-----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, Cij4gNdzsXfi4cwbmD6b2o/9JiN1uI1HocMhjmW2wU8+D4YoHS8MIFoDk4kmeeKK /uTvPiRYfF2Cr6B/7B7lUw== 0000950144-97-002866.txt : 19970327 0000950144-97-002866.hdr.sgml : 19970327 ACCESSION NUMBER: 0000950144-97-002866 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COX RADIO INC CENTRAL INDEX KEY: 0001018522 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 581620022 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-12187 FILM NUMBER: 97563030 BUSINESS ADDRESS: STREET 1: C/O COX ENTERPRISES INC STREET 2: 1400 LAKE HEARN DR CITY: ATLANTA STATE: GA ZIP: 30319 BUSINESS PHONE: 4048435000 MAIL ADDRESS: STREET 1: C/O COX ENTERPRISES INC STREET 2: 1400 LAKE HEARN DR CITY: ATLANTA STATE: GA ZIP: 30319 10-K405 1 COX RADIO, INC. 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED EFFECTIVE OCTOBER 7, 1996]. FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]. FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 1-12187 [COX RADIO, INC. LOGO] (Exact name of registrant as specified in its charter) DELAWARE 58-1620022 (State or other jurisdiction of incorporation (I.R.S. Employer Identification No.) or organization) 1400 LAKE HEARN DRIVE, ATLANTA, GEORGIA 30319 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 843-5000 --------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Class A Common Stock, par value $1.00 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 amendments to this Form 10-K. [X] As of March 18, 1997, the aggregate market value of the Class A Common Stock held by non-affiliates of the registrant was $171,858,290 based on the closing price on the New York Stock Exchange on such date. There were 8,736,973 shares of Class A Common Stock outstanding as of March 18, 1997. There were 19,577,672 shares of Class B Common Stock outstanding as of March 18, 1997. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 1997 Annual Meeting of Stockholders are incorporated by reference into Part III. ================================================================================ 2 COX RADIO, INC. 1996 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 19 Item 3. Legal Proceedings........................................... 20 Item 4. Submission of Matters to a Vote of Security Holders......... 20 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................... 21 Item 6. Selected Consolidated Financial Data........................ 22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 29 Item 8. Financial Statements and Supplementary Data................. 35 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 52 PART III Item 10. Directors and Executive Officers of the Registrant.......... 52 Item 11. Executive Compensation...................................... 52 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................ 52 Item 13. Certain Relationships and Related Transactions.............. 52 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................................... 53 Signatures ............................................................ 54
3 PART I ITEM 1. BUSINESS Cox Radio, Inc. ("Cox Radio" or the "Company"), upon completion of the Pending Transactions (defined herein), will be one of the ten largest radio broadcasting companies in the United States, based on both net revenues and number of stations. Cox Radio will own or operate, or provide sales and marketing services for 43 radio stations (28 FM and 15 AM) clustered in 12 markets, including 18 stations to be acquired from NewCity Communications, Inc. ("NewCity") (the "NewCity Acquisition"). On a pro forma basis for 1996, Cox Radio will be the number one radio station group ranked by revenue share in five of its 12 markets. On a pro forma basis, Cox Radio would have generated net revenue of $189.7 million and broadcast cash flow of $58.6 million during the year ending December 31, 1996. Cox Radio is an indirect majority-owned subsidiary of Cox Enterprises, Inc. ("CEI"). CEI indirectly owns approximately 69% of the Company's Common Stock (defined below) and has approximately 96% of the voting power of Cox Radio. The Company has two classes of common stock outstanding, Class A Common Stock, par value $1.00 per share (the "Class A Common Stock") and Class B Common Stock, par value $1.00 per share (the "Class B Common Stock"), collectively defined as the "Common Stock." CEI's wholly-owned subsidiary, Cox Broadcasting, Inc. ("Cox Broadcasting") is the sole stockholder of shares of the Company's Class B Common Stock. CEI, a privately-held corporation headquartered in Atlanta, Georgia, is one of the largest media companies in the United States, with consolidated 1996 revenues of approximately $4.6 billion. Prior to the Company's initial public offering, CEI transferred all of its U.S. radio operations to Cox Radio (the "Cox Radio Consolidation"). Cox Radio, as part of CEI, was a pioneer in radio broadcasting, building its first station in 1934, acquiring its flagship station, WSB-AM (Atlanta), in 1939 and launching its first FM station, WSB-FM (Atlanta), in 1948. Cox Radio seeks to maximize the revenues and broadcast cash flow of its radio stations by operating and developing clusters of stations in demographically attractive and rapidly growing markets, including major markets such as Los Angeles and Atlanta and Sunbelt markets such as Miami, Tampa, Orlando, San Antonio and Birmingham. During the past five years, the 12 markets in which the Company's stations will operate have demonstrated, on an aggregate basis, greater radio advertising revenue growth than the average of 5.3%, which was calculated using revenue projections obtained from the Radio Advertising Bureau (the "RAB"), for the U.S. radio industry as a whole. The Pending Transactions will enhance the clustering of the Company's radio stations; Cox Radio will operate three or more stations in nine of its 12 markets, and a total of 29 of the Company's 43 stations will be clustered in six markets. In addition, the NewCity Acquisition will create a platform for future strategic acquisitions to further cluster radio stations in the Company's markets. As a result of the Company's management, programming and sales efforts, the Company's radio stations are characterized by strong ratings and above average power ratios. In addition, Cox Radio has a track record of acquiring, repositioning and improving the operating performance of previously underperforming stations. Cox Radio's senior operating management, together with the NewCity senior operating management which will join Cox Radio as part of the NewCity Acquisition, will be comprised of six individuals with an average of over 23 years of experience in the radio broadcasting industry, including an average of over 14 years with their respective organizations. The Company believes that this experienced senior management team will be well positioned to manage larger radio station clusters and take advantage of new opportunities arising in the U.S. radio broadcasting industry. PRIOR, RECENT AND PENDING TRANSACTIONS During 1996, the Company consummated the following transactions (the "Prior Transactions"): Louisville Acquisitions In January 1996, Cox Radio acquired two Louisville FM stations for $8.7 million in cash. In August 1996, Cox Radio acquired an additional Louisville FM station for $2.6 million in cash (the "Louisville Acquisitions"). 4 Miami Disposition In October 1996, Cox Radio completed its sale of its AM station in Miami for $13 million in cash (the "Miami Disposition"). Syracuse Acquisition In June 1996, Cox Radio acquired an AM and an FM station in Syracuse for $4.5 million in cash (the "Syracuse Acquisition"). Tulsa Acquisition In December 1996, Cox Radio acquired an AM and an FM station in Tulsa for $5.5 million in cash (the "Tulsa Acquisition"). As of the date of this report, the Company had consummated the following transactions during 1997 (the "Recent Transactions"): Orlando Acquisition In March 1997, Cox Radio exchanged its two Chicago radio stations for three Orlando stations and approximately $20 million in cash (the "Orlando Acquisition"). Tampa Acquisition In March 1997, Cox Radio acquired an AM station in Tampa for approximately $1.5 million in cash (the "Tampa Acquisition"). The Company expects to consummate the following transactions in the first half of 1997 (the "Pending Transactions"): NewCity Acquisition In July 1996, Cox Radio agreed to acquire NewCity for an aggregate consideration of approximately $253 million, consisting of approximately $163 million in cash, approximately $87 million in assumption of NewCity debt and approximately $3 million in working capital adjustments. The NewCity Acquisition will provide Cox Radio with an additional 18 stations (12 FM and 6 AM): seven stations in three new markets (Birmingham, Bridgeport and San Antonio) and 11 stations in four existing markets (Atlanta, Orlando, Syracuse and Tulsa). Two of the three new markets are in the Sunbelt, a region which the Company believes will, over the next several years, demonstrate greater radio advertising revenue growth than the U.S. radio industry as a whole. The acquisition of three radio stations in Syracuse will provide Cox Radio with five stations (three FM and two AM) in that market, and the acquisition of four radio stations in Orlando will provide Cox Radio with seven stations (four FM and three AM) in that market. The Company expects NewCity's management group to join Cox Radio, providing continuity and management depth to the combined organization. Los Angeles Acquisition In January 1997, Cox Radio agreed in principle to acquire the license and certain assets of an FM radio station in Los Angeles for $19 million in cash (the "Los Angeles Acquisition"). 2 5 The following table summarizes certain information relating to the Company's radio stations, assuming the consummation of the Pending Transactions:
AUDIENCE DEMOGRAPHIC GROUP SHARE IN RANK IN (ADULTS 25 - 54) TARGET TARGET TARGET ----------------- MARKET AND STATION CALL DEMOGRAPHIC DEMOGRAPHIC DEMOGRAPHIC AUDIENCE LETTERS(1) FORMAT GROUP GROUP GROUP SHARE RANK - ----------------------- --------------------------- ---------------- ----------- ----------- --------- ----- LOS ANGELES KFI-AM Talk Adults 35-54(2) 5.6 2 3.7 6 KOST-FM Adult Contemporary Women 25-44(2) 4.9 2 3.9 4 KRTO-FM(3) -- -- -- -- -- -- KACE-FM R&B Oldies African American 12.5 4 1.3 27(4) Adults 35-54 ATLANTA WSB-AM News/Talk Adults 35-64 11.4 1 7.9 3 WSB-FM Adult Contemporary Women 25-54 8.2 4 6.4 5 WJZF-FM(5)(6) Jazz Men 25-54 3.6 11 3.5 13 WCNN-AM(6) Sports/Talk Men 25-54 2.1 17 1.1 18 MIAMI WFLC-FM Hot Adult Contemporary Adults 25-54 4.0 11 4.0 11 WHQT-FM Urban Adult Contemporary Adults 25-54 5.9 2 5.9 2 TAMPA WWRM-FM Soft Adult Contemporary Women 35-54(2) 9.4 2 6.1 5(4) WCOF-FM 70's Oldies Adults 25-44(2) 6.6 3(4) 6.1 5(4) WSUN-AM Standards Men 25-54 2.7 14 1.6 16 WFNS-AM R&B Oldies Men 25-54 1.0 20 .6 20(4) ORLANDO WDBO-AM(5) News/Talk Adults 35-64 7.5 4 4.5 11(4) WWKA-FM(5) Country Adults 25-54 8.6 1 8.6 1 WCFB-FM(5) Rhythmic Adult Contemporary Women 25-54 6.3 6 5.4 9(4) WZKD-AM(5) Kids Radio Children 3-11 -- -- -- -- WHOO-AM(7) Standards Adults 55+ -- -- .7 18 WHTQ-FM(7) Classic Rock Men 25-54 8.5 2 5.5 8 WMMO-FM(7) Rock Adult Contemporary Adults 25-54 5.4 9(4) 5.4 9(4) SAN ANTONIO KCYY-FM(5) Country Adults 25-54 6.9 3 6.9 3 KKYX-AM(5) Classic Country Adults 35-64 2.6 14 1.4 18 KCJZ-FM(5) Jazz Adults 25-54 4.2 11 4.2 11 LOUISVILLE WRKA-FM Oldies Adults 35-54(2) 6.7 4 5.8 5(4) WRVI-FM Rock Adult Adults 25-49 2.0 13(4) 1.8 14(4) WHTE-FM Contemporary Alternative Adults 18-34 3.9 9 1.8 14(4) BIRMINGHAM WZZK-FM(5) Country Adults 25-54 13.8(8) 1(8) 13.8(8) 1(8) WZZK-AM(5) Country Adults 25-54 -- -- -- -- WODL-FM(5) Oldies Adults 25-54 7.5 5 7.5 5 DAYTON WHIO-AM News/Talk Adults 35-64 6.6 4 4.1 9 WHKO-FM Country Adults 25-54 13.5 1 13.5 1 TULSA KRMG-AM(5) News/Talk Adults 25-54 7.7 4 7.7 4 KWEN-FM(5) Country Adults 25-54 11.5 1 11.5 1 KJSR-FM(5) 70's Oldies Adults 25-54 8.3 3 8.3 3 KRAV-FM(7) Adult Contemporary Adults 25-54 4.6 8 4.6 8 KGTO-AM(7) Standards Adults 55+ -- -- .6 19(4) BRIDGEPORT WEZN-FM(5) Adult Contemporary Adults 25-54 10.3(9) 1(9) 10.3 1 SYRACUSE WSYR-AM(5) News/Talk Adults 35-64 10.9 2 6.4 6 WYYY-FM(5) Adult Contemporary Adults 25-54 10.6 2 10.6 2 WBBS-FM(5) Country Adults 25-54 10.8 1 10.8 1 WHEN-AM(7) Sports/Talk Men 25-54 4.5 8 2.5 10 WWHT-FM(7) Adult Hit Radio Women 18-34 4.0 8 2.4 11
3 6 - --------------- (1) Metropolitan market served; city of license may differ. (2) Arbitron does not report the audience share on these specific target audiences. Therefore, the closest representative target audience shares and rankings were used. (3) Station to be acquired pursuant to the Los Angeles Acquisition. (4) Tied. (5) Station to be acquired pursuant to the NewCity Acquisition. (6) Station operated by Cox Radio pursuant to an LMA (defined herein). (7) Station operated by NewCity pursuant to an LMA. (8) Audience share and audience rank information for WZZK-AM and WZZK-FM are combined because the stations are simulcast. (9) Audience share and rank data is based only on Arbitron Market Reports for Fall 1996 and Spring 1996 because Arbitron does not produce Summer and Winter Arbitron Market Reports for the Bridgeport/Fairfield County market. The Company's stations are diversified in terms of format, target audience, geographic location and stage of development. Management believes that a number of the Company's stations have significant growth opportunities or turnaround potential and can therefore be characterized as developing stations. Generally, the Company considers developing stations to include those which have been recently acquired by the Company and offer the greatest potential for growth. Currently, the Company considers nine of its stations to be developing stations. Cox Radio believes these stations can achieve significant broadcast cash flow growth by employing the Company's operating strategy. Management believes that its mix of stations in different stages of development enables it to maximize the Company's growth potential. OPERATING STRATEGY The following is a description of the key elements of the Company's operating strategy: Clustering of Stations Cox Radio operates its stations in clusters to (i) enhance net revenue growth by increasing the appeal of the Company's stations to advertisers and enabling such stations to compete more effectively with other forms of advertising and (ii) achieve operating efficiencies by consolidating broadcast facilities, eliminating duplicative positions in management and production and reducing overhead expenses. Management believes that operating several radio stations in each of its markets will enable its sales teams to offer advertisers more attractive advertising packages. Furthermore, as radio groups achieve significant audience share, they can deliver to advertisers the audience reach that historically only television and newspapers could offer, with the added benefit of frequent exposure to advertisers' potential customers. Management believes that the Company's clusters of stations, and their corresponding audience share, provide opportunities to capture an increased share of total advertising revenue in each of its markets. Development of Underperforming Stations The Company's management has demonstrated its ability to acquire underperforming radio stations and develop them into consistent ratings and revenue leaders. The Company's historic margins reflect the acquisition and continued development of underperforming stations, as well as the fact that increases in net revenue are typically realized subsequent to increases in audience share. Management believes that a number of the Company's stations have significant growth opportunities or turnaround potential and can therefore be characterized as developing stations. Implementation of the Company's Management Philosophy The Company's local station operations are supported by a lean corporate staff which employs a management philosophy emphasizing (i) market research and targeted programming; (ii) a customer-focused selling strategy; and (iii) marketing and promotional activities. (i) Market Research and Targeted Programming. Cox Radio's research, programming and marketing strategy combines extensive research with an assessment of competitors' vulnerabilities and market dynamics 4 7 in order to identify specific audience opportunities within each market. Cox Radio also retains consultants and research organizations to continually evaluate listener preferences. Using this information, Cox Radio tailors the programming, marketing and promotions of each Cox Radio station to maximize its appeal to its target audience. Cox Radio's disciplined application of market research enables each of its stations to be responsive to the changing preferences of its targeted listeners. This approach focuses on the needs of the listener and its community and is designed to improve ratings and maximize the impact of advertising for the Company's customers. Through its research, programming and marketing, Cox Radio also seeks to create a distinct and marketable local identity for each of its stations in order to enhance audience share and listener loyalty and to protect against direct format competition. To achieve this objective, the Company employs and promotes distinct high-profile on-air personalities and local sports programming at many of its stations. For example, the Company broadcasts (i) "Dr. Laura," which originates at one of the Company's stations in Los Angeles, in Atlanta, Dayton, Los Angeles, Syracuse, Tulsa and Orlando; (ii) "Rush Limbaugh" in Los Angeles, Orlando, Syracuse and Tulsa; (iii) the 1996 National League Champion Atlanta Braves in Atlanta and Tampa; and (iv) the Orlando Magic in Orlando and Tampa. (ii) Customer-Focused Selling Strategy. The Company has implemented a unique, customer-focused approach to selling advertising known as the Consultative Selling System. The Company's sales personnel are trained to approach each advertiser with a view towards solving the marketing needs of the customer. In this regard, the sales staff consults with customers, attempts to understand their business goals and offers comprehensive marketing solutions, including the use of radio advertising. Instead of merely selling station advertising time, the Company's sales personnel are encouraged to develop innovative marketing strategies for the station's advertising customers. (iii) Marketing and Promotional Activities. The Company's stations regularly engage in significant local promotional activities, including advertising on local television and in local print media, participating in telemarketing and direct mailings and sponsoring contests, concerts and events. Special events may include charitable athletic events, events centered around a major local occasion or local ethnic group and special community or family events. Cox Radio also engages in joint promotional activities with other media in their markets to further leverage the Company's promotional spending. These promotional efforts help the Company's stations add new listeners and increase the amount of time spent listening to the stations. Leveraging of Senior Operating Management Team Cox Radio's senior operating management, together with the NewCity senior operating management, which will join Cox Radio as part of the NewCity Acquisition, will be comprised of six individuals with an average of over 23 years of experience in the radio broadcasting industry, including an average of over 14 years with their respective organizations. See "-- The NewCity Acquisition -- Additions to Senior Operating Management Team." These two management teams share a common operating philosophy, which management believes will facilitate the integration of the two companies. A portion of the compensation of the senior operating management team is linked to the Company's operating results through participation in the Company's Long-Term Incentive Plan. See Note 9 to the Company's Consolidated Financial Statements included elsewhere herein. Cultivation of Strong Local Management Teams The Company places great importance on the hiring and development of strong local management teams and has been successful in retaining experienced management teams that have strong ties to their communities and customers. The Company invests significant resources in identifying and training employees to create a talented team of managers at all levels of station operations. These resources include: (i) Gallup/SRI, which helps the Company identify and select talented individuals for management and sales positions; (ii) NewCity Associates, an independent sales and management training company initially created by NewCity, which 5 8 trains and develops managers and sales executives; and (iii) a program of seminars conducted by the Company's senior operating management and outside consultants. Local managers are empowered to run the day-to-day operations of their stations and to develop and implement policies that will improve station performance and establish long-term relationships with listeners and advertisers. The compensation of the local station managers is dependent upon the financial performance of the stations and linked to participation in the Company's Long-Term Incentive Plan. See Note 9 to the Company's Consolidated Financial Statements included elsewhere herein. ACQUISITION STRATEGY During the last several years, the Company has implemented its clustering strategy through the acquisition of radio stations in several of its existing markets. Management believes that recent changes in federal regulations will allow Cox Radio to continue to pursue its acquisition strategy. The Telecommunications Act of 1996 (the "1996 Act") removed the limit on the number of radio stations an operator may own nationwide and increased the number of radio stations an operator may own in a single market. As a result of this legislation, the competitive landscape in the radio broadcasting industry is changing. Management believes that larger, well-capitalized companies with experienced management, such as Cox Radio, will be best positioned to take advantage of this changing environment. Management considers the following factors when making an acquisition. Market Selection Considerations Cox Radio intends to continue to acquire additional radio stations in the 12 markets in which it will operate following the completion of the Pending Transactions. In the past, the Company has primarily acquired underperforming stations. Cox Radio may also make opportunistic acquisitions in additional markets in which the Company believes that it can cost-effectively achieve a leading position in terms of audience and revenue share. Management also believes that Cox Radio will have the financial resources and management expertise to continue to pursue its acquisition strategy. Certain future acquisitions may be limited by the multiple and cross-ownership rules of the Federal Communications Commission ("FCC"). See "-- Federal Regulation of Broadcasting -- Ownership Matters" and "-- Recent Changes." Station Considerations Cox Radio expects to concentrate on acquiring radio stations that offer, through application of Cox Radio's operating philosophy, the potential for improvement in the station's performance, particularly its broadcast cash flow. Such stations may be in various stages of development, presenting Cox Radio with an opportunity to apply its management techniques and to enhance asset value. In evaluating potential acquisitions, the Company considers the strength of a station's broadcast signal. A powerful broadcast signal enhances delivery range and clarity, thereby influencing listener preference and loyalty. Cox Radio also assesses the strategic fit of an acquisition with its existing clusters of radio stations. When entering a new market, Cox Radio expects to acquire a "platform" upon which to expand its portfolio of stations and to build a leading cluster of stations. Cox Radio believes that the NewCity Acquisition will create such a platform in several markets for the pursuit of its acquisition strategy. INDUSTRY OVERVIEW The primary source of revenues for radio stations is generated from the sale of advertising time to local and national spot advertisers and national network advertisers. During the past decade, local advertising revenue as a percentage of total radio advertising revenue in a given market has ranged from approximately 72% to 87%. The growth in total radio advertising revenue tends to be fairly stable and has generally grown at a rate faster than the Gross National Product ("GNP"). With the exception of 1991, when total radio advertising revenue fell by approximately 3.1% compared to the prior year, advertising revenue has risen in each of the 15 years through 1995 (the most recent year for which this information is available) more rapidly 6 9 than both inflation and the GNP. Total domestic radio advertising revenue in 1995 of $11.5 billion, as reported by the RAB, was at its highest level in the industry's history. According to the RAB's Radio Marketing Guide and Fact Book for Advertisers, 1994-1995, radio reaches approximately 96% of all Americans over the age of 12 every week. More than one-half of all radio listening is done outside the home, in contrast to other advertising media, and three out of four adults are reached by car radio each week. The average listener spends approximately three hours and 20 minutes per day listening to radio. Most radio listening occurs during the morning, particularly between the time a listener wakes up and the time the listener reaches work. This "morning drive time" period reaches more than 85% of people over the age of 12 and, as a result, radio advertising sold during this period achieves premium advertising rates. Radio listeners have gradually shifted over the years from AM to FM stations. FM reception, as compared to AM, is generally clearer and provides greater tonal range and higher fidelity. In comparison to AM, FM's listener share is now in excess of 75%, despite the fact that the number of AM and FM commercial stations in the United States is approximately equal. Radio is considered an efficient, cost-effective means of reaching specifically identified demographic groups. Stations are typically classified by their on-air format, such as country, adult contemporary, oldies and news/talk. A station's format and style of presentation enables it to target certain demographics. By capturing a specific share of a market's radio listening audience, with particular concentration in a targeted demographic, a station is able to market its broadcasting time to advertisers seeking to reach a specific audience. Advertisers and stations utilize data published by audience measuring services, such as Arbitron, to estimate how many people within particular geographical markets and demographics listen to specific stations. The number of advertisements that can be broadcast without jeopardizing listening levels (and the resulting ratings) is limited in part by the format of a particular station and the local competitive environment. Although the number of advertisements broadcast during a given time period may vary, the total number of advertisements broadcast on a particular station generally does not vary significantly from year to year. A station's local sales staff generates the majority of its local and regional advertising sales through direct solicitations of local advertising agencies and businesses. To generate national advertising sales, a station usually will engage a firm that specializes in soliciting radio advertising sales on a national level. National sales representatives obtain advertising principally from advertising agencies located outside the station's market and receive commissions based on the revenue from the advertising obtained. COMPETITION; CHANGES IN THE BROADCASTING INDUSTRY The radio broadcasting industry is a highly competitive business. The success of each of the Company's stations depends largely upon its audience ratings and its share of the overall advertising revenue within its market. The Company's radio stations compete for listeners directly with other radio stations in their respective markets primarily on the basis of program content that appeals to a target demographic group. By building a strong listener base consisting of a specific demographic in each of its markets, Cox Radio is able to attract advertisers seeking to reach those listeners. The Company's stations compete for advertising revenue directly with other radio stations and with other electronic and print media within their respective markets. Factors that are material to a station's competitive position include management experience, the station's audience share rank in its market, transmitter power, assigned frequency, audience characteristics, local program acceptance, and the number and characteristics of other stations in the market area. Cox Radio attempts to improve its competitive position with promotional campaigns aimed at the demographics targeted by its stations and by sales efforts designed to attract advertisers. Recent changes in the law and in FCC rules and policies have increased the number of radio stations a broadcaster may own in a given market and permit, within limits, joint arrangements with other stations in a market relating to programming, advertising sales, and station operations. Management believes that radio stations that elect to take advantage of these opportunities may, in certain circumstances, have lower operating costs and may be able to offer advertisers more attractive rates and services. 7 10 Although the radio broadcasting industry is highly competitive, some barriers to entry exist. The operation of a radio broadcast station requires a license from the FCC and the number of radio stations that a single entity may own and operate in a given market is limited by the availability of FM and AM radio frequencies allotted by the FCC to communities in that market, as well as by the FCC's multiple ownership rules, which regulate the number of stations that may be owned and controlled by a single entity. The Company's stations compete for advertising revenue with other radio stations and with other electronic and print media. Potential advertisers can substitute advertising through broadcast television, cable television systems (which can offer concurrent exposure on a number of cable networks to enlarge the potential audience), daily, weekly, and free-distribution newspapers, other print media, direct mail, and on-line computer services for radio advertising. Competing media commonly target the customers of their competitors, and advertisers regularly shift dollars from radio to these competing media and vice versa. Accordingly, there can be no assurance that any of the Company's stations will be able to maintain or increase its current audience ratings and advertising revenue share. In addition, the radio broadcasting industry is subject to competition from new media technologies that are being developed or introduced, such as the delivery of audio programming by cable television systems, by satellite and by digital audio broadcasting ("DAB"). The delivery of information through the Internet also could create a new form of competition. The radio broadcasting industry historically has grown despite the introduction of new technologies for the delivery of entertainment and information, such as broadcast television, cable television, audio tapes and compact discs. A growing population and greater availability of radios, particularly car and portable radios, have contributed to this growth. There can be no assurance, however, that the development or introduction in the future of any new media technology will not have an adverse effect on the radio broadcasting industry. The FCC currently has before it proceedings that will permit the use of DAB to deliver audio programming, and has allocated spectrum for the provision of satellite DAB service. DAB provides a medium for the delivery by satellite or terrestrial means of multiple new, high quality audio programming formats to local and national audiences. This technology also may be used in the future by radio broadcast stations either on existing or alternate broadcasting frequencies or on new frequency bands. In addition, the FCC has authorized an additional 100 kHz of spectrum for the AM band and will soon allocate frequencies in this new band to certain existing AM station licensees. By the end of a transition period to be determined by the FCC, those licensees will be required to return to the FCC either the license for their existing AM band station or the license for the expanded AM band station. Cox Radio cannot predict what other matters might be considered in the future by the FCC, nor can it assess in advance what impact, if any, the implementation of any of these proposals or changes might have on its business. FEDERAL REGULATION OF RADIO BROADCASTING The ownership, operation and sale of radio stations, including those licensed to Cox Radio, are subject to the jurisdiction of the FCC, which acts under authority granted by the Communications Act of 1934, as amended ("the Communications Act"). Among other things, the FCC assigns frequency bands for broadcasting; determines the particular frequencies, locations and operating power of stations; issues, renews and modifies station licenses; determines whether to approve changes in ownership or control of station licenses; regulates equipment used by stations; adopts and implements regulations and policies that directly or indirectly affect the ownership, operation, program content, employment practices, and business of stations; and has the power to impose penalties, including license revocations, for violations of its rules or the Communications Act. The 1996 Act, which significantly amended the Communications Act in numerous respects, dramatically changed the ground rules for competition and regulation in virtually all sectors of the telecommunications industry, including broadcasting, local and long-distance telephone services, cable television services and telecommunications equipment manufacturing. In addition, the 1996 Act imposes numerous requirements on the FCC to launch new inquiries and rulemaking proceedings, perhaps 80 in all, involving a multitude of telecommunications issues, including those described herein that will directly affect the broadcast industry. 8 11 The 1996 Act mandates that such rulemaking proceedings be completed within certain time frames, in some cases as short as six months. Some of these proceedings have been completed while others remain pending. The following is a brief summary of certain provisions of the Communications Act, as amended by the 1996 Act, and of specific FCC rules and policies. Reference should be made to the Communications Act, FCC rules and public notices and rulings of the FCC for further information concerning the nature and extent of FCC regulation of broadcast stations. License Renewal Broadcast station licenses are subject to renewal upon application to the FCC. Pursuant to Congress' mandate in the 1996 Act, the FCC has adopted a rule extending radio station license terms from seven to eight years. All licenses renewed as part of the current renewal cycle will have a term of eight years. Under the Communications Act, interested parties, including members of the public, may file petitions to deny a license renewal application, but competing applications for the license will not be accepted unless the current licensee's renewal application is denied. If a petition to deny presents information from which the FCC concludes (or if the FCC concludes on its own) that there is a "substantial and material" question whether grant of the renewal application would be in the public interest under applicable rules and policy, the FCC will conduct a hearing on specified issues to determine whether renewal should be granted. The FCC is required to grant a license renewal application if (i) the licensee has served the public interest; (ii) the licensee has not engaged in any serious violations of the Communications Act or the FCC's rules and regulations; and (iii) the licensee has not engaged in any other violations that would indicate a pattern of abuse of FCC rules or the Communications Act. The FCC may deny a license renewal application only if it finds that a licensee has failed to meet this three-pronged test and that there are no mitigating circumstances to warrant grant of the license renewal for a shorter period than the full license term, or to warrant the grant of a renewal with certain conditions attached to the grant. Only in the event of such a denial of a license renewal application will the FCC accept new applications for the broadcast frequency occupied by the incumbent broadcast licensee. Also, during the period when a renewal application is pending (generally four months prior to expiration of the license), the transferability of the applicant's license may be restricted. Historically, Cox Radio's management has not experienced any material difficulty in obtaining renewal from the FCC of any of the broadcast licenses of stations under its control. 9 12 The following table sets forth, among other things, the frequency on which each of the stations owned, or operated pursuant to an LMA, by Cox Radio and NewCity broadcasts, and the date on which each such station's FCC license expires (a station may continue to operate beyond the expiration date if a timely filed license renewal application is pending):
HEIGHT ABOVE EXPIRATION FCC AVERAGE MARKET(1) STATION FREQUENCY DATE OF LICENSE CLASS TERRAIN POWER - ------------------------- ------------------------- --------- ----------------- ----- ------- ----------- Los Angeles.............. KFI-AM 640 kHz December 1, 1997 A N.A. 50 kw KOST-FM 103.5 MHz December 1, 1997 B 949 m 12.5 kw KACE-FM 103.9 MHz December 1, 1997 A 119 m 1.65 kw KRTO-FM(2) 98.3 MHz December 1, 1997 A 296 m .65 kw Atlanta.................. WSB-AM(3) 750 kHz April 1, 1996 A N.A. 50 kw WSB-FM(3) 98.5 MHz April 1, 1996 C 311 m 100 kw WJZF-FM(4)(5) 104.1MHz April 1, 2004 C1 371 m 60 kw WCNN-AM(5) 680 kHz April 1, 2004 B N.A. 50 kw day 10 kw night Miami.................... WFLC-FM 97.3 MHz February 1, 2004(6) C 307 100 kw WHQT-FM 105.1MHz February 1, 2004(6) C 307 100 kw Tampa.................... WWRM-FM 94.9 MHz February 1, 2004(6) C 393 m 95 kw WCOF-FM 107.3 MHz February 1, 2004(6) C1 189 m 100 kw WSUN-AM 620 kHz February 1, 2004(6) B N.A. 5 kw WFNS-AM 910 kHz February 1, 2004(6) B N.A. 5 kw Orlando.................. WDBO-AM(4) 580 kHz February 1, 2004(6) B N.A. 5 kw WWKA-FM(4) 92.3 MHz February 1, 2004(6) C 408 m 98 kw WCFB-FM(4) 94.5 MHz February 1, 2004(6) C 448 m 96 kw WZKD-AM(4) 950 kHz February 1, 2004(6) B N.A. 5 kw WHTQ-FM(7) 96.5 MHz February 1, 2004(6) C 487 m 100 kw WMMO-FM(7) 98.9 MHz February 1, 2004(6) C2 134 m 38 kw WHOO-AM(7) 990 kHz February 1, 2004(6) B N.A. 50 kw day 5 kw night San Antonio.............. KCYY-FM(4) 100.3 MHz August 1, 1997 C 300 m 98 kw KCJZ-FM(4) 106.7 MHz August 1, 1997 C 310 m 100 kw KKYX-AM(4) 680 kHz August 1, 1997 B N.A. 50 kw day 10 kw night Louisville............... WRKA-FM 103.1 MHz August 1, 2004(6) A 95 m 6 kw WRVI-FM 94.7 MHz August 1, 2004(6) A 100 m 3 kw WHTE-FM 105.9 MHz August 1, 2004(6) A 100 m 3 kw Birmingham............... WZZK-FM(4) 104.7 MHz April 1, 2004(6) C 396 m 99 kw WODL-FM(4) 106.9 MHz April 1, 2004(6) C 351 m 99 kw WZZK-AM(4) 610 kHz April 1, 2004(6) B N.A. 5 kw day 1 kw night Dayton................... WHIO-AM 1290 kHz October 1, 2004(6) B N.A. 5 kw WHKO-FM 99.1 MHz October 1, 2004(6) B 325 m 50 kw Tulsa.................... KWEN-FM(3)(4) 95.5 MHz June 1, 1997 C 405 m 96 kw KJSR-FM(3)(4) 103.3 MHz June 1, 1997 C 390 m 100 kw KRAV-FM(3)(7) 96.5 MHz June 1, 1997 C 405 m 96 kw KGTO-AM(3)(7) 1050 kHz June 1, 1997 B N.A. 1 kw KRMG-AM(3)(4) 740 kHz June 1, 1997 B N.A. 50 kw day 25 kw night Bridgeport............... WEZN-FM(4) 99.9 MHz April 1, 1998 B 204 m 27.5 kw Syracuse................. WSYR-AM(4) 570 kHz June 1, 1998 B N.A. 5 kw WHEN-AM(7) 620 kHz June 1, 1998 B N.A. 5 kw WYYY-FM(4) 94.5 MHz June 1, 1998 B 198 m 100 kw WBBS-FM(4) 104.7 MHz June 1, 1998 B 150 m 50 kw WWHT-FM(7) 107.9 MHz June 1, 1998 B 152 m 50 kw
- --------------- (1) Metropolitan market served; city of license may differ. (2) Station to be acquired by Cox Radio pursuant to the Los Angeles Acquisition. (3) Cox Radio or NewCity has filed an application with the FCC to renew such licenses. Such applications are pending FCC approval as of March 1997. (4) Station to be acquired by Cox Radio pursuant to the NewCity Acquisition. (5) Cox Radio provides programming to this station pursuant to an LMA. (6) License term extended by order of the FCC. (7) Station operated by NewCity pursuant to an LMA with Cox Radio. 10 13 General Ownership Matters The Communications Act prohibits the assignment of a license or the transfer of control of a broadcast licensee without the prior approval of the FCC. In determining whether to grant or renew a broadcast license, the FCC considers a number of factors pertaining to the licensee, including compliance with the Communications Act's limitations on alien ownership, compliance with various rules limiting common ownership of broadcast, cable and newspaper properties, and the "character" of the licensee and those persons holding "attributable" interests in the licensee. To obtain the FCC's prior consent to assign or transfer a broadcast license, appropriate applications must be filed with the FCC. If the application involves the assignment of the license or a "substantial change" in ownership or control (e.g., the transfer of more than 50% of the voting stock), the application must be placed on public notice for a period of approximately 30 days during which petitions to deny the application may be filed by interested parties, including members of the public. If an assignment application does not involve a "substantial change" in ownership or control, it is considered a "pro forma" application, and is not subject to the 30-day public notice period or the filing of petitions to deny. A "pro forma" application is nevertheless subject to having informal objections filed against it. If the FCC grants an assignment or transfer application, interested parties have approximately 30 days from public notice of the grant to seek reconsideration of the grant. Generally, parties who do not file petitions to deny or informal objections against the application face a high hurdle in seeking reconsideration of the grant. The FCC normally has approximately an additional 10 days to set aside such grant on its own motion. When passing on an assignment or transfer application, the FCC is prohibited from considering whether the public interest might be served by an assignment or transfer to any party other than the assignee or transferee specified in the application. The FCC generally applies its ownership limits to "attributable" interests held by an individual, corporation, partnership or other association. In the case of corporations holding broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the corporation's voting stock are generally deemed to be attributable, as are positions of an officer or director of a corporate parent of a broadcast licensee. Cox Radio's indirect parent, CEI, has attributable ownership interests in television stations located in Orlando, Florida; Charlotte, North Carolina; Pittsburgh, Pennsylvania; Dayton, Ohio; Atlanta, Georgia; Oakland, California; and El Paso, Texas and has entered into an agreement to acquire a television station in Reno, Nevada, and an agreement to acquire a television station serving the Seattle/Tacoma, Washington area. CEI also has attributable ownership interests in daily newspapers located in Grand Junction, Colorado; Palm Beach, Florida; Atlanta, Georgia; Greenville, Rocky Mount and Elizabeth City, North Carolina; Dayton and Springfield, Ohio; and Austin, Longview, Lufkin, Waco, Nacogdoches, Marshall and Jefferson, Texas. CEI has a non-attributable ownership interest in a daily newspaper located in Daytona Beach, Florida. Paul J. Rizzo, a director of CEI, is a director of The McGraw-Hill Companies, Inc. which, through a wholly-owned subsidiary, owns and operates television stations KMGH-TV, Denver, Colorado; WRTV, Indianapolis, Indiana; KERO-TV, Bakersfield, California, and KGTV, San Diego, California. Mr. Rizzo has no involvement in the day-to-day operations and management of any of the McGraw-Hill television stations, only one of which, KERO-TV, is located in a market (Los Angeles, CA) in which Cox Radio owns radio stations. None of the other officers, directors or 5% or greater shareholders of the voting stock of Cox Radio or of its subsidiaries has any attributable interest in any broadcast stations other than through Cox Radio and its subsidiaries. The FCC treats all partnership interests as attributable, except for those limited partnership interests that are "insulated" by the terms of the limited partnership agreement from "material involvement" in the media-related activities of the partnership under FCC policies. Stock interests held by insurance companies, mutual funds, bank trust departments and certain other passive institutional investors that hold stock for investment purposes only become attributable with the ownership of 10% or more of the stock of a corporation holding broadcast licenses. To assess whether a voting stock interest in a direct or indirect parent corporation of a broadcast licensee is attributable, the FCC uses a "multiplier" analysis in which non-controlling voting stock interests are deemed proportionally reduced at each non-controlling link in a multi-corporation ownership chain. 11 14 In March 1992, the FCC initiated an inquiry and rulemaking proceeding in which it solicited comment on whether it should alter its ownership attribution rules by (a) raising the basic benchmark for attributing ownership in a corporate licensee from 5% to 10% of the licensee's voting stock; (b) increasing the attribution benchmark for "passive institutional investors" in corporate licensees from 10% to 20% of the licensee's voting stock; (c) broadening the class of investors eligible for "passive institutional investor" status to include Small Business and Minority Enterprise Small Business Investment Companies; and (d) exempting certain widely-held limited partnership interests from attribution where each individual interest represents an insignificant percentage of total partnership equity. The FCC initiated a further rulemaking proceeding in December 1994 to solicit additional public comment on amending its attribution rules. Among the issues being explored in the proceeding are: (a) whether the FCC should raise the benchmarks for determining voting stock interests to be "attributable" from 5% to 10% for those stockholders other than passive institutional investors, and from 10% to 20% for passive institutional investors; (b) whether to consider non-voting stock interests to be attributable under the multiple ownership rules (at present such interests are not attributable); (c) whether to consider generally attributable voting stock interests which account for a minority of the issued and outstanding shares of voting stock of a corporate licensee, where the majority of the corporation's voting stock is held by a single stockholder; (d) whether to relax, for attribution purposes, the FCC's insulation standards for business development companies and other widely-held limited partnerships; (e) whether to adopt an equity threshold for non-insulated limited partnerships below which a limited partner would not be considered to have an attributable interest in the partnership, regardless of that partner's insulation from day-to-day management and operations of the media enterprises of the partnership; (f) how to treat limited liability companies and other new business forms for purposes of the FCC's attribution rules; (g) the impact of limited liability companies on broadcast ownership opportunities for women and minorities; and (h) whether to adopt a new attribution policy under which the FCC would scrutinize multiple "cross interests" or other significant business relationships, which are held in combination among ostensibly arm's-length competing broadcasters in the same market, to determine whether the combined interests, which individually would not raise concerns as to potential diminution of competition and diversity of viewpoints, would nonetheless raise such concerns in light of the totality of the relationships among the parties (including, e.g., LMAs, JSAs, debt relationships, holdings of non-attributable interests, or other relationships among competing broadcasters in the same market). In November 1996, the FCC issued a second further notice of proposed rulemaking in which, in addition to the attribution proposals outlined above, it seeks comment on whether the FCC should modify its attribution rules by, among other things, (a) attributing ownership in situations where an entity (i) holds a non-attributable equity or debt interest in a broadcast licensee that exceeds a minimum threshold and (ii) either supplies programming to the licensee or owns a daily newspaper, cable system or broadcast station in the same market as the licensee ("Equity/Debt Plus Rule"); (b) the attribution of interests in LMAs between television stations in the same market; and (c) the attribution of interests in JSAs. With respect to application of the Equity/Debt Plus Rule, if adopted, the Commission may grandfather equity/debt plus relationships that were in existence as of December 15, 1994, or require parties to terminate such relationships within a short period of time following the rule's adoption. The Company cannot predict when or whether any of these attribution proposals will ultimately be adopted by the FCC. The Communications Act prohibits the issuance of a broadcast license to, or the holding of a broadcast license by, any corporation of which more than 20% of the capital stock is owned of record or voted by non-U.S. citizens or their representatives or by a foreign government or a representative thereof, or by any corporation organized under the laws of a foreign country (collectively, "Aliens"). The Communications Act also authorizes the FCC, if the FCC determines that it would be in the public interest, to prohibit the issuance of a broadcast license to, or the holding of a broadcast license by, any corporation directly or indirectly controlled by any other corporation of which more than 25% of the capital stock is owned of record or voted by Aliens, unless the FCC finds that the public interest would be served by granting a license under such circumstances. The FCC generally has declined to permit the control of broadcast licensees by corporations with foreign ownership or voting rights in excess of the 25% benchmark. The FCC has issued interpretations of 12 15 existing law under which these restrictions in modified form apply to other forms of business organizations, including partnerships, and has established policies for the calculation of indirect alien ownership and voting rights. As a result of these provisions, no more than 25% of the Company's capital stock may be owned or voted by Aliens. Furthermore, the FCC has a "cross-interest" policy that under certain circumstances could prohibit a person or entity with an attributable interest in a broadcast station or daily newspaper from having a "meaningful" non-attributable interest in another broadcast station or daily newspaper in the same local market. Among other things, "meaningful" interests could include significant equity interests (including non-voting stock, voting stock, and limited partnership interests) and significant employment positions. This policy may limit the permissible acquisitions and investments Cox Radio may make and the permissible investments a purchaser of Cox Radio's Common Stock may make or hold. If the FCC determines that a stockholder of Cox Radio has violated this cross-interest policy, Cox Radio may be unable to obtain from the FCC one or more authorizations needed to conduct its radio station business and may be unable to obtain FCC consents for certain future acquisitions. As part of its rulemaking proceeding soliciting public comment on various proposals to modify its broadcast attribution policies, the FCC also has requested public comment on whether to eliminate or codify the remaining aspects of the cross-interest policy with respect to significant employment positions, non-attributable equity interests and joint venture arrangements. Local Radio Ownership Rule The FCC's local radio multiple ownership rule (the "Radio Contour Overlap Rule") provides for certain limits on the number of radio stations that one entity may own in a local geographic market. These limits are as follows: (a) In a radio market with 45 or more commercial radio stations, a party may own, operate or control up to eight commercial radio stations, not more than five of which are in the same broadcast service (i.e., AM or FM); (b) In a radio market with between 30 and 44 (inclusive) commercial radio stations, a party may own, operate or control up to seven commercial radio stations, not more than four of which are in the same broadcast service; (c) In a radio market with between 15 and 29 (inclusive) commercial radio stations, a party may own, operate or control up to six commercial radio stations, not more than four of which are in the same broadcast service; and (d) In a radio market with 14 or fewer commercial radio stations, a party may own, operate or control up to five commercial radio stations, not more than three of which are in the same broadcast service, except that a party may not own, operate or control more than 50 percent of the stations in the market. Notwithstanding the limits contained in the Radio Contour Overlap Rule, the FCC has the authority to permit any person or entity to own, operate or control, or have an attributable ownership interest in a number of radio broadcast stations in excess of the rule's limits if the FCC determines that such ownership, operation, control or interest will result in an increase in the number of radio broadcast stations that are in operation. Although the 1996 Act, which granted the FCC such authority, does not explain the intent or rationale for this provision, Cox Radio believes that this exception may apply to newly-constructed stations and/or stations that have been off the air but are resuming broadcast operations. The FCC does not regulate the number of radio stations that may be owned or controlled by one entity nationally. LMAs and JSAs Over the past several years, a significant number of radio broadcast licensees, including certain of Cox Radio's subsidiaries, have entered into local marketing agreements ("LMAs") and joint sales agreements 13 16 ("JSAs"). Under a typical LMA, separately-owned and licensed radio stations agree to enter into cooperative arrangements subject to compliance with the requirements of antitrust laws and with the FCC's rules and policies. Under these types of arrangements, separately-owned stations serving a common geographic area agree to function cooperatively in terms of programming, advertising sales, etc., subject to the licensee of each station maintaining independent control over the programming and station operations of its own station. Such arrangements are an extension of the concept of "time brokerage," under which a licensee of a station sells the right to broadcast blocks of time on its station to an entity or entities which program the blocks of time and sell their own commercial advertising announcements for their own account during the time periods in question. Under a typical JSA, two separately-owned radio stations serving a common service area agree to function cooperatively in terms of advertising sales only. Under such an arrangement, the licensee of one station sells the advertising time on the other licensee's station for its own account but does not provide any programming to the other licensee's station. This arrangement is also subject to ultimate control by the latter licensee. The FCC has heretofore determined that issues of joint advertising sales should be left to antitrust enforcement and has specifically exempted LMAs from its "cross-interest" policy. Further, the FCC and the staff of the FCC's Mass Media Bureau have held that LMAs do not per se constitute a transfer of control and are not contrary to the Communications Act, provided that the licensee of the brokered station maintains complete responsibility for and control over operations of its broadcast station (including, specifically, control over station finances, personnel and programming) and complies with applicable FCC rules and with antitrust laws. See "Item 3 -- Legal Proceedings." LMAs between two stations in the same market that involve more than 15% of the brokered station's broadcast hours per week are treated as if the brokered station were owned by the brokering station for purposes of the Radio Contour Overlap Rule. A broadcast station, therefore, is not permitted to enter into an LMA giving it the right to program more than 15% of the broadcast time, on a weekly basis, of another local station which it could not own under the FCC's Radio Contour Overlap Rule. A JSA where no programming is provided is not considered an attributable ownership interest under current FCC rules. However, in connection with its broadcast attribution rulemaking proceeding, the FCC is considering revising its attribution rules to adopt the "Equity/Debt Plus Rule" and to deem attributable for purposes of applying the ownership rules interests in JSAs where the brokered and brokering stations serve substantially the same market. The FCC's rules also prohibit a broadcast licensee from simulcasting more than 25% of its programming on another station in the same broadcast service (i.e., AM-AM or FM-FM) whether it owns both stations or operates both through an LMA where the brokered and brokering stations serve substantially the same geographic area. Cross-Ownership Rules Radio/Television Cross-Ownership Rule -- The FCC's radio/television cross-ownership rule (the "one to a market" rule) generally prohibits a single individual or entity from having an attributable interest in a television station and a radio station serving the same market. However, in each of the 25 largest local markets in the United States, provided that there are at least 30 separately-owned stations in the particular market, the FCC has traditionally employed a policy that presumptively allows waivers of the one to a market rule to permit the common ownership of one AM, one FM and one TV station in the same market. The 1996 Act directs the FCC to extend this policy to each of the top 50 markets. As part of a rulemaking commenced in 1994 examining the television local ownership rules, the FCC has proposed to eliminate this rule altogether or, in the alternative, to relax its policy for granting waivers of this rule. The FCC does not apply its presumptive waiver policy in cases involving the common ownership of one television station and two or more radio stations in the same service (AM or FM) in the same market. Pending its ongoing rulemaking proceeding reexamining the one to a market rule, the FCC has stated that it will consider waivers of the rule in such instances on a case-by-case basis, considering (a) the public service benefits that will arise from the joint operation of the facilities such as economies of scale, cost savings, and programming and service benefits; (b) the types of facilities involved; (c) the number of media outlets owned by the applicant in the relevant market; (d) the financial difficulties of the stations involved; and (e) the 14 17 nature of the relevant market in light of the level of competition and diversity after joint operation is implemented. Cox Radio cannot predict whether the FCC will adopt any of these proposals. Radio/Daily Newspaper Cross-Ownership Rule -- The FCC's rules prohibit the common ownership of a radio station and a daily newspaper in the same market. In 1993, Congress authorized the FCC to grant waivers of the radio-newspaper cross-ownership rule to permit cross-ownership of a radio station and a daily newspaper in a top 25 market with at least 30 independent media voices, provided the FCC finds the transaction to be in the public interest. Under current policy, the FCC will grant a permanent waiver of the radio-newspaper cross-ownership rule only in those circumstances where the effects of applying the rule would be "unduly harsh," i.e., the newspaper is unable to sell the commonly-owned station or the sale would be at an artificially depressed price, or the local community could not support a separately-owned newspaper and radio station. The FCC has previously granted only two permanent waivers of this cross-ownership rule. The FCC has pending a Notice of Inquiry requesting comment on possible changes to its policy for waiving the rule including, among other things, (a) whether waivers should only be available in markets of a particular size; (b) whether any weight should be given to a newspaper's or radio station's economic presence or market penetration; and (c) whether there should be limits on the number of radio stations or other media outlets that could be co-owned with a newspaper in the same market. At present, the FCC's one to a market and radio-newspaper cross-ownership rules do not apply to radio LMAs. As part of its attribution rulemaking, however, the FCC has proposed to apply these rules to radio LMAs. If such a rule were adopted, Cox Radio could not provide programming to a radio station pursuant to an LMA if Cox Radio or an individual or an entity holding an attributable ownership interest in Cox Radio already owned a television station or a daily newspaper in the same market. Because of these multiple and cross-ownership rules, a purchaser of Cox Radio's Common Stock who acquires an attributable interest in Cox Radio may violate and may cause Cox Radio to violate the FCC's ownership rules if such purchaser also has an attributable interest in other television or radio stations, or in daily newspapers, depending on the number and location of those radio or television stations or daily newspapers. Such a purchaser also may be restricted in the companies in which it may invest, to the extent that those investments give rise to an attributable interest. If a stockholder of Cox Radio who holds an attributable interest in Cox Radio violates any of these ownership rules, Cox Radio may be unable to obtain from the FCC one or more authorizations needed to conduct its radio station business and may be unable to obtain FCC consent for certain future acquisitions. Under the 1996 Act, the FCC is required to review all of its broadcast ownership rules every other year to determine whether the public interest dictates that such rules be repealed or modified. Programming and Operation The Communications Act requires broadcasters to serve the "public interest." Since the late 1970s, the FCC gradually has relaxed or eliminated many of the more formalized procedures it had developed to promote the broadcast of certain types of programming responsive to the needs of a station's community of license. However, licensees are still required to present programming that is responsive to community problems, needs and interests and to maintain certain records demonstrating such responsiveness. Complaints from listeners concerning a station's programming often will be considered by the FCC when it evaluates a licensee's license renewal application, although such complaints may be filed at any time and generally may be considered by the FCC at any time. Stations also must follow various rules promulgated under the Communications Act that regulate, among other things, political advertising, sponsorship identification, the advertisement of contests and lotteries, obscene and indecent broadcasts and technical operations, including limits on radio frequency radiation. In addition, broadcast licensees must develop and implement programs designed to promote equal employment opportunities for minorities and women and must submit reports to the FCC with respect to these matters annually and in connection with the station's license renewal application. Failure to observe these or other rules and policies can result in the imposition of various sanctions, including monetary forfeitures, the grant of short-term (i.e., less than the full term) renewals or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license. 15 18 Restrictions on Broadcast Advertising Advertising of cigarettes and certain other tobacco products on broadcast stations has been banned for many years. Various states restrict the advertising of alcoholic beverages. Congressional committees have recently examined legislative proposals which may eliminate or severely restrict the advertising of beer and wine. No prediction can be made as to whether any or all of the present proposals will be enacted into law. Digital Audio Broadcasting The FCC recently has allocated spectrum to a new technology, DAB, to deliver satellite-based audio programming to a national or regional audience and is considering regulations for a DAB service. DAB may provide a medium for the delivery by satellite or terrestrial means of multiple new audio programming formats with compact disc quality sound to local and national audiences. It is not known at this time whether this technology also may be used in the future by existing radio broadcast stations either on existing or alternate broadcast frequencies. In addition, applications by several entities currently are pending at the FCC for authority to offer multiple channels of digital, satellite-delivered S-Band aural services that could compete with conventional terrestrial radio broadcasting. These satellite radio services use technology that may permit higher sound quality than is possible with conventional AM and FM terrestrial radio broadcasting. The FCC recently adopted service and technical regulations for satellite digital audio radio service and has decided to conduct a closed auction among four applicants who will bid for the two satellite digital audio radio slots. The FCC has granted at least one of these applicants a waiver to begin satellite construction. Implementation of DAB, whether delivered by satellite or terrestrial means, would provide an additional audio programming service that could compete with the Company's radio stations for listeners, but the effect upon Cox Radio cannot be predicted. Proposed Changes Congress and the FCC have under consideration, and may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly: (i) affect the operation, ownership and profitability of Cox Radio and its radio broadcast stations; (ii) result in the loss of audience share and advertising revenue of the Company's radio broadcast stations; and (iii) affect the ability of Cox Radio to acquire additional radio broadcast stations or to finance such acquisitions. Such matters include, for example, changes to the license renewal process; proposals to impose spectrum use or other governmentally-imposed fees upon licensees; proposals to expand the FCC's equal employment opportunity rules and other matters relating to minority and female involvement in broadcasting; proposals to repeal or modify some or all of the FCC's multiple ownership rules and/or policies; proposals to increase the benchmarks or thresholds for attributing ownership interests in broadcast media; proposals to change rules or policies relating to political broadcasting; technical and frequency allocation matters, including those relative to the implementation of DAB on both a satellite and terrestrial basis and AM stereo broadcasting; proposals to permit expanded use of FM translator stations; proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages on radio; changes in the FCC's cross-interest, multiple ownership, alien ownership and cross-ownership rules and policies; changes to broadcast technical requirements; proposals to allow telephone companies to deliver audio and video programming to homes through existing phone lines; proposals to limit the tax deductibility of advertising expenses by advertisers; and proposals to auction the right to use the radio broadcast spectrum to the highest bidder, instead of granting broadcast licenses and subsequent license renewals free of charge. In addition, the FCC has authorized an additional 100 kHz of bandwidth for the AM band and is in the process of finalizing an allotment plan for allocation of frequencies in the new band. Certain existing AM station licensees would then be permitted to modify their existing AM band licenses and operate their stations on frequencies in the expanded AM band. At the end of a transition period to be determined by the FCC, those licensees would be required to return to the FCC either the license for their existing AM band station or the license for the expanded AM band station. 16 19 Cox Radio cannot predict what other matters might be considered in the future, nor can it judge in advance what impact, if any, the implementation of any of these proposals or changes might have on its business. SEASONALITY Seasonal revenue fluctuations are common in the radio broadcasting industry and are due primarily to fluctuations in advertising expenditures. Cox Radio's revenues and broadcast cash flows are typically lowest in the first quarter and higher in the second and fourth quarters. EMPLOYEES As of December 31, 1996, Cox Radio employed 338 full-time and 244 part-time employees. Of these employees, 53 were represented by American Federation of Television and Radio Announcers ("AFTRA"), two were represented by National Association of Broadcasting Employees and Technicians, AFL-CIO ("NABET") and one was represented by the International Brotherhood of Electrical Workers ("IBEW"). As of December 31, 1996, NewCity employed 420 full-time and 203 part-time employees, none of whom were represented by unions. Cox Radio considers its employee relations to be satisfactory. Cox Radio employs several on-air personalities with large audiences in their respective markets. Cox Radio enters into employment agreements with these personalities to protect its interests in those relationships that it believes to be valuable. Cox Radio does not believe that the loss of any one of these personalities would have a material adverse effect on Cox Radio's financial condition or results of operations. PATENTS AND TRADEMARKS Cox Radio and NewCity both own numerous domestic trademark registrations related to the business of the Company's stations. Neither Cox Radio nor NewCity owns any patents or patent applications. Cox Radio does not believe that any of its or NewCity's trademarks are material to its business or operations. THE NEWCITY ACQUISITION General On July 1, 1996, Cox Radio entered into an Agreement and Plan of Merger (the "Merger Agreement") with NewCity and certain stockholders of NewCity (the "Stockholders"). Pursuant to the Merger Agreement, New Cox Radio II, Inc., a wholly-owned subsidiary of Cox Radio, will be merged with and into NewCity (the "Merger"), with NewCity continuing as the surviving corporation as a wholly-owned subsidiary of Cox Radio. The aggregate purchase price for NewCity is approximately $253 million, consisting of approximately $163 million payable in cash, approximately $87 million of existing NewCity debt and approximately $3 million in working capital adjustments. Upon payment of the consideration described above, Cox Radio will be the sole stockholder of the surviving corporation. Cox Radio will be required to borrow approximately $105 million to consummate the NewCity Acquisition. See "-- Cox Radio, Inc. Credit Agreement." The Communications Act and FCC rules and policies require the prior consent of the FCC to any transfer of control of broadcast licensees and assignments of FCC licenses and, therefore, consummation of the NewCity Acquisition is subject to the receipt of such FCC approval. There can be no assurance that such FCC approval will be obtained. See "-- Federal Regulation of Radio Broadcasting" and "Item 3 -- Legal Proceedings." The Merger Agreement Representations and Warranties. In the Merger Agreement, NewCity has made a number of customary representations and warranties. Such representations relate to, among other things, the corporate organization and qualifications of NewCity; the authorization, execution, delivery, performance and enforceability of the Merger Agreement; the capitalization of NewCity; the accuracy of the historical financial statements of 17 20 NewCity; the conduct of the business of NewCity; the absence of undisclosed material litigation; compliance with applicable law; the absence of undisclosed liabilities; material contracts and other agreements and arrangements of NewCity; the employee benefit plans of NewCity; environmental matters; certain tax matters; certain intellectual property rights; and compliance with the requirements, rules and regulations of the FCC. Covenants. NewCity has agreed, among other things, that pending consummation of the NewCity Acquisition, NewCity will not acquire or agree to acquire any business or any corporation, partnership, joint venture, association or other business organization or division thereof, or any properties material to NewCity, except in the ordinary course of business. Conditions. The obligation of each party to effect the Merger is conditioned upon, among other things, the absence of an order or other ruling of a court of competent jurisdiction preventing the consummation of the Merger; the absence of any material adverse change to the transactions contemplated by the Merger Agreement required to obtain approval under the HSR Act; and the receipt of all consents from the FCC and other third parties required with respect to the Merger. In addition, the obligation of Cox Radio to effect the Merger is conditioned upon certain other customary conditions. Termination. The Merger Agreement may be terminated at any time prior to the Merger becoming effective: (i) by mutual consent of Cox Radio and NewCity; (ii) by either Cox Radio or NewCity if the Merger is not consummated by June 30, 1997, provided that the terminating party is not in material breach of its obligations under the Merger Agreement; and (iii) by either party if certain conditions to such party's obligation to effect the Merger have not been waived and are incapable of being satisfied by June 30, 1997. Indemnification. After the closing of the Merger, the Stockholders, jointly and severally, have agreed to indemnify, and hold Cox Radio and the employees, officers, directors and stockholders of Cox Radio harmless from and against liabilities arising from, among other things, the breach of any of the representations and warranties made by NewCity and any of the Stockholders, and the failure of NewCity or any of the Stockholders to fulfill the obligations of NewCity or any of the Stockholders. The Merger Agreement provides that the indemnification obligations of the Stockholders are limited to $4 million in the aggregate. The Guaranty Cox Broadcasting has provided a guaranty (the "Guaranty") of Cox Radio's obligations to NewCity in connection with the NewCity Acquisition. Cox Radio will be required to borrow approximately $105 million to consummate the NewCity Acquisition. See "-- Cox Radio, Inc. Credit Agreement." Additions to Senior Operating Management Team Cox Radio anticipates that, upon consummation of the NewCity Acquisition, Richard A. Ferguson will be elected to serve as a member of the Cox Radio Board. RICHARD A. FERGUSON has served as President, Chief Executive Officer and a Director of NewCity since its organization in 1986. He served as the President of Katz Broadcasting Company, Inc., a subsidiary of Katz Communications, Inc., from 1981 to 1986, when he led a management group in organizing NewCity to purchase all of the stock of Katz Broadcasting Company, Inc. Prior to 1981, he served as the President of Park City Communications, Inc. ("Park City"), until Park City was acquired by Katz Communications, Inc. Mr. Ferguson is Chairman of the Radio Board of Directors of the NAB and a member of the Radio Operators Caucus. In addition, upon consummation of the NewCity Acquisition, Mr. Ferguson and certain other officers of NewCity are expected to become executive officers of Cox Radio. JAMES T. MORLEY has been a Director and Executive Vice President of NewCity since its organization in 1986. In 1971, he joined RKO General Broadcasting in Boston, Massachusetts and joined the sales staff of WROR-FM in February 1972. In October 1975, Mr. Morley became the General Sales Manager for Plough Broadcasting's Boston radio stations, WCOP-AM/FM. He became General Sales Manager of WEZN-FM in November 1978, was elected Vice President of Park City in May 1979 and became Station Manager of 18 21 WEZN-FM in November 1979. In August 1981, he became General Manager of WEZN-FM. From 1981 until 1986, he was Senior Vice President of the Broadcasting Company, then a subsidiary of Katz Broadcasting Company, Inc. He is a member of the Board of Directors of the New York Marketing and Radio Association. RICHARD A. REIS has been a Director and Group Vice President of NewCity since its organization in 1986. From 1983 to 1984, he served as Vice President of the Broadcasting Company, then a subsidiary of Katz Broadcasting Company, Inc, becoming Group Vice President in 1984. He was General Manager of WFTQ-AM and WAAF-FM in Worcester, Massachusetts from 1981 and 1983, respectively, to 1989. Since 1989, he has served as General Manager of WDBO-AM and WWKA-FM in Orlando, Florida and of WCFB-FM since 1992. He is a member of the Orlando Radio Broadcasters Association. Upon consummation of the NewCity Acquisition, it is expected that the Company's senior operating management will consist of Mr. Neil, Mr. Ferguson, Mr. Morgan, Mr. Green, Mr. Morley and Mr. Reis. See "-- Operating Strategy -- Leveraging of Senior Operating Management Team." COX RADIO, INC. CREDIT AGREEMENT On March 7, 1997, Cox Radio entered into a $300 million, five-year, senior, unsecured revolving credit facility (the "Credit Agreement") with certain banks, including Texas Commerce Bank National Association, as Administrative Agent, Nationsbank of Texas, N.A., as Syndications Agent, and Citibank, N.A., as Documentation Agent. The loan proceeds may be used to (i) finance the payment of the consideration payable in the Merger, (ii) repay certain secured debt of NewCity and (iii) finance (A) the possible repayment or repurchase of certain unsecured debt of NewCity, (B) additional acquisitions and (C) other corporate purposes. The Credit Agreement restricts the payment of dividends, prohibits certain mergers, consolidations or dispositions of assets and establishes limitations on, among other things, additional indebtedness and transactions with affiliates. ITEM 2. PROPERTIES Cox Radio's corporate offices are located in Atlanta, Georgia. The types of properties required to support each of the Company's radio stations include offices, studios, transmitter sites and antenna sites. The transmitter sites and antenna sites generally are located so as to provide maximum market coverage. Cox Radio owns transmitter and antenna sites in the Tampa, Miami, Louisville, Syracuse, Orlando, Tulsa and Los Angeles markets and leases transmitter and antenna sites in the Los Angeles, Atlanta, Miami, Tampa, Orlando, Dayton, Louisville, Syracuse and Tulsa markets. Cox Radio owns its studio and office facilities in Los Angeles and Miami and leases its facilities in Atlanta, Tampa, Dayton, Louisville, Orlando and Syracuse. Cox Radio generally considers its facilities to be suitable and of adequate size for their current and intended purposes. Cox Radio does not anticipate any difficulties in renewing any facility leases or in leasing additional space, if required. Cox Radio owns substantially all of its other equipment, consisting principally of transmitting antennae, transmitters, studio equipment and general office equipment. The towers, antennae and other transmission equipment used by the Company's stations are generally in good condition, although opportunities to upgrade facilities are continuously reviewed. NewCity's corporate offices are located in Bridgeport, Connecticut. The types of properties required to support each of NewCity's radio stations include offices, studios, transmitter sites and antenna sites. NewCity owns transmitter and antenna sites in the Orlando, San Antonio, Syracuse, Tulsa, and Atlanta markets and leases transmitter and antenna sites in the Birmingham, Bridgeport, Orlando, San Antonio, Syracuse and Tulsa markets. NewCity owns its studio and office facilities in the Birmingham and Orlando markets and leases its facilities in the Atlanta, Bridgeport, Syracuse, Tulsa and San Antonio markets. NewCity generally considers its facilities to be suitable and of adequate size for their current and intended purposes. NewCity does not anticipate any difficulties in renewing any facility leases or in leasing additional space, if required. 19 22 ITEM 3. LEGAL PROCEEDINGS Cox Radio is involved in litigation from time to time in the ordinary course of its business. In management's opinion, the litigation in which Cox Radio is currently involved, individually and in the aggregate, is not material to Cox Radio's financial condition or results of operations. In connection with the negotiation of the NewCity Acquisition, management of Cox Radio was informed of the litigation in which NewCity is involved. In the opinion of the management of Cox Radio, on the basis of such information, such NewCity litigation is not material to NewCity's financial condition or results of operations. In connection with certain of the Pending Transactions, the Company entered into several LMAs to program certain of the stations involved in such transactions prior to the expiration of the HSR waiting period applicable to such Pending Transactions. See "Item 1. -- Business." The Company, along with several other similarly-situated radio broadcasting companies, was advised by the Federal Trade Commission ("FTC") that LMAs, if entered into in connection with an acquisition prior to the expiration of the waiting period required by HSR, may be violations of HSR. The Department of Justice ("DOJ") investigated the Pending Transactions which involve such LMAs. However, on October 21, 1996, a Deputy Assistant Attorney General issued a statement that "absent extraordinary circumstances, the DOJ does not intend to seek HSR civil penalties as to parties who in the past entered into LMAs in connection with a purchase agreement." In light of this statement, Cox Radio believes that the likelihood of litigation regarding this issue is remote. In connection with the NewCity Acquisition, on July 29, 1996, CEI, on behalf of Cox Radio, filed a HSR notification with the DOJ and the FTC. On August 28, 1996, the DOJ issued a request for additional documents and information (a "second request") relating to the Orlando area. CEI and NewCity complied with the second request on December 2 and 3, 1996, respectively, and the HSR waiting period expired on December 23, 1996. By letter dated January 14, 1997, DOJ confirmed the completion of the HSR process. On January 10, 1997, CEI received a Civil Investigative Demand ("CID") from the Antitrust Division of the DOJ. The CID sought production of documents and interrogatory responses with respect to radio advertising in the Syracuse, New York area. In the Syracuse area, Cox Radio is the licensee of two radio stations; pursuant to the NewCity Acquisition, Cox Radio would acquire an additional three stations. The CID stated that the DOJ was seeking the information to determine whether the proposed acquisition might violate section 1 of the Sherman Act and/or section 7 of the Clayton Act. On February 27, 1997, the Company and NewCity were advised that the DOJ had closed its investigation of the Syracuse market. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 20 23 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The principal market in which the Class A Common Stock is traded is the New York Stock Exchange, where such Class A Common Stock trades under the symbol "CXR". The approximate number of stockholders of record of Class A Common Stock as of March 18, 1997 was 55. Class A Common Stock commenced trading on September 27, 1996, following effectiveness of the Company's initial public offering. Accordingly, history of sales prices is limited to the fourth quarter of 1996. QUARTERLY MARKET INFORMATION: CLASS A COMMON STOCK
1996 HIGH LOW - ---- ---- --- Fourth Quarter.............................................. 23 1/2 16
There is no public market for Class B Common Stock. Cox Broadcasting is the only record holder of Class B Common Stock. There were no sales of unregistered securities of the Company. There have been no stock or cash dividends paid on any of Cox Radio's equity securities since the formation of the Company in the Cox Radio Consolidation immediately prior to the Company's initial public offering. Cox Radio does not intend to pay cash dividends in the foreseeable future. Prior to the consummation of the Cox Radio Consolidation, certain of the indirect, wholly owned subsidiaries of CEI, including WIOD, Inc. (the predecessor entity of Cox Radio), paid cash dividends to CEI. Cox Radio has been selected for listing on the Chicago Board Options Exchange, a national securities exchange. Trading in options began on February 28, 1997. 21 24 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA SELECTED CONSOLIDATED FINANCIAL DATA The following selected financial data have been derived from the Consolidated Financial Statements of Cox Radio. The data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements of Cox Radio and notes thereto included elsewhere herein. The statements of operations data and other operating data for the years ended December 31, 1993, 1994, 1995 and 1996 and the balance sheet data as of December 31, 1994, 1995 and 1996 have been derived from audited Consolidated Financial Statements of Cox Radio. The statements of operations data and other operating data for the year ended December 31, 1992 and the balance sheet data as of December 31, 1992 and 1993 have been derived from unaudited Consolidated Financial Statements of Cox Radio, which, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of financial position at such dates and results of operations for such periods. The pro forma financial data for 1996 have been derived from the unaudited pro forma combined condensed financial statements and notes thereto included elsewhere herein.
YEAR ENDED DECEMBER 31, PRO FORMA ----------------------------------------------- --------- 1992 1993 1994 1995 1996 1996 ------ ------ ------ ------ ------ --------- (DOLLARS IN MILLIONS) STATEMENTS OF OPERATIONS DATA: Net revenues(1).............................. $ 97.7 $ 95.0 $111.5 $123.6 $132.9 $189.7 Station operating expenses................... 70.9 67.9 76.3 90.0 91.9 131.1 Corporate general and administrative expenses(2)................................ 2.2 2.5 2.7 5.9 5.3 5.1 Depreciation and amortization................ 7.5 7.3 6.9 7.2 8.1 18.0 ------ ------ ------ ------ ------ ------ Operating income............................. 17.1 17.3 25.6 20.5 27.6 35.5 Interest expense............................. 7.7 5.6 5.2 6.0 4.6 16.6 Net income (loss)(3)......................... 4.2 (1.1)(4) 11.2 8.2 14.9 9.1 OTHER OPERATING DATA: Broadcast cash flow(5)....................... $ 26.8 $ 27.1 $ 35.2 $ 33.6(6) $ 41.0 $ 58.6 Broadcast cash flow margin(5)................ 27.4% 28.5% 31.6% 27.2% 30.9% 30.9% EBITDA(5).................................... $ 24.6 $ 24.6 $ 32.5 $ 27.7(6) $ 35.7 $ 53.5 After-tax cash flow(5)....................... 11.7 13.8 18.1 15.4 23.0 27.1 Net cash provided by operating activities.... 9.9 11.4 14.1 14.0 26.9 n/m Net cash used in investing activities........ 0.1 6.1 12.3 17.3 62.6 n/m Net cash provided by (used in) financing activities................................. (9.3) (4.8) (1.6) 3.1 44.6 n/m BALANCE SHEET DATA (END OF PERIOD): Cash and cash equivalents(7)................. $ 1.1 $ 1.7 $ 1.9 $ 1.7 $ 10.6 $ 31.9 Intangible assets, net....................... 113.9 114.2 120.1 126.8 138.1 449.5 Total assets................................. 165.2 168.3 180.0 191.8 261.7 572.1 Total debt (including amounts due to CEI).... 86.2 89.7 120.3 125.1 -- 210.8 Shareholder's equity......................... 70.3 64.2 40.4 47.2 235.8 250.4
- --------------- (1) Total revenues less advertising agency commissions. (2) As described in Note 9 to the Consolidated Financial Statements, certain executives participated in CEI's Unit Appreciation Plan ("UAP"). Because CEI is, and Cox Radio was, a private company, the benefits under the UAP are generally payable in cash. This cash payment option has resulted in charges to compensation expense of $0.4 million, $0.9 million, $0.8 million, $1.6 million, and $2.5 million for the years ended December 31, 1992, 1993, 1994, 1995 and 1996, respectively. This compensation expense is included in historical corporate general and administrative expenses. Public companies traditionally implement stock award plans that provide for the issuance of stock to participants and do not result in compensation expense under applicable accounting standards. The Company implemented the Cox Radio, Inc. Long-Term Incentive Plan in 1996 and, therefore, will not incur this expense in future periods. In addition, for the year ended December 31, 1995 corporate general and administrative expenses include a nonrecurring corporate charge. (3) Cox Radio became publicly traded on the New York Stock Exchange effective September 27, 1996. Historical earnings per share information has not been presented because the dissimilarity of the previous capital structure of Cox Radio precludes a meaningful comparison. Pro forma earnings per pro forma common share is presented for comparative purposes at Note 4 to the Company's Consolidated Financial Statements included elsewhere herein. (4) Includes a $7.6 million noncash charge for the cumulative effect of accounting changes. 22 25 (5) "Broadcast cash flow" consists of operating income plus depreciation and amortization and corporate general and administrative expenses. "Broadcast cash flow margin" is broadcast cash flow as a percentage of net revenues. "EBITDA" is operating income plus depreciation and amortization. "After-tax cash flow" is income (loss) before extraordinary items plus depreciation and amortization. Although broadcast cash flow, broadcast cash flow margin, EBITDA and after-tax cash flow are not recognized under GAAP, they are accepted by the broadcasting industry as generally recognized measures of performance and are used by analysts who report publicly on the condition and performance of broadcast companies. For the foregoing reasons, the Company believes that these measures are useful to investors. However, investors should not consider these measures to be an alternative to operating income as determined in accordance with GAAP, an alternative to cash flows from operating activities (as a measure of liquidity) or an indicator of the Company's performance under GAAP. (6) Declines in broadcast cash flow and EBITDA from the prior year are due mainly to the impact of the baseball strike on advertiser spending, the cost of sports programming rights in Atlanta, start-up costs related to acquisitions or LMA's consummated in late 1994 and early 1995 and a nonrecurring corporate charge in 1995. See further discussion in "Management's Discussion and Analysis of Financial Condition and Results of Operations." (7) 1996 amount includes $9.1 million in restricted cash, representing the net proceeds from the Miami Disposition, net of the cash used for the Tulsa Acquisition. Pro forma 1996 amount also includes $19.8 million, representing the net proceeds from the Orlando Acquisition. The Company intends for the remaining proceeds from the Miami Disposition and the Orlando Acquisition to be invested in radio properties in transactions that will qualify for like-kind exchange treatment under Section 1031 of the Internal Revenue Code ("IRC"). 23 26 UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA The following unaudited pro forma combined condensed financial data are based on the Consolidated Financial Statements of Cox Radio included elsewhere herein, adjusted to give pro forma effect to the Prior Transactions, Recent Transactions, the Pending Transactions and the Company's initial public offering (the "Offering"). The Unaudited Pro Forma Combined Condensed Statement of Operations gives effect to the above mentioned transactions as if they had occurred as of January 1, 1996. The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to the above mentioned transactions as if they had occurred as of December 31, 1996. No pro forma adjustments have been made for the Louisville Acquisitions, the Tampa Acquisition or the Los Angeles Acquisition due to immateriality. Adjustments related to the Prior Transactions, Recent Transactions, Pending Transactions and the Offering are discussed in the accompanying notes. UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET DECEMBER 31, 1996
PRO FORMA PRO FORMA ADJUSTMENTS ADJUSTMENTS COX RADIO FOR RECENT NEWCITY FOR NEWCITY PRO FORMA HISTORICAL TRANSACTIONS(1) HISTORICAL ACQUISITION(2) COMBINED ---------- --------------- ---------- -------------- --------- (THOUSANDS OF DOLLARS) ASSETS CURRENT ASSETS: Cash and cash equivalents......... $ 1,544 $ -- $ 1,510 $ -- $ 3,054 Restricted cash................... 9,051 19,750(a) -- -- 28,801 Accounts and notes receivable, less allowance for doubtful accounts........................ 31,511 -- 13,882 -- 45,393 Prepaid expenses and other current assets.......................... 1,575 -- 1,884 -- 3,459 -------- -------- -------- -------- -------- Total current assets.... 43,681 19,750 17,276 -- 80,707 -------- -------- -------- -------- -------- Plant and equipment, net.......... 27,070 2,261(b) 9,287 -- 38,618 Intangible assets, net............ 138,119 1,464(b) 57,995 251,905(a) 449,483 Amounts due from CEI.............. 49,667 -- -- (49,667)(b) -- Other assets...................... 3,182 -- 150 -- 3,332 -------- -------- -------- -------- -------- Total Assets............ $261,719 $ 23,475 $ 84,708 $202,238 $572,140 ======== ======== ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt............................ $ -- $ -- $ 2,000 $ -- $ 2,000 Accounts payable and accrued expenses........................ 10,296 -- 6,380 -- 16,676 Income taxes payable.............. 3,216 -- 1,251 -- 4,467 Other current liabilities......... 1,314 -- 1,967 -- 3,281 -------- -------- -------- -------- -------- Total current liabilities........... 14,826 -- 11,598 -- 26,424 Long-term debt.................... -- -- 83,373 117,960(c) 208,833 7,500(a) Deferred income taxes............. 11,095 8,921(c) -- 69,365(a) 86,531 (2,850)(a) -------- -------- -------- -------- -------- Total liabilities....... 25,921 8,921 94,971 191,975 321,788 -------- -------- -------- -------- -------- Redeemable preferred stock........ -- -- 12,348 (12,348)(d) -- SHAREHOLDERS' EQUITY: Common stock...................... 28,315 -- 34 (34)(d) 28,315 Additional paid-in capital........ 248,972 -- -- -- 248,972 Deficit in retained earnings...... (41,489) 14,554(c) (21,954) 21,954(d) (26,935) Note receivable from shareholders.................... -- -- (691) 691(d) -- -------- -------- -------- -------- -------- Total shareholders' equity................ 235,798 14,554 (22,611) 22,611 250,352 -------- -------- -------- -------- -------- Total Liabilities and Shareholders' Equity................ $261,719 $ 23,475 $ 84,708 $202,238 $572,140 ======== ======== ======== ======== ========
24 27 NOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEET (1) To reflect the pro forma effect of the Recent Transactions: (a) To reflect the proceeds (net of related expenses) for the exchange of WCKG-FM and WYSY-FM (Chicago) for WHOO-AM, WHTQ-FM and WMMO-FM (Orlando) and approximately $20.0 million in cash, pursuant to the Orlando Acquisition. The transaction was consummated in March 1997. See also (b) below. The Company intends for the remaining proceeds from the Orlando Acquisition to be invested in radio properties in transactions that will qualify for like-kind exchange treatment under Section 1031 of the IRC. (b) To reflect the net effect on net plant and equipment and intangibles of the Orlando Acquisition:
NET PLANT AND EQUIPMENT INTANGIBLES TOTAL --------- ----------- -------- Stations acquired -- Orlando.......................... $ 3,551 $ 16,699 $ 20,250 Stations disposed of -- Chicago....................... (1,290) (15,235) (16,525) ------- -------- -------- $ 2,261 $ 1,464 $ 3,725 ======= ======== ========
(c) To reflect the estimated financial reporting gains and related deferred taxes to be recorded on the Orlando Acquisition (in thousands): Net cash proceeds........................................... $ 19,750 Estimated fair value of Orlando stations.................... 20,250 -------- Total consideration received........................ 40,000 Less net carrying amount of assets: Plant and equipment....................................... (1,290) Intangibles............................................... (15,235) -------- Pre-tax gain................................................ 23,475 Less related taxes.......................................... 8,921 -------- Net after-tax gain.................................. $ 14,554 ========
(2) To reflect the adjustments to record the NewCity Acquisition and the application of purchase accounting to the accounts of NewCity, as follows: (a) To record the excess of the NewCity purchase price over the fair value of tangible assets acquired and liabilities assumed (in thousands): Purchase price plus net liabilities assumed: Cash (including estimated working capital adjustment of $3,000)................................................. $166,627 Assumption of NewCity debt................................ 85,373 Acquisition and other related costs....................... 1,000 -------- Total............................................... 253,000 Estimated fair value of tangible assets acquired and liabilities assumed: Plant and equipment....................................... (9,287) Long-term debt premium.................................... 7,500 Deferred tax asset........................................ (2,850) Other working capital accounts............................ (7,828) -------- (12,465) -------- Excess of purchase price over tangible assets acquired and liabilities assumed....................................... 240,535 Less previously recorded intangibles........................ (57,995) -------- Adjustment to intangibles................................. 182,540 Deferred taxes recorded on adjustment to intangibles (at 38%)................................................... 69,365 -------- Pro forma adjustment to intangibles................. $251,905 ========
Purchase accounting requires the fair valuation of the $75 million aggregate principal amount of NewCity's 11.375% Senior Subordinated Notes due 2003, which is estimated to be $82.5 million based on market rates and assuming the notes are redeemed on November 1, 1998 at a redemption price of 104.266%. The debt premium gives rise to a deferred tax asset of $2.9 million at an effective rate of 38%. The allocation of the NewCity purchase price will be finalized after consummation of the NewCity Acquisition. The final purchase price allocation is not expected to differ materially from the pro forma estimate. 25 28 NOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEET -- (CONTINUED) (b) To reflect the partial funding of the NewCity Acquisition with an estimated $49.7 million in net proceeds remaining from the initial public offering and other amounts due from CEI. (c) To reflect the financing of the NewCity Acquisition with $118.0 million in borrowings under a new bank credit facility to be negotiated prior to the consummation of the acquisition. (d) To reflect the elimination of the redeemable preferred stock and the historical equity accounts of NewCity. 26 29 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA ADJUSTMENTS ADJUSTMENTS FOR PRIOR AND FOR THE OFFERING COX RADIO RECENT NEWCITY AND NEWCITY PRO FORMA HISTORICAL TRANSACTIONS(1) HISTORICAL ACQUISITION(2) COMBINED ---------- --------------- ---------- ---------------- --------- Net revenues........................ $132,904 $(7,176) $ 63,958 $-- $189,686 Costs and expenses: Operating......................... 41,280 (2,805) 21,389 59,864 Selling, general and administrative................. 50,585 (2,339) 24,003 (1,026)(a) 71,223 Corporate general and administrative................. 5,332 2,232 (2,464)(b) 5,100 Depreciation and amortization..... 8,069 279 3,317 6,298(c) 17,963 -------- ------- -------- ------- -------- Operating income.................... 27,638 (2,311) 13,017 (2,808) 35,536 Interest expense, net............... (4,580) 646 (10,117) (2,553)(d) (16,604) Other, net.......................... 1,639 (1,953) (700) 700(e) (314) -------- ------- -------- ------- -------- Income (loss) before income taxes... 24,697 (3,618) 2,200 (4,661) 18,618 Income taxes(3)..................... 9,752 (1,375) 500 622 9,499 -------- ------- -------- ------- -------- Net income (loss)................... $ 14,945 $(2,243) $ 1,700 $(5,283) $ 9,119 ======== ======= ======== ======= ======== Pro forma per share data: Net income per share.......................................................................... $ .32 ======== Pro forma shares outstanding.................................................................. 28,315 ========
27 30 NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (1) To reflect the pro forma effect of the operations of WHOO-AM, WHTQ-FM and WMMO-FM (Orlando) which were acquired in March 1997. These stations have been operated by NewCity under an LMA since July 1996. To reflect the pro forma effect of the operations of WHEN-AM and WWHT-FM (Syracuse) which were acquired in June 1996. These stations have been operated by NewCity under an LMA since June 1996. To reflect the pro forma effect of the operations of KRAV-FM and KGTO-AM (Tulsa) which were acquired in December 1996. These stations have been operated by NewCity under an LMA since October 1996. Included in the pro forma adjustments for these operations are the elimination of LMA fees paid by NewCity to Cox Radio. In addition, pro forma adjustments have been made to reflect the disposal of WIOD-AM (Miami) including a gain on disposal of $2.0 million in October 1996, and WCKG-FM and WYSY-FM (Chicago) in March 1997. The pro forma adjustments for these transactions are set forth as follows:
ACQUISITIONS DISPOSITIONS ------------------------------ ----------------- ORLANDO SYRACUSE TULSA CHICAGO MIAMI TOTAL ------- ------------ ----- ------- ------- ------- Net revenues............................................ $2,470 $132 $976 $(5,372) $(5,382) $(7,176) Costs and expenses: Operating............................................. 926 290 371 (1,298) (3,094) (2,805) Selling, general and administrative................... 1,884 237 678 (3,058) (2,080) (2,339) Depreciation and amortization........................... 948 178 129 (761) (215) 279 Interest expense........................................ -- -- -- 443 203 646 Other, net.......................................... -- -- -- 63 (2,016) (1,953)
(2) To reflect the pro forma effect of the NewCity Acquisition: (a) To eliminate LMA fees paid by NewCity to Cox Radio related to Cox-owned stations operated by NewCity in Orlando, Syracuse and Tulsa. (b) To eliminate compensation expense historically allocated to Cox Radio by CEI under the Unit Appreciation Plan, which was included in corporate general and administrative expenses. In connection with the Company's initial public offering, a Long-Term Incentive Plan was implemented that provides for the issuance of stock to participants that will not result in compensation expense under applicable accounting standards. See Note 9 to Consolidated Financial Statements included elsewhere herein. (c) To record additional amortization expense related to the pro forma adjustment to intangibles of approximately $251.9 million arising from the NewCity Acquisition. Intangible assets are being amortized over 40 years. No pro forma adjustments have been made for depreciation expense as the fair value of property and equipment is estimated to approximate book value at the date of acquisition. (d) To adjust interest expense resulting from (i) the elimination of historical intercompany interest expense upon the assumption that the Company's initial public offering was consummated on January 1, 1996, (ii) the recording of interest expense resulting from the required borrowings of approximately $118.0 million necessary to consummate the NewCity Acquisition at an estimated interest rate of 7% and (iii) the amortization of the debt premium as a result of recording the NewCity debt at fair value. See Note 2 to Unaudited Pro Forma Combined Condensed Balance Sheet. A summary of this pro forma adjustment is as follows (in thousands): Historical intercompany interest expense.................... $ 3,934 Interest on required borrowings............................. (8,330) Amortization of debt premium................................ 1,843 ------- Pro forma adjustment to interest expense............ $(2,553) =======
(e) To adjust other expense for costs incurred related to the sale of NewCity recorded in NewCity's historical results. (3) An effective tax rate of 38% was used to calculate the adjustments reflected in Notes 1 and 2(a), (b), (d) and (e). No tax effect is reflected for the adjustment in Note 2(c) because the amortization of intangibles arising from the NewCity Acquisition is not deductible for tax purposes. 28 31 UNAUDITED QUARTERLY FINANCIAL INFORMATION The following table sets forth selected quarterly financial information for Cox Radio. This information is derived from unaudited financial statements of Cox Radio and includes, in the opinion of management, all normal and recurring adjustments that management considers necessary for a fair presentation of the results for such periods. The operating results for any quarter are not necessarily indicative of results for any future period.
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- (THOUSANDS OF DOLLARS) 1994 Net revenues........................................ $21,608 $27,546 $29,907 $32,474 Corporate general and administrative expenses....... 638 632 659 738 Depreciation and amortization....................... 1,709 1,731 1,744 1,811 Operating income.................................... 3,036 6,275 9,641 6,607 Net income.......................................... 641 3,034 4,613 2,919 1995 Net revenues........................................ $25,856 $32,695 $31,402 $33,619 Corporate general and administrative expenses....... 879 994 2,979(1) 1,001 Depreciation and amortization....................... 1,841 1,874 1,768 1,764 Operating income.................................... 3,856 6,098 3,610 6,946 Net income.......................................... 1,264 2,532 1,355 3,012 1996 Net revenues........................................ $29,568 $36,740 $33,017 $33,579 Corporate general and administrative expenses....... 1,103 1,238 1,986 1,005 Depreciation and amortization....................... 1,982 1,997 2,027 2,063 Operating income.................................... 4,700 7,991 6,578 8,369 Net income.......................................... 1,812 3,401 2,370 7,362
- --------------- (1) Includes a nonrecurring corporate charge. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Cox Radio is a leading national radio broadcast company whose business is devoted to acquiring, developing and operating radio stations located throughout the United States. Cox Enterprises, Inc. ("CEI") indirectly owns approximately 69% of the Common Stock of Cox Radio. The performance of a radio station group, such as the Company, is customarily measured by its ability to generate Broadcast Cash Flow and EBITDA. Broadcast Cash Flow is defined as operating income plus depreciation and amortization and corporate general and administrative expenses. EBITDA is defined as operating income plus depreciation and amortization. Although Broadcast Cash Flow and EBITDA are not recognized under generally accepted accounting principles ("GAAP"), they are accepted by the broadcasting industry as generally recognized measures of performance and are used by analysts who report publicly on the condition and performance of broadcasting companies. For the foregoing reasons, the Company believes that these measures will be useful to investors. However, Broadcast Cash Flow or EBITDA should not be considered to be an alternative to operating income as determined in accordance with GAAP, an alternative to cash flows from operating activities (as a measure of liquidity) or an indicator of the Company's performance under GAAP. The primary source of the Company's revenues is the sale of local and national advertising. Historically, approximately 75% and 24% of the Company's gross revenues have been generated from local and national 29 32 advertising. The Company's most significant station operating expenses are employees' salaries and benefits, commissions, programming expenses and advertising and promotional expenditures. The Company's revenues vary throughout the year. As is typical in the radio broadcasting industry, the Company's first calendar quarter generally produces the lowest revenues for the year, and the second and fourth calendar quarters generally produce the highest revenues for the year. The Company's operating results in any period may be affected by the incurrence of advertising and promotional expenses that do not necessarily produce commensurate revenues until the impact of the advertising and promotion is realized in future periods. ACQUISITIONS AND DISPOSITIONS During the past several years, the Company has actively managed its portfolio of radio stations through selected acquisitions, dispositions and exchanges, as well as through the use of LMAs and JSAs. Specific transactions entered into by the Company during the past three years are discussed below. In January 1994, the Company entered into an LMA to operate WJZF-FM (Atlanta). Subsequently, in September 1994, the Company paid $9.4 million for an option to purchase substantially all of the station's assets. In April 1995, Cox Radio entered into an LMA to operate WCNN-AM (Atlanta). In August 1995, Cox Radio completed the acquisition of KACE-FM in Inglewood, California, a suburb of Los Angeles, for $11.7 million. Cox Radio had operated this station under an LMA since August 1994. In January 1996, Cox Radio completed the acquisition of Louisville stations WRKA-FM and WRVI-FM for $8.7 million. The Company also acquired Louisville station WXNU-FM, later renamed WHTE-FM, for $2.6 million in August 1996. In June 1996, the Company acquired WHEN-AM and WWHT-FM in Syracuse for $4.5 million. These stations are being operated by NewCity under an LMA. In October 1996, the Company completed the sale of WIOD-AM in Miami for $13.0 million plus a working capital adjustment of $1.2 million (the "Miami Disposition"). This transaction resulted in a pre-tax gain of approximately $2.0 million which was recognized in the fourth quarter of 1996. In March 1997, the Company exchanged WCKG-FM and WYSY-FM in Chicago for WHOO-AM, WHTQ-FM and WMMO-FM in Orlando (the "Orlando Acquisition"). The Orlando Acquisition resulted in a pre-tax gain of approximately $25 million. In addition to receiving the three Orlando stations, Cox Radio also received proceeds of approximately $20 million. NewCity has operated the Orlando stations since July 1996 under an LMA. For tax purposes, the Company accounted for the Orlando Acquisition and Miami Disposition as like-kind exchanges. Tax rules allow the Company to defer a substantial portion of the related tax gains on these transactions upon the reinvestment of the net proceeds in qualifying acquisitions. The Company is presently pursuing qualifying reinvestment properties. Pending reinvestment, the cash proceeds from these transactions is being held in escrow and is reported as restricted cash. In December 1996, the Company acquired KRAV-FM and KGTO-AM (Tulsa) for $5.5 million. NewCity operates these stations under an LMA. In March 1997, the Company acquired WFNS-AM (Tampa) for an aggregate consideration of approximately $1.5 million. The Company has been operating this station pursuant to an LMA or JSA since June 1995. The acquisitions discussed above were accounted for by the purchase method, and accordingly, the purchase price has been allocated to the assets acquired based on their estimated fair market values at the date of acquisition. A substantial portion of each purchase price was allocated to intangible assets to reflect the FCC broadcasting licenses acquired. The excess of the purchase price over the fair market value of the net 30 33 assets acquired has been recorded as goodwill and is being amortized over 30 to 40 years on a straight-line basis. No liabilities were assumed by the Company as a result of these acquisitions. Operations of acquired stations have been included in the consolidated results of the Company since the respective acquisition dates. Under an LMA or a JSA, the company operating a station provides a combination of programming, sales, marketing and similar services. The broadcast revenues and operating expenses of stations operated by Cox Radio under LMAs and JSAs have been included in the Company's operations since the respective dates of such agreements. In July 1996, the Company entered into an agreement to acquire NewCity Communications, Inc. for approximately $253 million, which includes certain working capital adjustments, consisting of approximately $163 million in cash, approximately $87 million in assumption of NewCity debt and approximately $3 million in working capital adjustments (the "NewCity Acquisition"). The NewCity Acquisition is expected to be financed with proceeds from the new bank credit facility entered into by the Company on March 7, 1997. The consummation of the NewCity Acquisition, which is anticipated to occur in the first half of 1997, is subject to certain closing conditions, including receipt of approval by the FCC. See Item 3 -- Legal Proceedings. On January 10, 1997, CEI received a Civil Investigative Demand ("CID") from the Antitrust Division of the DOJ. The CID sought production of documents and interrogatory responses with respect to radio advertising in the Syracuse, New York area. In the Syracuse area, Cox Radio is the licensee of two radio stations; pursuant to the NewCity Acquisition, Cox Radio would acquire an additional three stations licensed to NewCity. The CID stated that the DOJ was seeking the information to determine whether the proposed acquisition might violate section 1 of the Sherman Act and/or section 7 of the Clayton Act. On February 27, 1997, the Company and NewCity were advised that the DOJ had closed its investigation of the Syracuse market. In January 1997, Cox Radio agreed in principle to acquire the license and certain assets of an FM radio station in Los Angeles for $19 million in cash (the "Los Angeles Acquisition"). RESULTS OF OPERATIONS This discussion should be read in conjunction with the accompanying audited Consolidated Financial Statements of Cox Radio. The results of operations for Cox Radio represent the operations of the radio stations currently owned or operated or to which sales and marketing services were provided in connection with CEI's U.S. radio broadcasting operations. The historical financial statements do not necessarily reflect the results of operations or financial position that would have been reported had Cox Radio been an independent company. As a result of the acquisition activity discussed above, the Company's historical financial statements are not directly comparable from period to period. Year ended December 31, 1996 compared to Year ended December 31, 1995 Net Revenues. Net revenues increased $9.3 million to $132.9 million in 1996, a 7.6% increase over the prior year. This growth is primarily attributable to increases at the Atlanta and Los Angeles station groups, the addition of the Louisville stations during January and August of 1996 and was partially offset by the disposal of WIOD-AM (Miami) in October 1996 and an LMA with the prospective purchaser of WCKG-FM and WYSY-FM (Chicago) in June 1996. Revenue growth in Atlanta is primarily attributable to higher ratings at WSB-AM and revenues generated from a full season of Atlanta Braves baseball in 1996. The baseball strike in 1995 delayed the start of the season by 18 games. In Los Angeles, higher spot advertising rates resulting from improved utilization of customer focused selling contributed to higher revenues. On a "same station" basis (reflecting results from stations operated for the entire year ended December 31 in both 1996 and 1995), net revenues increased $15.1 million to $115.8 million, an increase of 15.0% over 1995. Station Operating Expenses. Station operating expenses increased $1.9 million to $91.9 million, an increase of 2.1% over the prior year. Significant contributors to this increase include higher programming costs resulting from an increase in talent costs which fluctuate with ratings and additional selling expenses 31 34 associated with the stations' local and national revenue growth. The increase in station operating expenses was partially offset by the disposal of the operations of WIOD-AM (Miami) in October 1996 and an LMA with the prospective purchaser of WCKG-FM and WYSY-FM (Chicago) in June 1996. On a "same station" basis, station operating expenses increased $6.8 million, to $75.4 million an increase of 9.9% over 1995. Broadcast Cash Flow. Broadcast cash flow increased $7.4 million to $41.0 million in 1996, a 22.0% increase over 1995. On a "same station" basis, broadcast cash flow increased by $8.3 million to $40.3 million, an increase of 26.0% over the prior year. In addition, "same station" broadcast cash flow margin (defined as broadcast cash flow as a percentage of net revenues) increased to 34.9% in 1996 from 31.8% for the prior year for the reasons noted above. Corporate General and Administrative Expenses. Corporate general and administrative expenses decreased $.5 million to $5.3 million in 1996 primarily due to a non-recurring corporate charge in 1995. Operating Income. Operating income increased $7.1 million to $27.6 million, an increase of 34.8% over 1995 for the reasons noted above. In addition, the operating margin increased to 20.8% in 1996 from 16.6% in 1995. Interest Expense. Interest expense for 1996 decreased $1.4 million to $4.6 million, a 23.3% decrease from 1995 primarily due to the repayment of amounts due to CEI funded by the Company's initial public offering. Net Income. Net income increased by $6.8 million to $14.9 million, an increase of 83.1% over 1995, for the reasons noted above as well as a $1.4 million after-tax gain on the sale of WIOD-AM (Miami). Year ended December 31, 1995 compared to Year ended December 31, 1994 Net Revenues. Net revenues increased $12.0 million to $123.6 million in 1995, an increase of 11% over the prior year. Favorable ratings driven by Atlanta sports programming, an improved advertising economy and an increase in the number of stations owned or operated in existing station groups all contributed to the increase. In Atlanta, net revenue increases were due primarily to the acquisition by WSB-AM of broadcast rights for the Atlanta Braves and the Atlanta Hawks and the addition of the operations of WCNN-AM. In Los Angeles, increases in net revenues reflected continued strong performance by KOST-FM and the operation of KACE-FM for a full year, offset by the effects of a temporary decline in audience share at KFI-AM during the O.J. Simpson trial. On a "same station" basis (reflecting results from stations operated for the entire twelve months in both 1995 and 1994), net revenues increased $8.0 million to $118.8 million, an increase of 7% over 1994. Station Operating Expenses. Station operating expenses increased $13.6 million to $90.0 million, an increase of 18% over the prior year. Significant components of the increase included the acquisition of broadcast rights for the Atlanta Braves and the Atlanta Hawks, higher programming, sales and other operating expenses resulting from a full year of operations at KACE-FM and WCNN-AM which has been operated under an LMA since April 1995. Higher selling costs associated with revenue increases posted by the Company's existing stations also contributed to the increase in station operating expenses. On a "same station" basis, station operating expenses increased $8.5 million to $84.0 million, an increase of 11% over 1994. Broadcast Cash Flow. Broadcast cash flow decreased $1.6 million to $33.6 million, a decrease of 5% from the prior year, primarily attributable to the operations of WCNN-AM discussed above. On a "same station" basis, broadcast cash flow decreased $0.5 million to $34.8 million, a decrease of 1% over the prior year, primarily attributable to the operations of the Company's Atlanta radio stations, exclusive of WCNN-AM. Corporate General and Administrative Expenses. Corporate general and administrative expenses increased $3.2 million to $5.9 million principally due to an increase in Cox Radio's allocated portion of CEI's UAP expense and a nonrecurring corporate charge in 1995. Operating Income. Operating income decreased $5.0 million to $20.5 million, a 20% decrease from 1994, for the reasons discussed above. 32 35 Interest Expense. Interest expense increased $0.7 million to $6.0 million in 1995, a 14% increase over the prior year due to an increase in interest rates during 1995. Net Income. Net income decreased $3.0 million from 1994 to $8.2 million in 1995, due to the operational changes and the nonrecurring corporate charge discussed above. LIQUIDITY AND CAPITAL RESOURCES The Company's primary source of liquidity is cash provided by operations. Cash requirements have been funded by Cox Radio's operating activities and historically, as needed, through intercompany advances from CEI. Prior to the Cox Radio Consolidation (defined elsewhere herein), certain of the indirect subsidiaries of CEI issued various promissory notes in amounts totaling $107.1 million to CEI (the "CEI Notes"), which bore interest at the prime rate (as reported by the Chase Manhattan Bank N.A.) plus 1.5%. Upon the consummation of the Company's initial public offering, Cox Radio used approximately $107.1 million of the net proceeds of the offering to discharge all amounts owed under the CEI Notes. Cox Radio entered into a revolving credit facility with CEI (the "New CEI Credit Facility"). All interest accrued and principal owed under the New CEI Credit Facility prior to the consummation of the Company's initial public offering was contributed by CEI to Cox Radio. Borrowings under the New CEI Credit Facility accrue interest at a competitive market rate. CEI continues to perform day-to-day cash management services for Cox Radio. Cox Radio will be required to borrow approximately $105 million to consummate the NewCity Acquisition. On March 7, 1997, Cox Radio entered into a $300 million, five-year, senior, unsecured revolving credit facility (the "Credit Agreement") with certain guarantors and banks, including Texas Commerce Bank National Association, as Administrative Agent, Nationsbank of Texas, N.A., as Syndications Agent, and Citibank, N.A., as Documentation Agent. The loan proceeds may be used to (i) finance the payment of the consideration payable in the Merger, (ii) repay certain secured debt of NewCity and (iii) finance (A) the possible repayment or repurchase of certain unsecured debt of NewCity, (B) additional acquisitions and (C) other corporate purposes. The Credit Agreement restricts the payment of dividends, prohibits certain mergers, consolidations or dispositions of assets and establishes limitations on, among other things, additional indebtedness and transactions with affiliates. Upon consummation of the NewCity Acquisition, Cox Radio will assume certain indebtedness of NewCity, including NewCity's obligations under an indenture with Shawmut Bank Connecticut dated November 2, 1993 (the "'Indenture"), which governs the terms and conditions of the $75 million NewCity Notes. The NewCity Notes are general unsecured obligations of NewCity and are subordinated to all existing and future senior indebtedness of NewCity. The NewCity Notes are redeemable at the option of NewCity, in whole or in part, at any time on or after November 1, 1998, at an initial redemption price of 104.266% of the principal amount, plus accrued and unpaid interest through the date of redemption. The NewCity Acquisition will, due to the "change of control", trigger an obligation on the part of NewCity to offer to repurchase such NewCity Notes at 101% of the principal amount thereof plus accrued and unpaid interest to the date of any such repurchase. Because the NewCity Notes, since the announcement of the acquisition of NewCity by Cox Radio, have consistently traded at prices in excess of 101% of the principal amount thereof, Cox Radio does not expect any holders of the NewCity Notes to accept the "change of control" repurchase offer. If NewCity is required to repurchase any of the NewCity Notes, the Company expects to fund such repurchase through debt financing, including the Credit Agreement. The Indenture contains certain covenants that, among other things, limit the ability of NewCity and its subsidiaries to incur additional indebtedness, pay dividends and make other restricted payments, issue or sell common stock of NewCity's subsidiaries, enter into sale and leaseback transactions, create liens, or engage in mergers, consolidations and asset sales. Following consummation of the NewCity Acquisition, the NewCity Notes will be obligations of NewCity as a wholly-owned subsidiary of the Company. Accordingly, the covenants in the Indenture will limit the actions of NewCity and its subsidiaries and not the other subsidiaries of the Company. 33 36 Future cash requirements are expected to include capital expenditures, principal and interest payments on indebtedness and funds for acquisitions. The Company expects its operations to generate sufficient cash to meet its capital expenditures and debt service requirements. Additional cash requirements, including funds for pending or other acquisitions, will be funded by various sources, including the proceeds from bank financing and other issuances of securities. Net cash provided by operating activities for the year ended December 31, 1996 increased $12.9 million to $26.9 million over 1995 primarily as a result of an increase in net income. Net cash from operating activities in 1995 remained substantially the same as in 1994. Net cash used in investing activities for all periods presented principally reflects the Company's acquisition activity discussed above and capital expenditures. The increases in annual capital expenditures from 1994 to 1996 were due to the increasing number of stations owned or operated by Cox Radio. Net cash provided by (used in) financing activities represents the net change in amounts due to CEI, proceeds from the Company's initial public offering, repayment of debt, dividends paid and net changes in book overdrafts. Cash flows from financing activities represent intercompany transactions with CEI. Fluctuations for the periods presented generally reflect the differences between changes in both cash flows from operating activities and cash flows from investing activities. The Company has contractual commitments for sports programming and on-air personalities of $12.9 million, $12.3 million, $7.7 million and $.6 million for 1997, 1998, 1999 and 2000, respectively, which are expected to be funded through operations. IMPACT OF INFLATION The impact of inflation on the Company's operations has not been significant to date. However, there can be no assurance that a high rate of inflation in the future would not have an adverse impact on the Company's operating results. 34 37 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders of Cox Radio, Inc. We have audited the accompanying consolidated balance sheets of Cox Radio, Inc. ("Cox Radio") as of December 31, 1995 and 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of Cox Radio's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cox Radio at December 31, 1995 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Atlanta, Georgia February 7, 1997 35 38 COX RADIO, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------- 1995 1996 -------- -------- (THOUSANDS OF DOLLARS) ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 1,691 $ 1,544 Restricted cash........................................... -- 9,051 Accounts and notes receivable, less allowance for doubtful accounts of $774 and $834, respectively................ 30,667 31,511 Prepaid expenses and other current assets................. 3,289 1,575 -------- -------- Total current assets.............................. 35,647 43,681 Plant and equipment, net.................................... 28,020 27,070 Intangible assets, net...................................... 126,798 138,119 Amounts due from Cox Enterprises, Inc....................... -- 49,667 Other assets................................................ 1,302 3,182 -------- -------- Total assets...................................... $191,767 $261,719 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses..................... $ 10,924 $ 10,296 Unit appreciation plan ("UAP") liability.................. 963 646 Income taxes payable...................................... 278 3,216 Other current liabilities................................. 873 668 -------- -------- Total current liabilities......................... 13,038 14,826 Amounts due to Cox Enterprises, Inc......................... 125,089 -- Deferred income taxes....................................... 6,470 11,095 -------- -------- Total liabilities................................. 144,597 25,921 -------- -------- Commitments and contingencies (Note 12) SHAREHOLDERS' EQUITY: Preferred stock, $1.00 par value: 5,000,000 shares, authorized, none outstanding........................... -- -- Common stock, $1.00 par value; 6,000 shares authorized and 600 shares outstanding at December 31, 1995............ 1 -- Class A common stock, $1.00 par value; 70,000,000 shares authorized and 8,736,972 shares outstanding at December 31, 1996............................................... -- 8,737 Class B common stock, $1.00 par value; 45,000,000 shares authorized and 19,577,672 shares outstanding at December 31, 1996...................................... -- 19,578 Additional paid-in capital................................ 90,947 248,972 Deficit in retained earnings.............................. (43,778) (41,489) -------- -------- Total shareholders' equity........................ 47,170 235,798 -------- -------- Total liabilities and shareholders' equity........ $191,767 $261,719 ======== ========
See notes to consolidated financial statements. 36 39 COX RADIO, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------------ 1994 1995 1996 -------- -------- -------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) NET REVENUES: Local..................................................... $ 80,484 $ 93,465 $ 99,291 National.................................................. 30,193 29,385 31,648 Other..................................................... 858 722 1,965 -------- -------- -------- Total net revenues................................ 111,535 123,572 132,904 COSTS AND EXPENSES: Operating................................................. 32,218 41,831 41,280 Selling, general and administrative....................... 44,096 48,131 50,585 Corporate general and administrative...................... 2,667 5,853 5,332 Depreciation and amortization............................. 6,995 7,247 8,069 -------- -------- -------- OPERATING INCOME............................................ 25,559 20,510 27,638 OTHER INCOME (EXPENSE): Interest expense, net....................................... (5,229) (5,974) (4,580) Gain on sale of radio station............................... -- -- 2,016 Other -- net................................................ (260) (147) (377) -------- -------- -------- INCOME BEFORE INCOME TAXES.................................. 20,070 14,389 24,697 Income taxes................................................ 8,863 6,226 9,752 -------- -------- -------- NET INCOME.................................................. $ 11,207 $ 8,163 $ 14,945 ======== ======== ======== Net income per common share...................................................... $ .69 ======== Weighted average common shares outstanding....................................... 21,762 ========
See notes to consolidated financial statements. 37 40 COX RADIO, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
COMMON CLASS A CLASS B STOCK COMMON STOCK COMMON STOCK ADDITIONAL DEFICIT IN --------------- --------------- ---------------- PAID-IN RETAINED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL ------ ------ ------ ------ ------ ------- ---------- ---------- -------- (AMOUNTS IN THOUSANDS) BALANCE AT DECEMBER 31, 1993... 1 $ 1 -- $ -- -- $ -- $102,221 $(38,042) $ 64,180 Net income................... -- -- -- -- -- -- -- 11,207 11,207 Dividends to CEI............. -- -- -- -- -- -- (11,274) (23,706) (34,980) -- --- ----- ------ ------ ------- -------- -------- -------- BALANCE AT DECEMBER 31, 1994... 1 1 -- -- -- -- 90,947 (50,541) 40,407 Net income................... -- -- -- -- -- -- -- 8,163 8,163 Dividends to CEI............. -- -- -- -- -- -- -- (1,400) (1,400) -- --- ----- ------ ------ ------- -------- -------- -------- BALANCE AT DECEMBER 31, 1995... 1 1 -- -- -- -- 90,947 (43,778) 47,170 Net income................... -- -- -- -- -- -- -- 14,945 14,945 Dividends to CEI............. -- -- -- -- -- -- -- (12,656) (12,656) Capital contribution by CEI........................ -- -- -- -- -- -- 36,744 -- 36,744 Issuance of Class B common stock to CEI............... (1) (1) -- -- 19,578 19,578 (19,577) -- -- Issuance of Class A common stock related to initial public offering............ -- -- 8,625 8,625 -- -- 140,588 -- 149,213 Issuance of restricted Class A common stock related to incentive plans............ -- -- 112 112 -- -- 1,960 -- 2,072 Offering costs for common stock...................... -- -- -- -- -- -- (1,690) -- (1,690) -- --- ----- ------ ------ ------- -------- -------- -------- BALANCE AT DECEMBER 31, 1996... -- $-- 8,737 $8,737 19,578 $19,578 $248,972 $(41,489) $235,798 == === ===== ====== ====== ======= ======== ======== ========
See notes to consolidated financial statements. 38 41 COX RADIO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ----------------------------- 1994 1995 1996 ------- ------- ------- (THOUSANDS OF DOLLARS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................ $11,207 $ 8,163 $14,945 Items not requiring cash: Depreciation........................................... 2,216 2,382 2,533 Amortization........................................... 4,779 4,865 5,536 Deferred income taxes.................................. 34 (441) 1,001 Settlement of UAP liability through issuance of restricted stock..................................... -- -- 2,071 Increase in accounts receivable........................... (6,109) (2,221) (844) Increase in prepaid expenses and other current assets..... (296) (57) (22) Increase (decrease) in accounts payable and accrued expenses............................................... 1,902 (299) 1,111 Increase (decrease) in taxes payable...................... (257) (37) 2,938 Increase (decrease) in UAP liability...................... 187 776 (317) Gain on sale of radio station............................. -- -- (2,016) Other, net................................................ 405 856 (25) ------- ------- ------- Net cash provided by operating activities......... 14,068 13,987 26,911 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures........................................ (2,705) (4,073) (3,526) Acquisitions................................................ (9,954) (11,697) (21,500) (Increase) decrease in other long-term assets............... 337 (1,580) (2,137) Net proceeds from sale of radio station..................... -- -- 14,195 Increase in amounts due from CEI............................ -- -- (49,667) Other, net.................................................. 30 8 -- ------- ------- ------- Net cash used in investing activities..................... (12,292) (17,342) (62,635) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in amounts due to CEI................. 30,658 4,781 (88,345) Net proceeds from initial public offering................. -- -- 149,213 Payment of stock offering costs........................... -- -- (1,690) Dividends paid............................................ (34,980) (1,400) (12,656) Increase (decrease) in book overdrafts.................... 2,715 (232) (1,894) ------- ------- ------- Net cash provided by (used in) financing activities...................................... (1,607) 3,149 44,628 ------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 169 (206) 8,904 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 1,728 1,897 1,691 ------- ------- ------- CASH AND CASH EQUIVALENTS (INCLUDING RESTRICTED CASH) AT END OF PERIOD................................................. $ 1,897 $ 1,691 $10,595 ======= ======= =======
See notes to consolidated financial statements. 39 42 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION Cox Radio is a leading national radio broadcast company whose business is devoted to acquiring, developing and operating radio stations located throughout the United States. Cox Enterprises, Inc. ("CEI") indirectly owns approximately 69% of the Common Stock of Cox Radio. On September 30, 1996, pursuant to an Agreement and Plan of Merger of KFI, Inc., WCKG, Inc., WWRM, Inc. and Cox Syracuse, Inc. with and into Cox Radio, Inc. (the "Plan of Merger"), CEI transferred direct or indirect ownership of its U.S. radio broadcast properties to Cox Radio (the "Cox Radio Consolidation"). In connection with the Cox Radio Consolidation, the Company amended its Certificate of Incorporation to change the capital structure of the Company. As a result, the Company's capital stock consists of 70,000,000 authorized shares of Class A Common Stock, 45,000,000 authorized shares of Class B Common Stock and 5,000,000 authorized shares of Preferred Stock, all at $1.00 par value per share. Pursuant to the Plan of Merger, CEI, through its indirect subsidiary, Cox Broadcasting, Inc., received 19,577,672 shares of the Company's Class B Common Stock for its ownership interests. CEI's historical basis in the assets and liabilities of the operations was carried over to Cox Radio. On October 2, 1996, the Company completed an initial public offering of 8,625,000 shares of the Company's Class A Common Stock at a price of $18.50 per share. Proceeds to the Company from the public offering and the underwriters' option totaled approximately $149 million net of underwriting discounts and commissions. The Company used approximately $107.1 million of such net proceeds to repay all amounts then outstanding under notes due to CEI. The balance of the net proceeds is available for general corporate purposes and acquisitions, including to partially fund the NewCity Acquisition (see note 4). Also in connection with the public offering, the Company registered 111,973 shares of the Company's restricted Class A Common Stock that were issued to certain members of the Company's management pursuant to the Cox Radio, Inc. Long-Term Incentive Plan. The consolidated financial statements of Cox Radio represent the operations of the radio broadcast stations owned by CEI or its other subsidiaries. The historical financial statements do not necessarily reflect the results of operations or financial position that would have existed had Cox Radio been an independent company. All significant intercompany accounts have been eliminated in the consolidated financial statements of Cox Radio. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Fair value approximates carrying value. Revenue Recognition Revenue is recognized as advertising air time is broadcast and is net of advertising agency commissions. Corporate General and Administrative Expenses Corporate general and administrative expenses consist of corporate overhead costs not specifically allocable to any of the Company's individual stations plus expense related to the CEI Unit Appreciation Plan. In 1995, corporate general and administrative expenses included a nonrecurring corporate charge. 40 43 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Plant and Equipment Plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed using principally the straight-line method at rates based upon estimated useful lives of 5 to 40 years for buildings and building improvements and 5 to 20 years for broadcast equipment. Expenditures for maintenance and repairs are charged to operating expense as incurred. At the time of retirements, sales or other dispositions of property, the original cost and related accumulated depreciation are written off. Intangible Assets Intangible assets consist primarily of goodwill/FCC broadcast licenses, an option to purchase WJZF-FM (Atlanta), and non-compete agreements. Goodwill/FCC broadcast licenses recorded in business combinations and the purchase option related to WJZF-FM generally are amortized on a straight-line basis over 30 to 40 years. Non-compete agreements are amortized on a straight-line basis over the contractual lives of the agreements, generally 3 to 5 years. Cox Radio assesses on an on-going basis the recoverability of intangible assets based on estimates of future undiscounted cash flows for the applicable business acquired compared to net book value. If the future undiscounted cash flow estimate is less than net book value, net book value is then reduced to the estimated fair value. Cox Radio also evaluates the amortization periods of intangible assets to determine whether events or circumstances warrant revised estimates of useful lives. Impairment of Long-Lived Assets SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," became effective in January 1996. This Statement requires that long-lived assets and certain intangibles be reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, with any impairment losses being reported in the period in which the recognition criteria are first applied based on the fair value of the asset. Long-lived assets and certain intangibles to be disposed of are required to be reported at the lower of carrying amount or fair value less cost to sell. Income Taxes The accounts of Cox Radio were included in the consolidated federal income tax return and certain state income tax returns of CEI. Current federal and state income tax expenses and benefits are allocated on a separate return basis to Cox Radio based on (i) the current year tax effects of the inclusion of its income, expenses and credits in the consolidated income tax returns of CEI or (ii) separate state income tax returns. Deferred income taxes arise from temporary differences between income taxes and financial reporting and principally relate to depreciation, amortization and employee benefits. Pension, Postretirement and Postemployment Benefits CEI generally provides defined pension benefits to all employees based on years of service and compensation during those years. CEI also provides certain health care and life insurance benefits to substantially all retirees and employees. For employees and retirees of Cox Radio, these benefits are provided through the CEI plans. Expenses related to these plans are allocated to Cox Radio through the intercompany account. The amount of the allocations is generally based on actuarial determinations of the effects of Cox Radio employees' participation in the plans. 41 44 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Incentive Compensation Plans Cox Radio accounts for stock compensation in accordance with the requirements of APB No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123, "Accounting for Stock-Based Compensation," became effective in January 1996, and requires disclosure of the pro forma effects on net income and earnings per share had the new fair value recognition provisions been elected over the Company's policy of following APB No 25. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Concentration of Risk A significant portion of the Company's business historically has been conducted in the areas of Los Angeles, Atlanta and Miami. Revenues earned from radio stations located in Los Angeles, Atlanta, and Miami represented 37%, 19% and 18%, respectively, of total revenues for the year ended December 31, 1994, 35%, 25% and 17%, respectively, of total revenues for the year ended December 31, 1995, and 36%, 30%, and 16%, respectively, of total revenues for the year ended December 31, 1996. The Company's concentration of risk in each of the aforementioned markets has and will be reduced upon the consummation of the NewCity Acquisition and other transactions described in Note 4. Earnings Per Common Share Cox Radio became publicly traded on the New York Stock Exchange effective September 27, 1996. Earnings per common share calculations for 1994 and 1995 have not been disclosed because the dissimilarity of the previous capital structure of Cox Radio precludes a meaningful comparison. Historical earnings per common share for 1996 assumes (i) 19,578,000 shares issued to CEI in connection with the Cox Radio Consolidation were issued on January 1, 1996 and (ii) 8,625,000 shares issued in connection with the Company's initial public offering were outstanding during the entire fourth quarter. See additional pro forma earnings per share information at Note 4. 3. CASH MANAGEMENT SYSTEM Cox Radio participates in CEI's cash management system, whereby the bank sends daily notification of Cox Radio's checks presented for payment. CEI transfers funds from other sources to cover Cox Radio's checks presented for payment. Book overdrafts of $3.6 million and $1.7 million existed at December 31, 1995 and 1996, respectively, as a result of Cox Radio's checks outstanding. These book overdrafts were reclassified as accounts payable on Cox Radio's financial statements. 4. ACQUISITIONS AND DISPOSITIONS OF BUSINESSES In January 1994, the Company entered into an LMA to operate WJZF-FM (Atlanta). Subsequently, in September 1994, the Company paid $9.4 million for an option to purchase substantially all of the station's assets. In April 1995, Cox Radio entered into an LMA to operate WCNN-AM (Atlanta). 42 45 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In August 1995, Cox Radio completed the acquisition of KACE-FM in Inglewood, California, a suburb of Los Angeles, for $11.7 million. Cox Radio had operated this station under an LMA since August 1994. In January 1996, Cox Radio completed the acquisition of Louisville stations WRKA-FM and WRVI-FM for $8.7 million. The Company also acquired Louisville station WXNU-FM, later renamed WHTE-FM, for $2.6 million in August 1996 (the "Louisville Acquisitions"). In June 1996, the Company acquired WHEN-AM and WWHT-FM in Syracuse for $4.5 million (the "Syracuse Acquisition"). These stations are being operated by NewCity under an LMA. In October 1996, the Company completed the sale of WIOD-AM in Miami for $13.0 million plus a working capital adjustment of $1.2 million (the "Miami Disposition"). This transaction resulted in a pre-tax gain of approximately $2.0 million which was recognized in the fourth quarter of 1996. In March 1997, the Company exchanged WCKG-FM and WYSY-FM in Chicago for WHOO-AM, WHTQ-FM and WMMO-FM in Orlando (the "Orlando Acquisition"). The Orlando Acquisition resulted in a pre-tax gain of approximately $25 million. In addition to receiving the three Orlando stations, Cox Radio also received cash proceeds of approximately $20 million. NewCity has operated the Orlando stations since July 1996 under an LMA. For tax purposes, the Company accounted for the Orlando Acquisition and Miami Disposition as like-kind exchanges. Tax rules allow the Company to defer a substantial portion of the related tax gains on these transactions upon the reinvestment of the net proceeds in qualifying future acquisitions. The Company is presently pursuing additional qualifying reinvestment properties. At December 31, 1996, restricted cash of $9.1 million was held in escrow pending reinvestment and has been reported in the Consolidated Balance Sheet as restricted cash. In December 1996, the Company acquired KRAV-FM and KGTO-AM in Tulsa for $5.5 million (the "Tulsa Acquisition"). NewCity operates these stations under an LMA. In March 1997, the Company acquired WFNS-AM in Tampa for an aggregate consideration of approximately $1.5 million (the "Tampa Acquisition"). The Company has been operating this station pursuant to an LMA or JSA since June 1995. The acquisitions were accounted for by the purchase method, and accordingly, the purchase price has been allocated to the assets acquired based on their estimated fair market values at the date of the acquisition. A substantial portion of each purchase price was allocated to intangible assets to reflect the FCC broadcasting licenses acquired. The excess of the purchase price over the fair market value of the net assets acquired has been recorded as goodwill and is being amortized over 30 to 40 years using the straight-line basis. No liabilities were assumed by the Company as a result of these acquisitions. Operations of acquired stations have been included in the consolidated results of the Company since the acquisition date of each such station. Under an LMA or a JSA, the company operating a station provides a combination of programming, sales, marketing and similar services. The broadcast revenues and operating expenses of stations operated by Cox Radio under LMAs and JSAs have been included in the Company's operations since the respective dates of such agreements. In July 1996, the Company entered into an agreement to acquire NewCity Communications, Inc. for approximately $253 million, which includes certain working capital adjustments, consisting of approximately $163 million in cash, approximately $87 million in assumption of NewCity debt and approximately $3 million in working capital adjustments (the "NewCity Acquisition"). The NewCity Acquisition is expected to be financed with proceeds from the new bank credit facility entered into by the Company in March 1997. The consummation of the NewCity Acquisition, which is anticipated to occur in the first half of 1997, is subject to 43 46 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) certain closing conditions, including receipt of approval by the Federal Communications Commission ("FCC"). On January 10, 1997, CEI received a Civil Investigative Demand ("CID") from the Antitrust Division of the DOJ. The CID sought production of documents and interrogatory responses with respect to radio advertising in the Syracuse, New York area. In the Syracuse area, Cox Radio is the licensee of two radio stations; pursuant to the NewCity Acquisition, Cox Radio would acquire an additional three stations licensed to NewCity. The CID stated that the DOJ was seeking the information to determine whether the proposed acquisition might violate section 1 of the Sherman Act and/or section 7 of the Clayton Act. On February 27, 1997, the Company and NewCity were advised that the DOJ had closed its investigation of the Syracuse market. In January 1997, Cox Radio agreed in principle to acquire the license and certain assets of an FM radio station in Los Angeles for $19 million in cash (the "Los Angeles Acquisition"). The Miami Disposition, the Louisville Acquisitions, the Syracuse Acquisition, and the Tulsa Acquisition are collectively referred to as the "Prior Transactions." The Orlando Acquisition and the Tampa Acquisition are collectively referred to as the "Recent Transactions." The NewCity Acquisition and the Los Angeles Acquisition are collectively referred to as the "Pending Transactions." The following unaudited pro forma summary of operations presents the consolidated results of operations as if the Prior Transactions, Recent Transactions, Pending Transactions and the Company's initial public offering had occurred at the beginning of the periods presented and does not purport to be indicative of what would have occurred had these transactions been made as of those dates or of results which may occur in the future. No pro forma adjustments have been made for the Louisville Acquisitions, the Tampa Acquisition and the Los Angeles Acquisition due to immateriality.
YEAR ENDED DECEMBER 31 ----------------------- 1995 1996 --------- --------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues................................................ $168,361 $189,686 Corporate general and administrative expenses............... 4,370 5,100 Depreciation and amortization............................... 15,410 17,963 Operating income............................................ 27,011 35,536 Net income.................................................. $ 3,618 $ 9,119 -------- -------- Earnings per common share................................... $ .13 $ .32 -------- -------- Pro forma shares outstanding................................ 28,315 28,315 ======== ========
5. PLANT AND EQUIPMENT
DECEMBER 31, --------------------- 1995 1996 -------- -------- (THOUSANDS OF DOLLARS) Land and land improvements.................................. $ 14,845 $ 10,718 Buildings and building improvements......................... 5,782 5,334 Broadcast equipment......................................... 27,461 31,067 Construction in progress.................................... 1,629 2,454 -------- -------- Plant and equipment, at cost................................ 49,717 49,573 Less accumulated depreciation............................... (21,697) (22,503) -------- -------- Net plant and equipment........................... $ 28,020 $ 27,070 ======== ========
44 47 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. INTANGIBLE ASSETS
DECEMBER 31, ------------------- 1995 1996 -------- -------- (THOUSANDS OF DOLLARS) Goodwill/FCC broadcast licenses............................. $162,433 $175,377 WJZF-FM purchase option..................................... 9,381 9,381 Non-compete agreements...................................... 5,707 6,707 Other....................................................... 1,511 2,131 -------- -------- Total............................................. 179,032 193,596 Less accumulated amortization............................... (52,234) (55,477) -------- -------- Net intangible assets............................. $126,798 $138,119 ======== ========
7. INCOME TAXES Income tax expense (benefit) is summarized as follows:
YEAR ENDED DECEMBER 31, ------------------------ 1994 1995 1996 ------ ------ ------ (THOUSANDS OF DOLLARS) Current: Federal................................................... $7,439 $5,226 $7,788 State..................................................... 1,390 1,441 963 ------ ------ ------ Total current..................................... 8,829 6,667 8,751 ------ ------ ------ Deferred: Federal................................................... 137 (589) 1,198 State..................................................... (103) 148 (197) ------ ------ ------ Total deferred.............................................. 34 (441) 1,001 ------ ------ ------ Total income taxes.......................................... $8,863 $6,226 $9,752 ====== ====== ======
The tax effects of significant temporary differences which comprise the net deferred tax liabilities are as follows:
DECEMBER 31, ------------------ 1995 1996 ------- -------- (THOUSANDS OF DOLLARS) Current deferred tax asset: Provision for doubtful accounts........................... $ 301 $ 279 ------- -------- Noncurrent deferred tax assets (liabilities): Plant and equipment....................................... (2,463) (3,273) Intangibles............................................... (5,550) (10,351) Net operating loss carryforwards -- states................ 1,056 2,013 Employee benefits......................................... 1,028 1,061 State taxes............................................... (473) (955) Other..................................................... (68) 410 ------- -------- Total net noncurrent liability.................... (6,470) (11,095) ------- -------- Net deferred tax liability........................ $(6,169) $(10,816) ======= ========
45 48 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income tax expense computed using the United States federal statutory rates is reconciled to the reported income tax provisions as follows:
YEAR ENDED DECEMBER 31, -------------------------- 1994 1995 1996 ------ ------ ------ (THOUSANDS OF DOLLARS) Federal statutory income tax rate........................ 35% 35% 35% Computed tax expense at federal statutory rates on income before income taxes.................................... $7,025 $5,036 $8,643 State income taxes (net of federal tax benefit).......... 836 1,033 498 Non-deductible amortization of intangibles............... 1,028 811 1,037 Benefit arising from low income housing credits.......... (125) (555) (605) Other, net............................................... 99 (99) 179 ------ ------ ------ Income tax provision........................... $8,863 $6,226 $9,752 ====== ====== ======
The consolidated federal income tax returns of CEI for 1986 through 1994 and the combined California franchise tax returns of CEI for 1984 through 1990 are presently under audit. Management believes that any additional liabilities arising from current tax-related audits are sufficiently provided for at December 31, 1996. 8. RETIREMENT PLANS Substantially all of Cox Radio's employees participate in the funded, noncontributory defined benefit pension plan of CEI and certain key employees participate in an unfunded, non-qualified supplemental pension plan. The plans call for benefits to be paid to eligible employees at retirement based primarily upon years of service with Cox Radio and compensation rates during those years. Pension expense allocated to Cox Radio by CEI was $412,000, $636,000 and $801,000 for the years ended December 31, 1994, 1995 and 1996, respectively. The following table sets forth certain information attributable to the Cox Radio employees' participation in the CEI pension plans:
DECEMBER 31, DECEMBER 31, 1995 1996 ------------------- ------------------- FUNDED UNFUNDED FUNDED UNFUNDED PLANS PLANS PLANS PLANS ------- -------- ------- -------- (THOUSANDS OF DOLLARS) Actuarial present value of benefit obligations: Vested benefits.......................... $10,276 $1,233 $10,464 $1,188 Nonvested benefits....................... 1,012 199 973 172 ------- ------ ------- ------ Accumulated benefit obligation............. $11,288 $1,432 $11,437 $1,360 ======= ====== ======= ====== Projected benefit obligation............... $13,965 $1,879 $14,434 $1,867 ======= ====== ======= ======
Assumptions used in the actuarial computations were:
DECEMBER 31, ------------ 1995 1996 ---- ---- Discount rate............................................... 7.25% 7.75% Rate of increase in compensation levels..................... 5.00% 5.50% Expected long-term rate of return on assets................. 9.00% 9.00%
CEI may establish a defined benefit pension plan and segregate plan assets for Cox Radio. The amount of the assets that would be segregated would have an estimated fair value equal to the projected benefit 46 49 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) obligation of the CEI defined benefit pension plan attributable to Cox Radio employees as of December 31, 1996, or $14,434,000. The assets segregated would be used to fund payments to retirees. Any non-qualified supplemental pension plan payments due to Cox Radio employees will be made by CEI. CEI provides certain health care and life insurance benefits to substantially all retirees of CEI and its subsidiaries. Postretirement expense allocated to Cox Radio by CEI was $298,000, $218,000, and $166,000 for the years ended December 31, 1994, 1995 and 1996, respectively. Cox Radio's APBO at December 31, 1996 was $3,554,000. The funded status of the portion of the postretirement plan covering the employees of Cox Radio is not determinable. The APBO for the postretirement plan of CEI substantially exceeded the fair value of assets held in the plan at December 31, 1996. Actuarial assumptions used to determine the APBO include a discount rate of 7.75% and an expected long-term rate of return on plan assets of 9%. The assumed health care cost trend rate for retirees is 11.5%. For participants prior to age 65, the trend rate gradually decreases to 5.5% by year 2007 and remains level thereafter. For retirees at age 65 or older, this rate decreases to 5.0% by year 2008. Increasing the assumed health care cost trend rate by one percentage point would have resulted in an increase in the CEI plan's APBO of approximately 6.5% and an increase in the aggregate of the service cost and interest cost components of the net periodic postretirement benefit cost of approximately 5.1% for 1996. In addition, substantially all of Cox Radio's employees are eligible to participate in the savings and investment plan of CEI. Under the terms of the plan, Cox Radio matches a discretionary amount no greater than 50% of employee contributions up to a maximum of 6% of the employee's base salary. Cox Radio's expense under the plan was $471,000, $523,000, and $584,000 for the years ended December 31, 1994, 1995 and 1996, respectively. Cox Radio employees whose savings and investment plan contributions are at the Internal Revenue Service ("IRS") maximum or are restricted in order to pass the nondiscrimination test required by the IRS are eligible to participate in CEI's non-qualified savings restoration plan, which began in 1995. Under the terms of this plan, Cox Radio matches a discretionary amount no greater than 50% of employee contributions to both the savings and investment and restoration plans up to a maximum percentage of the employee's eligible compensation. Cox Radio's expense under the non-qualified savings restoration plan was $23,000 and $23,000 for the years ended December 31, 1995 and 1996, respectively. 9. STOCK-BASED COMPENSATION PLANS During the three years in the period ending December 31, 1996, the Company had two stock-based compensation plans. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Accordingly, compensation for the Cox Enterprises, Inc. Unit Appreciation Plan ("UAP") has been recorded annually based on the appraised value of Cox Enterprises, Inc. stock at the end of the period. Compensation for the Cox Radio, Inc. Long-Term Incentive Plan ("LTIP") is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the exercise price. Specific information regarding each plan and required disclosure of pro forma effect on the Company's operations if SFAS No. 123 had been adopted is presented below. 47 50 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Cox Enterprises, Inc. UAP Certain of the executives and key employees of Cox Radio participated in certain Cox Enterprises, Inc. UAPs that provided for payment of benefits in the form of shares of CEI common stock, cash, or both, generally five years after the date of award. Unit benefits are based on the excess, if any, over a base amount (value of award), of the fair value of a share of CEI common stock five years after the effective date of award. Fair values are determined by independent appraisal. The plans provide for a maximum unit benefit of 150% of the base amount and benefits vest over the five year period following the date of award. The cost of awards made under the plans was allocated to Cox Radio by CEI over the applicable vesting periods and was charged to corporate general and administrative expense. Amounts charged to expense for Cox Radio employees for the years ended December 31, 1994, 1995 and 1996 were $833,000, $1,646,000 and $2,464,000 respectively. Amounts accrued under the plans were $963,000 and $646,000 as of December 31, 1995 and 1996, respectively. In connection with the Company's initial public offering, a portion of the 1994 plan was settled through the issuance of 111,973 shares of restricted Class A Common Stock of Cox Radio as discussed below. The adoption of SFAS No. 123 would have resulted in no additional compensation expense related to the Cox Enterprises, Inc. UAP. Cox Radio, Inc. LTIP Pursuant to the LTIP, executive officers and certain employees of Cox Radio who have been selected as participants are eligible to receive awards of various forms of equity-based incentive compensation, including stock options, stock appreciation rights, stock bonuses, restricted stock awards, performance units and phantom stock and awards consisting of combinations of such incentives. Cox Radio has reserved 2,400,000 shares of Class A Common Stock for issuance under the LTIP. Subject to the maximum shares reserved under the LTIP, no individual may receive a stock option covering more than 300,000 shares of Class A Common Stock in any year nor be granted more than 100,000 shares of Class A Common Stock, in any combination of performance awards, restricted stock or other stock-based awards that are subject to performance criteria in any year. The maximum payout for any individual for a performance award paid in cash is 100% of his or her base salary as of the beginning of the year of the performance award payment. Upon the closing of the Company's initial public offering, certain UAP units awarded in 1994 that would have matured in 1998, were converted into 111,973 restricted shares of Class A Common Stock issued pursuant to the LTIP based on the calculated appreciation of the UAP units and the quoted market price at the date of conversion. These restricted shares will remain unvested until the end of the original five-year UAP appreciation period. Certain UAP units awarded in 1996 were cancelled and converted to options to acquire Class A Common Stock pursuant to the LTIP. As of December 31, 1996, 511,673 options had been granted and were outstanding under the LTIP at an exercise price of $18.50 per share. These options vest 60% after three years from the date of the grant, 80%, after four years from the date of the grant and 100% after five years from the date of the grant and expire ten years after the date of the grant. None of the options were exercisable at December 31, 1996, and no compensation cost has been recognized for these options. The fair value of the options granted during 1996 is estimated as $9.39 on the date of grant using the Black-Scholes option-pricing model with the following assumptions: expected volatility of 38 percent, no dividend yield, risk-free interest rate of 6.7% and expected life of three years after vesting. Had compensation cost for the LTIP been determined based on the fair value at the grant date for awards under this plan consistent with the method of SFAS No. 123, the Company's net income would have been reduced by approximately $.3 million. Pro forma effect on earnings per common share has not been presented due to the reasons discussed in Note 1. 48 51 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. TRANSACTIONS WITH AFFILIATED COMPANIES Cox Radio borrows funds for working capital and other needs from CEI. Certain management services are provided to Cox Radio by CEI. Such services include rent, legal, corporate secretarial, tax, treasury, internal audit, risk management, benefits administration and other support services and are included in corporate general and administrative expenses in the Consolidated Statements of Operations. Cox Radio was allocated expenses for the years ended December 31, 1994, 1995 and 1996 of approximately $1,834,000, $2,207,000 and $1,499,000, respectively, related to these services. Cox Radio pays rent and certain other occupancy costs to CEI for office facilities. Related rent and occupancy expense was approximately $395,000, $378,000 and $403,000 for the years ended December 31, 1994, 1995 and 1996, respectively. Corporate general and administrative expense allocations are based on a specified percentage of expenses related to the services provided to Cox Radio in relation to those provided to other subsidiaries. Rent and occupancy expense is allocated based on occupied space. Management believes that these allocations were made on a reasonable basis. However, the allocations are not necessarily indicative of the level of expenses that might have been incurred had Cox Radio contracted directly with third parties. Management has not made a study or any attempt to obtain quotes from third parties to determine what the cost of obtaining such services from third parties would have been. The fees and expenses to be paid by Cox Radio to CEI are subject to change. The amounts due to CEI are generally due on demand and represent the net of various transactions, including those described above. The amounts due to CEI are classified as long-term because the Company has the ability and the intent to refinance these obligations on a long-term basis. The amounts due to (from) CEI are as follows:
YEAR ENDED DECEMBER 31, ------------------- 1995 1996 --------- ------- (THOUSANDS OF DOLLARS) Notes payable to CEI........................................ $ (58,918) $ -- Other intercompany amounts due from (to) CEI................ (66,171) 49,667 --------- ------- Total............................................. $(125,089) $49,667 ========= =======
Notes payable to CEI bear interest at prime plus 1 1/2%. These interest rates are established at the beginning of each quarter and are as follows:
1995 1996 ----- ---- First quarter............................................... 10.00% 8.75% Second quarter.............................................. 10.50% 8.75% Third quarter............................................... 10.50% 8.75% Fourth quarter.............................................. 10.25% 8.75%
49 52 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Included in the other intercompany amounts due to CEI are the following transactions:
(THOUSANDS OF DOLLARS) Intercompany due to CEI, December 31, 1994............... $ (61,390) Dividends to CEI....................................... (1,400) Cash transferred to CEI................................ 110,617 Acquisitions........................................... (11,697) Net operating expense allocations and reimbursements... (102,301) --------- Intercompany due to CEI, December 31, 1995............... $ (66,171) Dividends to CEI....................................... (12,656) Cash transferred to CEI................................ 115,002 Acquisitions........................................... (21,500) Capital contributions by CEI........................... 36,744 Proceeds from initial public offering.................. 149,213 Net operating expense allocations and reimbursements... (150,965) --------- Intercompany due from CEI, December 31, 1996............. $ 49,667 =========
Cox Radio is paid interest on the daily intercompany balance at a competitive market rate as determined by CEI. The rates used during 1996 ranged from 5% to 6%. In accordance with the requirements of SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," Cox Radio has estimated the fair value of its intercompany advances and notes payable. Given the short-term nature of these advances, the carrying amounts reported in the balance sheets approximate fair value. 11. SUPPLEMENTAL CASH FLOW INFORMATION
1994 1995 1996 ------ ------ ------ (THOUSANDS OF DOLLARS) Additional cash flow information: Cash paid for interest.................................... $5,354 $6,071 $5,466 Cash paid for income taxes................................ 9,943 7,844 6,033
12. COMMITMENTS AND CONTINGENCIES Cox Radio leases land, office facilities, and various items of equipment under noncancellable operating leases. Rental expense under operating leases amounted to $1,676,000 in 1994, $1,735,000 in 1995 and $1,520,000 in 1996. Future minimum lease payments as of December 31, 1996 for all noncancellable operating leases are as follows (in thousands): 1997........................................................ $ 715 1998........................................................ 723 1999........................................................ 718 2000........................................................ 672 2001........................................................ 671 Thereafter.................................................. 455 ------ Total............................................. $3,954 ======
Cox Radio has various contracts primarily for sports programming and on-air personalities with future minimum payments for 1997, 1998, 1999 and 2000 of $14.7 million, $14.2 million, $9.7 million and $.6 million, respectively. 50 53 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 1996, the Company had outstanding purchase commitments for additions to plant and equipment totaling approximately $1.5 million. Cox Radio is a party to various legal proceedings which are ordinary and incidental to its business. Management does not expect that any legal proceedings currently pending will have a material adverse impact on Cox Radio's consolidated financial position or consolidated results of operations. 51 54 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS The information required by this Item is incorporated by reference to Cox Radio's Proxy Statement for the 1997 Annual Meeting of Stockholders. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to Cox Radio's Proxy Statement for the 1997 Annual Meeting of Stockholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to Cox Radio's Proxy Statement for the 1997 Annual Meeting of Stockholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to Cox Radio's Proxy Statement for the 1997 Annual Meeting of Stockholders. 52 55 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents incorporated by reference or filed with this Report (1) No financial statement schedules are required to be filed by Items 8 and 14 (d) because they are not required or are not applicable, or the required information is set forth in the applicable financial statements or notes thereto. (2) Exhibits required to be filed by Item 601 of Regulation S-K: Listed below are the exhibits which are filed as part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):
EXHIBIT NUMBER DESCRIPTION - ------- ----------- *2.1 -- Agreement and Plan of Merger, dated as of July 1, 1996, by and among Cox Radio, Inc., New Cox Radio II, Inc., NewCity Communications, Inc. and certain stockholders of NewCity Communications, Inc.** *2.2 -- Guaranty by Cox Broadcasting, Inc., dated as of July 1, 1996, in favor of NewCity Communications, Inc. *3.1 -- Amended and Restated Certificate of Incorporation of Cox Radio, Inc. *3.2 -- Amended and Restated Bylaws of Cox Radio, Inc. *4.1 -- Indenture between NewCity Communications, Inc. and Shawmut Bank Connecticut, National Association, as Trustee, dated as of November 2, 1993, related to the 11 3/8% Notes due 2003 of NewCity Communications, Inc.** *4.2 -- First Supplemental Indenture between NewCity Communications, Inc. and Shawmut Bank Connecticut, National Association, as Trustee, dated as of September 16, 1994, relating to the 11 3/8% Notes due 2003 of NewCity Communications, Inc. *4.3 -- Specimen of Class A Common Stock Certificate. 10.1 -- Credit Agreement, dated as of March 7, 1997, by and among Cox Radio, Inc., Texas Commerce Bank National Association, Nationsbank of Texas, N.A. and Citibank, N.A., individually and as agents, and the other banks signatory thereto.** *10.2 -- New CEI Credit Facility. *10.3 -- Cox Radio, Inc. Long-Term Incentive Plan. *10.4 -- Cox Radio, Inc. Employee Stock Purchase Plan. *10.5 -- Cox Radio, Inc. Restricted Stock Plan for Non-Employee Directors 10.6 -- Tax Allocation and Indemnification Agreement, dated as of September 30, 1996, by and between Cox Enterprises, Inc. and Cox Radio, Inc. *21 -- Subsidiaries of the Registrant 23.1 -- Consent of Deloitte & Touche LLP 24.1 -- Power of Attorney (included on page 54) 27.1 -- Financial Data Schedule (for SEC use only)
- --------------- * Incorporated by reference to the corresponding exhibit of Cox Radio's Registration Statement on Form S-1 (Commission File No. 333-08737). ** Schedules and Exhibits intentionally omitted. 53 56 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Cox Radio, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Cox Radio, Inc. By: /s/ ROBERT F. NEIL ------------------------------------ Robert F. Neil President and Chief Executive Officer Date: March 25, 1997 POWER OF ATTORNEY Cox Radio, Inc., a Delaware corporation, and each person whose signature appears below, constitutes and appoints Robert F. Neil and Maritza C. Pichon, and either of them, with full power to act without the other, such person's true and lawful attorneys-in-fact, with full power of substitution and resubstitution, for him and her and in his or her name, place and stead, in any and all capacities, to sign this Annual Report on Form 10-K and any and all amendments to such Annual Report on Form 10-K and other documents in connection therewith, and to file the same and all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, thereby ratifying and confirming all that said attorneys-in-fact, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Cox Radio, Inc. and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ NICHOLAS D. TRIGONY Chairman of the Board of March 25, 1997 - ----------------------------------------------------- Directors Nicholas D. Trigony /s/ ROBERT F. NEIL President and Chief Executive March 25, 1997 - ----------------------------------------------------- Officer; Director Robert F. Neil /s/ MARITZA C. PICHON Chief Financial Officer March 25, 1997 - ----------------------------------------------------- (principal accounting officer Maritza C. Pichon and principal financial officer) /s/ JAMES C. KENNEDY Director March 25, 1997 - ----------------------------------------------------- James C. Kennedy /s/ DAVID E. EASTERLY Director March 25, 1997 - ----------------------------------------------------- David E. Easterly /s/ ERNEST D. FEARS, JR. Director March 25, 1997 - ----------------------------------------------------- Ernest D. Fears, Jr. /s/ PAUL M. HUGHES Director March 25, 1997 - ----------------------------------------------------- Paul M. Hughes
54 EX-10.1 2 CREDIT AGREEMENT 1 EXHIBIT 10.1 FIVE-YEAR CREDIT AGREEMENT among COX RADIO, INC., THE GUARANTORS REFERRED TO HEREIN, THE BANKS REFERRED TO HEREIN, TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Administrative Agent, NATIONSBANK OF TEXAS, N.A., as Syndications Agent, and CITIBANK, N.A., as Documentation Agent - ------------------------------------------------------------------------------- 2 COX RADIO, INC. TABLE OF CONTENTS
Page ---- ARTICLE I Definitions ................................................................... 1 ARTICLE II The Loans SECTION 2.01. The Revolving Loans......................................... 18 SECTION 2.02. Setoff, Counterclaims and Taxes............................. 30 SECTION 2.03. Withholding Tax Exemption................................... 30 SECTION 2.04. Obligations Several, Not Joint.............................. 31 SECTION 2.05. Evidence of Debt............................................ 31 SECTION 2.06. Discretionary Loans......................................... 32 ARTICLE III Optional and Required Prepayments; Interest Payment Date; Other Payments SECTION 3.01. Optional Prepayments........................................ 33 SECTION 3.02. Required Prepayments........................................ 34 SECTION 3.03. Interest Payment Date....................................... 37 SECTION 3.04. Place, Etc. of Payments and Prepayments............................................ 37 ARTICLE IV Fees; Reduction of Commitments SECTION 4.01. Administration Fee.......................................... 38 SECTION 4.02. Commitment Fees............................................. 38 SECTION 4.03. Reduction or Termination of Commitments............................................ 38
3 2 ARTICLE V Application of Proceeds..................................... 39 ARTICLE VI Representations and Warranties SECTION 6.01. Organization; Qualification; Subsidiaries........................................... 39 SECTION 6.02. Financial Statements........................................ 40 SECTION 6.03. Actions Pending............................................. 41 SECTION 6.04. Default..................................................... 41 SECTION 6.05. Title to Assets; Licenses; Intellectual Property.................................. 41 SECTION 6.06. Payment of Taxes............................................ 42 SECTION 6.07. Conflicting or Adverse Agreements or Restrictions........................................ 42 SECTION 6.08. Purpose of Loans............................................ 42 SECTION 6.09. Authority; Validity......................................... 43 SECTION 6.10. Consents or Approvals....................................... 43 SECTION 6.11. Compliance with Law......................................... 43 SECTION 6.12. ERISA....................................................... 44 SECTION 6.13. Investment Company Act...................................... 44 SECTION 6.14. Disclosure.................................................. 45 SECTION 6.15. Insurance................................................... 45 SECTION 6.16. Environmental and Safety Matters............................ 45 SECTION 6.17. Restricted Subsidiaries..................................... 46 ARTICLE VII Conditions SECTION 7.01. Conditions Precedent to Closing............................. 46 SECTION 7.02. Conditions Precedent to Initial Borrowing.............................................. 48 SECTION 7.03. Conditions Precedent to Each Borrowing.............................................. 49 SECTION 7.04. Conditions Precedent to Borrowings that Increase Principal Outstanding.................................. 49
4 3 ARTICLE VIII Affirmative Covenants SECTION 8.01. Certain Financial Covenants................................. 51 SECTION 8.02. Financial Statements and Information............................................ 51 SECTION 8.03. Existence; Laws; Obligations................................ 54 SECTION 8.04. Notice of Litigation and Other Matters................................................ 54 SECTION 8.05. Books and Records........................................... 55 SECTION 8.06. Inspection of Property and Records................................................ 55 SECTION 8.07. Maintenance of Property, Insurance.............................................. 55 SECTION 8.08. ERISA....................................................... 56 SECTION 8.09. Maintenance of Business Lines............................... 56 SECTION 8.10. Further Assurances.......................................... 56 SECTION 8.11. Restricted/Unrestricted Designation of Subsidiaires............................ 57 ARTICLE IX Negative Covenants SECTION 9.01. Mortgages, Etc.............................................. 58 SECTION 9.02. Merger; Consolidation; Disposition of Assets.................................. 59 SECTION 9.03. Restricted Payments......................................... 60 SECTION 9.04. Limitation on Margin Stock.................................. 60 SECTION 9.05. Transactions with Affiliates................................ 60 SECTION 9.06. Loans and Advances to and Investments in Unrestricted Subsidiaries........................................... 61 SECTION 9.07. Certain Transfers........................................... 61 ARTICLE X Events of Default SECTION 10.01. Failure To Pay Principal or Interest............................................... 62 SECTION 10.02. Failure To Pay Other Sums................................... 63 SECTION 10.03. Failure To Pay Other Debt................................... 63
5 4 SECTION 10.04. Misrepresentation or Breach of Warranty............................................... 63 SECTION 10.05. Violation of Certain Covenants.............................. 64 SECTION 10.06. Violation of Other Covenants, Etc.................................................... 64 SECTION 10.07. Undischarged Judgment....................................... 64 SECTION 10.08. ERISA....................................................... 64 SECTION 10.09. Change of Control........................................... 64 SECTION 10.10. Assignment for Benefit of Creditors or Nonpayment of Debts.................................................. 64 SECTION 10.11. Voluntary Bankruptcy........................................ 65 SECTION 10.12. Involuntary Bankruptcy...................................... 65 SECTION 10.13. Dissolution................................................. 65 SECTION 10.14. Guarantee................................................... 65 ARTICLE XI Modifications, Amendments or Waivers.......................... 66 ARTICLE XII The Administrative Agent SECTION 12.01. Appointment of Administrative Agent.................................................. 67 SECTION 12.02. Indemnification of Administrative Agent.................................................. 68 SECTION 12.03. Limitation of Liability..................................... 68 SECTION 12.04. Independent Credit Decision................................. 69 SECTION 12.05. Rights of TCB............................................... 69 SECTION 12.06. Successor to the Administrative Agent.................................................. 70 ARTICLE XIII Guarantee.................................... 70
6 5 ARTICLE XIV Miscellaneous SECTION 14.01. Payment of Expenses......................................... 73 SECTION 14.02. Notices..................................................... 74 SECTION 14.03. Setoff...................................................... 75 SECTION 14.04. Indemnity and Judgments..................................... 76 SECTION 14.05. Interest.................................................... 77 SECTION 14.06. Governing Law; Submission to Jurisdiction; Venue.................................... 78 SECTION 14.07. Survival of Representations and Warranties; Binding Effect; Assignment............................................. 79 SECTION 14.08. Counterparts................................................ 83 SECTION 14.09. Severability................................................ 83 SECTION 14.10. Descriptive Headings........................................ 83 SECTION 14.11. Representation of the Banks................................. 83 SECTION 14.12. Final Agreement of the Parties.............................. 83 Waiver of Jury Trial........................................ 84
7 6 LIST OF EXHIBITS Exhibit 2.01(a) - Banks and Commitments Exhibit 2.01(g)(iv) - Eurocurrency Liabilities (Regulation D) Exhibit 6.01 - List of Subsidiaries Exhibit 6.03 - List of Actions Pending Exhibit 7.01(b) - Opinion of the Company's Counsel Exhibit 7.01(c) - Officer's Certificate Exhibit 7.02(c) - Certificate of Solvency Exhibit 8.10(a) - Additional Guarantor Agreement Exhibit 9.01(d) - List of Liens and Security Interests Exhibit 14.02 - Addresses for Notices Exhibit 14.07(c) - Assignment and Acceptance
8 FIVE-YEAR CREDIT AGREEMENT dated as of March 7, 1997 (this "Agreement"), among COX RADIO, INC., a Delaware corporation (the "Company"), the GUARANTORS referred to herein, the BANKS referred to herein, TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as administrative agent (the "Administrative Agent"), NATIONSBANK OF TEXAS, N.A., as syndications agent, and CITIBANK, N.A., as documentation agent. WHEREAS the Company, an indirect majority-owned subsidiary of Cox Enterprises (such term and each other capitalized term used but not defined in this Agreement having the meaning set forth in Article I hereof) proposes to acquire all the issued and outstanding shares of Capital Stock of NewCity Communications through the merger (the "Merger") of a Wholly Owned Subsidiary of the Company with and into NewCity Communications (the "Surviving Corporation") pursuant to the NewCity Merger Agreement. WHEREAS the Company has requested the Banks to make Loans to the Company in an aggregate amount not to exceed $300,000,000 at any time outstanding to be used to finance the payment of the consideration payable in the Merger of approximately $165,000,000 and additional acquisitions and for general corporate purposes. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereto agree as follows: ARTICLE I Definitions As used in this Agreement, the following words and terms shall have the respective meanings indicated opposite each of them and all accounting terms shall be construed in accordance with GAAP consistent with those 9 2 followed in the preparation of the financial statements referred to in Section 6.02, unless otherwise indicated: "Additional Guarantor Agreement" has the meaning specified in Section 8.10(a) hereof. "Administrative Agent" shall have the meaning set forth in the introductory paragraph of this Agreement. "Affiliate" shall mean, when used with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Agents' Fee Letters" shall mean the TCB Fee Letter, the fee letter dated as of February 5, 1997, between Citibank, N.A. and the Company, and the fee letter dated as of February 5, 1997, between NationsBank of Texas, N.A. and the Company. "Agreement" shall mean this Five-Year Credit Agreement, as the same may be amended from time to time. "Alternate Base Rate" shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) equal to the greater of (a) the Floating Rate in effect on such day; or (b) the Federal Funds Borrowing Rate in effect for such day plus 1/2 of 1%. For purposes of this Agreement, any change in the Alternate Base Rate due to a change in the Federal Funds Borrowing Rate shall be effective on the effective date of such change in the Federal Funds Borrowing Rate. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive, absent manifest error) that it is unable to ascertain, after reasonable efforts, the Federal Funds Borrowing Rate, the Alternate Base Rate shall be the Floating Rate until the circumstances giving rise to such inability no longer exist. "Alternate Base Rate Loans" shall mean the loans described in Section 2.01(d)(i) which bear interest at a rate based on the Alternate Base Rate. 10 3 "Assignment and Acceptance" has the meaning specified in Section 14.07(c) hereof. "Attributable Amount" shall mean, in connection with any designation of a Restricted Subsidiary as an Unrestricted Subsidiary or of an Unrestricted Subsidiary as a Restricted Subsidiary pursuant to Section 8.11, the amount of EBITDA for the most recent four consecutive fiscal quarter period for which financial statements have been delivered in accordance with Section 8.02, determined at the time of such designation, which was attributable to such Subsidiary. "Banks" shall mean the Persons listed on Exhibit 2.01(a) and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. "Borrowing Date" shall mean a date upon which a Borrowing is to be made under Section 2.01(a). "Borrowings" and individually, "Borrowing", shall mean Borrowings by the Company under Section 2.01(a) consisting of simultaneous Revolving Loans from the Banks. "Business Day" shall mean a day when the Reference Banks and the Administrative Agent are open for business; provided that in connection with Eurodollar Loans, it shall mean a day when the Reference Banks and the Administrative Agent are open for business and banks are authorized to be open for business in London and New York. "Capital Stock" of any Person shall mean any and all shares, interests, share capital, rights to subscribe for or purchase, warrants, options, participations or other equivalents of or interests or membership interests in (however designated) equity of such Person, including any Preferred Stock, any limited or general partnership interest and any limited liability company membership interest (but excluding any debt securities convertible into such equity), and any rights to subscribe for or purchase any thereof. "Cash Flow Producing Assets" shall mean (a) assets other than (i) cash equivalents and other 11 4 investments purchased in the ordinary course of the Company's cash management activities, (ii) office buildings and office equipment and supplies and (iii) other assets not comprising radio broadcast systems or portions thereof or not directly employed in the cash flow-producing activities of the Company and its Restricted Subsidiaries and (b) any Capital Stock of a Restricted Subsidiary substantially all of the assets of which constitute assets described in clause (a) above. "CD Rate" for any Interest Period shall mean, for each CD Rate Loan comprising all or part of the relevant Borrowing, an interest rate per annum determined by the Administrative Agent to be equal to the sum of: (a) the rate per annum obtained by dividing (i) the per annum rate of interest determined by the Administrative Agent to be the average (rounded upward to the nearest whole multiple of 0.01%, if such average is not such a multiple) of the bid rate determined independently by each Reference Bank at 9:00 a.m. (Dallas, Texas time), or as soon thereafter as is practicable, on the first day of such Interest Period, of a certificate of deposit dealer of recognized standing selected by each Reference Bank for the purchase at face value of its certificates of deposit in an amount approximately equal or comparable to the aggregate principal amount of such CD Rate Loans, with a maturity equal to such Interest Period, by (ii) the result obtained by subtracting from 100% all reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirements (expressed as a rate per annum) applicable (or scheduled at the time of determination to become applicable during such Interest Period) to such certificates of deposit, plus (b) the weighted average of annual assessment rates, determined by the Administrative Agent to be in effect on the first day of such Interest Period, used to determine the then current annual assessment payable by the Reference Banks to the Federal Deposit Insurance Corporation for such Corporation's insuring Dollar deposits of such Reference Banks in the United States. 12 5 "CD Rate Loans" shall mean the loans described in Section 2.01(d)(iii) which bear interest at a rate based on the CD Rate. A "Change of Control" shall be deemed to have occurred if (a) the Cox Family and Cox Enterprises shall cease at any time to own directly or indirectly Capital Stock of the Company carrying more than 50% of the voting power of all the outstanding voting stock of the Company, (b) any Person or group of Persons other than the Cox Family, Cox Enterprises and Persons Controlled by them shall have the right or ability, directly or indirectly, to cause the election of a majority of the directors of the Company, (c) the Cox Family shall cease at any time to own directly or indirectly at least 50.1% of the outstanding voting stock of Cox Enterprises, or (d) any Person or group of Persons other than the Cox Family shall have the right or ability, directly or indirectly, to cause the election of a majority of the directors of Cox Enterprises. "Closing Date" shall mean the date of this Agreement. "Commitment" shall mean as to any Bank the amount of such Bank's commitment to make Loans hereunder, as set forth beside such Bank's name on Exhibit 2.01(a) attached hereto or in any Assignment and Acceptance executed pursuant to Section 14.07(c), as such amount (a) may be reduced from time to time pursuant to the terms of this Agreement or pursuant to an Assignment and Acceptance or (b) may be increased from time to time pursuant to an Assignment and Acceptance, and "Commitments" shall mean the Commitments of all of the Banks. "Commitment Letter" shall have the meaning assigned to such term in Section 14.04 of this Agreement. "Commitment Fees" shall have the meaning set forth in Section 4.02. "Company" shall have the meaning set forth in the introductory paragraph of this Agreement. "Control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through 13 6 the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Counsel for the Company" shall mean Dow, Lohnes & Albertson, PLLC. "Cox Enterprises" shall mean Cox Enterprises, Inc., a Delaware corporation. "Cox Family" shall mean those certain trusts commonly referred to as the Dayton-Cox Trust A, the Barbara Cox Anthony Atlanta Trust, the Anne Cox Chambers Atlanta Trust, the Estate of James M. Cox, Jr., Barbara Cox Anthony, Garner Anthony, Anne Cox Chambers, and the estates, executors and administrators, and children of the above-named individuals, and any corporation, partnership or trust in which the above-named trusts or individuals in the aggregate have a beneficial interest of greater than 50%. "Debt" shall mean with respect to any Person and without duplication (a) indebtedness for borrowed money or for the deferred purchase price of Property or services in respect of which such Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which such Person directly or indirectly assures a creditor against loss, (b) the capitalized portions of obligations under leases which shall have been or should have been, in accordance with GAAP, recorded as capital leases, (c) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments and (d) all Guarantees by such Person of the Debt of others. "Default Rate" shall mean a rate per annum (for the actual number of days elapsed, based on a year of 365 or 366 days, as the case may be) which shall be equal to the lesser of (a) the Alternate Base Rate plus 2% or (b) the Highest Lawful Rate. "Depositary" shall have the meaning assigned to such term in Section 14.03 of this Agreement. "Discretionary Borrowings" and individually, "Discretionary Borrowing", shall mean borrowings by the 14 7 Company under Section 2.06 consisting of Discretionary Loans. "Discretionary Loans" and individually, "Discretionary Loan", shall mean loans made by a Bank pursuant to Section 2.06. "Dollars" and "$" shall mean lawful currency of the United States of America. "EBITDA" shall mean, with respect to the Company and its Restricted Subsidiaries on a consolidated basis for any period, the net income of the Company and its Restricted Subsidiaries on a consolidated basis for such period plus, to the extent deducted in computing such consolidated net income, without duplication, the sum of (a) income tax expense, (b) interest expense, (c) depreciation and amortization expense, (d) any extraordinary or non-recurring losses and (e) other noncash items reducing such consolidated net income, minus, to the extent added in computing such consolidated net income, without duplication, the sum of (i) interest income, (ii) any extraordinary or non-recurring gains and (iii) other noncash items increasing such consolidated net income, determined on a consolidated basis in accordance with GAAP. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Eurodollar Event" shall have the meaning assigned to such term in Section 2.01(e) of this Agreement. "Eurodollar Loans" shall mean the loans described in Section 2.01(d)(ii) which bear interest at a rate based on the Eurodollar Rate. "Eurodollar Rate" for any Interest Period shall mean, for each Eurodollar Loan comprising part of the relevant Borrowing, an interest rate per annum equal to the per annum rate of interest determined by the Administrative Agent to be the arithmetical average (rounded upward to the nearest whole multiple of 0.01%, if such average is not such a multiple) of the rate per annum at which deposits in Dollars are offered by the Lending Office of each Reference Bank to a prime bank in the interbank domestic eurodollar 15 8 market at 10:00 a.m. (Dallas, Texas time) two Business Days before the first day of such Interest Period for a period equal to such Interest Period and in an amount substantially equal to the amount of the relevant Eurodollar Loan of such Reference Bank during such Interest Period. "Event of Default" shall mean any of the events specified in Section 10; provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act, and "Default" shall mean any of such events, whether or not any such requirement has been satisfied. "FCC" shall mean the Federal Communications Commission or any successor governmental agency thereto. "Federal Funds Borrowing Rate" shall mean, for any day, a fluctuating interest rate per annum equal to the weighted average (rounded upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System for such day quoted by the Reference Banks to the Administrative Agent at 12:00 noon (Dallas, Texas time) on such day. "Fitch" shall mean Fitch Investors Service Inc. "Floating Rate" shall mean, as of a particular date, the prime rate most recently determined by TCB and thereafter entered in the minutes of TCB's Loan and Discount Committee. Without notice to the Company or any other Person, the Floating Rate shall change automatically from time to time as and in the amount by which said prime rate shall fluctuate, with each such change to be effective as of the date of each change in such prime rate. The Floating Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. TCB may make commercial loans or other loans at rates of interest at, above or below the Floating Rate. "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and 16 9 pronouncements of the Financial Accounting Standards Board, or in such other statements by such other entity as may be in general use by significant segments of the accounting profession, which are applicable to the circumstances as of the date of determination. "Guarantee" of or by any Person shall mean any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Debt of any other Person (the "Primary Obligor") (excluding endorsements of checks for collection or deposit in the ordinary course of business) in any manner, whether directly or indirectly, and including, without limitation, any obligation of such Person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Debt, (b) to purchase property, securities or services for the purpose of assuring the owner of such Debt of the payment of such Debt or (c) to maintain working capital, equity capital or other financial statement condition or liquidity of the Primary Obligor so as to enable the Primary Obligor to pay such Debt. "Guarantor" shall mean each Subsidiary executing this Agreement as a Guarantor and each other Subsidiary hereafter becoming a Guarantor as provided in Section 8.10. "Highest Lawful Rate" shall mean the maximum nonusurious interest rate, if any, that at any applicable time may be contracted for, taken, reserved, charged or received on any Loan or on the other amounts which may be owing to any Bank pursuant to this Agreement under the laws applicable to such Bank and this transaction. "Indemnified Liabilities" shall have the meaning assigned to such term in Section 14.04 of this Agreement. "Index Debt" shall mean senior, unsecured noncredit-enhanced, long-term Debt of the Company. "Interest Coverage Ratio" shall mean, at any time, the ratio of (a) EBITDA plus, to the extent subtracted in computing EBITDA, interest income to (b) Interest Expense, in each case for any four consecutive fiscal quarter period. 17 10 "Interest Expense" shall mean, with respect to the Company and its Restricted Subsidiaries on a consolidated basis for any period, interest expense of the Company and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Interest Payment Date" shall mean the last day of each Interest Period. "Interest Period" shall mean, with respect to each Loan made hereunder, the period commencing on the Borrowing Date of such Loan and (a) in the case of Alternate Base Rate Loans, ending not less than one nor more than 90 days thereafter; (b) in the case of Eurodollar Loans, ending one, two, three or six months thereafter; and (c) in the case of CD Rate Loans, ending 30, 60, 90 or 180 days thereafter; in each case as the Company may select in the Notice of Borrowing; provided, however, that (i) no Interest Period for a Loan may be chosen that would extend beyond the Maturity Date, (ii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day; provided that with respect to Eurodollar Loans, any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day only if such Business Day does not fall in another month, and in the event the next succeeding Business Day falls in another month, the Interest Period for such Eurodollar Loan shall be accelerated so that such Interest Period shall end on the next preceding Business Day and (iii) any Interest Period that begins on a day for which there is no numerically corresponding day in the last month of such Interest Period shall end on the last Business Day of the last month of such Interest Period. In no event shall there be more than ten Interest Periods in effect at any one time. 18 11 "Lending Office" shall mean, with respect to any Bank, its principal office in the city identified with such Bank in Exhibit 14.02 hereto, or such other office or branch of such Bank, or Affiliate of such Bank located in the United States (acting on behalf of such Bank as its "Lending Office" hereunder), as it shall designate in writing from time to time to the Company, as the case may be. "Leverage Ratio" shall mean, at any time, the ratio of (a) Total Debt, as of the last day of the fiscal quarter most recently ended, to (b) EBITDA, for any four consecutive fiscal quarter period. "Loans" and individually, "Loan", shall mean Revolving Loans and Discretionary Loans. "Majority Banks" shall mean Banks holding at least 51% of the aggregate Commitments. "Margin Percentage" shall mean at any date that percentage (a) to be added to the CD Rate or the Eurodollar Rate pursuant to Section 2.01(d)(iii) or Section 2.01(d)(ii) for purposes of determining the per annum rate of interest applicable from time to time to CD Rate Loans or Eurodollar Loans and (b) to be used in computing the Commitment Fee pursuant to Section 4.02, set forth under the appropriate column below opposite the Category in which the Company's Leverage Ratio, which in each case shall be determined as of the last day of and for 19 12 the most recent four consecutive fiscal quarter period for which financial statements have been delivered pursuant to Section 8.02:
Leverage Commitment Eurodollar CD Category Ratio Fee Spread Spread - -------- -------------- -------------- ----------- ------- Category < 3.00 0.10% 0.300% 0.425% 1 Category > 3.00 but < 0.10% 0.350% 0.475% 2 3.50 Category > 3.50 but < 0.15% 0.400% 0.525% 3 4.00 Category > 4.00 but < 0.15% 0.450% 0.575% 4 4.50 Category > 4.50 but < 0.20% 0.550% 0.675% 5 5.00 Category > 5.00 but < 0.25% 0.675% 0.800% 6 5.50 Category > 5.50 0.25% 0.800% 0.925% 7
provided that for any period during which financial statements have not been delivered as required under Section 8.02, the Margin Percentage shall be determined by reference to the Category which is one Category higher (based upon the number assigned to the Categories in the table above) than the Category in effect immediately prior to such period; and provided further, that the initial Margin Percentages will be based on Category 3 and such Margin Percentages shall not be based on a lower-numbered Category until such time as financial statements dated as of and for a period ended subsequent to the Merger have been delivered pursuant to Section 8.02. "Margin Stock" shall mean "margin stock" as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System. "Material FCC Licenses" shall have the meaning set forth in Section 8.04. 20 13 "Materially Adverse Effect" shall mean (a) a material and adverse effect on the business, properties, operations or financial condition of the Company and its Restricted Subsidiaries taken as a whole or (b) a material impairment of the rights or interests of the Banks in connection with this Agreement. "Maturity Date" shall mean the fifth anniversary of the Closing Date. "Maximum Permissible Rate" shall have the meaning set forth in Section 14.05. "Merger" shall have the meaning set forth in the introductory statement of this Agreement. "Moody's" shall mean Moody's Investors Service, Inc. "Net Cash Proceeds" shall mean (a) with respect to a sale, assignment, transfer or other disposition by the Company or any of its Restricted Subsidiaries to any Person other than the Company or any of its Restricted Subsidiaries of any Capital Stock or assets owned by such party, the gross cash proceeds to such party (including, without limitation, cash proceeds, whenever received, of any non-cash consideration) of such sale, assignment, transfer or other disposition, less the sum of (i) the reasonable costs associated with such sale, assignment, transfer or other disposition, including, without limitation, income taxes (as estimated by the Company or any of its Restricted Subsidiaries, as the case may be, in good faith), (ii) payments of the outstanding principal amount of, premium or penalty, if any, and interest on any Debt required to be, and which in fact is, prepaid under the terms thereof as a result of such disposition and (iii) appropriate amounts as a reserve, in accordance with GAAP, against any liabilities directly associated with the Capital Stock or assets sold and which liabilities are retained by the Company or any of its Restricted Subsidiaries after such sale, assignment, transfer or other disposition, including, without limitation, pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with such sale, assignment, transfer or disposition and (b) with respect to 21 14 any incurrence of Debt, cash proceeds net of underwriting commissions or placement fees and expenses directly incurred in connection therewith. "NewCity Communications" shall mean, prior to the Merger, NewCity Communications, Inc., a Delaware corporation, and, following the Merger, the Surviving Corporation. "NewCity Merger Agreement" shall mean the Agreement and Plan of Merger dated as of July 1, 1996, among the Company, New Cox Radio II, Inc., a Wholly Owned Subsidiary of the Company, certain stockholders of NewCity Communications and John Riccardi as agent for such stockholders. "Notice of Borrowing" shall have the meaning set forth in Section 2.01(b). "Obligations" shall mean the obligations of the Company under this Agreement (as it may hereafter be amended, restated, extended, supplemented or otherwise modified from time to time) with respect to (a) the principal amount of the Loans, (b) interest on the Loans and (c) all other monetary obligations of the Company under this Agreement. "Officer's Certificate" shall mean a certificate signed in the name of the Company by either its chief executive officer, its president, its chief financial officer, one of its vice presidents or its treasurer. "PBGC" shall have the meaning set forth in Section 6.12. "Person" shall mean an individual, partnership, joint venture, corporation, company, limited liability company, bank, trust, unincorporated organization or a government or any department or agency thereof or any other entity. "Plan" shall mean any employee pension benefit plan within the meaning of Article IV of ERISA which is either (i) maintained for employees of the Company, of any Subsidiary, or of any member of a "controlled group of corporations" or "combined group of trades or businesses 22 15 under common control" as such terms are defined, respectively, in Sections 414(b) and (c) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder, of which the Company or any Subsidiary is a party, or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which the Company, any Subsidiary or any member of a "controlled group of corporations" or "combined group of trades or businesses under common control" defined as aforesaid, is at the time in question making or accruing an obligation to make contributions or has within the preceding five plan years made contributions. "Preferred Stock", as applied to the Capital Stock of any Person, shall mean Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. "Pro Forma Compliance" shall mean the compliance by the Company on a pro forma basis with the covenants set forth in subsection 8.01 for the four fiscal quarter period ending on the last day of the most recently ended fiscal quarter for which financial statements have been delivered in accordance with subsection 8.02 as if the designation of a Restricted Subsidiary or an Unrestricted Subsidiary with respect to which Pro Forma Compliance is being measured had occurred on the first day of such period. "Pro Forma EBITDA" shall mean EBITDA, excluding therefrom EBITDA attributable to any Property sold or otherwise disposed of other than in the ordinary course of business during any applicable period as if such Property were not owned at any time during such period, and including therein EBITDA attributable to any Property acquired other than in the ordinary course of business during any applicable period as if such Property were at all times owned during such period. "Pro Rata Share" shall mean, with respect to any Bank, a fraction (expressed as a percentage rounded upward to the nearest whole multiple of 0.000000001%) (a) the numerator of which shall be the amount equal to such Bank's 23 16 Commitment, and (b) the denominator of which shall be the aggregate amount of all Banks' Commitments. "Property" shall mean all types of real and personal property, whether tangible, or intangible or mixed. "Quarterly Date" shall mean the last day of each March, June, September and December, beginning with March 31, 1997, or if any such date is not a Business Day, the next succeeding Business Day. "Reference Banks" and individually "Reference Bank", shall mean TCB, NationsBank of Texas, N.A. and Citibank, N.A. "Register" shall have the meaning set forth in Section 14.07(e) hereof. "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System. "Required Prepayment Date" shall have the meaning set forth in Section 2.01(e)(i) hereof. "Restricted Subsidiary" means each Subsidiary other than those Subsidiaries identified as Unrestricted Subsidiaries in Exhibit 6.01; provided, however, that subject to Section 8.11, a Restricted Subsidiary may be designated by the Company as an Unrestricted Subsidiary or an Unrestricted Subsidiary may be redesignated by the Company as a Restricted Subsidiary; provided further, that after the initial designation of an Unrestricted Subsidiary by the Company, only five further redesignations of such Subsidiary shall be permitted. "Revolving Loans" and individually, "Revolving Loan" shall mean CD Rate Loans, Alternate Base Rate Loans or Eurodollar Loans made pursuant to Section 2.01(a). "S&P" shall mean Standard & Poor's Rating Group. "Subsidiary" shall mean, with respect to the Company at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the 24 17 Company in the Company's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the Company or one or more Subsidiaries of the Company or by the Company and one or more Subsidiaries of the Company. "Surviving Corporation" shall have the meaning assigned to such term in the introductory statement of this Agreement. "TCB" shall mean Texas Commerce Bank National Association, a national banking association. "TCB Fee Letter" shall mean the fee letter dated as of February 5, 1997, between TCB and the Company. "Total Debt" shall mean, as of any date and without duplication, all Debt of the Company and its Restricted Subsidiaries on a consolidated basis determined in accordance with GAAP, including, without limitation, Guaranties of Debt obligations of third parties and obligations under or with respect to standby letters of credit of the Company and its Restricted Subsidiaries. "Transactions" shall mean (a) the Merger and (b) the other transactions contemplated hereby, including the initial Borrowing hereunder. "Unrestricted Subsidiary" means any Subsidiary so designated in accordance with the terms of this Agreement. "Wholly Owned", when used with respect to a Subsidiary, shall mean the beneficial ownership by the Company of 100% of the Capital Stock of such Subsidiary. 25 18 ARTICLE II The Loans SECTION 2.01. The Revolving Loans. (a) Revolving Loan Commitment. Subject to and upon the terms and conditions set forth in this Agreement, each Bank severally agrees to make Revolving Loans in Dollars to the Company on any one or more Business Days on or after the date hereof and prior to the Maturity Date, up to an aggregate principal amount of Revolving Loans not exceeding at any one time outstanding an amount equal to such Bank's Commitment made to the Company by such Bank, if any; provided, however, in no event shall the aggregate outstanding principal amount at any time of the Revolving Loans and the Discretionary Loans exceed $300,000,000, as such amount may be reduced pursuant to the terms of this Agreement. Each Borrowing shall be in an aggregate amount of not less than $3,000,000 and an integral multiple of $250,000. Subject to the foregoing, each Borrowing shall be made simultaneously from the Banks according to their Pro Rata Shares of the principal amount requested for each Borrowing, and shall consist of Revolving Loans of the same type (e.g., CD Rate Loans, Alternate Base Rate Loans or Eurodollar Loans) with the same Interest Period from each Bank. Within such limits and during such period, the Company may borrow, repay and reborrow under this Section 2.01(a) (including, without limitation, reborrowings for the sole purpose of refinancing any Revolving Loan). (b) Borrowing Procedures; Delivery of Proceeds; Recordation of Loans. (i) Each Borrowing under this Section 2.01 shall be made on at least (A) in the case of a Borrowing consisting of Alternate Base Rate Loans, prior oral or written notice from the Company to the Administrative Agent by 9:00 a.m. (Dallas, Texas time) on the same day as the requested Borrowing (and the Administrative Agent shall prior to 12:00 noon (Dallas, Texas time) on the date such notice is received by the Administrative Agent provide oral or written notice of the requested Borrowing to the Banks, and each Reference Bank shall then provide to the Administrative Agent not later than 12:15 p.m. (Dallas, Texas time) oral or written notice of the rate on overnight Federal funds for such day offered at 12:00 noon (Dallas, Texas time) by such Reference Bank 26 19 to the Company, and the Alternate Base Rate determined by the Administrative Agent shall be conveyed by the Administrative Agent by oral or written communication to all of the Banks by 1:00 p.m. (Dallas, Texas time) on the Borrowing Date), (B) in the case of a Borrowing consisting of Eurodollar Loans, three Business Days' prior written or oral notice from the Company to the Administrative Agent by 9:00 a.m. (Dallas, Texas time) and (C) in the case of a Borrowing consisting of CD Rate Loans, one Business Day's prior written or oral notice from the Company to the Administrative Agent by 9:00 a.m. (Dallas, Texas time) (and the Administrative Agent shall, in the case of (B) and (C) above, provide to each Bank prior oral or written notice of the requested borrowing by 11:30 a.m. (Dallas, Texas time) on the date such notice is received by the Administrative Agent) (in each case, a "Notice of Borrowing"); provided, however, with respect to each oral Notice of Borrowing, the Company shall deliver promptly (and in any event, no later than two Business Days after the giving of such oral notice) to the Administrative Agent a confirmatory written Notice of Borrowing. Each Notice of Borrowing shall be irrevocable and shall specify: (w) the total principal amount of the proposed Borrowing, (x) whether the Borrowing will be comprised of CD Rate Loans, Alternate Base Rate Loans or Eurodollar Loans, (y) the applicable Interest Period for such Loans (which may not extend beyond the Maturity Date), and (z) the Borrowing Date. The Administrative Agent shall promptly give like notice to the other Banks, and on the Borrowing Date each Bank shall make its Pro Rata Share of the Borrowing available at the principal banking office of the Administrative Agent, 2200 Ross Avenue, Dallas, Texas 75201, no later than 3:30 p.m. (Dallas, Texas time) in the case of a Borrowing consisting of Alternate Base Rate Loans, and no later than 2:00 p.m. (Dallas, Texas time) in the case of all other Borrowings, in each case in immediately available funds. (ii) The Administrative Agent shall pay or deliver the proceeds of each Borrowing to or upon the order of the Company. Each Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness to such Bank resulting from each Loan, from time to time, including, without limitation, the amounts of principal and interest payable and paid such Bank from time to time under this Agreement. The Administrative Agent shall maintain accounts in which it 27 20 will record (A) the principal amount of each Loan made hereunder, the type of each Loan and the Interest Period applicable thereto, (B) the amount of any principal or interest due and payable or to become due and payable from the Company to each Bank hereunder and (C) the amount of any sum received by the Administrative Agent hereunder from the Company and each Bank's Pro Rata Share thereof. The entries made in the accounts maintained pursuant to this paragraph shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of any Bank or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Company to repay the Loans in accordance with their terms. (c) Substitute Rate. Anything in this Agreement to the contrary notwithstanding, if at any time prior to the determination of the rate with respect to any proposed Loan (i) the Majority Banks in their discretion shall determine with respect to Eurodollar Loans to be made by them on the applicable Borrowing Date of such Loan that there is a reasonable probability that Dollar deposits will not be offered to such Banks in the interbank eurodollar market for a period of time equal to the applicable Interest Period in amounts equal to the amount of each such Bank's Eurodollar Loan in Dollars or (ii) the Administrative Agent in its discretion shall determine with respect to CD Rate Loans to be made by the Banks on the applicable Borrowing Date of such proposed Loan that bid rates will not be provided by certificate of deposit dealers of recognized standing for the purchase at face value of certificates of deposit of the Reference Banks for a period of time equal to the applicable Interest Period in amounts approximately equal or comparable to the aggregate principal amount of such Loans with a maturity equal to the applicable Interest Period, then: (A) the Majority Banks (acting through the Administrative Agent) or the Administrative Agent, as the case may be, shall give the Company notice thereof, and in the case of subsection (ii) above, the Adminstrative Agent shall also give the Banks notice thereof, and (B) Alternate Base Rate Loans shall be made having an Interest Period of 10 days in lieu of any 28 21 Eurodollar Loans or CD Rate Loans that were to have been made at such time. (d) Interest. The Loans shall bear interest as follows: (i) Each Alternate Base Rate Loan shall bear interest on the unpaid principal amount thereof from time to time outstanding at a rate per annum (for the actual number of days elapsed, based on a year of 365 or 366 days, as the case may be) which shall be equal to the lesser of (A) the Alternate Base Rate or (B) the Highest Lawful Rate. (ii) Each Eurodollar Loan shall bear interest on the unpaid principal amount thereof from time to time outstanding at a rate per annum (for the actual number of days elapsed, based on a year of 360 days) which shall be equal to the lesser of (A) the Eurodollar Rate plus the applicable Margin Percentage, or (B) the Highest Lawful Rate. (iii) Each CD Rate Loan shall bear interest on the unpaid principal amount thereof from time to time outstanding at a rate per annum (for the actual number of days elapsed, based on a year of 360 days) which shall equal to the lesser of (A) the CD Rate plus the applicable Margin Percentage, or (B) the Highest Lawful Rate. (iv) Interest on the outstanding principal of each Loan shall accrue from and including the Borrowing Date for such Loan to but excluding the date such Loan is paid in full and shall be due and payable (A) on the Interest Payment Date for each such Loan, (B) as to any Eurodollar Loan having an Interest Period greater than three months, at the end of the third month of the Interest Period for such Loan, (C) as to any CD Rate Loan having an Interest Period greater than 90 days, on the 90th day of the Interest Period for such Loan, and (D) as to all Loans, at maturity, whether by acceleration or otherwise, or after notice of prepayment in accordance with Section 2.01(e)(i) or Section 3.01(c) hereof, on and after the Required Prepayment Date or the applicable prepayment date, as the case may be, as specified in such notice. 29 22 (v) Past due principal, whether pursuant to acceleration or the Company's failure to make a prepayment on the date specified in the applicable prepayment notice or otherwise, and, to the extent permitted by applicable law, past due interest and (after the occurrence of an Event of Default) past due fees, pursuant to acceleration or otherwise, shall bear interest from their respective due dates, until paid, at the Default Rate and shall be due and payable upon demand. (e) Change of Law. (i) Anything in this Agreement to the contrary notwithstanding, if at any time any Bank in good faith determines (which determination shall be conclusive) that any change after the date hereof in any applicable law, rule or regulation or in the interpretation or administration thereof makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful (any of the above being described as a "Eurodollar Event") for such Bank or its foreign branch or branches to maintain or fund any Loan in Dollars by means of Dollar deposits obtained in the interbank eurodollar market then, at the option of such Bank, the aggregate principal amount of each of such Bank's Eurodollar Loans then outstanding, which Loans are directly affected by such Eurodollar Events, shall be prepaid in Dollars, and any remaining obligation of such Bank hereunder to make Eurodollar Loans (but not CD Rate Loans or Alternate Base Rate Loans) shall be suspended for so long as such Eurodollar Events shall continue. Upon the occurrence of any Eurodollar Event and at any time thereafter so long as such Eurodollar Event shall continue, such Bank may exercise its aforesaid option by giving written notice thereof to the Administrative Agent and the Company. Any prepayment of any Eurodollar Loan which is required under this Section 2.01(e) shall be made, together with accrued and unpaid interest and all other amounts payable to such Bank under this Agreement with respect to such prepaid Loan (including, without limitation, amounts payable pursuant to Section 2.01(f)), on the date stated in the notice to the Company referred to above, which date ("Required Prepayment Date") shall be not less than 15 days (or such earlier date as shall be necessary to comply with the relevant law, rule or regulation) from the date of such notice. If any Eurodollar Loan is required to be prepaid under this Section 2.01(e), the Banks agree that at the written 30 23 request of the Company, the Bank that has made such Eurodollar Loan shall make an Alternate Base Rate Loan or a CD Rate Loan on the Required Prepayment Date to the Company in the same principal amount, in Dollars, as the Eurodollar Loan of such Bank being so prepaid. Any such written request by the Company for Alternate Base Rate Loans or a CD Rate Loan under this Section 2.01(e) shall be irrevocable and, in order to be effective, must be delivered to the Administrative Agent not less than one Business Day prior to the Required Prepayment Date. (ii) Notwithstanding the foregoing, in the event the Company is required to pay to any Bank amounts with respect to any Borrowing pursuant to Section 2.01(e)(i), the Company may give notice to such Bank (with copies to the Administrative Agent) that it wishes to seek one or more assignees (which may be one or more of the Banks) to assume the Commitment of such Bank and to purchase its outstanding Loans and the Administrative Agent will use its best efforts to assist the Company in obtaining an assignee; provided that if more than one Bank requests that the Company pay substantially and proportionately equal additional amounts under Section 2.01(e)(i) and the Company elects to seek an assignee to assume the Commitments of any of such affected Banks, the Company must seek an assignee or assignees to assume the Commitments of all of such affected Banks. Each Bank requesting compensation pursuant to Section 2.01(e)(i) agrees to sell its Commitment, Loans and interest in this Agreement in accordance with Section 14.07 to any such assignee for an amount equal to the sum of the outstanding unpaid principal of and accrued interest on such Loans in Dollars plus all other fees and amounts (including, without limitation, any compensation claimed by such Bank under Section 2.01(e)(i) and Section 2.01(f)) due such Bank hereunder calculated, in each case, to the date such Commitment, Loans and interest are purchased. Upon such sale or prepayment, each such Bank shall have no further Commitment or other obligation to the Company hereunder. (f) Funding Losses. In the event of (i) any payment or prepayment (whether authorized or required hereunder pursuant to acceleration or otherwise) of all or a portion of any CD Rate Loan or Eurodollar Loan on a day other than an Interest Payment Date, (ii) any payment or prepayment (whether authorized or required hereunder 31 24 pursuant to acceleration or otherwise), of any CD Rate Loan or Eurodollar Loan made after the delivery of the Notice of Borrowing for such CD Rate Loan or Eurodollar Loan, but before the Borrowing Date therefor, if such payment or prepayment prevents such CD Rate Loan or Eurodollar Loan from being made in full, (iii) the failure of any Loan to be made by any Bank due to any condition precedent to a Loan not being satisfied or as a result of this Section 2.01 or (iv) due to any other action or inaction of the Company, the Company shall pay, in Dollars, to each affected Bank upon its request made on or before 45 days after the occurrence of any such event, acting through the Administrative Agent, such amount or amounts (to the extent such amount or amounts would not be usurious under applicable law) as may be necessary to compensate such Bank for any direct or indirect costs and losses incurred by such Bank (including, without limitation, such amount or amounts as will compensate it for the amount by which the rate of interest on such Loan immediately prior to such repayment exceeds the Eurodollar Rate or the CD Rate, for the period from the date of such prepayment to the Interest Payment Date with respect to such prepaid Loan, all as determined in good faith by such Bank) but otherwise without penalty. Any such claim by a Bank for compensation shall be made through the Administrative Agent and shall be accompanied by a certificate signed by an officer of such Bank authorized to so act on behalf of such Bank, setting forth the computation upon which such claim is based. The obligations of the Company under this Section 2.01(f) shall survive the termination of this Agreement and/or the payment of the obligations hereunder. (g) Increased Costs--Taxes, Reserve Requirements, Etc. (i) The Company for and on behalf of each Bank shall pay or cause to be paid directly to the appropriate governmental authority or shall reimburse or compensate each Bank upon demand by such Bank, acting through the Administrative Agent, for all costs incurred, losses suffered or payments made, as determined by such Bank, by reason of any and all present or future taxes (including, without limitation, any interest equalization tax or any similar tax on the acquisition of debt obligations), levies, imposts or any other charge of any nature whatsoever imposed by any taxing authority, whether or not such taxes were correctly or legally asserted, on or with regard to any aspect of the transactions with respect 32 25 to this Agreement and the Loans, except such taxes as may be measured by the overall net income of a Bank or its Lending Office and increase in franchise taxes imposed by the jurisdiction, or any political subdivision or taxing authority thereof, in which such Bank's principal executive office or its Lending Office is located. (ii) The Company shall pay immediately upon demand by any Bank, acting through the Administrative Agent, any applicable stamp and registration taxes, duties, official and sealed paper taxes, or similar charges due, or which under currently applicable law could in the future become due, or which may in the future become due as a result of any change in applicable law, the interpretation thereof, or otherwise, in connection with any Loans or this Agreement or in connection with the enforcement hereof. (iii) If any Bank or the Administrative Agent receives a refund in respect of taxes for which such Bank or the Administrative Agent has received payment from the Company hereunder, it shall promptly notify the Company of such refund and shall, within 30 days after receipt of such refund, repay such refund to the Company with interest if any interest is received thereon by such Bank or the Administrative Agent; provided that the Company, upon the request of such Bank or the Administrative Agent, agrees to return such refund (plus penalties, interest or other charges) to such Bank or the Administrative Agent in the event such Bank or the Administrative Agent is required to repay such refund. (iv) (A) The Company shall reimburse or compensate each Bank upon demand by such Bank, acting through the Administrative Agent, for all costs incurred, losses suffered or payments made in connection with any CD Rate Loans or Eurodollar Loans or any part thereof which costs, losses or payments are a result of any present or future reserve, special deposit or similar requirement against assets of, liabilities of, deposits with or for the account of, or Loans by such Bank imposed on such Bank, its foreign lending branch or the interbank eurodollar market by any regulatory authority, central bank or other governmental authority, whether or not having the force of law, including, without limitation, Regulation D. 33 26 (B) If as a result of (y) the introduction of or any change in or in the interpretation or administration of any law or regulation or (z) the compliance with any request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Bank of agreeing to make or making, funding or maintaining Loans for which such Bank shall not have been reimbursed pursuant to the provisions of clause (A) above, then the Company shall from time to time, upon demand by such Bank, acting through the Administrative Agent, pay to such Bank additional amounts sufficient to indemnify such Bank against the full amount of such increased cost. (C) Any Bank claiming reimbursement or compensation under this Section 2.01(g)(iv) shall make its demand on or before 45 days after the end of each Interest Period during which any such cost is incurred, loss is suffered or payment is made and shall provide the Administrative Agent, who in turn shall provide the Company, with a written statement of the amount and basis of its request, which statement, subject to Section 2.01(h), shall be conclusive absent manifest error; provided that in the event any reimbursement or compensation demanded by a Bank under this Section 2.01(g) is a result of reserves actually maintained pursuant to the requirements imposed by Regulation D with respect to "Eurocurrency liabilities" (as defined or within the meaning of such Regulation), such demand shall be accompanied by a statement of such Bank in the form of Exhibit 2.01(g)(iv) attached hereto. No Bank may request reimbursement or compensation under this Section 2.01(g)(iv) for any period prior to the period for which demand has been made in accordance with the foregoing sentence. Such statement shall be conclusive and binding on the Company, subject to Section 2.01(h), except in the case of manifest error. In preparing any statement delivered under this Section 2.01(g)(iv), such Bank may employ such assumptions and allocations of costs and expenses as it shall in good faith deem reasonable and may be determined by any reasonable averaging and attribution method. So long as any notice requirement provided for herein has been satisfied, any decision by the Administrative Agent or any Bank not to require payment of any interest, cost or other amount payable under this Section 2.01(g)(iv), or to calculate any amount payable by 34 27 a particular method, on any occasion, shall in no way limit or be deemed a waiver of the Administrative Agent's or such Bank's right to require full payment of any interest, cost or other amount payable hereunder, or to calculate any amount payable by another method, on any other or subsequent occasion for a subsequent Interest Period. (v) If any Bank shall have determined in good faith that any applicable law, rule, regulation or guideline regarding capital adequacy now or hereafter in effect, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or any Lending Office of such Bank) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank or comparable agency has the effect of reducing the rate of return on such Bank's capital or the capital of any corporation Controlling such Bank as a consequence of its obligations hereunder to a level below that which such Bank would have achieved as a consequence of its obligations hereunder but for such adoption, change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by an amount deemed in good faith by such Bank to be material, then from time to time, upon notice by the Bank requesting (through the Administrative Agent) compensation, under this Section 2.01(g)(v) within a reasonable period of time after such Bank has obtained knowledge of such event, the Company shall pay to the Administrative Agent for the account of such Bank such additional amount or amounts as will compensate such Bank for such reduction. Any such claim by a Bank for compensation shall be made through the Administrative Agent and shall be accompanied by a certificate signed by an officer of such Bank authorized to so act on behalf of such Bank setting forth the calculation upon which such claim is based. (vi) Notwithstanding the foregoing, in the event the Company is required to pay to any Bank amounts pursuant to Section 2.01(g)(iv)(A), Section 2.01(g)(iv)(B) or Section 2.01(g)(v), the Company may give notice to such Bank (with copies to the Administrative Agent) (A) that it wishes to seek one or more assignees (which may be one or 35 28 more of the Banks) to assume the Commitment of such Bank and to purchase its outstanding Loans, in which case the Administrative Agent will use its best efforts to assist the Company in obtaining an assignee, or (B) in the case of any Bank that became a Bank pursuant to an assignment under Section 14.07, that it wishes to terminate the Commitment of such Bank; provided that if more than one Bank requests that the Company pay substantially and proportionately equal additional amounts under Section 2.01(g)(iv)(A), Section 2.01(g)(iv)(B) or Section 2.01(g)(v) and the Company elects to seek an assignee to assume, or to terminate, the Commitments of any of such affected Banks, the Company must seek an assignee or assignees to assume, or must terminate, as the case may be, the Commitments of all of such affected Banks. Each Bank requesting compensation pursuant to Section 2.01(g)(iv)(A), Section 2.01(g)(iv)(B) or Section 2.01(g)(v) agrees to sell its Commitment, its outstanding Loans and interest in this Agreement in accordance with Section 14.07 to any such assignee for an amount equal to the sum of, and agrees that its Commitment shall be terminated as provided above upon payment to it by the Company of, the outstanding unpaid principal of and accrued interest on its outstanding Loans in Dollars plus all other fees and amounts (including, without limitation, any compensation claimed by such Bank under Section 2.01(f), Section 2.01(g)(iv)(A), Section 2.01(g)(iv)(B) or Section 2.01(g)(v)) due such Bank hereunder calculated, in each case, to the date such Commitment, Loans and interest are purchased or such amounts are paid, as the case may be. Upon such sale or prepayment, each such Bank shall have no further Commitment or other obligation to the Company hereunder. (vii) Any Bank claiming any amounts pursuant to this Section 2.01(g) shall use its reasonable good faith efforts (consistent with its internal policies and legal and regulatory restrictions) to avoid or minimize the payment by the Company of any amounts under this Section 2.01(g), including, without limitation, changing the jurisdiction of its Lending Office; provided that no such change or action shall be required to be made or taken if, in the reasonable judgment of such Bank, such change would be materially disadvantageous to such Bank. (viii) The aggregate amount payable, reimbursable or compensable by the Company to or for the account of a 36 29 Bank under this Section 2.01(g) shall not include any cost covered by the amount received by such Bank from the Company through the Administrative Agent in connection with the calculation of the CD Rate. The Company agrees to indemnify and hold the Administrative Agent and each Bank harmless from and against any and all liabilities with respect to or resulting from any delay in the payment or omission to pay such amounts. The obligations of the Company under this Section 2.01(g) created in accordance with this Section 2.01(g) shall survive the termination of the Commitments, this Agreement and the payment of the Obligations hereunder. (h) Calculation Errors. Each calculation by the Administrative Agent or any Bank with respect to amounts owing or to be owing by the Company pursuant to this Agreement or any Loan shall be conclusive except in the case of error. In the event the Administrative Agent determines within a reasonable time that any such error shall have occurred in connection with the determination of the applicable interest rate for any Loan which results in the Company paying either more or less than the amount which would have been due and payable but for such error, then (i) any Bank that received an overpayment or underpayment or (ii) the Company, as the case may be, shall promptly refund or pay, as the case may be, to the other any such overpayment or underpayment. In the event it is determined within a reasonable time that any Bank, acting through the Administrative Agent, has miscalculated any amount for which it has demanded reimbursement or compensation from the Company in respect of amounts owing by the Company other than interest which results in the Company paying more or less than the amount which would have been due and payable but for such error, such Bank or the Company, as the case may be, shall promptly refund or pay, as the case may be, to the other the full amount of such overpayment or underpayment. In the event it is determined within a reasonable time that the Company has miscalculated the Commitment Fees due under Section 4.02 which results in the Company paying more or less than the amount which would have been due and payable but for such error, (y) any Bank that received an overpayment or underpayment or (z) the Company, as the case may be, shall promptly refund or pay, as the case may be, the full amount of the overpayment or underpayment. 37 30 SECTION 2.02. Setoff, Counterclaims and Taxes. All payments (whether of principal, interest, fees, reimbursements or otherwise) under this Agreement shall be made by the Company without setoff or counterclaim and shall be made free and clear of and without deduction (except as specifically contemplated in Section 2.03 below) for any present or future tax, levy, impost, or any other charge, if any, of any nature whatsoever now or hereafter imposed by any governmental authority (including, without limitation, withholdings of United States taxes, except as otherwise provided in Section 2.03). Except as specifically provided in Section 2.03 below, if the making of such payments is prohibited by law unless such tax, levy, impost, or other charge is deducted or withheld therefrom, the Company shall pay to the Administrative Agent for the account of each Bank, on the date of each such payment, such additional amounts as may be necessary in order that the net amounts received by such Bank after such deduction or withholding shall equal the amounts in Dollars which would have been received if such deduction or withholding were not required. The Company shall confirm that all applicable taxes, if any, imposed on this Agreement or transactions hereunder shall have been properly and legally paid by it to the appropriate taxing authorities by sending official tax receipts or notarized copies of such receipts to the Administrative Agent within 30 calendar days after payment of any applicable tax. Upon request of any Bank, the Administrative Agent shall forward to such Bank a copy of such official receipt or a copy of such notarized copy of such receipt. SECTION 2.03. Withholding Tax Exemption. At least five Business Days prior to the first date on which interest or fees are payable hereunder to the Banks, if any Bank is not incorporated or organized under the laws of the United States of America, or a state thereof, such Bank agrees that it will deliver to the Company (with a copy to the Administrative Agent) a duly completed copy of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Bank is entitled to receive payments under this Agreement without deduction or withholding of any United States Federal income taxes. If such Bank delivers a Form 1001 or 4224, such Bank further undertakes to deliver to the Company (with a copy to the Administrative Agent) an additional copy of such form (or a successor form) on or before the date that such form 38 31 expires (currently, three successive calendar years for Form 1001 and one calendar year for Form 4224) or becomes obsolete or after the occurrence of any event requiring a change in the most recent forms so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Company, in each case certifying that such Bank is entitled to receive payments under this Agreement without deduction or withholding of any United States Federal income taxes, unless an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Bank from duly completing and delivering any such form with respect to it and such Bank advises the Company (and the Administrative Agent) that it is not capable of receiving payments without any deduction or withholding of United States Federal income tax. In no event will any withholding by the Company of interest payable by any Bank as contemplated by this Section 2.03 give rise to a Default under Section 10.01 with respect to payments of interest. SECTION 2.04. Obligations Several, Not Joint. The obligations of the Banks hereunder are several and not joint. The failure of any Bank to make the Loan to be made by it as part of any Borrowing shall not relieve any other Bank of its obligation to make its Loan on the date of such Borrowing, and no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank on the date of any Borrowing. SECTION 2.05. Evidence of Debt. Any Bank may request that Loans made by it be evidenced by a promissory note. In such event, the Company shall prepare, execute and deliver to such Bank a promissory note payable to the order of such Bank (or, if requested by such Bank, to such Bank and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 14.07) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). 39 32 SECTION 2.06. Discretionary Loans. (a) Each Bank may, in its sole discretion and on terms and conditions in writing satisfactory to it and the Company that are not inconsistent with the provisions of this Agreement, make additional Loans to the Company under its Commitment on any one or more Business Days on or after the date hereof and prior to the Maturity Date, which Discretionary Loans will be payable to the appropriate Bank upon such terms and conditions; provided, however, that the Company will not permit to remain outstanding any Discretionary Loans from any Bank, and no Bank will make any Discretionary Loans to the Company, if the aggregate principal amount of the Discretionary Loans and the Revolving Loans made by such Bank exceeds such Bank's Commitment. Should any Discretionary Loan be outstanding from any Bank on a date on which a Borrowing is to be made, such Borrowing shall be made available only if the Company has paid or shall simultaneously with the making of such Borrowing pay such portions of Discretionary Loans (including, without limitation, the payment of the amount of any losses payable pursuant to Section 2.01(f) actually incurred by such Bank as a result of such prepayment) as shall be necessary to make available a portion of each Bank's Commitment at least equal to such Bank's Pro Rata Share of such Borrowing. No Discretionary Loan shall have a maturity date or interest period that extends beyond the Maturity Date. Each Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness to such Bank resulting from each Discretionary Loan made by such Bank. The entries made in the accounts maintained pursuant to this Section 2.06(a) shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of any Bank to maintain such accounts or any error therein shall not in any manner affect the obligation of the Company to repay the Discretionary Loans in accordance with their terms. (b) Promptly upon written request of the Administrative Agent, each Bank will certify in writing the borrowing date, the principal amount and the maturity date of any Discretionary Loans made during any period for which the Commitment Fees under Section 4.02 are to be calculated. The Company agrees to certify to the Administrative Agent at the request of the Administrative Agent on or before (i) each Borrowing and each 40 33 Discretionary Borrowing, the borrowing date, the principal amount, the maturity date and the lending Bank for each outstanding Discretionary Loan and (ii) each Quarterly Date, the borrowing date, the principal amount, the maturity date and the lending Bank for all Discretionary Loans made during any period for which the Commitment Fees under Section 4.02 are to be calculated. ARTICLE III Optional and Required Prepayments; Interest Payment Date; Other Payments SECTION 3.01. Optional Prepayments. Loans may be prepaid in whole or from time to time in part at the option of the Company on any Business Day, without premium or penalty, notwithstanding that such Business Day is not an Interest Payment Date, provided that: (a) losses, if any, incurred by any Bank under Section 2.01(f) shall be payable with respect to each such prepayment of any such Eurodollar Loan or CD Rate Loan; and (b) all partial prepayments shall be in an aggregate principal amount of at least $2,000,000 and an integral multiple of $200,000; and (c) the Company shall give the Administrative Agent not less than one full Business Day's prior oral or written notice of each prepayment of any Eurodollar Loans or CD Rate Loans, or any portion thereof, and notice to the Administrative Agent not less than 9:00 a.m. (Dallas, Texas time) on the same day of the prepayment of Alternate Base Rate Loans, or any portion thereof, proposed to be made pursuant to this Section 3.01, specifying the aggregate principal amount of the Loans to be prepaid and the prepayment date; provided, however, with respect to each oral notice of a prepayment, the Company shall deliver promptly (and in any event, no later than two Business Days after the giving of such oral notice) to the Administrative Agent a confirmatory written notice of such proposed prepayment. The Administrative Agent shall promptly notify the Banks of the principal amount to be prepaid and the prepayment 41 34 date. Notice of such prepayment shall be irrevocable and having been given as aforesaid, the principal amount specified in such notice, together with accrued and unpaid interest thereon to the date of prepayment, shall become due and payable on such prepayment date, and the provisions of Section 2.01(f) shall be applicable. The Company shall have no optional right to prepay the principal amount of any Loan other than as provided in this Section 3.01. SECTION 3.02. Required Prepayments. (a) If the Company shall reduce or terminate the respective Commitments of the Banks pursuant to Section 4.03, it will prepay to each Bank on the effective date of any such reduction or termination: (i) in the case of a reduction of the Commitments, that part of such unpaid principal amount outstanding of the Revolving Loans and the Discretionary Loans held by such Bank that exceeds the amount of the Commitment of such Bank immediately after such reduction; and (ii) in the case of termination of the Commitments, the entire unpaid principal amount of the Revolving Loans and the Discretionary Loans, as applicable; together, in each case, with accrued and unpaid interest on the amount being so prepaid and all other amounts accrued and owing under this Agreement on such date. (b) As of any date on which the Company or any Restricted Subsidiary sells, assigns, transfers or otherwise disposes of any Property (other than (i) dispositions of inventory in the ordinary course of business or (ii) sales or transfers of Capital Stock or assets to the Company or a Restricted Subsidiary), if either (A) the ratio of Total Debt, as of the date of the balance sheet most recently delivered pursuant to Section 8.02, to EBITDA, for the four consecutive fiscal quarter period ended on the date of such balance sheet, is in excess of 4.5 to 1.0 or (B) the Company is not in compliance with its obligations under Section 8.02, then 50% of the Net Cash Proceeds of such sale, assignment, transfer or disposition shall be immediately applied to the 42 35 prepayment of Loans under this Agreement, and the Commitments under this Agreement shall be reduced by such amount so prepaid; provided that if in connection with the disposition of any such Property the Company shall advise the Administrative Agent that it intends to use the Net Cash Proceeds of such disposition to acquire Cash Flow Producing Assets to be owned by the Company or a Restricted Subsidiary, then (i) the Commitments will not be reduced as required by this Section 3.02(b) to the extent the amount prepaid or a portion thereof shall have been reborrowed within 12 months after the date of such disposition and used to acquire Cash Flow Producing Assets, and (ii) during such 12 month period an amount of the Commitments equal to the amount so prepaid will be restricted and the Company will be entitled to reborrow such amount as provided herein only upon a certification to the Administrative Agent that the proceeds of such borrowing will be promptly applied to acquire such Cash Flow Producing Assets. Notwithstanding the foregoing, such prepayment will not be required in the event and for so long as such Net Cash Proceeds are held by a "qualified intermediary" (as defined in ss. 1.103(k)- 1(g)(4)(iii) of Title 26 of the Code of Federal Regulations) pursuant to a like kind exchange as provided for by ss. 1031 of the Internal Revenue Code of 1986; provided, however, that this sentence shall in no way limit or otherwise affect the Company's obligations under this Section 3.02(b) to reduce the Commitments by 50% of such Net Cash Proceeds in the event the notice and reinvestment provisions set forth above are not complied with. (c) As of any date on which the Company or any Restricted Subsidiary on a consolidated basis incurs Debt other than Debt incurred under this Agreement, if either (i) the ratio of Total Debt, as of the date of the balance sheet most recently delivered pursuant to Section 8.02 on a pro forma basis giving effect to such incurrence and any use of the proceeds thereof to repay Debt reflected on such balance sheet, to EBITDA, for the four consecutive fiscal quarter period ended on the date of such balance sheet, is in excess of 4.5 to 1.0, or (ii) the Company is not in compliance with its obligations under Section 8.02, then 50% of the Net Cash Proceeds of such Debt shall be immediately applied to the prepayment of Loans under this Agreement, and the Commitments under this Agreement shall be reduced by the amount so prepaid except to the extent that after such application the ratio of (i) Total Debt as 43 36 of such balance sheet date minus such amount of Net Cash Proceeds to (ii) EBITDA for such four consecutive fiscal periods would be less than 4.5 to 1.0; provided, however, that prepayments and reductions required under this Section 3.02(c) shall be made only at such time as the aggregate amount of payments and reductions required but not made shall equal an amount not less than $20,000,000, at which time Loans shall be prepaid and Commitments reduced in such aggregate amount. (d) Notwithstanding the foregoing, (i) no prepayment shall be required under Section 3.02(b) with respect to an aggregate of $10,000,000 of Net Cash Proceeds and (ii) in the event any prepayment required by Section 3.02(b) to be made under this Agreement shall be in an amount less than $2,000,000, such prepayment may be deferred until the aggregate amount of the prepayments deferred in reliance on this provision shall exceed $2,000,000, at which time all such prepayments shall be promptly made and the Commitments correspondingly reduced. In the event any prepayment required by Section 3.02(b) or (c) with respect to any Loan would become due on a date that is not an Interest Payment Date and as a result thereof the Company would incur liabilities under Section 2.01(f), then (A) if the next Interest Payment Date for such Loan would occur within 90 days of the date on which such prepayment is otherwise due, such prepayment may be made on such Interest Payment Date and (B) if the next Interest Payment Date for such Loan would not occur within 90 days of such date on which such prepayment is due, the Company shall make such prepayment to the Administrative Agent on the due date; provided, however, that interest shall continue to accrue on any Loan so prepaid and shall be paid by the Company to the Administrative Agent on the applicable Interest Payment Date, and, so long as no Default or Event of Default shall occur or shall have occurred and be continuing, the Administrative Agent shall hold the proceeds of such prepayment for the benefit of the Banks, in an interest bearing account, until such time as such proceeds can be applied towards payment of the Loans in accordance with the provisions of this Agreement without resulting in any liability to the Company under Section 2.01(f). All interest which may accrue on such amounts so held in escrow shall be held by the Administrative Agent for the benefit of the Company. 44 37 (e) All prepayments made pursuant to the provisions of this Section 3.02 shall be applied, first, towards payment of all Alternate Base Rate Loans, as the Company directs, and secondly, and subject to the provisions of Section 2.01(f), towards payment of the appropriate amount of CD Rate Loans and Eurodollar Loans, as the Company directs. SECTION 3.03. Interest Payment Date. The Company shall repay the principal amount of each Loan on the Interest Payment Date for such Loan, or if earlier, the Maturity Date; provided that the Company may reborrow in accordance with Section 2.01(a) or Section 2.06 for the purpose of refinancing any Loan made thereunder. All principal payments of Loans shall be accompanied by accrued and unpaid interest on the principal amount being repaid to the date of payment. SECTION 3.04. Place, Etc. of Payments and Prepayments. All payments and prepayments made in accordance with the provisions of this Agreement in respect of the Commitment Fees and the Administrative Agent's fee and of principal of and interest on the Revolving Loans shall be made to the Administrative Agent in Dollars at its office at 2200 Ross Avenue, Dallas, Texas 75201, in immediately available funds for the accounts of the Banks. The Administrative Agent will promptly distribute to the Banks, in accordance with each Bank's Pro Rata Share in immediately available funds, the amount of principal, interest and Commitment Fees received by the Administrative Agent for the account of the Banks, taking into account the effect of any Discretionary Loans; provided that if interest shall accrue on any Loan at a rate different from the rate applicable to any other Loan, payment and distribution of interest shall be based on the respective accrual rates applicable to such Loan. Any payment to the Administrative Agent for the account of a Bank under this Agreement shall constitute payment by the Company to such Bank of the amounts so paid to the Administrative Agent, and any Loan or portions thereof so paid shall not be considered outstanding for any purpose after the date of such payment to the Administrative Agent. 45 38 ARTICLE IV Fees; Reduction of Commitments SECTION 4.01. Administration Fee. Until payment in full of the Obligations and termination of the Commitments hereunder, the Company agrees to pay to the Administrative Agent an administration fee pursuant to the terms and conditions set forth in the TCB Fee Letter. SECTION 4.02. Commitment Fees. The Company agrees to pay to the Administrative Agent for the account of each Bank in Dollars, Commitment Fees, computed on a daily basis of a year of 365 or 366 days, as the case may be, from the date of this Agreement to and including the Maturity Date at a rate per annum equal to the applicable Margin Percentage from time to time in effect on the daily average unused amount of the Commitment of such Bank (taking into account all Revolving Loans and Discretionary Loans of such Bank outstanding on the dates covered by such calculation). Each such Commitment Fee shall be payable on or before the fifteenth day following each Quarterly Date and on the Maturity Date or on such earlier date as the Commitment of such Bank shall terminate pursuant to the terms of this Agreement. SECTION 4.03. Reduction or Termination of Commitments. The Company may at any time or from time to time reduce ratably in proportion to their respective Commitments or terminate in whole, the respective Commitments of the Banks hereunder by giving not less than three full Business Days' prior written notice to such effect to the Administrative Agent; provided that any partial reduction shall be in an aggregate amount of not less than $5,000,000 and an integral multiple of $1,000,000; provided, further, that the Commitments may not be reduced to an amount less than the aggregate principal amount of Discretionary Loans and Revolving Loans outstanding at such time, unless simultaneously therewith the Company shall make a prepayment in accordance with Section 3.02(a) hereof. In the event of any prepayment of the Loans outstanding hereunder pursuant to Section 3.02(b) or (c), the Commitments shall be ratably reduced by the amount of such prepayment to the extent provided in Section 3.02(b) or (c). The Administrative Agent shall promptly notify each Bank of its Pro Rata Share of and of 46 39 the date of each reduction of the Commitments. After each such reduction, the Commitment Fees owing to each Bank shall be calculated upon the Commitment of such Bank as so reduced. In the event of acceleration of the date on which any Loan is payable in accordance with Article X, the Commitments hereunder of the Banks shall thereupon automatically terminate without notice. Each reduction or any termination of the Commitments, and each notice thereof, under this Agreement shall be irrevocable. ARTICLE V Application of Proceeds The Company agrees that the proceeds of the Loans hereunder shall be used by the Company in accordance with the introductory statement to this Agreement. ARTICLE VI Representations and Warranties The Company represents and warrants that: SECTION 6.01. Organization; Qualification; Subsidiaries. The Company and each Subsidiary (a) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, (b) has the corporate power to own its properties and to carry on its business as now conducted, and (c) is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction where failure to be duly qualified would materially and adversely affect the business, properties, operations or financial condition of the Company and its Restricted Subsidiaries on a consolidated basis or the ability of the Company and its Restricted Subsidiaries to perform its obligations under this Agreement. Attached hereto as Exhibit 6.01 is a correct and complete list (determined in good faith by the Company) setting forth, as of date hereof (but after giving effect to the Transactions): (i) the name of and jurisdiction of organization of each Subsidiary, (ii) the title and number of such outstanding shares of Capital Stock of each Subsidiary, if any, owned by Persons other than the Company or any Subsidiary; 47 40 (iii) the name and address of each such other Persons and (iv) whether such Subsidiary is a Restricted or Unrestricted Subsidiary. All shares of Capital Stock of Restricted Subsidiaries owned by the Company or any Restricted Subsidiary are owned thereby free and clear of all liens, claims and encumbrances. No shares of Capital Stock of any Restricted Subsidiary are owned by any Unrestricted Subsidiary. SECTION 6.02. Financial Statements. (a) The Company has furnished each Bank with the consolidated financial statements for the Company and its Subsidiaries as at and for its fiscal year ended December 31, 1995, accompanied by the opinion of Deloitte & Touche LLP, and quarterly consolidated financial statements as at and for the period ended September 30, 1996. Such statements have been prepared in conformity with GAAP consistently applied throughout the period involved, except as may be explained in such opinion. Such statements fairly present the financial condition of the Company and its Subsidiaries on a consolidated basis and the results of its and their operations as at the dates and for the periods indicated. There has been no material adverse change in the business, properties, operations or financial condition of the Company and its Subsidiaries on a consolidated basis since September 30, 1996. (b) The Company has furnished each Bank with the consolidated financial statements for NewCity Communications and its consolidated subsidiaries on a consolidated basis as at and for its fiscal year ended December 31, 1995, accompanied by the audit opinion of a nationally recognized accounting firm, and quarterly consolidated financial statements as at and for the period ended September 30, 1996. To the knowledge of the Company, such statements have been prepared in conformity with GAAP consistently applied throughout the period involved, except as may be explained in such opinion. To the knowledge of the Company, such statements fairly present the financial condition of NewCity Communications and its consolidated subsidiaries on a consolidated basis and the results of its and their operations as at the dates and for the periods indicated. To the knowledge of the Company, there has been no material adverse change in the business, properties, operations or financial condition of NewCity Communications 48 41 and its subsidiaries on a consolidated basis since September 30, 1996. SECTION 6.03. Actions Pending. Except as disclosed in Exhibit 6.03 attached hereto, there is no action, suit or proceeding pending or, to the knowledge of the Company, threatened against the Company or any Restricted Subsidiary before any court or administrative agency or other governmental authority which might (although in the opinion of the Company such actions, suits and proceedings would not reasonably be expected to) result in any material adverse change in the business, properties, operations or financial condition of the Company and its Restricted Subsidiaries on a consolidated basis or impair the ability of the Company to perform its obligations under this Agreement. SECTION 6.04. Default. Neither the Company nor any Restricted Subsidiary is (a) in default under the provisions of any instrument evidencing any Debt or any other liability, contingent or otherwise, or of any agreement relating thereto or (b) in default under or in violation of any order, writ, injunction or decree of any court, or in default under or in violation of any order, regulation or demand of any governmental instrumentality, other than for such defaults or violations under clauses (a) and (b) above which taken in the aggregate do not and could not reasonably be expected to materially and adversely affect the business, properties, operations or financial condition of the Company and its Restricted Subsidiaries on a consolidated basis or impair the ability of the Company to perform its obligations under this Agreement. SECTION 6.05. Title to Assets; Licenses; Intellectual Property. (a) The Company and each Restricted Subsidiary (i) have good and marketable title to their respective real property assets and (ii) good title to their respective personal property assets, in each case subject to no liens, security interests or other encumbrances except those permitted by Section 9.01. (b) Each of the Company and its Restricted Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents, licenses and other intellectual property material to its business, and the use 49 42 thereof by the Company and its Restricted Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Materially Adverse Effect. SECTION 6.06. Payment of Taxes. The Company and each Subsidiary have filed all Federal and state income and franchise tax returns, or extensions therefor, which, to the knowledge of the officers thereof, are required to be filed and have paid all taxes shown on said returns and all assessments which are due. The Company and its officers know of no claims by any governmental authority for any unpaid taxes which claims in the aggregate could reasonably be expected to result in a material and adverse effect on the business, properties, operations or financial condition of the Company and its Restricted Subsidiaries on a consolidated basis. SECTION 6.07. Conflicting or Adverse Agreements or Restrictions. Neither the Company nor any Restricted Subsidiary is a party to any contract or agreement or subject to any restriction which materially and adversely affects the business, properties, operations or financial condition of the Company and its Restricted Subsidiaries on a consolidated basis. Neither the execution nor delivery of this Agreement nor compliance with the terms and provisions hereof or of any instruments required hereby will be contrary to the provisions of, or constitute a default under, (a) the charter or by-laws of the Company or any Restricted Subsidiary or (b) any law or any regulation, order, writ, injunction or decree of any court or governmental authority or any material agreement to which the Company or any Restricted Subsidiary is a party or by which it is bound or to which it is subject if such noncompliance or defaults referred to in this clause (b) could in the aggregate have a material and adverse effect on the business, properties, operations or financial condition of the Company and its Restricted Subsidiaries on a consolidated basis or impair the ability of the Company to perform its obligations under this Agreement. SECTION 6.08. Purpose of Loans. Neither the Company nor any Subsidiary is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying 50 43 Margin Stock. This Agreement and the transactions contemplated hereby comply in all respects with Regulations G, U, T and X and all other regulations of the Board of Governors of the Federal Reserve System. Neither the Company nor any agent acting on its behalf has taken or will take any action which would cause this Agreement to violate Regulation G, U, T or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Securities Exchange Act of 1934, in each case as in effect now or as the same may hereafter be in effect on the date of any Loan. SECTION 6.09. Authority; Validity. The Company and each Guarantor has the corporate power and authority to make and carry out this Agreement and the transactions contemplated herein, to make the borrowings provided for herein and to perform its obligations hereunder; and all such action has been duly authorized by all necessary corporate proceedings on its part. This Agreement has been duly and validly executed and delivered by the Company and each Guarantor and constitutes a valid and legally binding agreement of the Company and each Guarantor, enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors' rights and general principles of equity. SECTION 6.10. Consents or Approvals. No order, consent, approval, license, authorization or validation of any governmental authority and no registration or filing with or notice to any governmental authority is necessary to authorize or permit, or is required in connection with, the execution and delivery of this Agreement, the making of borrowings pursuant hereto or the performance of the obligations of the Company hereunder. SECTION 6.11. Compliance with Law. Neither the Company nor any of its Restricted Subsidiaries are in violation of any Federal, state or local laws or orders affecting the Company or any Subsidiary or any of their businesses and operations which taken alone, or in the aggregate, could reasonably be expected to have a material and adverse effect on the business, properties, operations or financial condition of the Company and its Restricted Subsidiaries, on a consolidated basis, or could reasonably be expected to impair the ability of the Company to perform 51 44 its obligations under this Agreement. Neither the Company nor any Restricted Subsidiary has failed to obtain any license, permit, franchise, consent or authorization of any governmental authority necessary to the ownership of its properties or the operation of its business, which failure could reasonably be expected to have a material and adverse effect on the business, properties, operations or financial condition of the Company and its Restricted Subsidiaries on a consolidated basis or could reasonably be expected to impair the ability of the Company to perform its obligations under this Agreement. SECTION 6.12. ERISA. The Company and its Subsidiaries are in compliance in all material respects with the applicable provisions of ERISA. Neither the Company nor any Subsidiary, taken individually or in the aggregate, has incurred any material accumulated funding deficiency within the meaning of ERISA or Section 4971 of the Internal Revenue Code of 1986, as amended, or has incurred any material liability to the Pension Benefit Guaranty Corporation established under ERISA, or any successor thereto under ERISA (the "PBGC"), in connection with any Plan. None of the Company, any Subsidiary or any member of a "controlled group of corporations" or "combined group of trades or businesses under common control" as such terms are defined, respectively, in Sections 414(b) and (c) of the Internal Revenue Code of 1986, as amended, is required to contribute to any "multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA) or has withdrawn from any multiemployer plan where such contribution obligation or withdrawal has resulted or could result in any "withdrawal liability" (as such term is defined in Section 4201 of ERISA) which could reasonably be expected to have a Materially Adverse Effect. SECTION 6.13. Investment Company Act. Neither the Company nor any Subsidiary (i) is an investment company as that term is defined in the Investment Company Act of 1940, as amended, (ii) directly or indirectly Controls or is Controlled by a company which is an investment company as that term is defined in the Investment Company Act of 1940, as amended, or (iii) is otherwise subject to regulation under the Investment Company Act of 1940, as amended. 52 45 SECTION 6.14. Disclosure. All material information furnished by or on behalf of the Company in writing to the Administrative Agent or any Bank pursuant to the terms of this Agreement (a) in the Confidential Information Memorandum dated January 1997 or (b) after the date hereof and, in either case, concerning the historical operations of the Company, did not or will not, as the case may be, when made, include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were or are made, not materially misleading. SECTION 6.15. Insurance. The Company and each Restricted Subsidiary maintains insurance of such types as is usually carried by corporations of established reputation engaged in the same or similar businesses and similarly situated with financially sound and reputable insurance companies or associations (or, as to workers' compensation or similar insurance, with an insurance fund or by self-insurance authorized by the jurisdiction in which its operations are carried on) and in such amounts (and with co-insurance and deductibles) as such insurance is usually carried by corporations of established reputation engaged in the same or similar businesses and similarly situated. SECTION 6.16. Environmental and Safety Matters. The Company and each Restricted Subsidiary has complied in all material respects with all Federal, state, local and other statutes, ordinances, orders, judgments, rulings and regulations relating to environmental pollution or to environmental regulation or control or to employee health or safety. To the best knowledge of the Company's executive officers, neither the Company nor any Restricted Subsidiary has received notice of any material failure so to comply. The Company's and the Restricted Subsidiaries' plants do not manage any hazardous wastes, hazardous substances, hazardous materials, toxic substances, toxic pollutants or substances similarly denominated, as those terms or similar terms are used in the Resource Conservation and Recovery Act, the Comprehensive Environmental Response Compensation and Liability Act, the Hazardous Materials Transportation Act, the Toxic Substance Control Act, the Clean Air Act, the Clean Water Act or any other applicable law relating to environmental pollution or 53 46 employee health and safety generally, in violation in any material respect of any law or any regulations promulgated pursuant thereto. The Company is aware of no events, conditions or circumstances involving environmental pollution or contamination or employee health or safety that could reasonably be expected to result in a material and adverse effect on the business, properties, operations or financial condition of the Company and its Restricted Subsidiaries on a consolidated basis. SECTION 6.17. Restricted Subsidiaries. Every Restricted Subsidiary of the Company (other than the Surviving Corporation if permitted by Section 8.10(b)) is a Guarantor hereunder. ARTICLE VII Conditions SECTION 7.01. Conditions Precedent to Closing. The effectiveness of this Agreement is subject to the satisfaction on the Closing Date of the following conditions: (a) the Company and each Guarantor shall have duly and validly executed and delivered to the Administrative Agent this Agreement; (b) the Administrative Agent shall have received on behalf of the Banks from Counsel for the Company, its opinion, dated the Closing Date, substantially in the form attached hereto as Exhibit 7.01(b); (c) the Administrative Agent shall have received on behalf of the Banks an Officer's Certificate, dated the Closing Date, substantially in the form attached hereto as Exhibit 7.01(c); (d) no Default shall have occurred and be continuing or shall occur after giving effect to the Company's execution of this Agreement; (e) after giving effect to the Company's execution of this Agreement, the representations and 54 47 warranties made by the Company in Article VI shall be true on and as of the Closing Date; (f) no material adverse change shall have occurred in the business, properties, operations or financial condition of the Company and its Subsidiaries on a consolidated basis since September 30, 1996; (g) there shall not exist any litigation or regulatory proceedings or other legal or regulatory development, actual or threatened, that, in the good faith judgment of the Banks, could reasonably be expected to have a material and adverse effect on the business, properties, operations or financial condition of (i) the Company and its Subsidiaries taken as a whole or (ii) NewCity Communications; provided that for purposes of this clause (g), any litigation or regulatory proceeding or other legal or regulatory development shall be deemed to have a material and adverse effect as contemplated above if, after giving effect to such proceeding or development on a pro forma basis over the succeeding twelve month period, a Default would occur hereunder; (h) the Administrative Agent shall have received from the Company certificates of appropriate officials as to the existence and good standing of the Company in its jurisdiction of incorporation and any and all jurisdictions where the Property owned or the business transacted by the Company makes such qualification necessary and where the failure to be so duly qualified would have a material and adverse effect on the business, properties, operations or financial condition of the Company and its Subsidiaries on a consolidated basis or the ability of the Company to perform its obligations under this Agreement, all in form and substance satisfactory to the Administrative Agent and counsel for the Administrative Agent; (i) the Administrative Agent shall have received all such information as the Administrative Agent shall request concerning the insurance maintained by the Company described in Section 6.15 hereof; (j) the Administrative Agent shall have received copies of the NewCity Merger Agreement, duly certified by an officer of the Company that such agreements are in the 55 48 form as filed with the Securities and Exchange Commission; (k) the Banks shall be satisfied as to the absence of litigation related to the Transactions which could materially adversely affect their rights or interests in connection with this Agreement; (l) the Administrative Agent shall have received all fees and other amounts due and payable to the Administrative Agent and to the Banks on or prior to the Closing Date, including, without limitation, (i) such fees and amounts due and payable pursuant to the terms and conditions set forth in the Agents' Fee Letters and (ii) to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Company hereunder. SECTION 7.02. Conditions Precedent to Initial Borrowing. The obligation of the Banks to fund the initial Borrowing is subject to the following: (a) the conditions to the obligations of the Company set forth in the NewCity Merger Agreement shall have been, or shall simultaneously with the initial Borrowing be, satisfied without giving effect to any amendment thereto or waiver thereof which would reasonably be expected to have a Materially Adverse Effect; (b) the Transactions shall have been, or shall simultaneously with the initial Borrowing be, completed in accordance with applicable law and on the terms set forth in the NewCity Merger Agreement without giving effect to any amendment thereto which would reasonably be expected to have a Materially Adverse Effect; (c) the Administrative Agent shall have received a certificate of a senior financial officer of the Company, substantially in the form attached hereto as Exhibit 7.02(c), as to the solvency of the Company after giving effect to the Transactions; and (d) all material governmental authorities (including the FCC) and third parties shall have approved or consented to the Transactions to the extent required, 56 49 all applicable appeal periods and waiting periods shall have expired and there shall be no governmental or judicial action, actual or threatened, restraining or preventing the Transactions contemplated hereby. SECTION 7.03. Conditions Precedent to Each Borrowing. The obligation of the Banks to fund each Borrowing (including, without limitation, the initial Borrowing) is subject to the following: (a) No Event of Default shall have occurred and be continuing or shall occur after giving effect to such Borrowing and the application of the proceeds thereof, and each Borrowing shall be deemed to constitute a representation and warranty by the Company on the applicable Borrowing Date to such effect. (b) The Administrative Agent shall have received by telecopy, or otherwise, the Notice of Borrowing required by Section 2.01(b). (c) The Company shall have delivered to the Administrative Agent and each Bank such certificates and other documents as are otherwise required under this Agreement. SECTION 7.04. Conditions Precedent to Borrowings that Increase Principal Outstanding. The obligation of the Banks to fund each Loan (including, without limitation, the initial Borrowing), which has the effect of increasing the aggregate outstanding principal amount of Revolving Loans on the applicable Borrowing Date, is subject, in addition to the conditions set forth in Section 7.03, to the following conditions: (a) After giving effect to such Borrowing and the application of the proceeds thereof, the representations and warranties contained in Article VI, other than the representations and warranties made by the Company in the last sentence of Section 6.02(a) and Section 6.02(b) and in Sections 6.03 and 6.04, shall be true on and as of the particular Borrowing Date as though made on and as of such date and each such Borrowing shall be deemed to constitute a representation and warranty by the Company on the applicable Borrowing Date as to the matters set forth in Article VI (other than the 57 50 representations and warranties made by the Company in the last sentence of Section 6.02(a) and Section 6.02(b) and in Sections 6.03 and 6.04). (b) Except as otherwise set forth therein, or in certificates accompanying such financial statements, the most recent financial statements delivered to the Banks pursuant to Section 8.02 together with the reconciliation adjustments made thereto pursuant to Section 8.02(a)(ii) or Section 8.02(b)(ii), as the case may be, fairly present the financial condition of the Company and its Restricted Subsidiaries on a consolidated basis and the results of its and their operations as at the dates and for the periods indicated. Each such Borrowing shall be deemed to constitute a representation and warranty by the Company on the applicable Borrowing Date to such effect. (c) No Default shall have occurred and be continuing or shall occur after giving effect to such Borrowing and the application of the proceeds thereof, and each Borrowing shall be deemed to constitute a representation and warranty by the Company on the applicable Borrowing Date to such effect. (d) The Company shall have delivered to the Administrative Agent and each Bank such certificates and other documents as are otherwise required under this Agreement. 58 51 ARTICLE VIII Affirmative Covenants The Company covenants and agrees that, until payment in full of the Obligations and termination of the Commitments hereunder, the Company will: SECTION 8.01. Certain Financial Covenants. Maintain at all times: (a) a Leverage Ratio as of the last day of and for any four consecutive fiscal quarter period ending during a period set forth below not in excess of the ratio set forth opposite such period:
Period Ratio ------ ----- Closing Date through March 31, 1999 6.0 to 1.0 April 1, 1999 through March 31, 2000 5.5 to 1.0 Thereafter 5.0 to 1.0
(b) an Interest Coverage Ratio for any four consecutive fiscal quarter (commencing with such period ending on March 31, 1997) period of not less 2.0 to 1.0. SECTION 8.02. Financial Statements and Information. Deliver to each of the Banks in duplicate: (a) as soon as available, and in any event within 90 days, after the end of each fiscal year (i) a copy of the consolidated annual audited financial statements of the Company and its Subsidiaries for such fiscal year containing a balance sheet, an income statement, a statement of shareholders' equity and a consolidated statement of cash flows, all in reasonable detail, together with the unqualified opinion of Deloitte & Touche LLP or another independent certified public accountant of recognized standing satisfactory to the Banks, that such 59 52 statements have been prepared in accordance with generally accepted accounting principles, consistently applied, except as may be explained in such opinion, and fairly present the financial condition of the Company and its Subsidiaries on a consolidated basis and the results of its and their operations as at the dates and for the periods indicated and (ii) a copy of the reconciliation sheet, certified by the chief financial officer of the Company, setting forth the adjustments required to the consolidated audited financial statements of the Company and its Subsidiaries referred to above in this paragraph (a) in order to arrive at the consolidated financial statements of the Company and its Restricted Subsidiaries; (b) as soon as available, and in any event within 60 days, after the end of each of the first three quarterly accounting periods in each fiscal year (i) a copy of the consolidated unaudited financial statements of the Company and its Subsidiaries as at the end of such quarter and for the period then ended, containing a balance sheet, an income statement, a statement of shareholders' equity and a consolidated statement of cash flows, all in reasonable detail and certified by a financial officer of the Company to have been prepared in accordance with GAAP, consistently applied (subject to year end audit adjustments and except for the absence of footnotes), except as may be explained in such certificate, and as fairly presenting the financial condition of the Company and its Subsidiaries on a consolidated basis and the results of its and their operations as at the dates and for the periods indicated and (ii) a copy of the reconciliation sheet, certified by the chief financial officer of the Company, setting forth the adjustments required to the consolidated quarterly financial statements of the Company and its Subsidiaries referred to above in this paragraph (b) in order to arrive at the consolidated financial statements of the Company and its Restricted Subsidiaries; (c) promptly after the filing thereof, copies of all statements and reports filed with the Securities and Exchange Commission other than Form S-8 60 53 registration statements and other reports relating to employee benefit plans, supplements to registration statements relating solely to the pricing of securities offerings for which registration statements were previously filed and delivered and Forms D; (d) promptly after any officer of the Company obtains knowledge of an Event of Default or Default, an Officer's Certificate specifying the nature of such Event of Default or Default, the period of existence thereof, and what action the Company has taken and proposes to take with respect thereto; (e) promptly upon the Company's or any Subsidiary's receipt thereof, copies of all notices received from the FCC regarding the termination, cancellation, revocation or taking of any other materially adverse action with respect to any Material FCC Licenses; and (f) promptly after request, such additional financial or other information as the Administrative Agent or any Bank acting through the Administrative Agent may reasonably request from time to time. All financial statements specified in clauses (a) and (b) above shall be furnished with comparative consolidated figures for the corresponding period in the preceding year. Together with each delivery of financial statements required by clauses (a) and (b) above, the Company will deliver to each Bank (i) such schedules, computations and other information as may be required to demonstrate that the Company is in compliance with its covenants in Sections 8.01, 9.01(f), 9.02 and 9.06 or reflecting any non-compliance therewith as at the applicable date, and (ii) an Officer's Certificate stating that there exists no Event of Default or, to the knowledge of such officer, any Default, or, if any such Event of Default or, to the knowledge of such officer, any Default exists, stating the nature thereof, the period of existence thereof, and what action the Company has taken and proposes to take with respect thereto. Together with each delivery of financial statements required by clause (a) above, the Company will deliver to each Bank a written statement of said accountants that, in making the audit necessary to the certification of such financial statements, they have 61 54 obtained no knowledge of any Event of Default or Default, or, if such accountants shall have obtained knowledge of any Event of Default or Default, they shall specify the nature and period of existence thereof in such statement; provided that such accountants shall not be liable directly or indirectly to any Bank for failure to obtain knowledge of any Event of Default or Default. Each Bank is authorized to deliver a copy of any financial statement delivered to it to any regulatory body having jurisdiction over it and to any other Person as may be required by applicable law, rules and regulations. SECTION 8.03. Existence; Laws; Obligations. Maintain its corporate existence, comply and cause its Subsidiaries to comply, in all respects material to the business, properties, operations and financial condition of the Company and its Restricted Subsidiaries on a consolidated basis, with all applicable laws and regulations and pay and cause its Restricted Subsidiaries to pay all taxes, assessments, governmental charges and other obligations which if unpaid might become a lien against the Property of the Company or a Restricted Subsidiary, except liabilities being contested in good faith by appropriate proceedings. SECTION 8.04. Notice of Litigation and Other Matters. Promptly notify the Administrative Agent in writing of (i) any action, suit or proceeding pending or to the knowledge of the Company threatened, before any governmental authority (including, without limitation, any bankruptcy or similar proceeding by or against the Company or any Restricted Subsidiary) which, in the reasonable view of the Company, if adversely determined or during the pendency thereof, would materially impair the ability of the Company and its Restricted Subsidiaries on a consolidated basis to carry on their businesses substantially as now being conducted or would materially and adversely affect the business, properties, operations or financial condition of the Company and its Restricted Subsidiaries on a consolidated basis or would impair the ability of the Company to perform its obligations under this Agreement, (ii) any action or development which, in the view of the Company, might reasonably be expected to materially impair the ability of the Company and its Restricted Subsidiaries on a consolidated basis to carry on their businesses substantially as now being conducted or 62 55 would materially and adversely affect the business, properties, operations or financial condition of the Company and its Restricted Subsidiaries on a consolidated basis or would impair the ability of the Company to perform its obligations under this Agreement, (iii) the failure of any Unrestricted Subsidiary to pay when due (after giving effect to any grace period permitted from time to time) any Debt of such Unrestricted Subsidiary, the outstanding amount of which exceeds, singularly or in the aggregate, $10,000,000, or the holder of which Debt declares, or may declare, such Debt due prior to its stated maturity because of the occurrence of a default or other event thereunder or with respect thereto and (iv) any revocation, suspension or expiration of FCC licenses which, individually or in the aggregate, are material to the operations of the Company and the Restricted Subsidiaries on a consolidated basis (the "Material FCC Licenses"). SECTION 8.05. Books and Records. Maintain, and cause its Subsidiaries to maintain, proper books of record and account in accordance with GAAP, consistently applied. SECTION 8.06. Inspection of Property and Records. Permit any Person designated in writing by the Administrative Agent, or any Bank (i) to visit and inspect any of the properties of the Company and any Restricted Subsidiary and discuss its and their respective affairs and finances with its and their respective principal officers and to inspect any of the corporate books and financial records of the Company and any Restricted Subsidiary and (ii) from and after the occurrence of an Event of Default, to make copies of and abstracts from the books and records of account of the Company and its Restricted Subsidiaries, in each case all upon reasonable prior notice and at such times as the Administrative Agent or any Bank may reasonably request. SECTION 8.07. Maintenance of Property, Insurance. Cause its Property and the Property of its Subsidiaries to be maintained, preserved and protected and kept in good repair, working order and condition so as not to materially and adversely affect the business carried on in connection therewith and maintain, and cause its Subsidiaries to maintain, insurance with responsible companies in such amounts and against such risks as is reasonably deemed appropriate by the Company. 63 56 SECTION 8.08. ERISA. Comply, and cause each Subsidiary to comply, in all material respects with the applicable provisions of ERISA and furnish to the Administrative Agent (i) as soon as possible, and in any event within 30 days after the Company or a duly appointed administrator of a Plan files or is required to file, with respect to any Plan, any notice of a "reportable event" (as such term is defined in Section 4043 of ERISA) for which the notice requirement has not been waived by the PBGC (provided that notice shall be required for reportable events arising from the disqualification of a Plan or the distress termination of a Plan (in accordance with ERISA Section 4041(c)) without regard to the waiver of notice provided by the PBGC by regulation or otherwise), a statement of the chief financial officer of the Company setting forth details as to such reportable event and the action which the Company, or such Subsidiary, as the case may be, proposes to take with respect thereto, together with a copy of the notice of such reportable event given to the PBGC and (ii) promptly after receipt thereof, a copy of any notice the Company, any Subsidiary or any member of the Controlled group of corporations may receive from the PBGC relating to the intention of the PBGC to terminate any Plan pursuant to Section 4042 of ERISA. SECTION 8.09. Maintenance of Business Lines. Maintain and cause its Restricted Subsidiaries to maintain lines of business only in radio broadcasting and related lines of business that are similar in scope to the existing business lines and operations of the Company and its Restricted Subsidiaries. SECTION 8.10. Further Assurances. (a) Promptly after the acquisition or formation of any Subsidiary that is designated a Restricted Subsidiary (and promptly after designating any Subsidiary that was formerly an Unrestricted Subsidiary as a Restricted Subsidiary), cause such Restricted Subsidiary to execute and deliver to the Administrative Agent an Additional Guarantor Agreement in substantially the form of Exhibit 8.10(a) attached hereto (the "Additional Guarantor Agreement") under which such Restricted Subsidiary shall become, and shall assume all the obligations of, a Guarantor hereunder and become liable as a Guarantor hereunder for all the Obligations. 64 57 (b) If any Subsidiary that is a Restricted Subsidiary on the Closing Date fails to provide a Guarantee of the Obligations in accordance with paragraph (a) above as a result of a prohibition contained under the terms of any Debt existing as of January 31, 1997 and outstanding on the Closing Date, promptly after such Debt is repaid or repurchased or such Subsidiary is otherwise no longer subject to such prohibition, cause such Subsidiary to execute and deliver to the Administrative Agent an Additional Guarantor Agreement under which such Restricted Subsidiary shall become, and shall assume all the obligations of, a Guarantor hereunder and become liable as a Guarantor hereunder for all the Obligations. SECTION 8.11. Restricted/Unrestricted Designation of Subsidiaries. The Company will be permitted to designate a Restricted Subsidiary as an Unrestricted Subsidiary or an Unrestricted Subsidiary as a Restricted Subsidiary by the delivery to the Administrative Agent of a written notice certifying that all conditions set forth in this Section 8.11 are satisfied as of the effective date of such designation, which certification shall state the effective date of such designation and shall set forth the computations and information as may be required to demonstrate that the Company is in compliance with this Section 8.11 and shall be signed by a financial officer of the Company; provided that (a) no Default or Event of Default shall exist immediately before or after the effective date of any such designation and the Company (other than with respect to designations of a Subsidiary involved in, and in connection with, a merger, an acquisition of an entity or a business or a joint venture in connection with any such transaction) shall be in Pro Forma Compliance with respect to such designation; and (b) the Company shall not designate as Unrestricted Subsidiaries during any period of 12 consecutive months Restricted Subsidiaries as to which the Attributable Amount shall exceed 15% of Pro Forma EBITDA for the four consecutive fiscal quarter period ended on the date of the balance sheet most recently delivered pursuant to Section 8.02 excluding therefrom the Attributable Amount of the Unrestricted Subsidiaries which have been designated as Restricted Subsidiaries during such period. Notwithstanding anything contained in the foregoing to the contrary, any calculation of Pro Forma Compliance shall exclude the effect of any entity or business for the period 65 58 during which such entity or business was not a Subsidiary or part of a Subsidiary of the Company. Promptly after receiving any written notice from the Company regarding the designation thereby of a Restricted Subsidiary or an Unrestricted Subsidiary, the Administrative Agent will provide notice thereof to the Lenders. ARTICLE IX Negative Covenants Until payment in full of the Obligations and termination of the Commitments hereunder: SECTION 9.01. Mortgages, Etc. The Company will not and will not permit any Restricted Subsidiary to create or permit to exist any lien, encumbrance, or security interest (including the charge upon assets purchased under a conditional sales agreement, purchase money mortgage, security agreement, or other title retention agreement) upon any of its assets, whether now owned or hereafter acquired, or assign or otherwise convey any right to receive income, except: (a) liens for taxes not yet due or which are being contested in good faith by appropriate proceedings; (b) other liens, encumbrances and security interests incidental to the conduct of its business or the ownership of its assets which were not incurred in connection with the borrowing of money, and which do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; (c) liens and security interests on assets of a Restricted Subsidiary to secure obligations of such Restricted Subsidiary to the Company or a Wholly Owned Restricted Subsidiary; (d) liens and security interests existing on the date hereof which are (i) both (y) described in Exhibit 9.01(d) attached hereto and (z) reflected in the consolidated financial statements of the Company 66 59 referred to in Section 6.02(a) and (ii) liens and security interests on Property that were existing at the time of the acquisition thereof by the Company or any Restricted Subsidiary or placed thereon to secure a portion of the purchase price thereof described in Exhibit 9.01(d); (e) liens and security interests on Property acquired after the date hereof existing at the time of acquisition thereof by the Company or any Restricted Subsidiary or placed thereon within one year of such acquisition to secure a portion of the purchase price thereof, provided that no such lien or security interest may encumber or cover any other Property of such Restricted Subsidiary, of the Company or of any other Restricted Subsidiary; and (f) at any time when each Restricted Subsidiary is a Guarantor, other liens and security interests (in addition to those permitted pursuant to Section 9.01(e)) on Property of the Company and its Restricted Subsidiaries that secure Debt of the Company and its Restricted Subsidiaries in an amount which, when taken together with all other outstanding secured Debt incurred in reliance on this clause (f) ("Section 9.01(f) Debt"), does not at the time such lien or security interest comes into existence exceed 20% of Pro Forma EBITDA for the four consecutive fiscal quarter period ended on the date of of the balance sheet most recently delivered pursuant to Section 8.02; provided, that in no event will the aggregate book value of Property securing Section 9.01(f) Debt exceed by more than 40% the aggregate amount of Section 9.01(f) Debt; and (g) liens, encumbrances and security interests on shares of Capital Stock of Unrestricted Subsidiaries. SECTION 9.02. Merger; Consolidation; Disposition of Assets. The Company will not merge or consolidate with any Person unless the Company shall be the continuing or surviving corporation and both before and after giving effect to such merger or consolidation no Default or Event of Default shall exist. The Company will not and will not permit any Restricted Subsidiary to sell, lease or transfer or otherwise dispose of (whether in one transaction or a 67 60 series of transactions) any Cash Flow Producing Assets, other than sales of inventory in the ordinary course of business and Capital Stock of Unrestricted Subsidiaries to any Person and other than dispositions to the Company and its Restricted Subsidiaries, unless both before and after giving effect to such disposition no Default or Event of Default shall exist. The Company will not and will not permit any Restricted Subsidiary to directly or indirectly acquire (by purchase, merger or otherwise) any Property in any transaction or series of transactions involving a purchase price in excess of $5,000,000, unless both before and after giving effect to such acquisition no Default or Event of Default shall exist. SECTION 9.03. Restricted Payments. If on any date either (a) the ratio of Total Debt, as of the date of the balance sheet most recently delivered pursuant to Section 8.02, to EBITDA (as reduced by the amount of any payment, declaration, redemption or acquisition described below), for the four consecutive fiscal quarter period ended on the date of such balance sheet, is in excess of 4.5 to 1.0 or (b) the Company is not in compliance with its obligations under Section 8.02, then the Company will not, and will not permit any Restricted Subsidiary to, pay or declare dividends (exclusive of stock dividends and cash dividends paid by the Subsidiaries to the Company or to Restricted Subsidiaries) or redeem or acquire, directly or indirectly, any of the Capital Stock of the Company or such Subsidiary or any warrant or option to purchase any of such Capital Stock. SECTION 9.04. Limitation on Margin Stock. The Company will not and will not permit any Subsidiary to own or acquire Margin Stock such that at any time (a) Margin Stock of the Company and its Subsidiaries represents more than 25% of the value of the assets of the Company and its Restricted Subsidiaries on a consolidated basis that are subject to Section 9.01 or Section 9.02, or (b) any Loan or Loans shall be in violation of Regulation U of the Federal Reserve Board. SECTION 9.05. Transactions with Affiliates. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly enter into any transaction or series of transactions, whether or not in the ordinary course of business, with any Affiliate other 68 61 than (a) of the type specified in Section 9.06 that are not prohibited by such Section 9.06, (b) transactions on terms and conditions substantially as favorable to the Company or such Restricted Subsidiary as would be obtainable by the Company or such Restricted Subsidiary at the time in comparable arm's length transactions with Persons other than Affiliates, (c) transactions involving the Company and its Restricted Subsidiaries exclusively and (d) any executive or employee incentive or compensation plan, contract or other arrangement (including any loans or extensions of credit in connection therewith) if such plan, contract or arrangement is approved either by the stockholders of the Company (in accordance with such voting requirements as may be applicable) or by the Board of Directors of the Company at a meeting at which a quorum of disinterested directors is present. SECTION 9.06. Loans and Advances to and Investments in Unrestricted Subsidiaries. At any time when (a) the Company shall not have outstanding Index Debt that is investment grade rated by two of Moody's, S&P and Fitch and (b) the Leverage Ratio for the four consecutive fiscal quarter period most recently ended exceeds (or would exceed on a pro forma basis after giving effect to a transaction of the sort referred to in this Section 9.06 as if it had occurred at the beginning of such period and as if loans, investments, capital contributions and other investments are deductions to EBITDA) 4.5 to 1.0, the Company will not and will not permit any Restricted Subsidiary to make any loan or advance to, or make any capital contribution to or other investment in, any Unrestricted Subsidiary unless (i) in the case of a loan, advance, capital contribution or other investment, such loan, advance, capital contribution or other investment is on terms which are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than would obtain in a comparable arm's length transaction with an unaffiliated Person, and (ii) in each case at the time of the making of any such loan, advance, capital contribution or investment no Default or Event of Default has occurred and is continuing and after giving effect to such loan, advance, capital contribution or investment no Default or Event of Default would occur. SECTION 9.07. Certain Transfers. The Company will not and will not permit any Guarantor to, at any time, transfer (by means of issuance and incurrence of Debt, 69 62 investment, purchase and sale, or otherwise) directly or indirectly (including by means of the financing of an acquisition on behalf of a Restricted Subsidiary that is not a Guarantor) any Property (including, without limitation, cash) to any Restricted Subsidiary that is not a Guarantor at such time. ARTICLE X Events of Default Upon (i) the occurrence of any Event of Default specified in Sections 10.10, 10.11, 10.12 or 10.13, (x) the unpaid principal amount of, and all accrued but unpaid interest on, all Loans outstanding (including all Discretionary Loans) and any other amounts payable hereunder shall automatically become immediately due and payable without presentment, demand, protest, notice of intent to accelerate or other notice of any kind to the Company, all of which are hereby expressly waived and (y) the obligation of the Banks to make Loans hereunder shall immediately terminate and (ii) the occurrence and during the continuance of any other Event of Default and upon the written request of the Majority Banks, the Administrative Agent shall, by notice to the Company, (x) declare the obligation of the Banks to make Loans hereunder to be immediately terminated, and the same shall forthwith be terminated, and/or (y) declare all Loans then outstanding (including all Discretionary Loans) and any other amount payable hereunder to be, and the same shall forthwith become, immediately due and payable without presentment, demand, protest, notice of intent to accelerate or other notice of any kind to the Company, all of which are hereby expressly waived. SECTION 10.01. Failure To Pay Principal or Interest. The Company does not pay or prepay any principal of any Loan on the date due (whether at stated maturity, by acceleration, by notice of prepayment, under Section 2.01, 3.01 or 3.02 or otherwise) or the Company does not pay or prepay any interest on any Loan (a) on or before five days after actual receipt of oral or written notice from the Administrative Agent, or the applicable Bank with respect to any Discretionary Loan, as to the amount of interest due, but in no event shall the Company be required to pay 70 63 or prepay any such interest prior to the date due, or (b) within 10 days after the due date thereof if no notice is actually received by the Company from the Administrative Agent with respect to the amount of interest due; or SECTION 10.02. Failure To Pay Other Sums. The Company does not pay any sums (other than payments of principal and interest on any Loan covered by Section 10.01) payable to the Administrative Agent or any Bank under the terms of this Agreement within 10 days after the date due (or, in the case of administration fees payable to the Administrative Agent pursuant to Section 4.01 or the Commitment Fees payable to the Administrative Agent for the account of each Bank pursuant to Section 4.02, 10 days after written notice of nonpayment has been received by the Company from the Administrative Agent or any Bank); or SECTION 10.03. Failure To Pay Other Debt. (a) The Company or any Restricted Subsidiary does not pay when due any other Debt of the Company or any Restricted Subsidiary, the outstanding amount of which exceeds, singularly or in the aggregate, $10,000,000, in respect of which any applicable grace period has expired; or (b) the Company or any Restricted Subsidiary shall otherwise default under any other Debt of the Company or any Restricted Subsidiary (or any other event shall have occurred that would cause, or give the holders thereto the right to cause, such Debt to become due prior to the maturity thereof), the outstanding amount of which exceeds, singularly or in the aggregate, $10,000,000, in respect of which any applicable notice has been given and either (i) such Debt has been declared or become due prior to any maturity thereof or (ii) any Restricted Subsidiary is not a Guarantor; provided that during the continuance of any applicable grace period with respect thereto, such event shall constitute a Default (but not an Event of Default) hereunder; or SECTION 10.04. Misrepresentation or Breach of Warranty. (i) Any representation or warranty made by the Company herein when made or deemed made by the Company pursuant hereto shall be incorrect in any material respect or (ii) any other information (other than projections and similar forward-looking information) provided by the Company pursuant to this Agreement after the date hereof, 71 64 shall, when made, include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they are made, not materially misleading; or SECTION 10.05. Violation of Certain Covenants. The Company violates any covenant, agreement or condition contained in Article V or Section 8.01 or Section 8.02(d) or Article IX; or SECTION 10.06. Violation of Other Covenants, Etc. The Company violates any other covenant, agreement or condition contained herein and such violation shall not have been remedied within 30 days after written notice has been received by the Company from the Administrative Agent or any Bank; or SECTION 10.07. Undischarged Judgment. Final judgment for the payment of money in excess of $10,000,000 shall be rendered against the Company or any Restricted Subsidiary and the same shall remain undischarged for a period of 30 days during which period execution shall not be effectively stayed; or SECTION 10.08. ERISA. (a) A "reportable event" (as such term is defined in Section 4043 of ERISA) shall have occurred with respect to any Plan and within 30 days after the reporting of any such reportable event to the Administrative Agent, the Administrative Agent shall have notified the Company in writing that the Majority Banks have made a determination that, on the basis of such reportable event, there is a substantial likelihood that such Plan will be terminated by the PBGC or (b) the PBGC has instituted proceedings to terminate any Plan and the effect of either of the foregoing would reasonably be expected to have a Materially Adverse Effect; or SECTION 10.09. Change of Control. A Change of Control shall have occurred; or SECTION 10.10. Assignment for Benefit of Creditors or Nonpayment of Debts. The Company or any Restricted Subsidiary makes an assignment for the benefit of creditors or is generally not paying its debts as such debts become due; or 72 65 SECTION 10.11. Voluntary Bankruptcy. The Company or any Restricted Subsidiary petitions or applies to any tribunal for or consents to the appointment of, or taking possession by, a trustee, receiver, custodian, liquidator or similar official, of the Company or any Restricted Subsidiary, or of any substantial part of the assets of the Company or any Restricted Subsidiary, or commences any case or proceedings relating to the Company or any Restricted Subsidiary under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or other liquidation law of any jurisdiction; or SECTION 10.12. Involuntary Bankruptcy. An involuntary proceeding is commenced or an involuntary petition is filed in a court of competent jurisdiction seeking (i) relief in respect of the Company or any Restricted Subsidiary, or of a substantial part of the property or assets of the Company or a Restricted Subsidiary, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or any Restricted Subsidiary or for a substantial part of the property or assets of the Company or Restricted Subsidiary; and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; or SECTION 10.13. Dissolution. Any order is entered in any proceeding against the Company or any Restricted Subsidiary decreeing the dissolution or split-up of the Company or such Restricted Subsidiary, and such order remains unstayed and in effect for 60 days. SECTION 10.14. Guarantee. Five days after any Guarantee of any Guarantor hereunder or under any Additional Guarantee Agreement shall for any reason be held by a court of competent jurisdiction not to be, or shall be asserted by the Company or any Guarantor not to be, valid in accordance with the terms thereof or any Guarantor shall be in violation of the terms thereof, unless (i) the Company shall have the right under this Agreement to designate such Guarantor as an Unrestricted Subsidiary 73 66 without causing a Default or Event of Default to occur and (ii) within such five-day period the Company shall have designated such Guarantor an Unrestricted Subsidiary. ARTICLE XI Modifications, Amendments or Waivers Any of the provisions of this Agreement may from time to time be modified or amended by, or waived with the written consent of, the Majority Banks; provided that no such waiver, modification or amendment may be made which will: (a) Reduce or increase the amount or alter the term of the Commitment of any Bank hereunder, other than as permitted by Section 4.03, without the prior written consent of such Bank; or (b) Extend the stated maturity of or the time for payment of interest on any Loan or the time for payment of any fee, or waive an Event of Default with respect to payment of any principal, interest, or fee, or reduce the principal amount of or the rate of interest on any Loan, or reduce the amount of any fee, or otherwise affect the terms of payment of any such fee, without the prior written consent of each affected Bank; or (c) Change the definition of Majority Banks without the prior written consent of all the Banks; or (d) Waive, modify or amend the provisions of this Article XI, Section 14.07(a) or any other provision of this Agreement requiring the ratable distribution of payments among the Banks without the prior written consent of all the Banks; or (e) Waive, modify or amend the provisions of Article XII without the prior written consent of the Administrative Agent and the Majority Banks; or (f) Release the Guarantee of any Guarantor without the prior written consent of all the Banks except for the release of such Guarantee of any 74 67 Restricted Subsidiary (i) that has become an Unrestricted Subsidiary in accordance with Section 8.11 or (ii) all of the Capital Stock of which has been sold in accordance with Section 9.02. No failure or delay on the part of the Administrative Agent or any Bank in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy or any abandonment or discontinuance of steps to enforce such a power, right or remedy preclude any other or further exercise thereof or the exercise of any other power, right or remedy hereunder. The remedies provided for in this Agreement are cumulative and not exclusive of any remedies provided by law or in equity. No modification or waiver of any provision of this Agreement or consent to any departure by the Company or any Guarantor therefrom shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Company or any Guarantor in any case shall entitle the Company or such Guarantor to any other or further notice or demand in similar or other circumstances. ARTICLE XII The Administrative Agent SECTION 12.01. Appointment of Administrative Agent. Each of the Banks irrevocably appoints and authorizes the Administrative Agent to act on its behalf under this Agreement, and to exercise such powers hereunder as are specifically delegated to or required of the Administrative Agent by the terms hereof, together with such powers as may be reasonably incidental thereto. As to any matters not expressly provided for by this Agreement, the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Banks, and such instructions shall be binding upon all Banks; provided, however, that the Administrative Agent shall not be required to take any action which exposes the Administrative Agent to personal 75 68 liability or which is contrary to this Agreement or applicable law. SECTION 12.02. Indemnification of Administrative Agent. The Administrative Agent shall not be required to take any action hereunder or to prosecute or defend any suit in respect of this Agreement, unless indemnified to its reasonable satisfaction by the Banks against loss, cost, liability and expense. If any indemnity furnished to the Administrative Agent shall become impaired, it may call for additional indemnity and cease to do the acts indemnified against until such additional indemnity is given. In addition, the Banks agree to indemnify the Administrative Agent (to the extent not reimbursed by the Company), ratably according to the respective principal amounts of the Loans then held by each of them (or if no Loans are at the time outstanding, ratably according to the respective amounts of their Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Administrative Agent under this Agreement, provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent's gross negligence or wilful misconduct. SECTION 12.03. Limitation of Liability. Neither the Administrative Agent nor any of its directors, officers, employees, attorneys or agents shall be liable for any action taken or omitted by it or them hereunder, or in connection herewith, (i) with the consent or at the request of the Majority Banks, or (ii) in the absence of its or their own gross negligence or wilful misconduct. Without limitation of the generality of the foregoing (but subject to the immediately preceding clause (ii)), the Administrative Agent: (v) may consult with legal counsel (including Counsel for the Company), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such Counsel, accountants or experts; (w) makes no warranty or 76 69 representation to any Bank and shall not be responsible to any Bank for any statements, warranties or representations made in or in connection with this Agreement; (x) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement, or to inspect the Property (including the books and records) of the Company; (y) shall not be responsible to any Bank for the due execution, legality, validity, enforceability and genuineness of this Agreement, or any other instrument or document furnished pursuant hereto; and (z) shall incur no liability under or in respect of the Agreement by acting upon any notice or consent (whether oral or written and whether by telephone, telegram, cable or facsimile), certificate or other instrument or writing (which may be by telegram, cable or facsimile) believed by it to be genuine and communicated, signed or sent by the proper Person or Persons. SECTION 12.04. Independent Credit Decision. Each Bank agrees that it has relied solely upon its independent review of the financial statements of the Company and all other representations and warranties made by the Company herein or otherwise in making the credit decisions preliminary to entering into this Agreement and agrees that it will continue to rely solely upon its independent review of the facts and circumstances of the Company in making future decisions with respect to this Agreement and the Loans. Each Bank agrees that it has not relied and will not rely upon the Administrative Agent or any other Bank respecting the ability of the Company to perform its obligations pursuant to this Agreement. SECTION 12.05. Rights of TCB. With respect to its Commitment and the Loans made by it, TCB shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Administrative Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly indicated, include TCB in its individual capacity. TCB and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Company, any of the Subsidiaries and any Person or entity who may do business with or own securities of any of them or of their subsidiaries, all as if TCB were not the Administrative Agent and without any duty to account therefor to the Banks. 77 70 SECTION 12.06. Successor to the Administrative Agent. The Administrative Agent may resign at any time as Administrative Agent under this Agreement, by giving 30 days' prior written notice thereof to the Banks and the Company and may be removed as Administrative Agent under this Agreement, at any time with or without cause by the Company and the Majority Banks. Upon any such resignation or removal, the Company (with the consent of the Majority Banks) shall have the right to appoint a successor Administrative Agent thereunder. If no successor Administrative Agent shall have been so appointed by the Company (with the consent of the Majority Banks), and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $100,000,000. Upon the acceptance of any appointment as Administrative Agent under this Agreement by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation or removal as Administrative Agent under this Agreement, the provisions of this Article XII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. ARTICLE XIII Guarantee In order to induce the Banks to extend credit hereunder, each Guarantor hereby unconditionally guarantees (except to the extent, and only for so long as, any such Guarantor is prohibited from doing so by the terms of any Debt obligation existing as of January 31, 1997 and outstanding on the Closing Date), jointly with the other Guarantors and severally, as a primary obligor and not 78 71 merely as a surety, the Obligations. Each Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its Guarantee hereunder notwithstanding any such extension or renewal of any Obligation. Each Guarantor waives presentment to, demand of payment from and protest to the Company of any of the Obligations, and also waives notice of acceptance of its obligations and notice of protest for nonpayment. The obligations of each Guarantor hereunder shall not be affected by (a) the failure of any Bank or the Administrative Agent to assert any claim or demand or to enforce any right or remedy against the Company under the provisions of this Agreement or otherwise, (b) any rescission, waiver, amendment or modification of any of the terms or provisions of this Agreement or any other agreement, (c) the failure of any Bank to exercise any right or remedy against the Company or (d) any release of any other Guarantor. Each Guarantor further agrees that its agreement hereunder constitutes a promise of payment when due and not merely of collection, and waives any right to require that any resort be had by any Bank to any balance of any deposit account or credit on the books of any Bank in favor of the Company or any other Person. The obligations of each Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever, by reason of the invalidity, illegality or unenforceability of the Obligations, any impossibility in the performance of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Guarantor hereunder shall not be discharged or impaired or otherwise affected by the failure of the Administrative Agent or any Bank to assert any claim or demand or to enforce any remedy under this Agreement or under any other agreement, by any waiver or modification in respect of any thereof, by any default, failure or delay, wilful or otherwise, in the performance of the Obligations, or by any other act or omission which may or might in any manner or to any extent vary the risk of such Guarantor or 79 72 otherwise operate as a discharge of such Guarantor as a matter of law or equity. Each Guarantor further agrees that its obligations hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Obligation is rescinded or must otherwise be restored by the Administrative Agent or any Bank upon the bankruptcy or reorganization of the Company or otherwise. In furtherance of the foregoing and not in limitation of any other right which the Administrative Agent or any Bank may have at law or in equity against any Guarantor by virtue hereof, upon the failure of the Company to pay any Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, each Guarantor hereby promises to and will, upon receipt of written demand by the Administrative Agent, forthwith pay, or cause to be paid, in cash the amount of such unpaid Obligation. Upon payment by any Guarantor of any Obligations, each Bank shall, in a reasonable manner, assign the amount of the Obligations owed to it and so paid to such Guarantor, such assignment to be pro tanto to the extent to which the Obligations in question were discharged by such Guarantor, or make such disposition thereof as such Guarantor shall direct (all without recourse to and without any representation or warranty by any Bank). Upon payment by any Guarantor of any sums as provided above, all rights of such Guarantor against the Company or any other Guarantor arising as a result thereof by way of right of subrogation or otherwise (including the rights of such Guarantor under the previous and the next paragraphs) shall in all respects be subordinated and junior in right of payment to the prior indefeasible payment in full of all the Obligations to the Banks. In addition to all such rights of indemnity and subrogation as the Guarantors may have under applicable law, the Company agrees that in the event a payment shall be made by any Guarantor under its Guarantee, the Company shall indemnify such Guarantor for the full amount of such payment and such Guarantor shall be subrogated to the 80 73 rights of the Person to whom such payment shall have been made to the extent of such payment. Each Guarantor agrees that in the event a payment shall be made by any Guarantor under its Guarantee, and such Guarantor (the "Claiming Guarantor") shall not have been indemnified by the Company as provided in the preceding sentence, each other Guarantor (a "Contributing Guarantor") shall indemnify the Claiming Guarantor in an amount equal to the amount of such payment multiplied by a fraction of which the numerator shall be the net worth of the Contributing Guarantor on the date hereof (or any later date on which it shall have become a Guarantor) and the denominator shall be the aggregate net worth of all the Guarantors on the date hereof (or, as to any Guarantor, on any later date on which it shall have become a Guarantor). ARTICLE XIV Miscellaneous SECTION 14.01. Payment of Expenses. Any provision hereof to the contrary notwithstanding, and whether or not the transactions contemplated by this Agreement shall be consummated, the Company agrees to pay on demand (i) all reasonable costs and expenses of the Administrative Agent and the Banks or any Bank in connection with the preparation, execution and delivery of this Agreement and all amendments hereto (including, without limitation, waivers hereunder and workouts with respect to Loans hereunder) and the other instruments and documents to be delivered hereunder or with respect to any amendment hereto, including, without limitation, the reasonable fees and out-of-pocket expenses of any counsel for the Administrative Agent and the Banks or any Bank with respect thereto; provided, however, that so long as no Default or Event of Default has occurred and is continuing, such reasonable counsel expenses shall be limited to the reasonable expenses of one counsel for the Administrative Agent, (ii) all reasonable increases in costs and expenses of the Administrative Agent and the Banks or any Bank (including reasonable counsel fees and expenses, including reasonable allocated costs of in-house legal counsel to the Administrative Agent or any Bank), if any, in connection with the administration of this Agreement after the occurrence of a Default or Event of Default and so long as 81 74 the same is continuing and (iii) all reasonable costs and expenses of the Administrative Agent and the Banks or any Bank (including reasonable counsel fees and expenses, including reasonable allocated costs of in-house legal counsel to the Administrative Agent or any Bank), if any, in connection with the enforcement of this Agreement and the other instruments and documents to be delivered hereunder. The obligations of the Company under this Section 14.01 shall survive the termination of this Agreement and the payment of the obligations hereunder. SECTION 14.02. Notices. The Administrative Agent or any Bank giving consent or notice to the Company or any Guarantor provided for hereunder (other than in connection with any Discretionary Loans) shall notify each Bank and the Administrative Agent thereof. In the event that any Bank shall transfer any Loan in accordance with Section 14.07(c), it shall immediately so advise the Administrative Agent which shall be entitled to assume conclusively that no transfer of any Loan has been made by any Bank unless and until the Administrative Agent receives written notice to the contrary. Except as otherwise specifically permitted by this Agreement with respect to oral Notices of Borrowing or oral notices regarding the payment of interest under Section 10.01, notices and other communications provided for herein shall be in writing (including telegraphic, facsimile or cable communication) and shall be delivered, mailed, telegraphed, transmitted or cabled addressed to the addresses set forth on Exhibit 14.02 attached hereto (or, as to the Company, any Guarantor or the Administrative Agent, at such other address as shall be designated by such party to the other parties in a written notice to the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to the Company and the Administrative Agent). All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given upon receipt or if sent by registered or certified mail four Business Days after being duly posted, in each case addressed to such party as provided in this Section 14.02 or in accordance with the latest unrevoked direction from such party, except for Notices of Borrowing and notices of prepayments of Loans hereunder, which shall be deemed to have been given when received by the Administrative Agent, and except for notices from the 82 75 Administrative Agent to the Company under Section 10.01 with respect to the amount of accrued and unpaid interest due on the Loans, which shall be deemed to have been given when received by the Company. The Administrative Agent and the Banks may at any time waive any requirement for notice hereunder. SECTION 14.03. Setoff. If one or more Events of Default as defined herein shall occur, any Bank or commercial bank which is owed any obligation hereunder (a "Depositary") shall have the right, in addition to all other rights and remedies available to it, and is hereby authorized, to the extent permitted by applicable law, at any time and from time to time, without notice to the Company (any such notice being hereby expressly waived by the Company), to setoff and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness (whether or not then due and payable) at any time owing by the Depositary to or for the credit or the account of the Company or any Guarantor, against any and all of the Obligations of the Company or any Guarantor now or hereafter existing under this Agreement irrespective of whether or not the Depositary shall have made any demand for satisfaction of such Obligations and although such Obligations may be unmatured. Each Depositary agrees to notify the Company and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Depositary under this Section are in addition to other rights and remedies (including, without limitation, other rights of setoff which such Depositary may have hereunder or under any applicable law). Each Depositary agrees that (i) if it shall exercise any such right of banker's lien, setoff, counterclaim or similar right pursuant hereto, it will apply the proceeds thereof to the payment of Loans outstanding hereunder and (ii) if it shall through the exercise of a right of banker's lien, setoff, counterclaim or otherwise obtain payment of a proportion of the Loans held by it in excess of the proportion of the Loans of each of the other Depositaries being paid simultaneously, it shall be deemed to have simultaneously purchased from each other Depositary a participation in the Loans owed to such other Depositaries so that the amount of unpaid Loans and participations therein held by all Depositaries shall be 83 76 proportionate to the original principal amount of the Loans owed to them, and in each case it shall promptly remit to each such Depositary the amount of the participation thus deemed to have been purchased. The Company expressly consents to the foregoing arrangements, and in furtherance thereof, agrees that at such time as an Event of Default hereunder has occurred, the Administrative Agent shall provide to each Bank a schedule setting forth the Commitment of each Bank hereunder to permit each Bank to correctly determine the portion which its Commitment hereunder bears to the aggregate of all Commitments hereunder. If all or any portion of any such excess payment is thereafter recovered from the Depositary which received the same, the purchase provided for herein shall be deemed to have been rescinded to the extent of such recovery, without interest. SECTION 14.04. Indemnity and Judgments. The Company agrees to indemnify the Administrative Agent and each of the Banks and each of their respective directors, officers, employees, agents, attorneys, advisors, Controlling Persons and Affiliates from and hold each harmless against any and all losses, costs, liabilities, claims, damages and expenses incurred by any of the foregoing Persons (collectively, the "Indemnified Liabilities"), including, without limitation, reasonable attorneys' fees, settlement costs, court costs and other legal expenses, arising out of or by reason of any participation in, or any action or omission in connection with this Agreement (and, with respect to TCB, Chase Securities Inc., NationsBank of Texas, N.A., NationsBanc Capital Markets, Inc., Citibank, N.A. and Citicorp Securities, Inc. and their officers, directors, employees and Affiliates, any action or omission in connection with the Commitment Letter dated as of February 5, 1997 (the "Commitment Letter") by and among the Company and such parties) or any Loan by a Bank hereunder or any investigation, litigation or other proceedings brought or threatened relating thereto, or to any use or proposed use to be made by the Company or any Subsidiary of the Loans and to the extent that the Indemnified Liabilities arise out of or by reason of claims made by Persons other than the Administrative Agent or any Bank; provided that no such Person shall be entitled to be indemnified and held harmless against any such Indemnified Liabilities arising out of or by reason of the gross negligence or wilful 84 77 misconduct of such Person. The parties acknowledge that the indemnification provisions set forth in the Commitment Letter shall be superseded by this Section 14.04. SECTION 14.05. Interest. Anything in this Agreement to the contrary notwithstanding, the Company shall never be required to pay unearned interest on any Loan and shall never be required to pay interest on any Loan at a rate in excess of the Highest Lawful Rate, and if the effective rate of interest which would otherwise be payable under this Agreement would exceed the Highest Lawful Rate, or if any Bank shall receive any unearned interest or shall receive monies that are deemed to constitute interest which would increase the effective rate of interest payable under this Agreement to a rate in excess of the Highest Lawful Rate, then (i) in lieu of the amount of interest which would otherwise be payable under this Agreement, the Company shall pay the Highest Lawful Rate, and (ii) any unearned interest paid by the Company or any interest paid by the Company in excess of the Highest Lawful Rate shall be credited on the principal of such Loan, and, thereafter, refunded to the Company. It is further agreed that, without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received by any Bank under this Agreement that are made for the purpose of determining whether such rate exceeds the Highest Lawful Rate applicable to such Bank (such Highest Lawful Rate being such Bank's "Maximum Permissible Rate"), shall be made, to the extent permitted by usury laws applicable to such Bank (now or hereafter enacted), by amortizing, prorating and spreading in equal parts during the period of the full stated term of the Loans all interest at any time contracted for, charged or received by such Bank in connection therewith. If at any time and from time to time (y) the amount of interest payable to any Bank on any date shall be computed at such Bank's Maximum Permissible Rate pursuant to this Section 14.05 and (z) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Bank would be less than the amount of interest payable to such Bank computed at such Bank's Maximum Permissible Rate, then the amount of interest payable to such Bank in respect of such subsequent interest computation period shall continue to be computed at such Bank's Maximum Permissible Rate until the total amount of interest payable to such Bank shall equal the total amount 85 78 of interest which would have been payable to such Bank if the total amount of interest had been computed without giving effect to this Section. SECTION 14.06. Governing Law; Submission to Jurisdiction; Venue. (a) THIS AGREEMENT AND OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH SHALL BE DEEMED TO BE CONTRACTS AND AGREEMENTS EXECUTED BY THE COMPANY, THE GUARANTORS, THE ADMINISTRATIVE AGENT AND THE BANKS UNDER THE LAWS OF THE STATE OF NEW YORK AND OF THE UNITED STATES AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF SAID STATE AND OF THE UNITED STATES. Without limitation of the foregoing, nothing in this Agreement shall be deemed to constitute a waiver of any rights which any Bank may have under applicable Federal law relating to the amount of interest which such Bank may contract for, take, receive or charge in respect of any Loans, including any right to take, receive, reserve and charge interest at the rate allowed by the laws of the state where such Bank is located. To the extent that Texas law is applicable to the determination of the Highest Lawful Rate or a Maximum Permissible Rate, the provisions of Chapter 15 of Subtitle 3, Title 79, of the Revised Civil Statutes of Texas, 1925, as amended, shall not apply to this Agreement. Any legal action or proceeding with respect to this Agreement may be brought in the courts of the State of New York sitting in New York City or of the United States for the Southern District of New York, and by execution and delivery of this Agreement, each of the Company and the Guarantors hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts. Each of the Company and the Guarantors further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to either the Company or the respective Guarantor at its address for notices pursuant to Section 14.02, such service to become effective 15 days after such mailing. Nothing herein shall affect the right of the Administrative Agent or any Bank to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Company or any Guarantor in any other jurisdiction. 86 79 (b) Each of the Company and the Guarantors irrevocably waives any objection which it may now or here after have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement brought in the courts referred to in clause (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. SECTION 14.07. Survival of Representations and Warranties; Binding Effect; Assignment. (a) All representations, warranties and covenants contained herein or made in writing by the Company or any Guarantor in connection herewith shall survive the execution and delivery of this Agreement, and will bind and inure to the benefit of the respective successors and assigns of the parties hereto, whether so expressed or not. This Agreement shall become effective when it shall have been executed by the Company, the Guarantors, the Administrative Agent and each of the Banks, and thereafter shall be binding upon and inure to the benefit of the Company, the Guarantors, the Administrative Agent and the Banks and their respective successors and assigns, except that neither the Company nor any Guarantor shall have the right to assign its rights or obligations hereunder or any interest herein without the prior written consent of each Bank. (b) Each Bank may grant participations to one or more other banks or other Persons in or to all or any part of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment) pursuant to such participation agreements and certificates as are customary in the banking industry; provided, however, that (i) such Bank's obligations under this Agreement (including, without limitation its Commitment to the Company hereunder) shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Company, the Guarantors, the Administrative Agent and the other Banks shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement, including without limitation, such Bank's rights under Article XI hereof. In connection with any such 87 80 participation, each Bank may deliver such financial information concerning the Company and its Subsidiaries to permit such participant to make an informed and independent credit decision concerning such participation; provided, however, each such Bank shall obtain from each such participant an agreement to the effect that all such information delivered to it in connection with such participation shall be considered confidential and shall not be further distributed or delivered to any other Person except any regulatory body having jurisdiction over such participant or to any director, officer, employee, Affiliate or representative (including accountants and attorneys acting for such participants) or as may otherwise be required by legal process or applicable law, rules and regulations. Upon request of the Company, each Bank shall give prompt notice to the Company of each such participation to banks or other Persons that are not Affiliates of such Bank identifying each such participant and the interest acquired by each such participant. This Agreement shall not be construed so as to confer any right or benefit upon any Person, including, without limitation, any Person acquiring a participation in any Loan, other than the parties to this Agreement, except that any Person acquiring a participation shall be entitled to the benefits conferred upon the Banks by Section 2.01(f)-(g) (provided that the cost to the Company is not in excess of what such cost would have been had such participation not been granted). (c) Subject (except in the case of assignments to Affiliates of the Banks) to the prior written consent of the Company (which consent shall not be unreasonably withheld) and the Administrative Agent, each Bank may assign to a bank or other Person a portion of its rights and obligations under this Agreement (including, without limitation, a portion of its Commitment); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all of the assigning Bank's rights and obligations under this Agreement and shall be in an amount equal to or greater than $5,000,000 of the assigning Bank's Commitment (except in the case of assignments to Affiliates of any Bank or unless otherwise agreed by the Company) and (ii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance in 88 81 substantially the form of Exhibit 14.07(c) attached hereto (the "Assignment and Acceptance"), together with a processing and recordation fee of $3,500; provided, however, that such recordation fee shall not be payable if such transfer is made pursuant to Sections 2.01(e) or (g)(vi). Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be the date on which such Assignment and Acceptance is accepted by the Administrative Agent, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Bank under this Agreement and (y) the Bank assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Bank's rights and obligations under this Agreement, such Bank shall cease to be a party hereto). (d) By executing and delivering an Assignment and Acceptance, the Bank assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any other instrument or document furnished pursuant thereto, (ii) such assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or the performance or observance by the Company of any of its respective obligations under this Agreement, (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Sections 6.02 and 8.02 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance, (iv) such assignee will, independently and without reliance upon the Administrative Agent, such 89 82 assigning Bank or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement, (v) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto, and (vi) such assignee agrees that it will perform in accordance with its terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Bank. (e) The Administrative Agent shall maintain at its address referred to in Section 14.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Banks and the Commitment of, and principal amount of the Loans owing to, each Bank from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Company, the Guarantors, the Administrative Agent and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Company or any Bank at any reasonable time and from time to time upon reasonable prior notice. (f) Upon its receipt of an Assignment and Acceptance executed by an assigning Bank, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit 14.07(c) attached hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Company. (g) Notwithstanding any other provision in this Agreement, any Bank may at any time, without the consent of the Company, assign all or any portion of its rights under this Agreement (including, without limitation, the Loans) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System; provided that no such assignment shall 90 83 release a Bank from any of its obligations hereunder or substitute any such Federal Reserve Bank for such Bank as a party hereto. In order to facilitate such an assignment to a Federal Reserve Bank, the Company shall, at the request of the assigning Bank, duly execute and deliver to the assigning Bank a promissory note or notes evidencing the Loans made to the Company by the assigning Bank hereunder. SECTION 14.08. Counterparts. This Agreement may be executed in several counterparts, and by the parties hereto on separate counterparts. When counterparts executed by all the parties shall have been delivered to the Administrative Agent, this Agreement shall become effective, and at such time the Administrative Agent shall notify the Company and each Bank. Each counterpart, when so executed and delivered, shall constitute an original instrument, and all such separate counterparts shall constitute but one and the same instrument. SECTION 14.09. Severability. Should any clause, sentence, paragraph or section of this Agreement be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Agreement, and the parties hereto agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom and the remainder will have the same force and effectiveness as if such part or parts had never been included herein. SECTION 14.10. Descriptive Headings. The section headings in this Agreement have been inserted for convenience only and shall be given no substantive meaning or significance whatever in construing the terms and provisions of this Agreement. SECTION 14.11. Representation of the Banks. Each Bank hereby represents and warrants that it is not relying upon any Margin Stock as collateral in extending or maintaining the credit to the Company represented by this Agreement. SECTION 14.12. Final Agreement of the Parties. This Agreement (including the Exhibits hereto) represents the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous or 91 84 subsequent oral agreements of the parties. There are no oral agreements between the parties. SECTION 14.13. Waiver of Jury Trial. THE COMPANY AND EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION OR PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN. IN WITNESS WHEREOF this Agreement has been executed by the duty authorized signatories of the parties hereto in several counterparts all as of the day and year first above written. COX RADIO, INC., by /s/ Richard J. Jacobson -------------------------------- Name: Richard J. Jacobson Title: Treasurer 92 85 WHIO, INC., as Guarantor, by /s/ Andrew A. Merdek -------------------------------------- Name: Andrew A. Merdek Title: Secretary 93 86 WSB, INC., as Guarantor, by /s/ Andrew A. Merdek --------------------------------------- Name: Andrew A. Merdek Title: Secretary 94 87 COX KENTUCKY, INC., as Guarantor, by /s/ Andrew A. Merdek --------------------------------------- Name: Andrew A. Merdek Title: Secretary 95 88 COX LOUISVILLE, L.L.C., as Guarantor, by /s/ Andrew A. Merdek --------------------------------------- Name: Andrew A. Merdek Title: Secretary 96 89 TEXAS COMMERCE BANK NATIONAL ASSOCIATION, individually and as Administrative Agent, by /s/ Kevin Kelty --------------------------------------- Name: Kevin Kelty Title: Senior Vice President 97 90 NATIONSBANK OF TEXAS, N.A., individually and as Syndications Agent, by /s/ Daniel J. Rabbitt --------------------------------------- Name: Daniel J. Rabbitt Title: Vice President 98 91 CITIBANK, N.A., individually and as Documentation Agent, by /s/ Mary E. Thomas --------------------------------------- Name: Mary E. Thomas Title: Attorney-In-Fact 99 92 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, by /s/ Russell D. Solomon --------------------------------------- Name: Russell D. Solomon Title: Vice President 100 93 CIBC INC., by /s/ Cynthia McCahill -------------------------------------- Name: Cynthia McCahill Title: Director 101 94 THE DAI-ICHI KANGYO BANK, LIMITED ATLANTA AGENCY, by /s/ Toshiaki Kurihara -------------------------------------- Name: Toshiaki Kurihara Title: Joint General Manager 102 95 FIRST UNION NATIONAL BANK OF NORTH CAROLINA, by /s/ Bruce W. Loftin --------------------------------------- Name: Bruce W. Loftin Title: Senior Vice President 103 96 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, by /s/ Kathryn Sayko-Yanes -------------------------------------- Name: Kathryn Sayko-Yanes Title: Vice President 104 97 SUNTRUST BANK, ATLANTA, by /s/ Willem-Jan O. Hattink --------------------------------------- Name: Willem-Jan O. Hattink Title: Group Vice President by /s/ Jenna M. Hale --------------------------------------- Name: Jenna M. Hale Title: Assistant Vice President 105 98 WACHOVIA BANK OF GEORGIA, N.A., by /s/ J. Timothy Toler --------------------------------------- Name: J. Timothy Toler Title: Senior Vice President EX-10.6 3 TAX ALLOCATION & INDEMNIFICATION AGREEMENT 1 EXHIBIT 10.6 TAX ALLOCATION AND INDEMNIFICATION AGREEMENT This Tax Allocation and Indemnification Agreement (the "Agreement"), effective as of the 30th day of September, 1996, by and between COX ENTERPRISES, INC., a Delaware corporation ("CEI"), and COX RADIO, INC. (formerly WIOD, Inc.), a Delaware corporation ("CRI"), each with its principal office located at 1400 Lake Hearn Drive, Atlanta, Georgia 30319. RECITALS WHEREAS, CRI has effected a public offering of its shares (the "Public Offering") on the date hereof, with the result that members of the public acquired shares of the stock of CRI, and effective as of this date CRI is no longer an indirect wholly-owned subsidiary of CEI; and WHEREAS, the parties have determined that subsequent to the Public Offering CRI will no longer be a member of the Consolidated Group (as defined below); and WHEREAS, CEI and CRI desire to set forth their agreement with respect to the allocation of taxes for taxable periods prior to the Public Offering Date for which CRI files its Tax Returns as a member of the Consolidated Group; NOW THEREFORE, in consideration of the mutual promises, covenants and agreements contained herein, the parties agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and the plural forms of the terms defined): "Affiliate" means any corporation which is a member of the Consolidated Group. "CEI Affiliate" means any corporation which is a member of the Consolidated Group (including CEI) and which is not a member of the CRI Group. "CEI Group" means CEI and the other CEI Affiliates. "Code" means the Internal Revenue Code of 1986, as amended, or any successor thereto, as in effect for the taxable period in question. 2 "Consolidated Group" means the affiliated group of corporations of which CEI is the common parent (within the meaning of Section 1504 of the Code), and any other corporations which may become members of such affiliated group. "CRI Affiliate" means any corporation which is a member of the CRI Group (including CRI). "CRI Group" means the group of corporations (including CRI) of which CRI is the common parent (within the meaning of section 1504 of the Code) immediately after the Public Offering, and any other corporations which may become members of such affiliated group. "Final Determination" means the final resolution of liability for any Tax for a taxable period, including any related interest or penalties, (i) by Internal Revenue Service Form 870 or 870-AD (or any successor forms thereto), on the date of acceptance by or on behalf of the Internal Revenue Service, or by a comparable form under the laws of other jurisdictions, except that a Form 870 or 870-AD or comparable form that reserves (whether by its terms or by operation of law) the right of the taxpayer to file a claim for refund and/or the right of the Tax Authority to assert a further deficiency shall not constitute a Final Determination; (ii) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (iii) by a closing agreement or accepted offer in compromise under Section 7121 or 7122 of the Code, or comparable agreements under the laws of other jurisdictions; (iv) by any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund may be recovered (including by way of offset) by the jurisdiction imposing such Tax; or (v) by any other final disposition, including by reason of the expiration of the applicable statute of limitations. "Public Offering Date" means __________, 1996, the date of the Public Offering. "Tax" means any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, franchise, profits, license, withholding on amounts paid, payroll, employment, excise, severance, stamp, occupation, property, or other like assessment or charge of any kind whatsoever imposed by any Tax Authority, together with any interest, penalties, or other additions to tax with respect thereto. "Tax Authority" means the Internal Revenue Service or any other domestic (including state or local) or foreign governmental authority responsible for the administration of any Tax. 2 3 "Tax Return" means any return, filing, questionnaire or other document required to be filed, including requests for extensions of time, filings made with estimated Tax payments, claims for refund and amended returns that may be filed, for any taxable period with any Tax Authority (whether domestic or foreign) in connection with any Tax or Taxes (whether or not a payment is required to be made with respect to such filing). ARTICLE II PREPARATION AND FILING OF TAX RETURNS 2.01. Applicability of Provisions of Agreement. For all Tax periods ending on or prior to the Public Offering Date, CRI is a member of the Consolidated Group, and the federal income Tax Returns of the CRI Group shall be filed accordingly for all such Tax periods. This Agreement is effective as of the Public Offering Date for CEI and all members of the CRI Group and supersedes any previous tax allocation or tax sharing agreement between the parties. This Agreement does not constitute a change in the method of allocating the federal regular income tax liability of the Consolidated Group requiring the consent of the Commissioner under Treasury Regulation Section 1.1552-1(c). 2.02. Federal Income Tax Returns. CEI shall timely prepare and file, or cause to be timely prepared and filed, all federal income Tax Returns for the Consolidated Group. For all Tax periods ending on or prior to the Public Offering Date: (i) each CRI Affiliate shall provide CEI with its Tax Returns, supporting schedules and additional information on a timely basis, as requested by CEI, in order for CEI to timely file the Tax Returns for the Consolidated Group, and (ii) CEI shall file the Tax Returns for the CRI Group consistent with the Tax Returns, supporting schedules and additional information provided by the CRI Affiliates. Upon request, CEI shall deliver to CRI copies of the Tax Returns of the CRI Affiliates within 30 days after filing. 2.03. Other Tax Returns. For so long as any member of the CRI Group files any Tax Return as a member of, or its items of income, gain, deduction or loss are reported in, any other consolidated or combined Tax Return with CEI or any CEI Affiliate, CEI shall be responsible for the preparation and filing of such Tax Returns (including returns for Tax periods ending after the Public Offering Date). Such Tax Returns shall be prepared and filed in accordance with the principles set forth in this Article II and in Article III. ARTICLE III ALLOCATION AND PAYMENT OF TAXES 3.01. Acknowledgement of Elections. Any and all elections previously made in accordance with past practice and in 3 4 effect as of the Public Offering Date shall continue to govern the allocation of the federal income tax liability of the Consolidated Group among the members of the Consolidated Group. 3.02. Federal Regular Income Tax. CEI and CRI agree to allocate the federal regular income tax liability of the Consolidated Group for periods ending on or prior to the Public Offering Date in the following manner: (a) The consolidated federal regular income tax liability to be allocated to and paid by each Affiliate shall be that percentage of the consolidated federal regular income tax liability which is equal to the percentage that the federal taxable income of such Affiliate, computed on a separate return basis, would be of the total federal taxable income of all Affiliates so computed. Allocations pursuant to this Section 3.02(a) shall be made in accordance with the principles set forth in Treasury Regulation Section 1.1552-1(a)(1). (b) An additional liability shall be allocated to each Affiliate which, as a result of net operating losses, excess charitable contributions, foreign tax credits, investment tax credits or similar items arising from or generated by the activities of another Affiliate or Affiliates in either a separate return year or a consolidated return year, has a smaller allocated tax liability determined under Section 3.02(a) above than it would have on a separate return basis. The additional liability allocated to each Affiliate shall be equal to the excess of the amount that the Affiliate would have paid on a separate return basis over the allocated tax liability determined under Section 3.02(a) above. An amount equal to the total additional liabilities allocated to all such Affiliates for the consolidated return year shall be paid to the Affiliates which generated such losses, credits or deductions, in the proportion which the tax benefit derived by the Consolidated Group from the losses, credits and deductions of such Affiliate bears to the tax benefit derived by the Consolidated Group from the losses, credits and deductions of all Affiliates. Allocations pursuant to this Section 3.02(b) shall be made in accordance with the principles set forth in Treasury Regulation Section 1.1502- 33(d)(3). (c) For purposes of this Agreement, the CRI Group's allocable share of the consolidated Federal regular income tax liability is the aggregate amount of liability allocated to the CRI Affiliates. The CEI Group's allocable share of the consolidated federal regular income tax liability is the aggregate amount of liability allocated to the CEI Affiliates. 4 5 3.03. Alternative Minimum Tax. (a) Any consolidated alternative minimum tax liability shall be allocated for the respective consolidated Tax Return year to the Affiliates whose separate company tentative minimum tax exceeds its separate company regular tax liability. The total alternative minimum tax liability shown on the Tax Return of the Consolidated Group shall be apportioned to each such Affiliate according to the ratio of (i) the excess of its separate company tentative minimum tax over its separate company regular tax liability to (ii) the total of all such Affiliates' excess separate company tentative minimum tax over separate company regular tax. For purposes of this allocation, if an Affiliate has a regular tax net operating loss on a separate return basis, the alternative minimum tax liability for that Affiliate on a separate return basis shall be computed on the difference between such Affiliate's regular tax net operating loss and any smaller alternative tax net operating loss or any alternative minimum taxable income. (b) Any minimum tax credit realized in subsequent years (determined by allocating credits first to the earliest years) by the Consolidated Group as a result of incurring the alternative minimum tax liability shall be paid to the Affiliate to which the original alternative minimum tax liability was allocated. If less than the full minimum tax credit is realized in a year, the amount realized by each Affiliate which incurred the original alternative minimum tax liability shall be paid first to the Affiliates which can utilize the minimum tax credit on a separate return basis according to the proportion of the original alternative minimum tax liability borne by each such Affiliate. Any remaining minimum tax credit shall be paid to the Affiliates which incurred the original alternative minimum tax liability in proportion to the original alternative minimum tax liability borne by such Affiliates (and not previously offset by credits). (c) The consolidated alternative minimum tax, for stock basis adjustment and earnings and profits purposes, shall be allocated to each Affiliate under the allocation method set out in Proposed Regulation Sections 1.1502-55 and 1.1552-1(g) issued on December 30, 1992 (the "Proposed Regulations"). A portion of the minimum tax credit shall be allocated to Affiliates who cease to be a member of the Consolidated Group in accordance with Proposed Regulation Section 1.1502-55(h). However, to the extent such Affiliate was not allocated a corresponding amount of alternative minimum tax in an earlier or the same tax year, such Affiliate shall pay to CEI an amount equal to such excess credit prior to the date the Affiliate leaves the Consolidated Group. If temporary or final regulations are issued which differ from the Proposed Regulations, this 5 6 Agreement shall be amended to reflect such changes to the extent and for such periods deemed necessary or desirable by CEI. (d) For purposes of this Agreement, the CRI Group's share of the alternative minimum tax liability of the Consolidated Group is the aggregate amount of such liability allocated to the CRI Affiliates. The CEI Group's allocable share of the alternative minimum tax liability of the Consolidated Group is the aggregate amount of such liability allocated to the CEI Affiliates. 3.04. Payment of Consolidated Federal Income Tax. CEI shall pay all Taxes due with respect to the consolidated federal income tax liability of the Consolidated Group. Each CEI Affiliate shall pay to CEI an amount equal to its share of such consolidated federal income tax liability as determined under Sections 3.02 and 3.03. CRI shall pay to CEI an amount equal to the CRI Group's share of such consolidated federal income tax liability as determined under Sections 3.02 and 3.03. 3.05. Tax Deficiencies and Refunds. (a) If as a result of any examination of, or amendment to, a Tax Return filed by CEI with respect to any taxable period, there is an additional amount of Taxes due and payable (a "Deficiency"), or a refund of Taxes previously paid (whether by payment, credit, offset against other Taxes due or otherwise) (a "Refund"), any such Deficiency shall be paid by, and any such Refund shall be payable to, CEI. (b) Each Affiliate shall pay to CEI an amount equal to the amount of any Deficiency paid or payable by CEI and allocable to such Affiliate. CEI shall pay to each Affiliate the amount of any Refund received by CEI and allocable to such Affiliate. 3.06. Penalties and Interest. (a) Any interest incurred by the Consolidated Group as a result of a Deficiency shall be paid by the Affiliate to whom it is attributable. The amount of interest allocable to each Affiliate shall be determined and paid as follows: (i) The total amount of interest incurred by the Consolidated Group shall be apportioned to and paid by the Affiliates according to the ratio of the interest that would have been incurred by each Affiliate if its Taxes were computed on a separate return basis to the total of all the interest that would have been incurred by the Affiliates so computed. (ii) An additional amount of interest shall be allocated to each Affiliate equal to the additional interest, 6 7 if any, that such Affiliate would have paid on a separate return basis over the allocated interest determined under Section 3.06(a)(i) above. Any amounts so allocated shall be paid to those other Affiliates whose income or deductions would have given rise to a refund on a separate return basis, according to the ratio which the refund payable to the respective Affiliate bears to the total of all refunds which would have been payable to such Affiliates on a separate return basis; provided, however, that payment to an Affiliate hereunder shall not exceed the amount of interest that such Affiliate would have received on a separate return basis (with any such excess to be retained by the respective paying Affiliates in proportion to the amounts allocated to them pursuant to the first sentence of this Section 3.06(a)(ii)). (iii) Interest computed by an Affiliate on a separate return basis shall be calculated using the interest rate or rates applicable to the consolidated Deficiency. (b) Any interest received by the Consolidated Group as a result of any Refund shall be allocated to the Affiliate whose income or deductions gave rise to the Refund. The amount of interest allocable to each Affiliate shall be determined and paid as follows: (i) The amount of interest received by the Consolidated Group shall be apportioned to and received by the Affiliates according to the ratio of the interest that would have been received by each Affiliate if its Taxes were computed on a separate return basis to the total of all the interest that would have been received by the Affiliates so computed. (ii) Each Affiliate shall be allocated an additional amount equal to the additional interest, if any, that such Affiliate would have received on a separate return basis over the allocated interest determined under Section 3.06(b)(i) above. Any amounts so allocated shall be paid to such Affiliates by the Affiliates whose income or deductions caused such interest not to be received by the Consolidated Group; provided, however, that payment to an Affiliate shall not exceed the amount that such Affiliate would have received on a separate return basis (with any such excess to be retained by the respective paying Affiliates in proportion to the amounts otherwise payable hereunder). (iii) Interest computed by an Affiliate on a separate return basis shall be calculated using the interest rate or rates applicable to the consolidated Refund. (c) Any penalties incurred by the Consolidated Group shall be paid by the Affiliate whose income or deductions caused such penalties. If a penalty was caused by more than one 7 8 Affiliate, such penalty shall be allocated proportionately to those Affiliates that would have incurred a penalty on a separate return basis. Any excess penalty shall be allocated in proportion to the income or deductions of each Affiliate which caused or contributed to the penalty regardless of whether such Affiliate's income or deductions exceeded the minimum threshold required for the penalty to be imposed. (d) For purposes of this Agreement, the CRI Group's allocable share of any interest or penalties is the aggregate amount of interest or penalties allocated to the CRI Affiliates. The CEI Group's allocable share of any interest or penalties is the aggregate amount of any interest or penalties allocated to the CEI Affiliates. 3.07. Manner of Payment. (a) On each date on which a payment of estimated federal income Tax (relating to a Tax period ending on or before the Public Offering Date) is due, CRI shall pay to CEI, on behalf of the CRI Affiliates, an amount calculated by CEI as the estimated Tax payment for the CRI Affiliates. CEI shall notify CRI of the amount of each such payment at least 3 days prior to the date such payment is due. (b) CEI shall determine the Tax liability of the CRI Affiliates under Sections 3.02 and 3.03 promptly following its receipt of the information required under Section 2.02 to be submitted to it by the CRI Affiliates. CRI, on behalf of the CRI Affiliates, shall pay to CEI the amount of the Tax liability of the CRI Affiliates so determined within 5 days following such determination, offset by any payments previously made pursuant to Section 3.07(a). An additional computation of the Tax liability of the CRI Affiliates shall be made when the Tax Return of the Consolidated Group is filed and any adjustments which require additional payments shall be paid by CRI (or by the respective CRI Affiliate) within 5 days following the filing of such return. Any payment not made within the prescribed time period shall thereafter bear interest at the federal short-term rate established pursuant to Section 6621 of the Code (or any successor provision). (c) Any payment required to be made pursuant to Sections 3.04, 3.05, 3.06 or 3.07 with respect to any Tax Return shall be made by the Affiliate obligated to make such payment (i) in the case of a refund of Tax, within 15 days after receipt (whether by way of payment, credit, or offset against any payments due or otherwise) of such refund or (ii) in the case of the payment of Tax with respect to any such Tax Return, within 5 days after the later of (x) the payment of such Tax, or (y) the delivery of written demand for the payment of such Tax to the party obligated to make such payment hereunder. Any payment 8 9 described in clause (i) and any demand for payment described in clause (ii) shall be accompanied by a calculation setting forth the basis for the amount paid or demanded. Any payment not made within the prescribed time period shall thereafter bear interest at the federal short-term rate established pursuant to Section 6621 of the Code. 3.08. Other Tax Returns. For so long as any member of the CRI Group is included in any other consolidated or combined Tax Return with CEI or any CEI Affiliate, allocation of Taxes, interest, penalties, and payments shall be governed by the principles set forth in Sections 3.01 through 3.07. ARTICLE IV COOPERATION AND EXCHANGE OF INFORMATION 4.01. Cooperation. (a) CEI and CRI shall cooperate fully at such time and to the extent reasonably requested by the other party in connection with the preparation and filing of any return or the conduct of any audit, dispute, proceeding, suit or action concerning any issues or any other matter contemplated hereunder. Such cooperation shall include, without limitation, (i) the retention and provision on demand of books, records, documentation or other information relating to any Tax Return until the later of (x) the expiration of the applicable statute of limitations (giving effect to any extension, waiver, or mitigation thereof) and (y) in the event any claim has been made under this Agreement for which such information is relevant, until a Final Determination is made with respect to such claim; (ii) the provision of additional information with respect to, and an explanation of the tax practices (elections, accounting methods, conventions and principles of taxation) relating to, the material provided under clause (i) of this section; (iii) the execution of any document that may be necessary or reasonably helpful in connection with the filing of any Tax Return by any member of the Consolidated Group, or in connection with any audit, proceeding, suit or action addressed in the preceding sentence; and (iv) the use of the parties' best efforts to obtain any documentation from a governmental authority or a third party that may be necessary or helpful in connection with the foregoing. Each party shall make its employees and facilities available on a mutually convenient basis to facilitate such cooperation. (b) CEI and CRI shall use reasonable efforts to keep each other advised as to the status of Tax audits and litigation involving any issue which relates to any Tax of the CRI Group or could give rise to a liability of the CRI Group (or any CRI Affiliate) under this Agreement (a "Liability Issue"). CEI and CRI shall each promptly notify the other of any inquiries 9 10 by any Tax Authority or any other administrative, judicial or other governmental authority that relates to any Tax that may be imposed on the other or any Affiliate of the other that might arise under this Agreement. Without limiting the foregoing, each CRI Affiliate shall promptly furnish to CEI upon receipt a copy of any revenue agent's report or similar report, notice of proposed adjustment, or notice of deficiency received by such Affiliate relating to any Liability Issue or any adjustment described in Section 4.01(c) below. (c) CEI shall advise and consult with CRI with respect to any proposed Tax adjustments relating to the Consolidated Group that are the subject of an audit or investigation by any Tax Authority, or are the subject of litigation, that may affect any Tax or any Tax attribute of any CRI Affiliate. However, CEI may resolve any proposed Tax adjustments relating to the Consolidated Group or any Affiliate in the best interests of the Consolidated Group. 4.02. Contests. Subject to the cooperation provisions in Section 4.01, CEI shall have full responsibility and discretion in the handling of any Tax controversy including, without limitation, an audit, a protest to the Appeals Division of the Internal Revenue Service, and litigation in Tax Court or any other court of competent jurisdiction (a "Tax Controversy"), involving a Tax Return of the Consolidated Group. However, upon request by CRI, and subject to CEI approval and the cooperation provisions in Section 4.01, CRI may participate, at CRI's expense, in any Tax Controversy with respect to any item that would give rise to a payment of Tax for which a CRI Affiliate would be liable, or a refund of Tax for which a CRI Affiliate would be entitled to receive payment, under Article III hereof, or that may affect any Tax attribute of any CRI Affiliate. ARTICLE V MISCELLANEOUS 5.01. Complete Agreement. This Agreement constitutes the entire agreement of the parties concerning the subject matter hereof, and supersedes all other agreements, whether or not written, in respect of any Tax between or among CEI and any CRI Affiliates. This Agreement may not be amended except by an agreement in writing, signed by the parties hereto. 5.02. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia, without regard to the principles of conflict of laws of the State of Georgia. 5.03. Successors and Assigns. A party's rights and obligations under this Agreement may not be assigned without the prior written consent of the other party. All of the provisions 10 11 of this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. 5.04. No Third-Party Beneficiaries. This Agreement is solely for the benefit of the parties to this Agreement and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without this Agreement. 5.05. Legal Enforceability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of the prohibition or unenforceability without invalidating the remaining provisions. Any prohibition or unenforceability of any provision of this Agreement in any jurisdiction shall not invalidate or render unenforceable the provision in any other jurisdiction. 5.06. Expenses. Unless otherwise expressly provided in this Agreement each party shall bear any and all expenses that arise from its respective obligations under this Agreement. In the event either party to this Agreement brings an action or proceeding for the breach or enforcement of this Agreement, the prevailing party in such action or proceeding, whether or not such action or proceeding proceeds to final judgment, shall be entitled to recover as an element of its costs, and not as damages, such reasonable attorneys' fees as may be awarded in the action or proceeding in addition to whatever other relief to which the prevailing party may be entitled. 5.07. Confidentiality. Each party shall hold and cause its consultants and advisors to hold in strict confidence, unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, all information (other than any information relating solely to the business or affairs of such party) concerning the other parties hereto furnished to it by such other party or such other party's representatives pursuant to this Agreement (except to the extent that such information can be shown to have been (a) previously known by the party to which it was furnished, (b) in the public domain through no fault of such party, or (c) later lawfully acquired form other sources not under a duty of confidentiality by the party to which it was furnished). Each party shall not release or disclose such information to any other person, except its auditors, attorneys, financial advisors, bankers and other consultants and advisors who shall be advised of and agree to be bound by the provisions of this Section. Each party shall be deemed to have satisfied its obligation to hold confidential information concerning or supplied by the other party if it exercises the same care as it takes to preserve confidentiality for its own similar information. 11 12 5.08. Term. CEI and CRI have determined that CRI will cease to be an Affiliate as of the Public Offering Date, and the provisions of this Agreement shall be interpreted and applied accordingly. 5.09. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signature thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement the day and year first above written. COX ENTERPRISES, INC. On behalf of the CEI Group By: /ss/ Preston B. Barnett ---------------------------------- Preston B. Barnett, Vice President COX RADIO, INC. On behalf of the CRI Group By: /ss/ Maritza Pichon --------------------------------- Maritza Pichon, Chief Financial Officer 12 EX-23.1 4 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We hereby consent to the incorporation by reference of our report dated February 7, 1997 appearing in this Annual Report on Form 10-K of Cox Radio, Inc. for the year ended December 31, 1996, in Registration Statement No. 333-13281 on Form S-8 of Cox Radio, Inc. DELOITTE & TOUCHE LLP Atlanta, Georgia March 25, 1997 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 10,595 0 32,345 834 0 43,681 49,573 22,503 261,719 14,826 0 0 0 28,315 207,483 261,719 0 132,904 0 91,865 13,401 0 4,580 24,697 9,752 0 0 0 0 14,945 .69 0
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