can, in the good faith view of such underwriter, be sold in such offering without so adversely affecting such offering shall be allocated as follows: (i) first, all securities the Holders propose to register and (ii) thereafter, the securities to be registered for the account of the Issuer and/or securities requested to be registered for the account of other Persons entitled to participate, in such proportions determined by the Issuer in its discretion or in accordance with agreements between the Issuer and other Persons. (d) Within 7 days after delivery of a Demand Request by a Holder, the Issuer shall provide a written notice to the Holders' Agent (which shall be deemed notice to all the Holders), advising such Holder of its right to include any or all of the Registrable Securities held by such Holder for sale pursuant to the Demand Registration and advising such Holder of procedures to enable such Holder to elect to so include Registrable Securities for sale in the Demand Registration. Any Holder may, within 15 days of delivery to such Holder of a notice pursuant to this Section 2.1(d), elect to so include all or any portion of such Holder's Registrable Securities in the Demand Registration by written notice to such effect to the Issuer specifying the number of Registrable Securities desired to be so included by such Holder. All Holders requesting to have their Registrable Securities included in a Demand Registration pursuant to this Section 2.1(d) shall be deemed "Requesting Holders" for purposes of this Article 2. Section 2.2 Piggyback Registrations. (a) Right to Piggyback. Each time the Issuer proposes to register any of its equity securities (other than pursuant to an Excluded Registration) under the Securities Act for sale to the public (whether for the account of the Issuer or the account of any securityholder) or proposes to make such an offering of equity securities (other than pursuant to an Excluded Registration) to the public pursuant to a previously filed registration statement pursuant to Rule 415 under the Securities Act, the Issuer shall give prompt written notice to each Holder of Registrable Securities (which notice shall be given not less than 10 days prior to the proposed initial filing date of the Issuer's registration statement in the case of a non-Rule 415 Offering or the commencement of the offering, in the case of a Rule 415 Offering), which notice shall offer each such Holder the opportunity to offer any or all of its or his Registrable Securities in such public offering. Each Holder who desires to sell its or his Registrable Securities in such underwritten public offering shall so advise the Issuer in writing (stating the number of Registrable Securities desired to be registered or sold) within 5 days after the date of such notice from the Issuer. Any Holder shall have the right to withdraw such Holder's request for inclusion of such Holder's Registrable Securities in any offering pursuant to this Section 2.2(a) by giving written notice to the Issuer of such withdrawal. The Issuer may at any time withdraw or cease proceeding with any such registration if it shall at the same time withdraw or cease proceeding with the registration of all other equity securities originally proposed to be registered. Except as provided above, the Holders shall have no registration rights with respect to an Excluded Registration. (b) Priority on Piggyback Registrations. The priority of shares to be included on an offering pursuant to which the Holders have piggyback registrations and as to which the underwriters have advised the Holders that a Material Adverse Effect would be likely shall be as follows: (i) with respect to an offering initiated by the Issuer on its own behalf, first, to the Issuer, and second to the Holders and any other securityholders of the Issuer who have the right to include securities in such offering pro rata based on the number of shares proposed by such Persons to be included in the offering; and 4 5 (ii) with respect to an offering pursuant to demand registration rights of securityholders of the Issuer other than the Holders, first to the securityholders pursuant to their demand registration rights, second to the Issuer, and third, to the Holders and any other securityholders of the Issuer who have the right to include securities in such offering pro rata based on the number of shares proposed by the Holders and such other securityholders to be included in such offering. If as a result of the provisions of this Section 2.2(b) any Holder shall not be entitled to include all Registrable Securities in an offering that such Holder has requested to be so included, such Holder may withdraw such Holder's request to include Registrable Securities in such offering prior to completion of the offering. (c) Limited Purpose Shelf Registration Statement. The Issuer shall prepare, and file with the Commission one or more Registration Statements on Form S-3 under Rule 415 of the Securities Act covering the resale of the Registrable Securities in an amount of shares to be mutually agreed by Issuer and Holders' Agent from time to time, but such Registration Statement on Form S-3 shall be restricted for use by the Holders only for participation pursuant to Section 2.2(a) in a firmly underwritten public offering of Common Stock proposed by the Issuer for the account of the Issuer or the account of any other securityholder. Section 2.3 Other Matters In Connection With Registrations. (a) Each Holder shall keep the Holders' Agent informed promptly of (x) the name, address and other contact information of such Holder, (y) the number of Registrable Securities held from time-to-time by such Holder, and (z) each sale, transfer or other disposition of Registrable Securities (including the number of shares sold) by each such Holder. The Holders' Agent shall use its reasonable best efforts to keep the Issuer informed promptly of (x) the name, address and other contact information of each Holder, (y) the number of Registrable Securities held from time-to-time by each such Holder and (z) each sale, transfer or other disposition of Registrable Securities (including the number of shares sold) by each such Holder. (b) The Issuer shall have the right to designate an underwriter or underwriters as the lead or managing underwriters of any Demand Registration or other registration who shall be reasonably acceptable to Holders owning a majority of the Registrable Securities proposed to be sold therein. (c) No Holder may participate in any registration statement hereunder unless such Person (x) agrees to sell such Person's Registrable Securities on the basis provided in any underwriting arrangements approved by the Issuer and (y) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements, and other documents reasonably required under the terms of such underwriting arrangements. Section 2.4 Certain Delay Rights. The Issuer may defer the filing or effectiveness (but not the preparation) of a registration statement required by Section 2.1 for a period not to exceed 120 days (or, if longer, 120 days after the effective date of the registration statement contemplated by clause (ii) or (iii) below) if (i) at the time the Issuer receives the Demand Request, the Issuer or any of its Subsidiaries are engaged in confidential negotiations or other confidential business activities, disclosure of which would be required in such registration statement (but would not be required if such registration statement were not filed), and the Board of Directors of the Issuer determines in good faith that such disclosure would be materially detrimental to the Issuer and its stockholders or would have a material adverse effect on any such confidential negotiations or other confidential business activities, (ii) within three (3) business days following its receipt of a Demand Request, the Issuer decides to effect a public offering of the Issuer's securities for the Issuer's account, or (iii) prior to the receipt of any Demand Request, another Person has exercised demand registration rights and the Issuer has begun preparations or planning for the offering (each of clauses (i), (ii) and (iii) referred to herein as a "Disadvantageous Condition"). A deferral of the filing or effectiveness of a registration statement pursuant to this Section 2.4 5 6 shall be lifted, and the requested registration statement shall be filed forthwith, if, in the case of a deferral pursuant to clause (i) of the preceding sentence, the negotiations or other activities are disclosed or terminated, or, in the case of a deferral pursuant to clause (ii) or (iii) of the preceding sentence, the proposed offering for the Issuer's or another securityholder's account is abandoned. In order to defer the filing or effectiveness of a registration statement pursuant to this Section 2.4, the Issuer shall promptly (but in any event within three (3) business days), upon determining to seek such deferral, deliver to each Holder (whether by notice directly to such Holder or through the Holders' Agent) a certificate signed by an executive officer of the Issuer stating that the Issuer is deferring such filing pursuant to this Section 2.4 and a general statement of the reason for such deferral, and an approximation of the anticipated delay. Within 20 days after receiving such certificate, the holders of a majority of the Registrable Securities held by the Requesting Holders and for which registration was previously requested may withdraw such Demand Request by giving notice to the Issuer. If withdrawn, the Demand Request shall be deemed not to have been made for all purposes of this Agreement. The Issuer may defer the filing of a particular registration statement pursuant to this Section 2.4 only once during any 12-month period. Section 2.5 Expenses. Except as provided herein, the Issuer shall be responsible for all Registration Expenses with respect to each registration hereunder, whether or not any registration statement becomes effective. Notwithstanding the foregoing, (i) each Holder and the Issuer shall be responsible for its own internal administrative and similar costs, which shall not constitute Registration Expenses, (ii) each Holder shall be responsible for all underwriting discounts and commissions, selling or placement agent or broker fees and commissions, and transfer taxes, if any, in connection with the sale of securities by such Holder, (iii) each Holder shall be responsible for the legal fees and expenses of its own counsel; and (iv) the Issuer shall be responsible for all out-of-pocket costs and expenses of the Issuer and its officers and employees incurred in connection with providing the assistance and/or attending analyst or investor presentations or any "road show" undertaken in connection with the registration and/or marketing of any Registrable Securities as contemplated in Section 2.6(g). Section 2.6 Registration and Qualification. If and whenever the Issuer is required to effect the registration of any Registrable Securities under the Securities Act as provided in Section 2.1, the Issuer shall as promptly as practicable (but subject to the provisions of Section 2.1): (a) prepare, file and cause to become effective a registration statement under the Securities Act relating to the Registrable Securities to be offered in accordance with the intended method of disposition thereof; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities until the earlier of (A) such time as all Registrable Securities proposed to be sold therein have been disposed of in accordance with the intended methods of disposition set forth in such registration statement and (B) the expiration of 90 days after such registration statement becomes effective, provided, that such 90-day period shall be extended for such number of days that equals the number of days elapsing from (x) the date the written notice contemplated by Section 2.6(e) below is given by the Issuer to (y) the date on which the Issuer delivers to the Holders of Registrable Securities the supplement or amendment contemplated by Section 2.6(e) below; (c) furnish to the Holders of Registrable Securities and to any underwriter of such Registrable Securities such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus) in conformity with the requirements of the Securities Act and such documents incorporated by reference in such registration statement or prospectus as the Holders of Registrable Securities or such 6 7 underwriter may reasonably request (it being understood that, subject to Section 2.10 and the requirements of the Securities Act and applicable State securities law, the Issuer consents to the use of the prospectus and any amendment or supplement thereto by each Selling Holder and the underwriters in connection with the offering and sale of the Registrable Securities covered by the registration statement of which such prospectus, amendment to supplement is a part); (d) furnish to any underwriter of such Registrable Securities an opinion of counsel for the Issuer and a "cold comfort" letter signed by the independent public accountants who have audited the financial statements of the Issuer included in or incorporated by reference into the applicable registration statement, in each such case covering substantially such matters with respect to such registration statement (and the prospectus included therein) and the related offering as are customarily covered in opinions of issuer's counsel with respect thereto and in accountants' letters delivered to underwriters in underwritten public offerings of securities and such other matters as such underwriters may reasonably request; (e) promptly notify the Selling Holders and each underwriter in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post-effective amendment, when the same has become effective, (ii) of the issuance by any state securities or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Securities under state securities or "blue sky" laws or the initiation of any proceedings for that purpose, (iii) at any time when a prospectus relating to a registration pursuant to Section 2.1 is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (iv) of any request by the Commission, or any other regulatory body or other body having jurisdiction, for any amendment or supplement to any registration statement or other document relating to such offering, and in either such case, at the request of the Selling Holders, promptly prepare and furnish to the Selling Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; (f) use its reasonable best efforts to list all such Registrable Securities covered by such registration on each securities exchange or automated interdealer quotation system on which the Common Stock is then listed; (g) use reasonable efforts to assist the Holders in the marketing of Common Stock in connection with up to five underwritten offerings hereunder (including, to the extent reasonably consistent with work commitments, using reasonable efforts to have officers of the Issuer attend "road shows" and analyst or investor presentations scheduled in connection with such registration), with all out-of-pocket costs and expenses incurred by the Issuer or such officers in connection with such attendance or assistance to be paid by the Issuer as provided in Section 2.5; (h) use its commercially reasonable efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as the managing underwriter reasonably requests; use its commercially reasonable efforts to keep each such registration or qualification (or exemption therefrom) effective during the period in which such registration statement is required to be kept effective; and do any and all other acts and things which may be reasonably necessary or advisable to enable such Selling Holder to consummate the disposition of the Registrable Securities owned by such Selling Holder in such jurisdictions (provided, however, that the 7 8 Issuer will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph or (B) consent to general service of process in any such jurisdiction); (i) make generally available to the Holders an earning statement satisfying the provisions of Section 11(a) of the Securities Act no later than 30 days after the end of the 12-month period beginning with the first day of the Issuer's first fiscal quarter commencing after the effective date of a registration statement, which earnings statement shall cover said 12-month period, and which requirement will be deemed to be satisfied if the Issuer timely files complete and accurate information on Forms 10-Q, 10-K and 8-K under the Exchange Act, and otherwise complies with Rule 158 under the Securities Act; (j) if requested by the managing underwriter or any Selling Holder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or any Selling Holder reasonably requests to be included therein, including, without limitation, with respect to the Registrable Securities being sold by such Selling Holder, the purchase price being paid therefor by the underwriters and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering, and promptly make all required filings of such prospectus supplement or post-effective amendment; (k) as promptly as practicable after filing with the Commission of any document which is incorporated by reference into a registration statement (in the form in which it was incorporated), deliver a copy of each such document to each Selling Holder; (l) provide a CUSIP number for the Registrable Securities included in any registration statement not later than the effective date of such registration statement; (m) cooperate with each Selling Holder and each underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc.; (n) prepare and file with the Commission promptly any amendments or supplements to such registration statement or prospectus which, in the opinion of counsel for the Issuer or the managing underwriter, is required in connection with the distribution of the Registrable Securities; and (o) advise each Selling Holder of such Registrable Securities, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for such purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued. Section 2.7 Underwriting; Due Diligence. (a) If requested by the underwriters for any underwritten offering of Registrable Securities pursuant to a registration requested under this Article 2, the Issuer shall enter into an underwriting agreement with such underwriters for such offering, which agreement will contain such representations and warranties by the Issuer and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnification and contribution provisions substantially to the effect and to the extent provided in Section 2.8, and agreements as to the provision of opinions of counsel and accountants' letters to the effect and to the extent provided in Section 2.6(d). Such underwriting agreement shall also contain such representations and warranties by such Selling Holders and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnification and contribution provisions substantially to the effect and to the extent provided in Section 2.8. 8 9 (b) In connection with the preparation and filing of each registration statement registering Registrable Securities under the Securities Act pursuant to this Article 2, the Issuer shall give the Holders' Agent and the underwriters, if any, and their respective counsel and accountants (the identity and number of whom shall be reasonably acceptable to the Issuer), such reasonable and customary access to its books, records and properties and such opportunities to discuss the business and affairs of the Issuer with its officers and the independent public accounts who have certified the financial statements of the Issuer as shall be necessary, in the opinion of such Holders and such underwriters or their respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act; provided that the foregoing shall not require the Issuer to provide access to (or copies of) any competitively sensitive information relating to the Issuer or its subsidiaries or their respective businesses; provided further that (i) each Holder and the underwriters and their respective counsel and accountants shall have entered into a confidentiality agreement reasonably acceptable to the Issuer and (ii) the Holders' Agent and the underwriters and their respective counsel and accountants shall use their reasonable best efforts to minimize the disruption to the Issuer's business and coordinate any such investigation of the books, records and properties of the Issuer and any such discussions with the Issuer's officers and accountants so that all such investigations occur at the same time and all such discussions occur at the same time. Section 2.8 Indemnification and Contribution. (a) The Issuer agrees to indemnify and hold harmless, to the fullest extent permitted by law, each Selling Holder and each of its employees, advisors, agents, representatives, partners, officers and directors, and each Person, if any, who controls such Selling Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities or expenses (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) insofar as such losses, claims, damages, liabilities or expenses are caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any amendment thereof, any preliminary prospectus or prospectus (as amended or supplemented if the Issuer shall have furnished any amendments or supplements thereto) relating to the Registrable Securities, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses are caused by any such untrue statement or omission or alleged untrue statement or omission made in reliance upon information furnished to the Issuer in writing by such Selling Holder expressly for use therein. The Issuer also agrees to indemnify any underwriter of the Registrable Securities so offered and each Person, if any, who controls such underwriter on substantially the same basis as that of the indemnification by the Issuer of the Selling Holders provided in this Section 2.8(a). The reimbursement required by this Section 2.8(a) will be made by periodic payments during the course of the investigation or defense, as and when bills are received or expenses incurred. (b) Each Selling Holder agrees to indemnify and hold harmless the Issuer, its employees, advisors, agents, representatives, directors, the officers who sign the registration statement and each Person, if any who controls the Issuer within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, liabilities and expenses (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) insofar as such losses, claims, damages, liabilities or expenses are caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any amendment thereof, any preliminary prospectus or prospectus (as amended or supplemented if the Issuer shall have furnished any amendments or supplements thereto) relating to the Registrable Securities, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information furnished in writing by such Selling Holder (or any representative thereof) expressly for use in a registration statement, any preliminary prospectus, prospectus or any amendments or 9 10 supplements thereto; provided that the obligation to indemnify will be several, not joint and several, among such Selling Holders, and the liability of each Selling Holder will be in proportion to, and provided further that such liability will be limited to, the net amount received by such seller from the sale of Registrable Securities pursuant to such registration statement; provided, however, that such Selling Holder shall not be liable in any such case to the extent that prior to the filing of any such registration statement or prospectus or amendment thereof or supplement thereto, such Selling Holder has furnished in writing to the Issuer information expressly for use in such registration statement or prospectus or any amendment thereof or supplement thereto, such Selling Holder has furnished in writing to the Issuer information expressly for use in such registration statement or prospectus or any amendment or supplement thereto which corrected or made not misleading information previously furnished to the Issuer. Each Selling Holder also agrees to indemnify any underwriter of the Registrable Securities so offered and each Person, if any, who controls such underwriter on substantially the same basis as that of the indemnification by such Selling Holder of the Issuer provided in this Section 2.8(b). (c) Each party indemnified under paragraph (a) or (b) above shall, promptly after receipt of notice of a claim or action against such indemnified party in respect of which indemnity may be sought hereunder, notify the indemnifying party in writing of the claim or action; provided that the failure to notify the indemnifying party shall not relieve it from any liability that it may have to an indemnified party on account of the indemnity agreement contained in paragraph (a) or (b) above except to the extent that the indemnifying party was actually prejudiced by such failure, and in no event shall such failure relieve the indemnifying party from any other liability that it may have to such indemnified party. If any such claim or action shall be brought against an indemnified party, and it shall have notified the indemnifying party thereof, unless based on the written advice of counsel to such indemnified party a conflict of interest between such indemnified party and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 2.8 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof. Any indemnifying party against whom indemnity may be sought under this Section 2.8 shall not be liable to indemnify an indemnified party if such indemnified party settles such claim or action without the consent of the indemnifying party. The indemnifying party may not agree to any settlement of any such claim or action, other than solely for monetary damages for which the indemnifying party shall be responsible hereunder, the result of which any remedy or relief shall be applied to or against the indemnified party, without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld and unless such settlement contains a full and unconditional release of the indemnified party. In any action hereunder as to which the indemnifying party has assumed the defense thereof, the indemnified party shall continue to be entitled to participate in the defense thereof, with counsel of its own choice, but the indemnifying party shall not be obligated hereunder to reimburse the indemnified party for the costs thereof. (d) If the indemnification provided for in this Section 2.8 shall for any reason be unavailable (other than in accordance with its terms) to an indemnified party in respect of any loss, cost, claim, damage, liability or expense referred to herein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, cost, claim, damage, liability or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of the Issuer on the one hand and the Selling Holders on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuer or a Selling Holder 10 11 and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by an indemnified party as a result of the loss, cost, claim, damage, liability, expense, or action in respect thereof, referred to above in this paragraph (d) shall be deemed to include, for purposes of this paragraph (d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. The Issuer and the Selling Holders agree that it would not be just and equitable if contribution pursuant to this Section 2.8 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this paragraph. Notwithstanding any other provision of this Section 2.8, no Selling Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Selling Holder were offered to the public exceeds the amount of any damages which such Selling Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The Holders' obligations in this Section 2.8(d) to contribute shall be several in proportion to the amount of Registrable Securities registered by them and not joint. (e) The obligations of the parties under this Section 2.8 shall be in addition to any liability which any party may otherwise have to any other party. Section 2.9 Holdback Agreement. Each Selling Holder agrees not to effect any sale or distribution, including any sale under Rule 144, of any equity security of the Issuer (otherwise than through the registered public offering then being made), within 10 days prior to or 30 days (or such lesser period as the lead or managing underwriters may permit) after the date of the consummation of such offering for any Demand Registration hereunder, for any underwritten public offering by the Issuer by or any other Person of Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock. Section 2.10 Suspension of Dispositions. Each Holder agrees by acquisition of any Registrable Securities that, upon receipt of any notice (a "Suspension Notice") from the Issuer of the happening of any event of the kind described in Section 2.6(e)(iii), such Holder will forthwith discontinue disposition of Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus, or until it is advised in writing (the "Advice") by the Issuer that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the prospectus, and, if so directed by the Issuer, such Holder will deliver to the Issuer all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Issuer shall give any such notice, the time period regarding the effectiveness of registration statements set forth in Section 2.6(b) hereof shall be extended by the number of days during the period from and including the date of the giving of the Suspension Notice to and including the date when each Selling Holder of Registrable Securities covered by such registration statement shall have received the copies of the supplemented or amended prospectus or the Advice. The Issuer shall use its commercially reasonable efforts and take such actions as are reasonably necessary to render the Advice as promptly as practicable. ARTICLE 3 TERM AND TERMINATION This Agreement shall become effective at the Effective Time of the Merger and shall continue in effect for five (5) years from the Effective Time, and shall continue in effect thereafter until the Issuer terminates this Agreement by delivery of written notice to each Holder (whether by notice directly to such Holder or through the Holders' Agent) on the earlier of the following to occur (or at any time thereafter): (i) the market value of the aggregate amount of Registrable Securities beneficially owned by the Holders 11 12 is less than $1,000,000,000 based on the average closing price of the Issuer's Common Stock for the twelve (12) consecutive calendar months preceding the date of notice of termination; or (ii) the aggregate number of shares of Registrable Securities beneficially owned by the Holders is less than the average weekly trading volume of the Common Stock during the preceding consecutive six-month period and the market value of the aggregate amount of Registrable Securities beneficially owned by the Holders is less than $2,000,000,000 based on the average closing price of the Issuer's Common Stock for the twelve (12) consecutive calendar months preceding the date of notice of termination. Such date upon which the Issuer terminates this Agreement shall be referred to herein as the "Termination Date." Notwithstanding the above, no termination shall be effective for any Demand Registration for which the Issuer has received a Demand Request. ARTICLE 4 MISCELLANEOUS Section 4.1 Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. Section 4.2 Not Exclusive; No Other Rights. The Holders agree that nothing herein contained shall prohibit the Issuer from granting registration rights to any other party, provided that such registration rights shall not conflict with the terms of this Agreement. The Issuer represents and warrants that no other Person has registration rights that conflict with the rights granted to the Holders hereunder. Section 4.3 Assignment. No party may assign any of its rights or obligations hereunder by operation of law or otherwise without the prior written consent of the other parties. Section 4.4 Amendments, Waivers, Etc. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated, except upon the execution and delivery of a written agreement executed by the Issuer and Holders representing a majority of the Registrable Securities then held by all Holders. Section 4.5 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly received if given) by hand delivery or telecopy, or by any courier service, such as Federal Express, providing proof of delivery. All communications hereunder shall be delivered to the respective parties at the address or telecopy number set forth on the signature pages hereto (unless such contact information in the case of the Holders is updated by written notice from the affected Holder to the Issuer). Section 4.6 Severability. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. Section 4.7 No Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. 12 13 Section 4.8 No Third Party Beneficiaries. This Agreement is not intended to be for the benefit of, and shall not be enforceable by, any Person who or which is not a party hereto; provided, that, this Agreement is also intended to be for the benefit of and is enforceable by each Holder. Section 4.9 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Texas, without giving effect to the principles of conflicts of law thereof. Section 4.10 Descriptive Headings. The descriptive headings used herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. Section 4.11 Holders' Agent. Each Holder hereby appoints HMTF as its agent and attorney-in-fact (the "Holders' Agent") for purposes of the delivery and receipt of all notices and requests pursuant to this Agreement. The Issuer may give notice to any Holder hereunder by giving such notice directly to such Holder. Alternatively, the Issuer may give notice to the Holders' Agent, in which event the Holders' Agent will promptly so give such notice to each Holder. Delivery of any notice or other communication pursuant to this Agreement by the Issuer to the Holders' Agent in accordance with Section 4.5 will be deemed to constitute notice by the Issuer directly to the Holders. Delivery of any notice or other communication pursuant to this Agreement by the Holders' Agent to the Issuer in accordance with Section 4.5 will be deemed to constitute notice by the Holders directly to the Issuer. Notwithstanding anything else contained herein, under no circumstances shall the Issuer be required to deliver any notice or other communication pursuant to this Agreement directly to any Holder. Further notwithstanding anything else contained herein, the Holders' Agent will not be liable or responsible to any Person should any Holder fail to act in accordance with any notice so give to such Holder hereunder. Section 4.12 Counterparts. This Agreement may be executed in counterpart, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same Agreement. Section 4.13 Termination of Existing Registration Rights. Each Holder that is a party to any registration rights agreement of the Issuer in effect on the date hereof hereby consents to the termination of such agreement effective on the Effective Time. 13 14 REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the Issuer and the Holders have caused this Agreement to be duly executed as of the day and year first above written. CLEAR CHANNEL COMMUNICATIONS, INC., a Texas corporation By: /s/ RANDALL T. MAYS ------------------------------------- Name: Randall T. Mays Address: 200 Concord Plaza Suite 600 San Antonio, Texas 78216-6940 Facsimile No.: (210) 822-2299 14 15 HOLDERS: HICKS, MUSE, TATE & FURST EQUITY FUND II, L.P. By: HM2/GP PARTNERS, L.P., its general partner By: HICKS, MUSE GP PARTNERS, L.P., its general partner By: HICKS, MUSE FUND II INCORPORATED, its general partner By: /s/ THOMAS O. HICKS ------------------------------------- Name: Thomas O. Hicks Title: President HM2/HMW, L.P. By: HICKS, MUSE, TATE & FURST EQUITY FUND II, L.P., its general partner By: HM2/GP PARTNERS, L.P., its general partner By: HICKS, MUSE GP PARTNERS, L.P., its general partner By: HICKS, MUSE FUND II INCORPORATED, its general partner By: /s/ THOMAS O. HICKS ------------------------------------- Name: Thomas O. Hicks Title: President 15 16 HM2/CHANCELLOR, L.P. By: HM2/CHANCELLOR GP, L.P., its general partner By: HM2/CHANCELLOR HOLDINGS, INC., its general partner By: /s/ THOMAS O. HICKS ------------------------------------- Name: Thomas O. Hicks Title: President HM4/CHANCELLOR, L.P. By: HICKS, MUSE FUND IV LLC, its general partner By: /s/ THOMAS O. HICKS ------------------------------------- Name: Thomas O. Hicks Title: President CAPSTAR BROADCASTING PARTNERS, L.P. By: HM3/CAPSTAR PARTNERS, L.P., its general partner By: HM3/CAPSTAR, INC., its general partner By: /s/ THOMAS O. HICKS ------------------------------------- Name: Thomas O. Hicks Title: President 16 17 CAPSTAR BT PARTNERS, L.P. By: HM3/GP PARTNERS, L.P., its general partner By: HICKS, MUSE GP PARTNERS III, L.P., its general partner By: HICKS, MUSE FUND III INCORPORATED, its general partner By: /s/ THOMAS O. HICKS ------------------------------------- Name: Thomas O. Hicks Title: President CAPSTAR BOSTON PARTNERS, L.L.C. By: HM3/GP PARTNERS, L.P., its managing member By: HICKS, MUSE GP PARTNERS III, L.P., its general partner By: HICKS, MUSE FUND III INCORPORATED, its general partner By: /s/ THOMAS O. HICKS ------------------------------------- Name: Thomas O. Hicks Title: President /s/ THOMAS O. HICKS ---------------------------------------- Thomas O. Hicks /s/ JOHN D. MUSE ---------------------------------------- John D. Muse /s/ CHARLES W. TATE ---------------------------------------- Charles W. Tate /s/ JACK D. FURST ---------------------------------------- Jack D. Furst /s/ MICHAEL J. LEVITT ---------------------------------------- Michael J. Levitt 17 18 /s/ LAWRENCE D. STEWART, JR. ---------------------------------------- Lawrence D. Stewart, Jr. /s/ DAVID B. DENIGER ---------------------------------------- David B. Deniger /s/ DAN H. BLANKS ---------------------------------------- Dan H. Blanks 18 EX-11 5 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 - Computation of Per Share Earnings In thousands of dollars, except per share data
1999 1998 1997 ----------- ----------- ----------- NUMERATOR: Net income before extraordinary item $ 85,655 $ 54,031 $ 63,576 Extraordinary item (13,185) -- -- ----------- ----------- ----------- Net income 72,470 54,031 63,576 Effect of dilutive securities: Eller put/call option agreement (2,300) (4,299) (2,577) Convertible debt - 2.625% issued in 1998 9,811* 7,358 -- Convertible debt - 1.5% issued in 1999 964* -- -- LYONs - 1996 issue (311) -- -- LYONs - 1998 issue 2,944* -- -- Less: Anti-dilutive items (13,719) -- -- ----------- ----------- ----------- (2,611) 3,059 (2,577) Numerator for net income per common share - diluted $ 69,859 $ 57,090 $ 60,999 =========== =========== =========== DENOMINATOR: Weighted-average common shares 312,610 236,060 176,960 Effect of dilutive securities: Stock options and common stock warrants 8,395 4,098 4,440 Eller put/call option agreement 847 1,972 1,630 Convertible debt - 2.625% issued in 1998 9,282* 6,993 -- Convertible debt - 1.5% issued in 1999 927* -- -- LYONs - 1996 issue 2,556 -- -- LYONs - 1998 issue 2,034* -- -- Less: Anti-dilutive items (12,243) -- -- ----------- ----------- ----------- 11,798 13,063 6,070 Denominator for net income per common share - diluted 324,408 249,123 183,030 =========== =========== =========== Net income per common share: Basic: Net income before extraordinary item $ .27 $ .23 $ .36 Extraordinary item (.04) -- -- ----------- ----------- ----------- Net income $ .23 $ .23 $ .36 =========== =========== =========== Diluted: Net income before extraordinary item $ .26 $ .22 $ .33 Extraordinary item (.04) -- -- ----------- ----------- ----------- Net income $ .22 $ .22 $ .33 =========== =========== ===========
* Denotes items that are anti-dilutive to the calculation of earnings per share. EX-12 6 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Ended -------------------------------------------------------------------------- 1999 1998 1997 1996 1995 1994 -------- --------- --------- -------- -------- --------- Income before income taxes, equity in earnings of non-consolidated affiliates and extraordinary item 220,213 117,922 104,077 71,240 49,817 36,396 Dividends and other received from nonconsolidated affiliates 7,079 9,168 4,624 10,430 1,432 -- -------- --------- --------- -------- -------- --------- Total 227,292 127,090 108,701 81,670 51,249 36,396 Fixed Charges Interest expense 192,321 135,766 75,076 30,080 20,752 7,669 Amortization of loan fees 1,970 2,220 1,451 506 1,004 82 Interest portion of rentals 24,511 16,044 6,120 424 361 262 -------- --------- --------- -------- -------- --------- Total fixed charges 218,802 154,030 82,647 31,010 22,117 8,013 Preferred stock dividends Tax effect of preferred dividends -- -- -- -- -- -- After tax preferred dividends -- -- -- -- -- -- --------- --------- --------- -------- -------- --------- Total fixed charges and preferred dividends 218,802 154,030 82,647 31,010 22,117 8,013 Total earnings available for payment of fixed charges 446,094 281,120 191,348 112,680 73,366 44,409 ========= ========= ========= ======== ======== ========= Ratio of earnings to fixed Charges 2.04 1.83 2.32 3.63 3.32 5.54 ========= ========= ========= ======== ======== ========= Rental fees and charges 306,393 200,550 76,500 5,299 4,510 3,273 Interest rate 8% 8% 8% 8% 8% 8%
EX-21 7 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 - Subsidiaries of Registrant, Clear Channel Communications, Inc. Name State of Incorporation Clear Channel Communications, Inc. Texas Clear Channel Broadcasting, Inc. Nevada Clear Channel Broadcasting Licenses, Inc. Nevada Clear Channel Holdings, Inc. Nevada Eller Media Corporation Delaware Universal Outdoor Holdings, Inc. Delaware Clear Channel International, Ltd. United Kingdom Jacor Communications, Inc. Delaware EX-23.1 8 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 - CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-76105) and the Registration Statement (Form S-4 No. 333-57987) Clear Channel Communications, Inc. of our reports dated March 13, 2000 with respect to the consolidated financial statements and schedule of Clear Channel Communications, Inc. for the year ended December 31, 1999 included in this Annual Report (Form 10-K) for the year ended December 31, 1999. We also consent to the incorporation by reference in the Registration Statements (Forms S-8) pertaining to the 1984 Incentive Stock Option Plan of Clear Channel Communications, Inc. (No. 33-14193); the Clear Channel Communications, Inc. Nonqualified Stock Option Plan (No. 33-59772); the Clear Channel Communications, Inc. 1994 Incentive Stock Option Plan, the Clear Channel Communications, Inc. 1994 Nonqualified Stock Option Plan, the Clear Channel Communications, Inc. Directors' Nonqualified Stock Option Plan; the Option Agreement for Officer (No. 33-64463); the Non-Qualified Option Grant to Karl Eller dated April 10, 1997, the Non-Qualified Option Grant to Paul J. Meyer dated April 10, 1997, the Non-Qualified Option Grant to Timothy J. Donmoyer dated April 10, 1997, the Eller Media Company Senior Management Incentive Plan of Clear Channel Communications, Inc. (No. 333-29717), the Clear Channel Communications, Inc. 1998 Stock Incentive Plan (No. 333-61883) and the Clear Channel Communications, Inc. Employee Stock Purchase Plan (No., 333-30784) of our reports dated March 13, 2000 with respect to the consolidated financial statements of Clear Channel Communications, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 1999 and with respect to the related financial statement schedule included in this Annual Report (Form 10-K) for the year ended December 31, 1999. ERNST & YOUNG LLP San Antonio, Texas March 13, 2000 EX-23.2 9 CONSENT OF KPMG LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS-KPMG LLP The Board of Directors Clear Channel Communications, Inc.: We consent to the incorporation by reference in the Registration Statements of Clear Channel Communications, Inc. on Form S-3 (No. 333-47367) and Form S-4 (No. 333-72839) of our report dated February 10, 2000 on the consolidated balance sheets of Hispanic Broadcasting Corporation (formerly Heftel Broadcasting Corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1999, which report is included in the 1999 Annual Report on Form 10-K of Clear Channel Communications, Inc. We also consent to the incorporation by reference of the aforementioned report in the Registration Statements on Form S-8 of the 1984 Incentive Stock Option Plan of Clear Channel Communications, Inc. (No. 33-14193); the Clear Channel Communications, Inc. Nonqualified Stock Option Plan (No. 33-59772); the Clear Channel Communications, Inc. 1994 Incentive Stock Option Plan; the Clear Channel Communications, Inc. 1994 Nonqualified Stock Option Plan, the Clear Channel Communications, Inc. Directors' Nonqualified Stock Option Plan, the Option Agreement for Officer (No 33-64463); the Non-Qualified Option Grant to Karl Eller dated April 10, 1997, the Non-Qualified Option Grant to Paul J. Meyer dated April 10, 1997, the Non-Qualified Option Grant to Timothy J. Donmoyer dated April 10, 1997, and the Eller Media Company Senior Management Incentive Plan of Clear Channel Communications, Inc. (No. 333-29717), the Clear Channel Communications, Inc. 1998 Stock Incentive Plan (No. 333-61883) and the Clear Channel Communications, Inc. Employee Stock Purchase Plan (No. 333-30784). Dallas, Texas March 14, 2000 EX-27 10 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1999 DEC-31-1999 76,724,459 0 750,994,436 26,094,706 0 925,109,270 2,949,040,319 470,916,546 16,821,512,099 685,515,392 2,175,000,000 0 0 33,860,600 10,050,176,066 16,821,512,099 0 2,992,018,150 0 1,632,115,330 792,378,501 0 192,321,133 220,213,351 150,635,071 85,655,448 0 13,185,000 0 72,470,448 .23 .22
EX-99.1 11 REPORT OF INDEPENDENT AUDITORS ON FDS 1 EXHIBIT 99.1 - REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE We have audited the consolidated financial statements of Clear Channel Communications, Inc., and subsidiaries, as of December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999, and have issued our report thereon dated March 13, 2000. Our audits also included the financial statement schedule listed in the Index at Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP March 13, 2000 San Antonio, Texas EX-99.2 12 REPORT OF INDEPENDENT AUDITORS ON FDS 1 EXHIBIT 99.2 - REPORT OF INDEPENDENT AUDITORS -- KPMG LLP The Board of Directors Hispanic Broadcasting Corporation We have audited the consolidated balance sheets of Hispanic Broadcasting Corporations (formerly Heftel Broadcasting Corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three-year periods ended December 31, 1999 (not presented separately herein). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the 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 financial position of Hispanic Broadcasting Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999 in conformity with generally accepted accounting principles. KPMG LLP Dallas, Texas February 10, 2000 -----END PRIVACY-ENHANCED MESSAGE-----