-----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, LdooGuEdMHUELCvtuIfjbqI8iP/1S7ml8UwDos22ygjJG5dOHzAEzL6EG4pV3eqS lnsbA+Ys+UGQFm2fThXnag== 0000950134-97-002960.txt : 19970417 0000950134-97-002960.hdr.sgml : 19970417 ACCESSION NUMBER: 0000950134-97-002960 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 38 FILED AS OF DATE: 19970416 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPSTAR BROADCASTING PARTNERS INC CENTRAL INDEX KEY: 0001026516 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-25263 FILM NUMBER: 97581865 BUSINESS ADDRESS: STREET 1: 600 CONGRESS AVE STREET 2: SUITE 1400 CITY: AUSTIN STATE: TX ZIP: 78701 BUSINESS PHONE: 5124046380 MAIL ADDRESS: STREET 1: 600 CONGRESS AVE STREET 2: SUITE 1400 CITY: AUSTIN STATE: TX ZIP: 78701 S-1 1 FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1997. REGISTRATION NO. 333-______ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ CAPSTAR BROADCASTING PARTNERS, INC. (Exact name of registrant as specified in its charter) DELAWARE 4832 75-2672663 (State of incorporation) (Primary Standard Industrial (I. R. S. Employer Classification Code Number) Identification No.) ------------------ 600 Congress Avenue, Suite 1400 Austin, Texas 78701 (512) 404-6840 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------ R. STEVEN HICKS PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD CAPSTAR BROADCASTING PARTNERS, INC. 600 CONGRESS AVENUE, SUITE 1400 AUSTIN, TEXAS 78701 (512) 404-6840 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------ Copies of Communications to: WILLIAM S. BANOWSKY, JR. JEFFREY A. CHAPMAN HELENE R. BANKS CAPSTAR BROADCASTING PARTNERS, INC. VINSON & ELKINS L. L. P. CAHILL GORDON & REINDEL 600 CONGRESS AVENUE, SUITE 1400 3700 TRAMMELL CROW CENTER 80 PINE STREET AUSTIN, TEXAS 78701 2001 ROSS AVENUE NEW YORK, NEW YORK 10005 (512) 404-6840 DALLAS, TEXAS 75201 (212) 701-3439 (214) 220-7700
------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this registration statement becomes effective. ------------------ If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. | | If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. | | If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. | | If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. | X | ------------------ CALCULATION OF REGISTRATION FEE
==================================================================================================================== PROPOSED MAXIMUM TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------------- Class A Common Stock, $.01 par value per share......................... $100,000,000 $30,303 =====================================================================================================================
(1) In accordance with Rule 457(o) under the Securities Act of 1933, the number of shares being registered and the proposed maximum offering price per share are not included in this table. (2) Estimated solely for the purpose of calculating the registration fee. ------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 EXPLANATORY NOTE The Prospectus included herein assumes that the Benchmark Acquisition, the Osborn Add-on Acquisitions and the Osborn Ft. Myers Disposition (all as defined in such Prospectus) have been consummated. It is anticipated that such acquisitions will be consummated prior to the time that this registration statement becomes effective. 3 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION, DATED APRIL 15, 1997 SHARES CAPSTAR BROADCASTING PARTNERS, INC. CLASS A COMMON STOCK ($.01 par value) ------------------ All of the shares of Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), offered hereby (the "Offering") are being sold by Capstar Broadcasting Partners, Inc. ("Capstar" and, together with its subsidiaries, the "Company"). Prior to the Offering, there has been no public market for the Class A Common Stock. It is anticipated that the initial public offering price will be between $ and $ per share. For information relating to the factors to be considered in determining the initial offering price to the public, see "Underwriting." The Company's authorized capital stock consists of Class A Common Stock, Class B Common Stock, par value $.01 per share ("Class B Common Stock"), and Class C Common Stock, par value $.01 per share ("Class C Common Stock" and, together with the Class A Common Stock and the Class B Common Stock, the "Common Stock"). The rights of each share of Common Stock are identical other than with respect to voting rights. The Class A Common Stock entitles the holders thereof to one vote per share, the Class B Common Stock has no voting rights except as other- wise required by law, and the Class C Common Stock entitles the holders thereof to ten votes per share. Upon completion of the Offering and after giving effect to the Recapital- ization (as defined), (i) the holders of Class A Common Stock offered hereby will have approximately % of the total voting power of the outstanding Common Stock and (ii) the holders of the Class C Common Stock will have approximately % of the total voting power of the outstanding Common Stock. R. Steven Hicks, the Company's President and Chief Executive Officer, and Capstar Broadcasting Partners, L.P. ("Capstar L.P.") will hold all of the outstanding Class C Common Stock. Subject to the prior approval of the Federal Communications Commission (the "FCC"), the Class C Common Stock is convertible in whole at any time into Class A Common Stock on a share-for-share basis. See "Descrip- tion of Capital Stock." The Company has applied to list the Class A Common Stock on the under the symbol " ." ------------------ FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE CLASS A COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 12 HEREIN. ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting Price to Discounts and Proceeds to Public Commissions(1) Company(2) -------- --------------- ------------ Per Share................................................ $ $ $ Total (3)................................................ $ $ $
(1) The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. See "Underwriting." (2) Before deduction of expenses payable by the Company estimated at $ . (3) The Company has granted the Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase a maximum of additional shares to cover over-allotments of shares. If the option is exercised in full, the total Price to Public will be $ , Underwriting Discounts and Commissions will be $ , and Proceeds to Company will be $ . ------------------ The shares of Class A Common Stock are offered by the several Underwriters when, as and if delivered to and accepted by the Underwriters and subject to their right to reject orders in whole or part and subject to certain other conditions. It is expected that the shares of Class A Common Stock offered hereby will be available for delivery on or about , 1997 against payment in immediately available funds. CREDIT SUISSE FIRST BOSTON ALEX. BROWN & SONS INCORPORATED BT SECURITIES CORPORATION DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION The date of this Prospectus is , 1997. 4 [Insert Graphics] ------------------ The Company intends to furnish its stockholders with annual reports containing audited financial statements and quarterly reports for each of the first three quarters of each fiscal year containing interim unaudited financial information. ------------------ CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the financial statements, including the notes thereto, appearing in this Prospectus. Unless otherwise specified, this Prospectus assumes the consummation of the Pending Acquisitions (as defined). As used in this Prospectus, unless otherwise specified, the "Company" and "Capstar" each means Capstar Broadcasting Partners, Inc. and its subsidiaries after giving effect to the consummation of the Pending Acquisitions. Commodore Media, Inc. ("Commodore") is a subsidiary of Capstar and conducts its business through its subsidiaries, Atlantic Star Communications, Inc. (formerly named Commodore Holdings, Inc.), Southern Star Communications, Inc. (formerly named Osborn Communications Corporation ("Osborn")) and Pacific Star Communications, Inc. ("Pacific Star"). Unless otherwise indicated, the information in this Prospectus assumes no exercise of the Underwriters' over-allotment option. Certain capitalized terms used in this Prospectus are defined herein under the caption "Glossary of Certain Terms and Market and Industry Data." THE COMPANY The Company is the largest radio broadcaster in the United States operating exclusively in mid-sized markets. The Company currently owns and operates or provides services to 99 radio broadcasting stations in 28 mid-sized markets located primarily in the northeastern, southeastern and western United States. The Company has entered into seven agreements to acquire 32 additional stations in seven new markets (including ten stations in four new markets for which the Company currently provides services pursuant to an LMA (as defined)) and three existing markets, which acquisitions are expected to occur subsequent to the Offering (the "Pending Acquisitions"). Upon completion of the Pending Acquisitions, the Company will own and operate or provide services to 121 radio broadcasting stations in 31 mid-sized markets located throughout the country. These stations comprise the leading radio group, in terms of revenue share and/or audience share, in 20 of these markets. In February 1996, as a result of the passage of the Telecommunications Act of 1996 (the "Telecom Act"), radio broadcasting companies were permitted to increase their ownership of stations within a single market from a maximum of four to a maximum of between five and eight stations, depending on market size. More importantly, the Telecom Act also eliminated the national ownership restriction that generally had limited companies to the ownership of no more than 40 stations (20 AM and 20 FM) throughout the United States. In order to capitalize on the opportunities created by the Telecom Act, R. Steven Hicks, an executive with over 30 years of experience in the radio broadcasting industry, and Hicks Muse formed Capstar to acquire and operate radio station clusters in mid-sized markets. The Company generally defines mid-sized markets as those Metropolitan Statistical Areas ("MSAs") ranked between 50 and 200, each of which has approximately $10.0 million to $35.0 million in radio advertising revenue. The Company believes that mid-sized markets represent attractive operating environments because, as compared to the 50 largest markets in the United States, they are generally characterized by (i) lower radio station purchase prices as a multiple of broadcast cash flow, (ii) less sophisticated and undercapitalized competitors, including both radio and competing advertising media such as newspaper and television, and (iii) less direct format competition resulting from fewer stations in any given market. The Company believes that the attractive operating characteristics of mid-sized markets coupled with the opportunity provided by the Telecom Act to create in-market radio station cluster groups will enable the Company to achieve substantial revenue growth and cost efficiencies. As a result, management believes that the Company can generate broadcast cash flow margins that are comparable to the higher margins that heretofore were generally achievable only in the top 50 markets. To effectively and efficiently manage its stations, the Company has developed a flexible management structure designed to manage a large and growing portfolio of radio stations throughout the United States. Initially, the station portfolio has been organized into three regions, the Northeast, the Southeast and the West, each of which is managed by regional executives in conjunction with general managers in each of the Company's markets. 3 6 STATION PORTFOLIO In October 1996, the Company consummated its first acquisition when it purchased Commodore (the "Commodore Acquisition"). Since such time, the Company has consummated the purchase of (i) Osborn in February 1997 (the "Osborn Acquisition"), (ii) substantially all of the assets of EZY Com, Inc. ("EZY"), City Broadcasting Co., Inc. ("City") and Roper Broadcasting, Inc. ("Roper" and, collectively, with EZY and City, "Space Coast") in April 1997 (collectively, the "Space Coast Acquisitions") and (iii) Benchmark Communications Radio Limited Partnership, L.P. and certain of its subsidiary partnerships (collectively, "Benchmark") in June 1997 (the "Benchmark Acquisition"). On a pro forma basis after giving effect to such acquisitions as if they had occurred on January 1, 1996, the Company would have had net revenue and broadcast cash flow of $ million and $ million, respectively, for the year ended December 31, 1996. The Company has agreed, subject to various conditions, to acquire 32 additional radio stations ( 22 FM and 10 AM) in seven separate transactions. Upon completion of the Pending Acquisitions, the Company's portfolio will include a total of 121 stations located in 31 mid-sized markets in the United States. On a pro forma basis after giving effect to the Pending Acquisitions as if they had occurred on January 1, 1996, the Company would have had net revenue and broadcast cash flow of $ million and $ million, respectively, for the year ended December 31, 1996.
COMPANY COMPANY COMPANY STATIONS REVENUE AUDIENCE MSA -------- SHARE SHARE MARKET(1) RANK FM AM RANK RANK SOURCE COMPANY --------- ---- -- -- ------- --------- -------------- NORTHEAST REGION Allentown-Bethlehem, PA ................... 64 2 2 1 1 Commodore Melbourne-Titusville-Cocoa, FL ............ 96 3 2 1 1 Space Coast Fairfield County, CT ...................... 112 3 3 2 2 Commodore Ft. Pierce-Stuart-Vero Beach, FL .......... 121 5 1 1 1 Commodore Huntington, WV-Ashland, KY ................ 153 2 -- 3 4 Benchmark Dover, DE ................................. NA 2 1 1 1 Benchmark Wilmington, DE ............................ NA 1 1 2 2 Commodore Westchester-Putnam Counties, NY ........... NA 3 2 NA 1 Commodore --- -- SUBTOTAL ........................... 26 17 SOUTHEAST REGION Greenville, SC ........................... 59 3 1 2 2 Benchmark Columbia, SC ............................. 88 4 2 1 1 Benchmark/Emerald City Huntsville, AL ........................... 114 1 2 1 1 Osborn Jackson, MS .............................. 118 2 2 2 2 Benchmark Shreveport, LA ........................... 126 1 1 2 3 Benchmark Montgomery, AL ........................... 142 3 -- 2 2 Benchmark Asheville, NC ............................ 179 1 1 1 1 Osborn Tuscaloosa, AL ........................... 212 2 1 1 1 Osborn Wheeling, WV ............................. 213 5 2 1 1 Osborn Winchester, VA ........................... 219 2 1 2 1 Benchmark Jackson, TN .............................. 257 2 1 1 1 Osborn Roanoke, VA .............................. NA 4 1 2 1 Benchmark/Cavalier/WRIS Lynchburg, VA ............................ NA 3 1 1 1 Benchmark/Cavalier Statesville, NC .......................... NA 1 1 NA NA Benchmark Gadsden, AL .............................. NA 1 1 NA 1 Osborn --- -- SUBTOTAL........................... 35 18 WEST REGION Stockton, CA ............................. 85 1 1 3 3 Community Pacific Des Moines, IA ........................... 89 2 1 4 4 Community Pacific Madison, WI .............................. 120 4 2 1 1 Madison Modesto, CA .............................. 121 1 1 2 2 Community Pacific Anchorage, AK ............................ 165 4 2 2 1 Community Pacific/COMCO Fairbanks, AK ............................ NA 2 1 NA 1 COMCO Yuma, AZ ................................. NA 2 1 NA 1 Commonwealth --- --- SUBTOTAL........................... 16 9 --- --- TOTAL.............................. 77 44 === ===
- --------------- NA Information not available. (1) See explanatory notes to this table on page 46 of this Prospectus. 4 7 ACQUISITION STRATEGY The Company is the leading consolidator of radio stations in mid-sized markets throughout the United States. Management has achieved this position through the application of an acquisition strategy that it believes allows the Company to develop radio station clusters at attractive prices. First, the Company enters attractive new mid-sized markets by acquiring a leading station (or a group that owns a leading station) in such market. The Company then utilizes the initial acquisition as a platform to acquire additional stations which further enhance the Company's position in a given market. Management believes that once it has established operations in a market with an initial acquisition, it can acquire additional stations at reasonable prices and, by leveraging its existing infrastructure, knowledge of and relationships with advertisers and substantial management experience, improve the operating performance and financial results of those stations. OPERATING STRATEGY The Company's objective is to maximize the broadcast cash flow of each of its radio station clusters through the application of the following strategies: Enhance Revenue Growth through Multiple Station Ownership. Management believes that the ownership of multiple stations in a market allows the Company to coordinate its programming to appeal to a broad spectrum of listeners. Once the station cluster has been created, the Company can provide one-stop shopping to advertisers attempting to reach a wide range of demographic groups. Simplifying the buying of advertising time for customers encourages increased advertiser usage thereby enhancing the Company's revenue generating potential. Broad demographic coverage also allows the Company to compete more effectively against alternative media, such as newspaper and television, thus potentially increasing radio's share of the total advertising dollars spent in a given market. Create Low Cost Operating Structure. Management believes that it is less expensive to operate radio stations in mid-sized markets than in large markets for several reasons. First, because stations in mid-sized markets typically have less direct format competition, the Company is less reliant on expensive on-air talent and costly advertising and promotional campaigns to capture listeners. Second, the ownership of multiple stations within a market allows the Company to achieve substantial cost savings through the consolidation of facilities, management, sales and administrative personnel, operating resources (such as on-air talent, programming and music research) and through the reduction of redundant corporate expenses. Furthermore, management expects that the Company, as a result of the large size of its portfolio, combined with the consolidated purchasing power of the Hicks Muse portfolio companies, will be able to realize substantial economies of scale in such areas as national representation commissions, employee benefits, casualty insurance premiums, long distance telephone rates and other operating expenses. Finally, the incorporation of digital automation in certain markets allows the Company to operate radio stations at off-peak hours with minimal human involvement while improving the quality of programming. Utilize Sophisticated Operating Techniques. Following the acquisition of a station or station group, the Company seeks to capitalize on management's extensive large market operating experience by implementing sophisticated techniques such as advertising inventory management systems, sales training programs and in-depth music research studies which improve both the efficiency and profitability of its stations. Prior to the passage of the Telecom Act, management believes that many operators in mid-sized markets did not generate sufficient revenue to justify the incurrence of expenditures to develop these techniques. Provide Superior Customer Service. The Company believes that advertising customers in mid-sized markets typically do not have extensive resources to create and implement advertising campaigns. The Company provides many of its advertising customers with extensive advertising support which may include (i) assistance in structuring advertising and promotional campaigns, (ii) creating and producing customer advertisements and (iii) analyzing the effectiveness of the customer's media programs. Management believes that this type of superior customer service attracts new customers to the Company and increases the loyalty of the Company's existing customers, thereby providing stability to the Company's revenue, often despite fluctuations in station ratings. 5 8 Develop Decentralized Management Structure. The Company has developed experienced and highly motivated regional and local management teams, derived primarily from station groups acquired by the Company, and has decentralized decision-making so that these regional and local managers have the flexibility to develop operating cultures that capitalize on the unique qualities of each region and market. The Company also relies on local managers to source additional acquisition opportunities. In addition, in order to motivate regional management, the Company intends to link compensation to regional operating performance as well as the combined results of the Company. OWNERSHIP AND MANAGEMENT In April 1996, Hicks Muse combined its financial expertise with the operating experience of R. Steven Hicks to form the Company. Mr. Hicks is a 30-year veteran of the radio broadcasting industry (including 18 years as a station owner) who has owned and operated or managed in excess of 150 radio stations in large and mid-sized markets throughout the United States. In addition, in 1993, Mr. Hicks co-founded SFX Broadcasting, Inc., a publicly traded company ("SFX"), for which he served as Chief Executive Officer for three years until his resignation in 1996. Hicks Muse is a private investment firm based in Dallas, New York, St. Louis and Mexico City that specializes in acquisitions, recapitalizations and other principal investing activities. Since the firm's inception in 1989, affiliates of Hicks Muse have completed more than 70 transactions having a combined transaction value exceeding $19.0 billion. In 1994, an affiliate of Hicks Muse made its first major investment in the radio broadcasting industry when Hicks, Muse, Tate & Furst Equity Fund II, L.P. founded Chancellor Broadcasting Company ("Chancellor"), a company which owns and operates radio stations exclusively within the 40 largest MSAs in the United States and which, in the three years since its inception, has become one of the largest radio broadcasting companies in the United States. The Company has designed an organizational structure to effectively manage its existing station portfolio as well as to accommodate future in-market or group acquisitions. Each of the Company's existing and future operating regions is, or will be, headquartered within the region and staffed with a team of regional executives which manage, or will manage, the operations of that region's station portfolio. A chief executive officer and/or a chief operating officer of each region oversees the regional and general managers of the stations within a particular region. In addition, a controller in each region directly oversees the business managers of the stations within a region. Each regional operating executive reports directly to R. Steven Hicks, while each regional controller reports to the Company's chief financial officer. In assembling each of the existing regional management teams, the Company has sought to retain the senior management of some of the station groups that it has acquired so as to (i) retain and capitalize on the local market experience and knowledge of these experienced executives and (ii) foster a culture that is consistent with the unique attributes of each of the local markets acquired. Furthermore, the Company believes that each of its regional executives possesses considerable knowledge of its region's competitors and is therefore well situated to identify strategic acquisition candidates. R. Steven Hicks, the President and Chief Executive Officer of the Company, has invested $3.1 million in Class C Common Stock. Certain other members of the Company's management, including certain of the Company's regional executives, have invested an additional $6.1 million in Class A Common Stock. The Company's regional executive management teams will be compensated based upon the financial performance of their respective regions and the Company as a whole with such compensation to be awarded in the form of cash bonuses and stock options. Management believes that the ownership interests of management and this compensation structure foster teamwork and the sharing of the best practices across regions to maximize the overall financial performance of the Company. Each of the Company's regional executives has extensive experience operating radio stations in mid-sized markets, as described below. Northeast Region. The chief executive officer of the Northeast Region is James T. Shea, Jr., the President (and former Chief Operating Officer) of Commodore. Mr. Shea has more than 20 years of experience in the radio broadcasting industry. Mr. Shea's operating knowledge and strong advertiser relationships helped Commodore become a leading radio group in each of its markets. Pro forma for the Pending Acquisitions, Mr. Shea will manage 43 stations in nine markets in the Northeast Region. 6 9 Southeast Region. Frank D. Osborn, President and Chief Executive Officer of Osborn since its inception in 1984, is the chief executive officer of the Southeast Region. Mr. Osborn brings more than 19 years of radio industry experience to the Company, including prior positions as Senior Vice President of Price Communications, Vice President of Finance and Administration at NBC Radio and General Manager of WYNY-FM in New York City. Mr. Osborn has been successful in developing leading station clusters in each of Osborn's markets. The Company intends to hire a chief operating officer for the Southeast Region, who will assist Mr. Osborn in overseeing the operations of the radio stations in the region. Pro forma for the Pending Acquisitions, the Southeast Region will include 53 stations in 15 markets. West Region. The West Region will be managed by two radio executives, David J. Benjamin III and Claude C. Turner (also known as Dex Allen), with an aggregate of 52 years of experience in the radio broadcasting industry. Mr. Benjamin, the current President and Chief Executive Officer of Community Pacific Broadcasting Company L.P. ("Community Pacific"), will serve as the chief executive officer of the West Region upon consummation of the Community Pacific Acquisition. Mr. Allen has served as the managing member of Commonwealth Broadcasting of Arizona, L.L.C. ("Commonwealth") since 1984 and is expected to continue to serve in such position until the consummation of the Commonwealth Acquisition (as defined). Mr. Allen became the president and chief operating officer of the West Region effective January 1, 1997. Pro forma for the Pending Acquisitions, the West Region will include 25 stations in seven markets. THE PENDING ACQUISITIONS The Company has agreed, subject to various conditions, to acquire (i) in the Southeast Region, substantially all of the assets of Emerald City Radio Partners, L.P. ("Emerald City"), WRIS, Inc. ("WRIS"), and Cavalier Communications, L.P. ("Cavalier"), and (ii) in the West Region, substantially all of the assets of COMCO Broadcasting, Inc. ("COMCO"), Commonwealth, The Madison Radio Group ("Madison") and Community Pacific. After consummation of the Pending Acquisitions, the Company will own and operate or provide services to a total of 121 radio stations.
COMPANY STATIONS -------- EXPECTED COMPANY FM AM REGION CLOSING DATE - ------- -- -- ------------ ------------- Emerald City ............ 1 -- Southeast July 1997 WRIS .................... 1 -- Southeast August 1997 Cavalier ................ 4 1 Southeast October 1997 COMCO ................... 4 2 West October 1997 Commonwealth ............ 2 1 West October 1997 Madison ................. 4 2 West October 1997 Community Pacific ....... 6 4 West November 1997 --- --- Total ............... 22 10 === ===
Consummation of each of the Pending Acquisitions is subject to numerous conditions, including approval of the FCC and, where applicable, satisfaction of any requirements and any applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Accordingly, the actual date of consummation of each of the Pending Acquisitions may vary from the anticipated closing dates. The consummation of the Offering is not conditioned on the consummation of any of the Pending Acquisitions. For further information concerning the Pending Acquisitions, see "Risk Factors -- Risks of Acquisition Strategy," "Business" and "The Pending Acquisitions." 7 10 THE OFFERING Class A Common Stock offered hereby....... shares (1) Common Stock to be outstanding after the Offering (2) Class A Common Stock ................... shares (3) Class B Common Stock ................... 1,818,181 shares Class C Common Stock ................... 15,248,452 shares Total ........................... shares Use of Proceeds........................... The net proceeds of the Offering will be used by the Company to repay a portion of the indebtedness incurred in connection with the Benchmark Acquisition under the New Credit (as defined). See "Use of Proceeds." Voting Rights............................. The Class A Common Stock entitles the holders thereof to one vote per share; the Class B Common Stock has no voting rights except as otherwise required by law; and the Class C Common Stock entitles the holder thereof to ten votes per share. The Class A Common Stock and the Class C Common Stock vote together as a single class on all matters submitted to a vote of stockholders, except as otherwise required by law and except that the holders of Class A Common Stock , voting as a separate class, are entitled to elect two members of the Board of Directors of Capstar. Notwithstanding the foregoing, upon the earlier to occur of (i) the date on which Hicks Muse and its affiliates ceases to own beneficially more than 50% of the number of shares of Class C Common Stock owned by them upon completion of the Offering and (ii) the third anniversary date of the completion of the Offering, the holders of Class A Common Stock and Class C Common Stock shall vote together as a single class upon the election of all directors. Upon completion of the Offering and after giving effect to the Recapitalization, (i) the holders of the Class A Common Stock offered hereby will have approximately % of the total voting power of the outstanding Common Stock and (ii) the holders of the Class C Common Stock will have approximately % of the total voting power of the outstanding Common Stock. R. Steven Hicks, Capstar's President and Chief Executive Officer, and Capstar L.P. will hold all of the outstanding Class C Common Stock. See "Risk Factors -- Control of the Company" and "Description of Capital Stock." Also see "Security Ownership of Certain Beneficial Owners" and "Certain Transactions" as to the voting and other interests of certain beneficial owners of the capital stock of Capstar. Other Rights............................... Each class of Common Stock has the same rights to dividends and upon liquidation. Upon the sale or transfer of shares of Class B Common Stock or Class C Common Stock to any person or entity other than Hicks Muse or its affiliates, such shares shall automatically convert into shares of Class A Common Stock on a 8 11 share-for-share basis, subject, in the case of Class B Common Stock, to certain conditions. See "Description of Stock." Dividend Policy........................... Capstar intends to retain future earnings for use in the Company's business and does not anticipate declaring or paying any cash or stock dividends on shares of its Common Stock in the foreseeable future. Symbol................................... " " - ---------------- (1) Does not include shares of Class A Common Stock issuable pursuant to the Underwriters' over-allotment option. (2) Prior to the Offering, Capstar will effect the Recapitalization in which Class C Common Stock will be issued. See "-- The Recapitalization." (3) Excludes (a) 744,000 shares currently issuable upon exercise of the Warrant (as defined) at an exercise price of $10.00 per share as increased by an annual rate of interest equal to 8.0% per year commencing as of October 16, 1996 and (b) 204,255 shares currently issuable upon exercise of the New Warrant (as defined) at an exercise price of $11.00 per share as increased by an annual rate of interest equal to 8.0% per year commencing as of February 20, 1997. See "Certain Transactions-- Warrants." Also excludes shares issuable upon exercise of outstanding options, none of which are currently exercisable, to purchase an aggregate of 706,895 shares of Class A Common Stock at a weighted average exercise price of $10.58 per share. See "Management-- Benefit Plans-- Stock Option Plan." THE RECAPITALIZATION The information provided in this Prospectus gives effect to a 1 for 10 reverse stock split of Capstar's Class A Common Stock and Class B Common Stock and the exchange by R. Steven Hicks and Capstar L.P. of their respective shares of Class A Common Stock for an equal number of shares of Class C Common Stock (collectively, the "Recapitalization"), all of which will occur prior to the Offering. RISK FACTORS Prospective purchasers of the Class A Common Stock should consider carefully all of the information set forth in this Prospectus and, in particular, should evaluate the specific factors set forth under the caption "Risk Factors" beginning on page 12, which provides a discussion of the risks involved in an investment in the Class A Common Stock. 9 12 SUMMARY HISTORICAL FINANCIAL DATA The following table presents summary historical financial data of the Company and its predecessor, Commodore, for financial reporting purposes, for the periods indicated. The following financial information should be read in conjunction with the Financial Statements of the Company and Commodore and the related notes included elsewhere in this Prospectus.
COMMODORE THE COMPANY -------------------------------------------------------------------- -------------------- YEARS ENDED DECEMBER 31, || ----------------------------------------------- JANUARY 1, 1996 - || OCTOBER 17, 1996 - 1992 1993 1994 1995 OCTOBER 16, 1996(1) || DECEMBER 31, 1996(2) -------- -------- -------- -------- ------------------- || -------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) || || OPERATING DATA: || Net revenue ......................... $ 17,961 $ 19,798 $ 26,225 $ 30,795 $ 31,957 || $ 10,303 Station operating expenses .......... 12,713 13,509 16,483 19,033 21,291 || 6,283 Depreciation and amortization ....... 1,676 1,129 2,145 1,926 2,158 || 1,331 Corporate expenses .................. 1,602 2,531 2,110 2,051 1,757 || 601 Other operating expenses(3) ......... -- 1,496 2,180 2,007 13,834 || 744 Operating income (loss) ............. 1,970 1,133 3,307 5,778 (7,083) || 1,344 Interest expense .................... 4,614 4,366 3,152 7,806 8,861 || 5,035 Net loss ............................ (2,580) (3,782) (527) (2,240) (17,836) || (3,756) OTHER DATA: || Broadcast cash flow(4) .............. $ 5,248 $ 6,289 $ 9,742 $ 11,762 $ 10,666 || $ 4,020 Broadcast cash flow margin(4) ....... 29.2% 31.8% 37.1% 38.2% 33.4% || 39.0% EBITDA(5) ........................... $ 3,646 $ 3,758 $ 7,632 $ 9,711 $ 8,909 || $ 3,419 Cash flows related to: || Operating activities .............. (406) 477 4,061 1,245 1,990 || (49) Investing activities .............. (458) (10,013) (50) (4,408) (34,358) || $ (127,372) Financing activities .............. 951 9,377 (2,855) 12,013 26,724 || 132,449 Capital expenditures ................ 371 333 623 321 449 || 808 Pro forma loss per common share(6) ...................................................................... || $ (0.40) Weighted average number of shares ....................................................................... || outstanding(6) ........................................................................................ || 9,369,184 BALANCE SHEET DATA (END OF PERIOD): || Working capital, excluding current || portion of long-term debt ............................................................................. || $ 8,553 Intangible and other assets, net ........................................................................ || 208,555 Total assets ............................................................................................ || 238,568 Long-term debt, including current portion ............................................................... || 139,512 Total stockholders' equity .............................................................................. || 91,143
- -------------------------- (1) The historical financial data set forth includes the results of operations of Commodore through October 16, 1996, the date of the Commodore Acquisition. (2) The historical financial data set forth for the Company includes the balance sheet data and results of operations of Commodore from its date of acquisition on October 16, 1996. (3) Other operating expenses consist of separation compensation in 1993 and long-term incentive compensation under restructured employment agreements with Commodore's former President and Chief Executive Officer and its former Chief Operating Officer in 1994 and 1995. In the period ended October 16, 1996, it consists of merger related compensation charges in connection with the Company's acquisition of Commodore and in the period ended December 31, 1996, it includes compensation charges in connection with certain warrants issued to the President and Chief Executive Officer of the Company. Such expenses are non-cash and/or are not expected to recur. (4) Broadcast cash flow consists of operating income before depreciation, amortization, corporate expenses and other operating expenses. See "Glossary of Certain Terms and Market and Industry Data." (5) EBITDA consists of operating income before depreciation, amortization and other operating expenses. See "Glossary of Certain Terms and Market and Industry Data." (6) Reflects the effect of the Recapitalization on the number of shares outstanding. 10 13 SUMMARY PRO FORMA FINANCIAL DATA The following table presents summary pro forma financial data of the Company as of and for the year ended December 31, 1996. The pro forma summary operating data reflects adjustments to the summary historical financial data of the Company and its predecessor, Commodore, to illustrate the effects of the following acquisitions and their related financing, including the Offering, as if each had occurred on January 1, 1996: (i) the Commodore Acquisition; (ii) the Osborn Transactions; (iii) the Benchmark Acquisition; (iv) the Other Acquisitions (as defined); and (v) all acquisitions and dispositions completed by Commodore, Osborn, Benchmark, and the entities to be acquired by the Company in the Other Acquisitions, from January 1, 1996 through the date of acquisition of such entities by the Company. The pro forma balance sheet data at December 31, 1996 have been prepared as if any such transaction not completed by December 31, 1996 occurred on that date. The summary pro forma financial data are not necessarily indicative of either future results of operations or the results that would have occurred if those transactions had been consummated on the indicated date. The following financial information should be read in conjunction with the Financial Statements of the Company, Commodore, Osborn, Benchmark and the Other Acquisitions and the Pro Forma Financial Information and, in each case, the related notes included elsewhere in this Prospectus.
PRO FORMA --------------------- YEAR ENDED DECEMBER 31, 1996 ---------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) OPERATING DATA: Net revenue........................................................................... $145,863 Station operating expenses............................................................ 103,255 Depreciation and amortization......................................................... 22,492 Corporate expenses.................................................................... 7,361 Other operating expenses.............................................................. 987 Operating income...................................................................... 11,768 Interest expense...................................................................... 53,130 Net loss.............................................................................. (18,583) OTHER DATA: Broadcast cash flow(1)................................................................ $ 42,608(2) Broadcast cash flow margin(1)......................................................... 29.2% EBITDA(3)............................................................................. $ 35,247(2) Pro forma loss per common share(4).................................................... Weighted average number of shares outstanding (4)..................................... Capital expenditures.................................................................. 3,000 BALANCE SHEET DATA (AT END OF PERIOD): Working capital, excluding current portion of long-term debt.......................... $ 29,427 Intangible and other assets, net...................................................... 555,593 Total assets.......................................................................... 684,576 Long-term debt, including current portion............................................. 403,681 Total stockholders' equity............................................................ 239,329
- --------------------------- (1) Broadcast cash flow consists of operating income before depreciation, amortization, corporate expense and other operating expenses. See "Glossary of Certain Terms and Market and Industry Data." (2) The pro forma financial results exclude the effects of cost savings resulting from (i) the Commodore Acquisition, (ii) the Osborn Transactions, (iii) the Benchmark Acquisition, and (iv) the Other Acquisitions (collectively, the "Transactions"). On a pro forma basis, assuming the consummation of the Transactions, including related cost savings as if they had occurred on January 1, 1996, broadcast cash flow and EBITDA would have been $____ million and $____ million, respectively, for the year ended December 31, 1996. The Company expects to realize approximately $____ million of cost savings resulting from the elimination of redundant operating expenses arising from the Transactions, including elimination of certain management positions, the consolidation of facilities and new rates associated with revised vendor contracts. In addition, the Company expects to realize approximately $_______ of cost savings, on a pro forma basis, resulting from the elimination of certain corporate overhead functions, net of increased costs associated with the implementation of the Company's corporate management structure. Corporate cost savings reflect the expected level of annual corporate expenditures arising from the Transactions. The Company anticipates that corporate expenses will increase upon consummation of additional acquisitions. There can be no assurances that any operating or corporate cost savings will be achieved. (3) EBITDA consists of operating income before depreciation, amortization and other operating expenses. See "Glossary of Certain Terms and Market and Industry Data." (4) Reflects the effect of the Recapitalization and the Offering on the number of shares outstanding. 11 14 RISK FACTORS This Prospectus contains forward-looking statements. The words "anticipate," "believe," "expect," "plan," "intend," "estimate," "project," "will," "could," "may" and similar expressions are intended to identify forward-looking statements. Such statements reflect the Company's current views with respect to future events and financial performance and involve risks and uncertainties, including without limitation the risks described in "Risk Factors." Should one or more of these risks or uncertainties occur, or should underlying assumptions prove incorrect, actual results may vary materially and adversely from those anticipated, believed, expected, planned, intended, estimated, projected or otherwise indicated. Investors should carefully consider the following risk factors, in addition to the other information contained in this Prospectus, before purchasing the shares of Class A Common Stock offered hereby. RISKS OF ACQUISITION STRATEGY The Company intends to pursue growth through the acquisition of radio broadcasting companies, radio station groups and individual radio stations in mid-sized markets. The Company cannot predict whether it will be successful in pursuing such acquisition opportunities or what the consequences of any such acquisitions would be. The Company is currently evaluating certain acquisitions; however, other than as described in "The Pending Acquisitions," the Company currently has no binding commitments to acquire any specific business or other material assets. The Company must obtain additional financing to consummate the Pending Acquisitions and there can be no assurance that such financing will be available to the Company on terms acceptable to its management or at all. Consummation of the Pending Acquisitions is subject to various conditions, including FCC and other regulatory approval. The consummation of the Offering is not conditioned on the consummation of any of the Pending Acquisitions. No assurances can be given that such transactions will be consummated or that, if completed, they will be successful. The Company's acquisition strategy involves numerous risks, including difficulties in the integration of operations and systems and the management of a large and geographically diverse group of stations, the diversion of management's attention from other business concerns and the potential loss of key employees of acquired stations. There can be no assurance that the Company's management will be able to manage effectively the resulting business or that such acquisitions will benefit the Company. Depending upon the nature, size and timing of future acquisitions, the Company may be required to raise additional financing in addition to the financing necessary to consummate the Pending Acquisitions. There can be no assurance that the indenture to which Capstar is a party (the "Indenture"), the credit facility under which Commodore will be the borrower (the "New Credit Facility"), the indenture to which Commodore is a party (the "Commodore Indenture") or any other loan agreements to which the Company may become a party will permit such additional financing or that such additional financing will be available to the Company on terms acceptable to its management or at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." R. Steven Hicks is a party to a noncompetition agreement with SFX, which, among other things, prohibits Mr. Hicks, the Company and any affiliate of Hicks Muse in which Mr. Hicks has an ownership interest or to which Mr. Hicks acts as an advisor from competing with, owning any direct or indirect interest in or providing any services to any person which is in the business of owning or operating one or more radio stations licensed or having a transmitter site within any county in the MSA of certain specified SFX markets in various states. Until its termination on October 31, 1997, Mr. Hicks' noncompetition agreement with SFX will limit the Company's ability to enter the markets identified in the noncompetition agreement. [Benchmark, prior to the Benchmark Acquisition, owned and operated eight radio stations in the Greenville, South Carolina and Jackson, Mississippi markets, which are located in prohibited markets under the noncompetition agreement. Prior to the Benchmark Acquisition, the Company assigned its right to acquire such radio stations to another company in which neither Mr. Hicks nor the Company has an ownership interest or acts as an advisor. Management expects that such other company will transfer the radio stations to the Company after the noncompetition agreement has terminated, although no assurances can be given that the Company will ever own and operate such radio stations.] [Explanatory Note: Resolution of the bracketed disclosure is pending.] LIMITED OPERATING HISTORY; HISTORY OF NET LOSSES; MANAGEMENT OF GROWTH The Company began operations in October 1996 and, consequently, has a limited operating history upon which investors may base their evaluation of the Company's performance. The Company has grown very rapidly, through acquisitions, which will place significant demands on its administrative, 12 15 operational and financial resources. The Company had a net loss of $3.8 million for period October 17, 1996 through December 31, 1996 and Commodore, the Company's predecessor, had a net loss for the period January 1, 1996 through October 16, 1996, and for each of the four years ended December 31, 1995, 1994, 1993 and 1992. There can be no assurance that the Company will become profitable. The Company's future performance and profitability will depend in part on its ability to make additional radio station acquisitions in mid-sized markets, to integrate successfully the operations and systems of acquired radio stations and radio groups, to hire additional personnel, and to implement necessary enhancements to its management systems to respond to changes in its business. The inability of the Company to do any of the foregoing could have a material adverse effect on the Company. See "Business." SUBSTANTIAL LEVERAGE The Company has, and after giving effect to the Offering, the Pending Acquisitions and the financing thereof and the application of the net proceeds therefrom, will continue to have, consolidated indebtedness that is substantial in relation to its stockholders' equity. As of December 31, 1996, on a pro forma basis after giving effect to the following acquisitions and their related financing, including the Offering, and the application of the net proceeds therefrom, (i) the Transactions and (ii) all acquisitions and dispositions completed by Commodore, Osborn, Benchmark, and the entities to be acquired by the Company in the Other Acquisitions from January 1, 1996, through the date of their acquisition by the Company, the Company would have had outstanding, on a consolidated basis, long-term indebtedness (including current portions) of approximately $403.7 million and stockholders' equity of approximately $239.3 million. See "Capitalization." The Indenture limits the incurrence of additional indebtedness by the Company and its subsidiaries, and both the New Credit Facility and the Commodore Indenture limit the incurrence of additional indebtedness by the Company's subsidiaries, in each case subject to certain significant exceptions. See "Description of Indebtedness." The level of the Company's indebtedness could have several important consequences to the holders of the Class A Common Stock, including, but not limited to, the following: (i) a substantial portion of the Company's cash flow from operations will be dedicated to debt service and will not be available for other purposes; (ii) the Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions and general corporate or other purposes may be impaired in the future; (iii) certain of the Company's borrowings will be at variable rates of interest (including any borrowings under the New Credit Facility), which will expose the Company to the risk of increased interest rates; (iv) the Company's leveraged position and the covenants contained in the New Credit Facility, the Commodore Indenture and the Indenture could limit the Company's ability to compete, expand and make capital improvements; (v) the Company's level of indebtedness could make it more vulnerable to economic downturns, limit its ability to withstand competitive pressures and reduce its flexibility in responding to changing business and economic conditions; and (vi) certain restrictive covenants contained in the Indenture, the Commodore Indenture and the New Credit Facility limit the ability of Capstar to pay dividends and make other distributions to its stockholders. See "Description of Indebtedness." The Company's ability to satisfy its debt obligations will depend upon its future financial and operating performance, which, in turn, is subject to prevailing economic conditions and financial, business and other factors, certain of which are beyond its control. If the Company's cash flow and capital resources are insufficient to fund its debt service obligations, the Company may be forced to reduce or delay planned expansion and capital expenditures, sell assets, obtain additional equity capital or restructure its debt. There can be no assurance that the Company's operating results, cash flow and capital resources will be sufficient for payment of its debt service and other obligations in the future. In the absence of such operating results and resources, the Company could face substantial liquidity problems and might be required to sell material assets or operations to meet its debt service and other obligations, and there can be no assurance as to the timing of such sales or the proceeds that the Company could realize therefrom or that such sales can be effected on terms satisfactory to the Company or at all. See "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources" and "Description of Indebtedness." RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS The Indenture, the Commodore Indenture and the New Credit Facility contain certain covenants that restrict, among other things, the ability of Commodore and its subsidiaries to incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, merge or consolidate with any other person or sell, assign, transfer, lease, convey or 13 16 otherwise dispose of all or substantially all of the assets of Commodore. The New Credit Facility also requires the Company to maintain specified financial ratios and to satisfy certain financial condition tests. The Company's ability to meet those financial ratios and financial condition tests can be affected by events beyond its control, and there can be no assurance that the Company will meet those tests. A breach of any of these covenants could result in a default under the New Credit Facility, the Indenture and/or the Commodore Indenture. In the event of an event of default under the New Credit Facility or the Commodore Indenture, the lenders thereunder could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. In the case of the New Credit Facility, if Commodore were unable to repay those amounts, the lenders thereunder could proceed against the collateral granted to them to secure that indebtedness. If the New Credit Facility indebtedness were to be accelerated, there can be no assurance that the assets of Commodore would be sufficient to repay in full such indebtedness and the other indebtedness of Commodore and the indebtedness of the Company. See "Description of Indebtedness." COMPETITION; BUSINESS RISKS Radio broadcasting is a highly competitive business. The Company's radio stations, now owned or to be acquired upon completion of the Pending Acquisitions, compete for audiences and advertising revenues within their respective markets directly with other radio stations, as well as with other media, such as newspapers, magazines, cable television, outdoor advertising and direct mail. In addition, certain of the Company's stations compete, and in the future other of the Company's stations may compete, with groups of two or more stations operated by a single operator. Audience ratings and market shares are subject to change and any adverse change in a particular market could have a material adverse effect on the revenue of stations located in that market. While the Company already competes with other stations with comparable programming formats in many of its markets, if another radio station in the market were to convert its programming format to a format similar to one of the Company's stations, if a new station were to adopt a competitive format, or if an existing competitor were to strengthen its operations, the Company's stations could suffer a reduction in ratings and/or advertising revenue and could require increased promotional and other expenses. The Telecom Act facilitates the entry of other radio broadcasting companies into the markets in which the Company operates or may operate in the future. Some of such companies may be larger and have more financial resources than the Company. Future operations are further subject to many variables which could have a material adverse effect upon the Company's financial performance. These variables include economic conditions, both generally and relative to the radio broadcasting industry; shifts in population and other demographics; the level of competition for advertising dollars with other radio stations, television stations and other entertainment and communications media; fluctuations in operating costs; technological changes and innovations; changes in labor conditions; and changes in governmental regulations and policies and actions of federal regulatory bodies, including the United States Department of Justice ("DOJ"), the Federal Trade Commission (the "FTC") and the FCC. Although the Company believes that substantially all of its radio stations, now owned or to be acquired upon completion of the Pending Acquisitions, are positioned to compete effectively in their respective markets, there can be no assurance that any such station will be able to maintain or increase its current audience ratings and advertising revenues. See "Business -- Competition; Changes in the Broadcasting Industry." Radio broadcasting is also subject to competition from new media technologies that are being developed or introduced, such as the delivery of audio programming by cable television systems and the introduction of digital audio broadcasting ("DAB"). DAB may deliver by satellite to nationwide and regional audiences multi-channel, multi-format digital radio services with sound quality equivalent to compact discs. The Company cannot predict the effect, if any, that any such new technologies may have on the radio broadcasting industry or the Company. See "Business --Competition; Changes in the Broadcasting Industry." CONTROL OF THE COMPANY; RESTRICTIONS ON CHANGE OF CONTROL Upon the consummation of the Offering, the purchasers of the Class A Common Stock offered hereby will own approximately ______% of the outstanding Class A Common Stock, representing approximately ______% of the total voting power of the outstanding Common Stock. R. Steven Hicks, Capstar's President, Chief Executive Officer and Chairman of the Board, and Capstar L.P. will hold all the outstanding Class C Common Stock, representing approximately ______% of the total voting power of the outstanding Common Stock. Affiliates of Hicks Muse will own 100% of the Class B Common Stock. See "Security Ownership of Certain Beneficial Owners" and "Description of Capital Stock." 14 17 The outstanding Class C Common Stock is subject to a voting agreement as described in "Certain Transactions -- Stockholders Agreements -- Affiliate Stockholders Agreement." Hicks Muse is a party to the Affiliate Stockholders Agreement (as defined) that requires the parties to such agreement to vote their shares (i) in favor of election to the Company's Board of Directors of such individuals as may be designated by Hicks Muse and its affiliates to fill the seats of the Classified Directors (as defined) and (ii) on other matters as the holders of a majority of the voting power of the outstanding shares of Common Stock vote on such matters. Thomas O. Hicks is the controlling stockholder of Hicks Muse and serves as its Chairman of the Board, President and Chief Executive Officer. Accordingly, immediately after the consummation of the Offering, Thomas O. Hicks will be able to control the vote on all matters submitted to the vote of stockholders, and, therefore, will be able to direct the management and policies of the Company, except with respect to those matters requiring a class vote by applicable law and except that the holders of Class A Common Stock, voting as a separate class, will be entitled to elect two members of the Board of Directors of Capstar. Control by Thomas O. Hicks may have the effect of discouraging certain types of transactions involving an actual or potential change of control of Capstar, including transactions in which the holders of Class A Common Stock might otherwise receive a premium for their shares over then-current market prices. See "Security Ownership of Certain Beneficial Owners" and "Description of Capital Stock." The Communications Act and certain regulations of the FCC require the prior consent of the FCC to any change of control of the Company. See "-- Governmental Regulation of Broadcasting Industry" and "Business -- Federal Regulation of Radio Broadcasting." ANTI-TAKEOVER PROVISIONS Capstar's Restated Certificate of Incorporation (i) provides for staggered terms for certain directors, (ii) requires certain procedures to be followed and time periods to be met for any stockholder to propose matters to be considered at annual meetings of stockholders, including nominating directors for election at those meetings, (iii) prohibits stockholders from calling special meetings of stockholders, and (iv) authorizes the Board of Directors of Capstar to issue up to 10,000,000 shares of preferred stock without stockholder approval and to set the rights, preferences, and other designations, including voting rights, of those shares as the Board of Directors may determine. These provisions, alone or in combination with each other and with the matters described in "--Control of the Company; Restrictions on Change of Control," may discourage transactions involving actual or potential changes of control of Capstar, including transactions that otherwise could involve payment of a premium over prevailing market prices to holders of Common Stock. Capstar also is subject to provisions of the Delaware General Corporation Law that may make some business combinations more difficult. See "Description of Capital Stock -- Delaware Law and Certain Charter Provisions." CONFLICT OF INTEREST After the Offering, Thomas O. Hicks will control ___% of the voting power of the outstanding Common Stock. Thomas O. Hicks also controls approximately 90.1% of the voting power of GulfStar Communications, Inc. ("GulfStar"), a radio broadcasting company that owns and operates stations in mid-sized markets in Texas, Louisiana, Arkansas and New Mexico and is seeking to acquire additional radio stations in Texas and Louisiana. In addition, two of Capstar's four directors are also two of the four directors of GulfStar, and R. Steven Hicks, Capstar's Chairman of the Board and Chief Executive Officer, and Eric C. Neuman, an Executive Vice President of Capstar, also serve in the same positions with GulfStar. Accordingly, R. Steven Hicks and Eric C. Neuman will not expend all of their professional time on behalf of the Company. See "Management" and "Security Ownership of Certain Beneficial Owners." Directors and executive officers of Capstar who are also directors and executive officers of GulfStar may have conflicts of interest with respect to matters potentially or actually involving or affecting the Company and GulfStar, such as acquisitions, operations, financings and other corporate opportunities that may be suitable for both the Company and GulfStar. To the extent that such opportunities arise, such directors and executive officers may consult with their legal advisors and make determinations with respect to such opportunities after consideration of a number of factors, including whether such opportunities are presented to any such director or executive officer in his capacity as a director or executive officer of Capstar, whether such opportunities are consistent with the Company's strategic objectives and whether the Company will be able to undertake or benefit from such opportunities. In addition, determinations may be made by Capstar's Board of Directors, when appropriate, by a vote of the disinterested directors only. No 15 18 assurances can be given that such disinterested director approval will be sought or that any such conflicts will be resolved in favor of the Company. In November 1996, Capstar and GulfStar entered into a letter of intent to merge the two companies. Subsequent to execution of the letter of intent, the parties received early termination of the applicable waiting period with respect to the merger under the HSR Act. Thereafter, the parties terminated the letter of intent and ceased negotiations to consummate the merger. The Company is again considering a business combination with GulfStar, although no letter of intent or definitive agreement has been entered into. Such a business combination would be subject to, among other things, the Company and GulfStar reaching agreement on material terms and conditions, obtaining the FCC's approval of the transfer of control of broadcast licenses, and obtaining the approval of the advisory committee or limited partners of Hicks, Muse, Tate & Furst Equity Fund III, L.P. ("HM Fund III"). See "Security Ownership of Certain Beneficial Owners." No assurances can be given that the Company and GulfStar will negotiate or enter into such an agreement, that such an agreement would contain terms and conditions favorable to the Company, that the advisory committee or limited partners of HM Fund III would approve a combination of the Company and GulfStar, that the FCC would approve the transfer of control of the broadcast licenses, or that such a combination would strengthen the Company's business, operations or financial position. GOVERNMENTAL REGULATION OF BROADCASTING INDUSTRY The broadcasting industry is subject to extensive federal regulation that, among other things, requires approval by the FCC for the issuance, renewal, transfer of control and assignment of broadcasting station operating licenses and limits the number of broadcasting properties that the Company may acquire in any market. Additionally, the Communications Act and FCC rules impose limitations on alien ownership and voting of the capital stock of the Company. The Telecom Act creates significant new opportunities for broadcasting companies but also creates uncertainties as to how the FCC and the courts will enforce and interpret the Telecom Act. In addition, the number of radio stations the Company may acquire in any market is limited by FCC rules and may vary depending upon whether the interests in other radio stations or certain other media properties of certain individuals affiliated with the Company are attributable to those individuals under FCC rules. Moreover, under the FCC's cross-interest policy, the FCC in certain instances may prohibit one party from acquiring an attributable interest in one media outlet and a substantial non-attributable economic interest in another media outlet in the same market, thereby prohibiting a particular acquisition by the Company. The FCC generally applies its ownership limits to "attributable" interests held by an individual, corporation, partnership or other association. The interests of the Company's officers, directors and majority stockholder are generally attributable to the Company. Certain of the Company's officers and directors have attributable broadcast interests, which will limit the number of radio stations that the Company may acquire or own in any market in which such officers or directors hold or acquire attributable broadcast interests. The Company's Restated Certificate of Incorporation restricts the ownership, voting and transfer of the Company's capital stock in accordance with the Communications Act and the rules of the FCC to prohibit ownership of more than 25.0% of the Company's outstanding capital stock, or more than 25.0% of the voting rights it represents, by or for the account of Aliens (as defined) or corporations otherwise subject to domination or control by Aliens. The Restated Certificate of Incorporation provides that shares of capital stock of the Company determined by the Company's Board of Directors to be owned beneficially by an Alien or an entity directly or indirectly owned by Aliens in whole or in part shall always be subject to redemption by the Company by action of the Board of Directors to the extent necessary, in the judgment of the Board of Directors, to comply with the Alien ownership restrictions of the Communications Act and the FCC rules and regulations. The consummation of radio broadcasting acquisitions requires prior approval of the FCC with respect to the transfer of control or assignment of the broadcast licenses of the acquired stations. Certain of the Pending Acquisitions have not yet received FCC approval. There can be no assurance that the FCC will approve future acquisitions by the Company (including the Pending Acquisitions). The consummation of certain acquisitions, including certain of the Pending Acquisitions, is also subject to applicable waiting periods and possible review by the DOJ or the FTC under the HSR Act. Since the passage of the Telecom Act, several radio broadcasting acquisitions, including the 16 19 Benchmark Acquisition, have been the subject of "second requests" for additional information by federal authorities under the HSR Act. The second request with respect to the Benchmark Acquisition was resolved favorably to the Company. The Company understands that the DOJ is currently reviewing its internal guidelines for antitrust review of radio broadcasting acquisitions. See "Business -- Federal Regulation of Radio Broadcasting." The Company's business will be dependent upon maintaining its broadcasting licenses issued by the FCC, which are ordinarily issued for a maximum term of eight years. Although it is rare for the FCC to deny a license renewal application, there can be no assurance that the future renewal applications of the Company will be approved or that such renewals will not include conditions or qualifications that could adversely affect the Company. Moreover, governmental regulations and policies may change over time and there can be no assurance that such changes would not have a material adverse impact upon the Company. See "Business -- Federal Regulation of Radio Broadcasting." DEPENDENCE ON KEY PERSONNEL The Company's business depends upon the continued efforts, abilities and expertise of its executive officers and other key employees, including R. Steven Hicks, Capstar's President, Chief Executive Officer and Chairman of the Board. The Company has employment agreements with several of its key employees, including R. Steven Hicks, Paul D. Stone, the Company's Executive Vice President and Chief Financial Officer, William S. Banowsky, Jr., the Company's Executive Vice President and General Counsel, James T. Shea, Jr., the chief executive officer of the Northeast Region, Frank D. Osborn, the chief executive officer of the Southeast Region and Dex Allen, the president and chief operating officer of the West Region. The Company will enter into an employment agreement with David J. Benjamin, III who will serve as the chief executive officer of the West Region upon consummation of the Community Pacific Acquisition. The Company believes that the loss of any of these individuals could have a material adverse effect on the Company. See "Management." DILUTION Persons purchasing shares of Class A Common Stock in the Offering will incur immediate dilution in the net tangible book value per share of Class A Common Stock of approximately $ per share. This dilution is calculated based on an assumed initial public offering price of $ per share (the midpoint of the estimated offering range). Dilution for this purpose represents the difference between the per share initial public offering price of the Class A Common Stock and the pro forma net tangible book value per share of Class A Common Stock after giving effect to (i) the decrease per share attributable to the Osborn Transactions, the Benchmark Acquisition and the Other Acquisitions, (ii) the increase per share attributable to Other Investments (as defined), and (iii) the Offering and the use of proceeds therefrom. See "Dilution." SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS Upon completion of the Offering and the Pending Acquisitions, Capstar will have outstanding _______________ shares of Class A Common Stock, 1,818,181 shares of Class B Common Stock and 12,548,452 shares of Class C Common Stock outstanding. Of these shares, the ___________ shares of Class A Common Stock sold in the Offering (________________ shares if the Underwriters' over-allotment options are exercised in full) will be freely transferable without restriction under the Securities Act of 1933 (the "Securities Act"), by persons other than "affiliates" of the Company within the meaning of Rule 144 promulgated under the Securities Act ("Rule 144"). Capstar issued the remaining 810,935 shares of Class A Common Stock, 1,818,181 shares of Class B Common Stock and the 12,548,452 shares of Class C Common Stock in reliance on exemptions from the registration requirements of the Securities Act, and those shares are "restricted" securities under Rule 144. For purposes of Rule 144, there will be (i) 9,300,000 shares of Class C Common Stock eligible for sale beginning October 16, 1997, (ii) 98,000 shares of Class A Common Stock eligible for sale beginning November 26, 1997, (iii) 50,000 shares of Class A Common Stock and 10,000 shares of Class C Common Stock eligible for sale beginning January 27, 1998, (iv) 236,362 shares of Class A Common Stock, 1,818,181 shares of Class B Common Stock and 3,163,452 shares of Class C Common Stock eligible for sale beginning February 20, 1998, (v) 272,727 shares of Class A Common Stock eligible for sale beginning April 10, 1998, an (vi) 153,846 shares of Class A Common Stock and 75,000 shares of Class C Common Stock eligible for sale beginning ____________________, 1998, based on current Securities and Exchange Commission ("Commission") rules and subject to compliance with the manner-of-sale, volume and other limitations of Rule 144. 17 20 Notwithstanding the foregoing, Capstar is a party to a stockholders agreement (the "Affiliate Stockholders Agreement") with certain of its stockholders, including R. Steven Hicks and affiliates of Hicks Muse, which grants those stockholders, who will hold an aggregate of 14,639,360 shares of Common Stock, the right to require Capstar, subject to certain limitations, to effect up to three "demand" registrations under the Securities Act for the sale of such stockholders' shares of Common Stock. Capstar is also a party to another stockholders agreement (the "Management Stockholders Agreement" and, together with the Affiliate Stockholders Agreement, the "Stockholders Agreements") with its other stockholders. The Stockholders Agreements provide that in the event that Capstar proposes to register any shares of its Common Stock under the Securities Act, whether or not for its own account, at any time or times, the stockholders that are parties to the Stockholders Agreements shall be entitled, with certain exceptions, to include their shares of Common Stock in such registration unless the managing underwriters of such offering exclude some or all of such shares from such registration under the circumstances specified in the Stockholders Agreements. The parties to the Stockholders Agreements have waived their rights to participate as selling stockholders in the Offering. Each of Capstar, its officers and directors, Hicks Muse and its affiliates and the other stockholders of the Company has agreed that it will not sell, solicit an offer to buy, contract to sell, grant any option to purchase or otherwise transfer or dispose of, or register or announce the sale or offering of, any shares of Common Stock, or any securities that are convertible into, or exercisable or exchangeable for, Common Stock, for a period of 180 days after the date of this Prospectus without the prior written consent of Credit Suisse First Boston Corporation, except pursuant to certain limited exceptions. See "Shares Eligible for Future Sale" and "Underwriting." Future sales of substantial amounts of Class A Common Stock, or the perception that such sales could occur, may affect the market price of the Class A Common Stock prevailing from time to time. See "Shares Eligible for Future Sale" and "Underwriting." NO PRIOR PUBLIC MARKET Prior to the Offering, there has been no public market for the Class A Common Stock and there can be no assurance that an active public market will develop or be sustained after the Offering or that the initial public offering price corresponds to the price at which the Class A Common Stock will trade in the public market subsequent to the Offering. The initial public offering price for the Class A Common Stock will be determined by negotiations among Capstar and the representatives of the Underwriters based upon the consideration of certain factors set forth herein under "Underwriting." Market conditions in the radio industry and market fluctuations in the stock market generally may have an adverse impact on the market price of the Class A Common Stock. 18 21 USE OF PROCEEDS The net proceeds to be received by Capstar from the Offering (after deducting the underwriting discounts and commissions and estimated offering expenses), based on an assumed initial public offering price of $______ per share, the midpoint of the estimated offering range, are estimated to be approximately $90.0 million ($99.3 million if the Underwriters' over-allotment option is exercised in full). The net proceeds from the Offering will be used by Capstar to repay an estimated $90.0 million (including accrued and unpaid interest) in bank indebtedness under the New Credit Facility incurred in connection with the Benchmark Acquisition. DIVIDEND POLICY Capstar's sole source for cash from which to make dividend payments will be dividends distributed or other payments made to it by Commodore. The right of Capstar to participate in any distribution of earnings or assets of Commodore is subject to the prior claims of the creditors of Commodore. The Commodore Indenture and the New Credit Facility contain certain restrictive covenants, including covenants that restrict or prohibit Commodore's ability to pay dividends and make other distributions to Capstar, and the Indenture contains certain restrictive covenants, including covenants that restrict or prohibit Capstar's ability to pay dividends and make other distributions. Capstar intends to retain future earnings for use in the Company's business and does not anticipate declaring or paying any cash or stock dividends on shares of its Common Stock in the foreseeable future. Further, any determination to declare and pay dividends whether in cash, if available, or in stock or other assets, will be made by the Board of Directors of Capstar in light of the Company's earnings, financial position, capital requirements and credit agreements and such other factors as the Board of Directors deems relevant. See "Risk Factors -- Restrictions Imposed by Terms of Indebtedness" and "Description of Indebtedness." 19 22 DILUTION Capstar's deficit in net tangible book value at December 31, 1996, was $116.5 million, or approximately $12.37 per share of Common Stock after giving effect to the Recapitalization. Net tangible book value per share represents Capstar's tangible assets reduced by its total liabilities, divided by the number of shares of Common Stock outstanding. After giving effect to the Osborn Transactions, the Benchmark Acquisition, the Pending Acquisitions, Capstar's receipt of the net proceeds from the Offering and the Other Investments and the application of the net proceeds therefrom, the Company's pro forma net tangible book value as of December 31, 1996, would have been $__________, or $____ per share. This represents an immediate increase in pro forma net tangible book value of $_____ per share to existing holders of Common Stock based on an initial public offering price of $____ per share and an immediate dilution in pro forma net tangible book value of $______ per share to new investors purchasing shares in the Offering. The following table illustrates the per share dilution in pro forma net tangible book value to new investors: Assumed initial public offering price per share................. $ ------- Net tangible book value (deficit) per share at December 31, 1996........................................... $(12.37) Decrease per share attributable to the acquisitions(1)...... Increase per share attributable to Other Investments(2)..... ------- Increase per share attributable to the Offering............. ------- Pro forma net tangible book value (deficit)..................... -------- Net tangible book value dilution per share to new investors..... $ ========
- --------------------------- (1) Amount gives effect to the following acquisitions of the Company: the Osborn Transactions, the Benchmark Acquisition and the Other Acquisitions. (2) "Other Investments" means (i) the $600,000 Management Equity Investment, (ii) the $1.8 million Osborn Contribution, (iii) the $2.0 million equity investment in connection with the Benchmark Acquisition, and (iv) the $750,000 of equity issued in connection with the guarantee by the Company of the indebtedness of a subsidiary of HM Fund III ("Fund III Acquisition Sub"). The following table sets forth on a pro forma basis at December 31, 1996, the number of shares of Common Stock purchased from Capstar, the total consideration paid, and the average price per share paid by existing stockholders and the Other Investors and to be paid (at an assumed initial public offering price of $_____ per share) (the midpoint of the estimated offering range) by new investors purchasing shares offered hereby (before deducting estimated underwriting discounts and commissions and offering expenses):
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE -------------------------- ----------------------------- ------------- NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE ------ ---------- ------ ---------- ------------- Existing stockholders ... ------% $ ------% $ ----- Other Investors ......... ------% ------% ----- New investors ........... ----- ------% ---- ------% ----- Total .......... ===== ======% $ ==== ======% $ =====
The preceding table is based on the number of shares of Common Stock outstanding as of December 31, 1996. The preceding table excludes options outstanding on December 31, 1996, to purchase up to __________________ shares of Class A Common Stock at a weighted average exercise price of $___________ per share, none of which are currently exercisable. The preceding table also excludes ________________ shares of Class A Common Stock available 20 23 for issuance under the Stock Option Plan (as defined) and shares of Class C Common Stock issuable upon exercise of the Warrants (as defined). CAPITALIZATION The following table sets forth the historical capitalization of the Company at December 31, 1996 ("Actual") and the unaudited pro forma capitalization of the Company, after giving effect to (i) the Osborn Transactions and the Benchmark Acquisition ("Pro Forma Completed Transactions"), (ii) in addition to the foregoing, the Offering ("Pro Forma for the Offering"), (iii) in addition to the foregoing, the Other Acquisitions ("Pro Forma"), and (iv) in each case, the financing of each of the foregoing transactions, and the application of the net proceeds therefrom. This table should be read in conjunction with the Consolidated Financial Statements of the Company, and its predecessor, Commodore, Osborn, Benchmark, Community Pacific, Madison, the Pro Forma Financial Information and, in each case, the related notes thereto included elsewhere in this Prospectus.
DECEMBER 31, 1996 --------------------------------------------------------- PRO FORMA PRO FORMA COMPLETED FOR THE ACTUAL TRANSACTIONS OFFERING PRO FORMA --------- ------------ --------- --------- (DOLLARS IN THOUSANDS) Long-term debt (including current maturities): Commodore: Old Credit Facilities(1) ........................................ $ 24,700 $ -- $ -- $ -- New Credit Facility(2) .......................................... -- 184,250 94,250 173,585 13 1/4% Senior Subordinated Notes due 2003(3) ................... 79,812 79,812 79,812 79,812 --------- --------- --------- --------- Total Commodore Long-term Debt ............................... 104,512 264,062 174,062 253,397 Capstar Broadcasting Partners, Inc.: Former Term Loan Facility(4) .................................... 35,000 -- -- -- 12 3/4% Senior Discount Notes due 2009(5) ....................... -- 150,284 150,284 150,284 --------- --------- --------- --------- Total Long-term Debt ......................................... 139,512 414,346 324,346 403,681 --------- --------- --------- --------- Stockholders' Equity: Class A Common Stock (150,000,000 shares authorized; 94,155,000 shares issued and outstanding Actual; and ______ shares issued and outstanding Pro Forma) ............ 942 5 5 5 Class B Common Stock (50,000,000 shares authorized; no shares issued and outstanding Actual; and 1,818,181 issued and outstanding shares Pro Forma) ................... -- 18 18 18 Class C Common Stock (50,000,000 shares authorized; no shares issued and outstanding Actual; and 12,531,145 shares issued and outstanding Pro Forma) ................... -- 125 125 125 Paid-in Capital .............................................. 93,957 154,701 244,701 244,701 Accumulated Deficit(6) ....................................... (3,756) (5,520) (5,520) (5,520) --------- --------- --------- --------- Total Stockholders' Equity(7) ............................. 91,143 149,329 239,329 239,329 --------- --------- --------- --------- Total Capitalization ................................... $ 230,655 $ 563,675 $ 563,675 $ 643,010 ========= ========= ========= =========
(1) Refers to (i) Commodore's former credit facility (the "Former Credit Facility") with the AT&T Commercial Finance Corporation, the indebtedness under which was repaid in connection with the consummation of the Osborn Acquisition and the financing thereof, and (ii) Commodore's former credit facility with Bankers Trust Company, as administrative agent, dated as of February 20, 1997 (the "Refinanced Credit Facility"), which was refinanced with the New Credit Facility in connection with the consummation of the Benchmark Acquisition. (2) [Explanatory note: The terms of the New Credit Facility will be provided by amendment to this Registration Statement.] (3) The actual amount at December 31, 1996 of approximately $79.8 million includes an unamortized premium of $3.0 million. Commodore's 13 1/4% Senior Subordinated Notes due 2003 (the "Commodore Notes") are limited in aggregate principal amount to $76.8 million and bear interest at a rate of 13 1/4% per annum, of which only 7 1/2% is payable in cash up to May 1, 1998. On May 1, 1998 and thereafter, the Commodore Notes will bear cash interest at a rate of 13 1/4% per annum until maturity. The carrying value will increase through accretion until May 1998. Subsequently, the premium will amortize until the Commodore Notes are reduced to their face value of $76.8 million at maturity in 2003. (4) Capstar's credit facility with Bankers Trust Company, as administrative agent, dated as of October 16, 1996 (the "Former Term Loan Facility"), was repaid in full in connection with the consummation of the Osborn Acquisition and the financing thereof. (5) The 12 3/4% Senior Discount Notes due 2009 (the "Notes") were issued by Capstar at a substantial discount from their aggregate principal amount at maturity of $277.0 million in aggregate and generated gross proceeds to the Company of approximately $150.3 million. The Notes pay no cash interest until August 1, 2002. Accordingly, the carrying value will increase through accretion until August 1, 2002. Thereafter, interest will be payable semi-annually, in cash, on February 1 and August 1 of each year. (6) In connection with the Benchmark Acquisition, Capstar issued $750,000 of Class C Common Stock to an affiliate of Hicks Muse in consideration for its agreement to purchase Fund III Acquisition Sub's indebtedness from the lender upon the occurrence of certain events, including, among other events, a default by the borrower. The issuance of Class C Common Stock in connection with such agreement to 21 24 purchase was recorded as an extraordinary item in the period in which the Company consummated the Benchmark Acquisition. Had the Benchmark Acquisition been consummated at December 31, 1996, the Company would have recorded an extraordinary charge of approximately $750,000. (7) The pro forma capitalization of the Company excludes certain equity investments made subsequent to December 31, 1996 which were not made in connection with the transactions given effect in the pro forma financial statements. These equity investments totaled $3.8 million. 22 25 UNAUDITED PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma financial information (the "Pro Forma Financial Information") is based on the audited historical financial statements of the Company and Commodore (the Company's predecessor), Osborn, Benchmark, Community Pacific and Madison, and, in each case, the related notes included elsewhere in this Prospectus. The pro forma statement of operations for the year ended December 31, 1996 has been prepared to illustrate the effects of the following acquisitions and their related financing, including the Offering, as if each had occurred on January 1, 1996: (i) the Commodore Acquisition, (ii) the Osborn Transactions, (iii) the Benchmark Acquisition, (iv) the Other Acquisitions, and (v) all acquisitions and dispositions completed by Commodore, Osborn, Benchmark, and the entities to be acquired by the Company in the Other Acquisitions, from January 1, 1996 through the date of their acquisition by the Company. The pro forma balance sheet as of December 31, 1996 has been prepared as if any such transaction not yet consummated on that date had occurred on that date. The Pro Forma Financial Information and accompanying notes should be read in conjunction with the financial statements and other financial information included elsewhere herein pertaining to the Company, Commodore, Osborn, Benchmark, Community Pacific and Madison, including "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The unaudited pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable. The Pro Forma Financial Information is not necessarily indicative of either future results of operations or the results that might have been achieved if such transactions had been consummated on the indicated date. All acquisitions given effect in the Pro Forma Financial Information are accounted for using the purchase method of accounting. The aggregate purchase price of each such transaction is allocated to the tangible and intangible assets and liabilities acquired based upon their respective fair values. The allocation of the aggregate purchase price reflected in the Pro Forma Financial Information is preliminary for transactions to be closed after January 1, 1997. The final allocation of the purchase price is contingent upon the receipt of final appraisals of the acquired assets and the revision of other estimates; however, the allocation is not expected to differ materially from the preliminary allocation. For the purpose of the Pro Forma Financial Information, (i) "Commodore Combination" means the Commodore Acquisition and all acquisitions or dispositions completed by Commodore since January 1, 1996 through the date of the Commodore Acquisition, (ii) "Osborn Combination" means the Osborn Transactions and all acquisitions or dispositions completed by Osborn since January 1, 1996 through the date of the Osborn Acquisition, (iii) "Benchmark Combination" means the Benchmark Acquisition and all acquisitions or dispositions completed by Benchmark since January 1, 1996 through the date of the Benchmark Acquisition, and (iv) "Other Acquisitions" collectively refers to the Madison Acquisition and the Community Pacific Acquisition. 23 26 As used in the Pro Forma Financial Information, (i) "The Company Combined" presents unaudited pro forma financial data for the Company, including its predecessor, Commodore, (ii) "Pro Forma Completed Transactions" gives effect to the Osborn Transactions, the Benchmark Acquisition and the acquisitions and dispositions of Osborn and Benchmark completed prior to the consummation of the Osborn Acquisition and the Benchmark Acquisition, respectively, and the financings thereof, (iii) "Pro Forma for the Offering" gives effect to the foregoing transactions and the Offering, and (iv) "Pro Forma" gives effect to each of the foregoing transactions, the Other Acquisitions and the anticipated financing thereof. The following table presents a summary of the Pro Forma Financial Information included on the following pages.
FOR THE YEAR ENDED DECEMBER 31, 1996 ---------------------------------------------------- PRO FORMA PRO FORMA THE COMPANY COMPLETED FOR THE COMBINED TRANSACTIONS OFFERING PRO FORMA ---------- ------------ --------- --------- (DOLLARS IN THOUSANDS) OPERATING DATA: Net revenue .............................. $ 44,615 $ 125,617 $ 125,617 $ 145,863 Station operating expenses ............. 29,858 88,355 88,355 103,255 Depreciation and amortization .......... 3,489 20,121 20,121 22,492 Corporate expenses ..................... 2,358 6,422 6,422 7,361 Other operating expenses ............... 14,578 987 987 987 Operating income (loss) ................ (5,668) 9,732 9,732 11,768 Interest expense ....................... 13,896 53,302 42,502 53,130 Net loss ............................... (21,521) (20,849) (10,049) (18,583) OTHER DATA: .............................. Broadcast cash flow (1) ................ $ 14,757 $ 37,262 $ 37,262 $ 42,608 Broadcast cash flow margin (1) ......... 33.1% 29.7% 29.7% 29.2% EBITDA (2) ............................. $ 12,399 $ 30,840 $ 30,840 $ 35,247 Pro forma loss per common share Weighted average number of shares outstanding (3)
(1) Broadcast cash flow consists of operating income before depreciation, amortization, corporate expenses and other operating expenses. See "Glossary of Certain Terms and Market and Industry Data." (2) EBITDA consists of operating income before depreciation, amortization and other operating expenses. See "Glossary of Certain Terms and Market and Industry Data." (3) Reflects the effect of the Recapitalization and the Offering on the number of shares outstanding. 24 27 CAPSTAR BROADCASTING PARTNERS, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ADJUSTMENTS ADJUSTMENTS FOR THE FOR THE COMMODORE OSBORN COMBINATION COMBINATION THE AND THE AND THE COMPANY RELATED OSBORN RELATED COMBINED(A) FINANCING COMBINED(A) FINANCING ------------- ------------- ----------- ---------- Net revenue ................................. $ 44,615 $ -- $ 41,001 $ -- Station operating expenses .................. 29,858 -- 30,466 -- Depreciation and amortization ............... 3,489 3,657 (B) 4,626 1,928 (B) Corporate expenses .......................... 2,358 -- 2,238 -- Other operating expenses .................... 14,578 (13,834)(C) 243 -- --------- -------- --------- --------- Operating income (loss) ................. (5,668) 10,177 3,428 (1,928) Interest expense ............................ 13,896 3,943 (D) 1,928 8,842 (F) Gain (loss) on sale of assets ............... -- -- 12,324 -- Other (income) expense ...................... 1,824 (1,981)(C) 248 -- --------- --------- --------- --------- Income (loss) before provision for income taxes .......................... (21,388) 8,215 13,576 (10,770) Provision (benefit) for income taxes ........ 133 (133)(E) 2,408 (2,408)(E) --------- --------- --------- --------- Net income (loss) ........................... $ (21,521) $ 8,348 $ 11,168 $ (8,362) ========= ========= ========= ========= Pro forma loss per common share(CC) Weighted average number of common shares ADJUSTMENTS FOR THE BENCHMARK COMBINATION AND THE PRO FORMA BENCHMARK RELATED COMPLETED COMBINED (A) FINANCING TRANSACTIONS ------------ ----------- ------------ Net revenue ................................. $ 40,001 $ -- $125,617 Station operating expenses .................. 28,031 -- 88,355 Depreciation and amortization ............... 5,559 862 (B) 20,121 Corporate expenses .......................... 1,826 -- 6,422 Other operating expenses .................... -- -- 987 -------- --------- -------- Operating income (loss) ................. 4,585 (862) 9,732 Interest expense ............................ 3,446 21,247 (G) 53,302 Gain (loss) on sale of assets ............... 9,612 -- 21,936 Other (income) expense ...................... (876) -- (785) -------- --------- -------- Income (loss) before provision for income taxes .......................... 11,627 (22,109) (20,849) Provision (benefit) for income taxes ........ -- -- -- -------- --------- -------- Net income (loss) ........................... $ 11,627 $ (22,109) $(20,849) ======== ========= ======== Pro forma loss per common share(CC) Weighted average number of common shares
See Accompanying Notes to Pro Forma Financial Information. 25 28 CAPSTAR BROADCASTING PARTNERS, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA ADJUSTMENTS PRO FORMA OTHER COMPLETED FOR THE FOR THE ACQUISITIONS TRANSACTIONS OFFERING OFFERING COMBINED (I) ------------ ----------- ----------- ------------ Net revenue ............................... $ 125,617 $ -- $ 125,617 $ 20,246 Station operating expenses ................ 88,355 -- 88,355 14,900 Depreciation and amortization ............. 20,121 -- 20,121 3,359 Corporate expenses ........................ 6,422 -- 6,422 939 Other operating expenses .................. 987 -- 987 -- --------- --------- --------- --------- Operating income (loss) ............... 9,732 -- 9,732 1,048 Interest expense .......................... 53,302 (10,800)(H) 42,502 2,004 Gain (loss) on sale of assets ............. 21,936 -- 21,936 (11) Other (income) expense .................... (785) -- (785) 69) --------- --------- --------- --------- Income (loss) before provision for income taxes ........................ (20,849) 10,800 (10,049) (898) Provision (benefit) for income taxes ...... -- -- -- 189 --------- --------- --------- --------- Net income (loss) ......................... $ (20,849) $ 10,800 $ (10,049) $ (1,087) ========= ========= ========= ========= Pro forma loss per common share(CC) ....... $ (--) ========= Weighted average number of common shares ........................... -- ========= ADJUSTMENTS FOR THE OTHER ACQUISITIONS AND THE RELATED FINANCING PRO FORMA ------------ --------- Net revenue ............................... $ -- $ 145,863 Station operating expenses ................ -- 103,255 Depreciation and amortization ............. (988)(B) 22,492 Corporate expenses ........................ -- 7,361 Other operating expenses .................. -- 987 --------- --------- Operating income (loss) ............... 988 11,768 Interest expense .......................... 8,624 (J) 53,130 Gain (loss) on sale of assets ............. -- 21,925 Other (income) expense .................... -- (854) --------- --------- Income (loss) before provision for income taxes ........................ (7,636) (18,583) Provision (benefit) for income taxes ...... (189)(E) -- --------- --------- Net income (loss) ......................... $ (7,447) $ (18,583) ========= ========= Pro forma loss per common share(CC) ....... $ (--) ========= Weighted average number of common shares $ -- =========
See Accompanying Notes to Pro Forma Financial Information. 26 29 CAPSTAR BROADCASTING PARTNERS, INC. UNAUDITED PRO FORMA BALANCE SHEET AS OF DECEMBER 31, 1996 (DOLLARS IN THOUSANDS)
ADJUSTMENTS ADJUSTMENTS FOR THE FOR THE OSBORN BENCHMARK ACQUISITION ACQUISITION AND THE AND THE PRO FORMA THE OSBORN RELATED BENCHMARK RELATED COMPLETED COMPANY COMBINED(K) FINANCING COMBINED (K) FINANCING TRANSACTIONS -------- ----------- ------------ ------------ ---------- ------------ ASSETS Current Assets: Cash and cash equivalents ........... $ 5,028 $ 3,757 $ 5,040 (L) $ 11,983 $ (770)(S) $ 24,292 (596)(M) (150)(T) Accounts receivable, net ............ 8,913 6,613 (160)(M) 6,422 (1,414)(S) 20,374 Prepaid expenses and other .......... 444 2,404 (157)(M) 671 (5)(S) 3,357 --------- --------- --------- --------- --------- -------- Total current assets .............. 14,385 12,774 4,127 19,076 (2,339) 48,023 Property and equipment, net ......... 15,628 12,313 19,332 (M) 15,509 7,799 (S) 70,581 Intangible and other assets, net..... 208,555 29,990 94,429 (M) 46,560 93,186 (S) 486,637 2,472 (M) 12,459 (S) (1,014)(N) --------- --------- --------- --------- --------- -------- Total assets ................... $ 238,568 $ 55,077 $ 119,346 $ 81,145 $ 111,105 $605,241 ========= ========= ========= ========= ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and other accrued expenses ................... $ 5,832 $ 7,849 $ (100)(M) $ 6,081 $ (217)(S) $ 18,596 (849)(O) Current portion of long-term debt.... 3,750 478 (478)(P) 14,259 (14,259)(U) -- (3,750)(O) --------- --------- --------- --------- --------- --------- Total current liabilities ....... 9,582 8,327 (5,177) 20,340 (14,476) 18,596 Long-term debt, less current portion ... 135,762 16,074 (55,950)(O) 30,783 184,250 (U) 414,346 (16,074)(P) 60,000 (W) 150,284 (Q) 60,000 (W) (30,783) (U) Other long-term liabilities ............ 2,081 4,562 3,200 (M) 193 (57)(S) 22,970 12,991 (M) --------- --------- --------- --------- --------- -------- Total liabilities ............... 147,425 28,963 89,274 51,316 138,934 455,912 Stockholders' equity (deficit) ......... 91,143 26,114 31,086 (R) 29,829 (29,829)(V)(W) 149,329 (1,014)(N) 750 (W) (750)(W) 2,000 (V) ---------- ---------- --------- --------- --------- -------- Total liabilities and stockholders' equity ............................. $ 238,568 $ 55,077 $ 119,346 $ 81,145 $ 111,105 $605,241 ========== ========== ========= ========= ========= ========
See Accompanying Notes to Pro Forma Financial Information. 27 30 CAPSTAR BROADCASTING PARTNERS, INC. UNAUDITED PRO FORMA BALANCE SHEET (CONTINUED) AS OF DECEMBER 31, 1996 (DOLLARS IN THOUSANDS)
ADJUSTMENTS FOR THE OTHER ACQUISITIONS PRO FORMA ADJUSTMENTS PRO FORMA OTHER AND THE COMPLETED FOR THE FOR THE ACQUISITIONS RELATED TRANSACTIONS OFFERING OFFERING COMBINED(I) FINANCING PRO FORMA ------------ ----------- --------- ------------ ------------- --------- ASSETS Current Assets: Cash and cash equivalents .............. $ 24,292 $ -- $ 24,292 $ 379 $ (379)(Y) $ 24,292 Accounts receivable, net ............... 20,374 -- 20,374 3,794 (3,794)(Y) 20,374 Prepaid expenses and other ............. 3,357 -- 3,357 251 (251)(Y) 3,357 --------- --------- --------- --------- --------- --------- Total current assets ................. 48,023 -- 48,023 4,424 (4,424) 48,023 Property and equipment, net ............ 70,581 -- 70,581 6,870 3,509 (Y) 80,960 Intangible and other assets, net ....... 486,637 -- 486,637 26,238 37,540 (Y) 555,593 5,178 (Y) --------- --------- --------- --------- --------- --------- Total assets ......................... $ 605,241 $ -- $ 605,241 $ 37,532 $ 41,803 $ 684,576 ========= ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and other accrued expenses ............................. $ 18,596 $ -- $ 18,596 $ 1,253 $ (1,253)(Y) $ 18,596 Current portion of long-term debt ...... -- -- -- 2,088 (2,088)(Z) -- --------- --------- --------- --------- --------- --------- Total current liabilities ............ 18,596 -- 18,596 3,341 (3,341) 18,596 Long-term debt, less current portion ....... 414,346 (90,000)(X) 324,346 17,322 79,335 (AA) 403,681 (17,322)(Z) Other long-term liabilities ................ 22,970 -- 22,970 1,369 (1,369)(Y) 22,970 --------- --------- --------- --------- --------- --------- Total liabilities .................... 455,912 (90,000) 365,912 22,032 57,303 445,247 Stockholders' equity (deficit) ............. 149,329 90,000 (X) 239,329 15,500 (15,500)(BB) 239,329 -- --------- --------- --------- --------- --------- --------- Total liabilities and stockholders' equity ............................... $ 605,241 $ -- $ 605,241 $ 37,532 $ 41,803 $ 684,576 ========= ========= ========= ========= ========= =========
See Accompanying Notes to Pro Forma Financial Information. 28 31 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION (DOLLARS IN THOUSANDS) (A) The schedules below give effect to (i) the historical acquisitions and dispositions of the indicated entities consummated prior to December 31, 1996, and (ii) the acquisitions and dispositions of the indicated entities which were pending at December 31, 1996, and were consummated prior to the date of the Offering. THE COMPANY
ADJUSTMENTS FOR THE HISTORICAL ACQUISITIONS AND THE HISTORICAL DISPOSITIONS BY THE COMPANY COMPANY (1) COMMODORE COMMODORE COMBINED ------------ ------------ --------------- ------------ Net revenue .......................................... $ 10,303 $ 31,957 $ 2,355 $ 44,615 Station operating expenses ........................... 6,283 21,291 2,284 29,858 Depreciation and amortization ........................ 1,331 2,158 -- 3,489 Corporate expenses ................................... 601 1,757 -- 2,358 Other operating expenses ............................. 744 13,834 -- 14,578 ------------ ------------ ------------ ------------ Operating income (loss) .......................... 1,344 (7,083) 71 (5,668) Interest expense ..................................... 5,035 8,861 -- 13,896 Gain on sale of assets ............................... -- -- -- -- Other (income) expense ............................... 65 1,759 -- 1,824 ------------ ------------ ------------ ------------ Income (loss) before provision for income tax .... (3,756) (17,703) 71 (21,388) Provision (benefit) for income taxes ................. -- 133 -- 133 ------------ ------------ ------------ ------------ Net income (loss) ................................ $ (3,756) $ (17,836) $ 71 $ (21,521) ============ ============ ============ ============ Loss per common share ............................ $ (0.04) ============ Weighted average number of shares outstanding .................................... 93,691,842 ============
- ----------- (1) The column represents the consolidated results of operations of the Company and its subsidiary, Commodore, from October 16, 1996, the date of the consummation of the Commodore Acquisition. OSBORN
ADJUSTMENTS FOR THE HISTORICAL ACQUISITIONS AND PENDING PENDING DISPOSITIONS ACQUISITIONS DISPOSITIONS HISTORICAL BY BY BY OSBORN OSBORN OSBORN OSBORN OSBORN COMBINED ---------- ---------- ---------- ---------- ---------- Net revenue .......................................... $ 37,215 $ (773) $ 6,249 $ (1,690) $ 41,001 Station operating expenses ........................... 28,824 (413) 4,125 (2,070) 30,466 Depreciation and amortization ........................ 4,756 -- 244 (374) 4,626 Corporate expenses ................................... 1,850 -- 388 -- 2,238 Other operating expenses ............................. -- -- 243 -- 243 ---------- ---------- ---------- ---------- ---------- Operating income (loss) .......................... 1,785 (360) 1,249 754 3,428 Interest expense ..................................... 2,202 -- 61 (335) 1,928 Gain on sale of assets ............................... 12,322 -- 2 -- 12,324 Other (income) expense ............................... 291 -- 16 (59) 248 ---------- ---------- ---------- ---------- ---------- Income (loss) before provision for income taxes ................................... 11,614 (360) 1,174 1,148 13,576 Provision (benefit) for income taxes ................. 2,379 -- 29 -- 2,408 ---------- ---------- ---------- ---------- ---------- Net income (loss) ................................ $ 9,235 $ (360) $ 1,145 $ 1,148 $ 11,168 ========== ========== ========== ========== ==========
29 32 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (A) (Continued) BENCHMARK
ADJUSTMENTS FOR THE HISTORICAL ACQUISITIONS PENDING AND ACQUISITIONS HISTORICAL DISPOSITIONS BY BY BENCHMARK BENCHMARK BENCHMARK BENCHMARK COMBINED ---------- --------------- ------------ ---------- Net revenue .......................................... $ 27,255 $ 4,941 $ 7,805 $ 40,001 Station operating expenses ........................... 21,253 2,107 4,671 28,031 Depreciation and amortization ........................ 5,320 -- 239 5,559 Corporate expenses ................................... 1,513 -- 313 1,826 Other operating expenses ............................. -- -- -- -- ---------- ---------- ---------- ---------- Operating income (loss) .......................... (831) 2,834 2,582 4,585 Interest expense ..................................... 3,384 -- 62 3,446 Gain on sale of assets ............................... 9,612 -- -- 9,612 Other (income) expense ............................... (679) -- (197) (876) ---------- ---------- ---------- ---------- Income (loss) before provision for income taxes ................................... 6,076 2,834 2,717 11,627 Provision (benefit) for income taxes ................. -- -- -- -- ---------- ---------- ---------- ---------- Net income (loss) ................................ $ 6,076 $ 2,834 $ 2,717 $ 11,627 ========== ========== ========== ==========
(B) The adjustment reflects (i) a change in depreciation and amortization resulting from conforming the estimated useful lives of the acquired stations and (ii) the additional depreciation and amortization expense resulting from the allocation of the purchase price of the acquired stations including an increase in property and equipment and intangible assets to their estimated fair market value and the recording of goodwill associated with the acquisitions. Goodwill is being amortized over 40 years. (C) The adjustment reflects the elimination of (i) merger related compensation expenses and (ii) other expenses related to the Commodore Acquisition, including costs related to the abandoned initial public offering of Commodore. These expenses were recognized by Commodore in connection with the Commodore Acquisition. (D) The adjustment reflects interest expense associated with (i) the Commodore Notes, (ii) Commodore's Former Credit Facility, (iii) the Company's Former Term Loan Facility and (iv) the amortization of deferred financing fees associated with the Former Term Loan Facility, all net of interest expense related to the existing indebtedness of the Company. Deferred financing fees are amortized over the term of the related debt.
YEAR ENDED DECEMBER 31, 1996 ------------ Commodore Notes .................................................... $ 8,878 Former Credit Facility (Commodore) ................................. 4,047 Former Term Loan Facility (Capstar) ................................ 2,209 ---------- Interest expense before amortization of deferred financing fees .... 15,134 Amortization of deferred financing fees ............................ 2,705 ---------- Pro forma interest expense ..................................... 17,839 Historical interest expense of the Company ......................... (5,035) Historical interest expense of Commodore ........................... (8,861) ---------- Net adjustment ................................................. $ 3,943 ==========
30 33 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (E) The adjustment reflects the elimination of historical income tax expense as the Company would have generated a taxable loss during the pro forma period. (F) The adjustment reflects interest expense associated with (i) the Commodore Notes, (ii) the Notes, and (iii) amortization of deferred financing fees associated with the Notes, all net of interest expense related to the existing indebtedness of Osborn and the Company. Deferred financing fees are amortized over the term of the related debt.
YEAR ENDED DECEMBER 31, 1996 ------------ Commodore Notes ................................................................ $ 8,878 12 3/4% Senior Discount Notes .................................................. 19,567 ------------ Interest expense before amortization of deferred financing fees ................ 28,445 Amortization of deferred financing fees ........................................ 164 ------------ Pro forma interest expense ................................................. 28,609 Pro forma interest expense for the Commodore Acquisition ....................... (17,839) Historical interest expense of Osborn including adjustments for acquisitions pending and completed at December 31, 1996 ................................... (1,928) ------------ Net adjustment ............................................................. $ 8,842 ============
(G) The adjustment reflects interest expense associated with (i) the Commodore Notes, (ii) the Notes, and (iii) the New Credit Facility, and (iv) amortization of deferred financing fees associated with the Notes and the New Credit Facility, all net of interest expense on the existing indebtedness of Benchmark and the Company. Deferred financing fees are amortized over the term of the related debt.
YEAR ENDED DECEMBER 31, 1996 ------------ Commodore Notes ................................................................ $ 8,878 12 3/4% Senior Discount Notes .................................................. 19,567 New Credit Facility ............................................................ 22,110 ------------ Interest expense before amortization of deferred financing fees ................ 50,555 Amortization of deferred financing fees ........................................ 2,747 ------------ Pro forma interest expense ................................................. 53,302 Pro forma interest expense for the Commodore Acquisition and the Osborn Transactions .................................................. (28,609) Historical interest expense of Benchmark including adjustments for acquisitions pending and completed at December 31, 1996 ...................... (3,446) ------------ Net adjustment ............................................................. $ 21,247 ============
(H) Adjustment reflects the reduction of interest expense as a result of the Offering. Pro forma interest expense of the New Credit Facility for the Offering before amortization of deferred financing fees ............................... $ 11,310 Pro forma interest expense under New Credit Facility for the Completed Transactions, before amortization of deferred financing fees ................. (22,110) ------------ Adjustment to interest expense ............................................. $ (10,800) ============
31 34 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (I) The column represents the combined financial statements of Madison's predecessors, Midcontinent Broadcasting Co. of Wisconsin and Point Communications Limited Partnership, and Community Pacific. OTHER ACQUISITIONS Statements of Operations
HISTORICAL HISTORICAL OTHER HISTORICAL POINT COMMUNITY ACQUISITIONS MIDCONTINENT COMMUNICATIONS PACIFIC COMBINED ------------ -------------- ------------ ------------ Net revenue ................................... $ 3,446 $ 5,601 $ 11,199 $ 20,246 Station operating expenses .................... 2,555 3,429 8,916 14,900 Depreciation and amortization ................. 405 1,538 1,416 3,359 Corporate expenses ............................ -- 179 760 939 Other expense ................................. -- -- -- -- ------------ ------------ ------------ ------------ Operating income (loss) ................... 486 455 107 1,048 Interest expense .............................. -- 1,071 933 2,004 Loss on sale of assets ........................ -- -- (11) (11) Other (income) expense ........................ (69) (8) 8 (69) ------------ ------------ ------------ ------------ Income (loss) before provision for income tax .............................. 555 (608) (845) (898) Provision (benefit) for income taxes .......... 189 -- -- 189 ------------ ------------ ------------ ------------ Income (loss) before extraordinary loss ... 366 (608) (845) (1,087) Extraordinary loss on early extinguishment of debt ..................................... -- -- -- -- ------------ ------------ ------------ ------------ Net income (loss) ......................... $ 366 $ (608) $ (845) $ (1,087) ============ ============ ============ ============
Balance Sheets
HISTORICAL HISTORICAL OTHER HISTORICAL POINT COMMUNITY ACQUISITIONS MIDCONTINENT COMMUNICATIONS PACIFIC COMBINED ------------ -------------- ------------ ------------ ASSETS Current Assets: Cash and cash equivalents ................ $ 79 $ 261 $ 39 $ 379 Accounts receivable, net ................. 718 1,368 1,708 3,794 Prepaid expenses and other ............... 17 137 97 251 ------------ ------------ ------------ ------------ Total current assets .................. 814 1,766 1,844 4,424 Property and equipment, net .................. 686 2,340 3,844 6,870 Intangible and other assets, net ............. 3,133 10,163 12,942 26,238 ------------ ------------ ------------ ------------ Total assets .......................... $ 4,633 $ 14,269 $ 18,630 $ 37,532 ============ ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and other accrued expenses .............................. $ 152 $ 380 $ 721 $ 1,253 Current portion of long-term debt ........ -- 913 1,175 2,088 ------------ ------------ ------------ ------------ Total current liabilities ............. 152 1,293 1,896 3,341 Long-term debt, less current portion ......... -- 8,625 8,697 17,322 Other long-term liabilities .................. 1,369 -- -- 1,369 ------------ ------------ ------------ ------------ Total liabilities ..................... 1,521 9,918 10,593 22,032 Stockholders' equity (deficit) ............... 3,112 4,351 8,037 15,500 ------------ ------------ ------------ ------------ Total liabilities and stockholders' equity ............................. $ 4,633 $ 14,269 $ 18,630 $ 37,532 ============ ============ ============ ============
32 35 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (J) Adjustment reflects interest expense associated with (i) the Commodore Notes, (ii) the Notes, (iii) the New Credit Facility, and (iv) amortization of deferred financing costs associated with the Notes and the New Credit Facility, all net of interest expense related to the existing indebtedness of Madison, Community Pacific and the Company. Deferred financing fees are amortized over the term of the related debt.
YEAR ENDED DECEMBER 31, 1996 ------------ Commodore Notes ...................................................... $ 8,878 12 3/4% Senior Discount Notes ........................................ 19,567 New Credit Facility .................................................. 31,632 ------------ Interest expense before amortization of deferred financing fees ...... 60,077 Amortization of deferred financing fees .............................. 3,853 ------------ Pro forma interest expense ....................................... 63,930 Pro forma interest expense for the Commodore Acquisition and the Osborn Transactions and Benchmark Acquisition ............ (53,302) Historical interest expense of Madison and Community Pacific ......... (2,004) ------------ Net adjustment ................................................... $ 8,624 ============
(K) The schedules below give effect to the acquisitions and dispositions of the indicated entities which were pending at December 31, 1996, and were consummated prior to the date of the Offering. OSBORN
HISTORICAL TUSCALOOSA- TUSCALOOSA- OSBORN OSBORN WTXT WACT HUNTSVILLE JACKSON FT. MYERS COMBINED ---------- ----------- ----------- ---------- ------- --------- -------- ASSETS Current Assets: Cash and cash equivalents ............... $ 2,944 $ 425 $ 10 $ 217 $ 161 $ -- $ 3,757 Accounts receivable, net ................ 5,505 295 50 948 287 (472) 6,613 Prepaid expenses and other .............. 2,114 -- -- 133 223 (66) 2,404 ---------- ----------- ----------- ---------- ------- --------- -------- Total current assets ................. 10,563 720 60 1,298 671 (538) 12,774 Property and equipment, net ................. 13,712 42 328 214 52 (2,035) 12,313 Intangible and other assets, net ............ 33,180 146 540 497 658 (5,031) 29,990 ---------- ----------- ----------- ---------- ------- --------- -------- Total assets ......................... $ 57,455 $ 908 $ 928 $ 2,009 $ 1,381 $ (7,604) $ 55,077 ========== =========== =========== ========== ======= ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and other accrued expenses ............................. $ 6,783 $ 17 $ 13 $ 966 $ 70 $ -- $ 7,849 Current portion of long-term debt ....... 320 158 -- -- -- -- 478 ---------- ----------- ----------- ---------- ------- --------- -------- Total current liabilities ............ 7,103 175 13 966 70 -- 8,327 Long-term debt, less current portion ........ 13,880 866 -- 261 1,067 -- 16,074 Other long-term liabilities ................. 4,562 -- -- -- -- -- 4,562 ---------- ----------- ----------- ---------- ------- --------- -------- Total liabilities .................... 25,545 1,041 13 1,227 1,137 -- 28,963 Stockholders' equity (deficit) .............. 31,910 (133) 915 782 244 (7,604) 26,114 ---------- ----------- ----------- ---------- ------- --------- -------- Total liabilities and stockholders' equity ............................ $ 57,455 $ 908 $ 928 $ 2,009 $ 1,381 $ (7,604) $ 55,077 ========== =========== =========== ========== ======= ========= ========
33 36 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (K) Continued BENCHMARK
HISTORICAL BENCHMARK BENCHMARK COLUMBIA STATESVILLE MONTGOMERY COMBINED ---------- ---------- ----------- ---------- ---------- ASSETS Current Assets: Cash and cash equivalents ............... $ 11,179 $ 34 $ 184 $ 586 $ 11,983 Accounts receivable, net ................ 4,731 277 305 1,109 6,422 Prepaid expenses and other .............. 645 21 4 1 671 ---------- ---------- ---------- ---------- ---------- Total current assets .................. 16,555 332 493 1,696 19,076 Property and equipment, net ................. 13,722 28 1,459 300 15,509 Intangible and other assets, net ............ 43,854 3 201 2,502 46,560 ---------- ---------- ---------- ---------- ---------- Total assets .......................... $ 74,131 $ 363 $ 2,153 $ 4,498 $ 81,145 ========== ========== ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and other accrued expenses .............................. $ 5,845 $ 19 $ 82 $ 135 $ 6,081 Current portion of long-term debt ....... 14,219 40 -- -- 14,259 ---------- ---------- ---------- ---------- ---------- Total current liabilities ............. 20,064 59 82 135 20,340 Long-term debt, less current portion ........ 29,841 569 -- 373 30,783 Other long-term liabilities ................. 79 57 -- 57 193 ---------- ---------- ---------- ---------- ---------- Total liabilities ..................... 49,984 685 82 565 51,316 Stockholders' equity (deficit) .............. 24,147 (322) 2,071 3,933 29,829 ---------- ---------- ---------- ---------- ---------- Total liabilities and stockholders' equity ............................. $ 74,131 $ 363 $ 2,153 $ 4,498 $ 81,145 ========== ========== ========== ========== ==========
(L) The adjustment reflects the excess cash generated in connection with the Osborn Acquisition and the financing thereof which will be used for working capital requirements and to consummate certain pending transactions. (M) The adjustment reflects (i) the assumption of $3,200 in liabilities in connection with the Osborn Acquisition and (ii) the allocation of the purchase price of Osborn, the Osborn Add-on Acquisitions, the WTXT-FM station located in Tuscaloosa, Alabama, and the WYNU-FM station located in Jackson, Tennessee, net of the proceeds from the Osborn Ft. Myers Disposition, to the assets acquired and liabilities assumed resulting in adjustments to property and equipment to their estimated fair values and the recording of goodwill associated with the acquisitions as follows:
ALLOCATION OF CARRYING PURCHASE PRICE VALUE ADJUSTMENTS -------------- -------------- -------------- Cash and cash equivalents ............... $ 3,161 $ 3,757 $ (596) Accounts receivable, net ................ 6,453 6,613 (160) Prepaid expenses and other .............. 2,247 2,404 (157) Property and equipment, net ............. 31,645 12,313 19,332 Intangible and other assets, net ........ 123,420 28,991 94,429 Deferred financing ...................... 3,471 999 2,472 Accounts payable and other accrued expenses ............................ (7,749) (7,849) (100) Other long-term liabilities ............. (1,501) (1,501) -- Deferred tax liability .................. (16,052) (3,061) 12,991 -------------- Total purchase price and deferred financing charges ................. $ 145,095 ==============
34 37 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (N) The adjustment reflects the amortization of the deferred financing costs associated with the Company's Former Term Loan Facility, which was recognized as a component of interest expense in the period the refinancing occurred. (O) The adjustment reflects the repayment in connection with the financing of (i) the Company's Former Term Loan Facility, (ii) the accrued interest of $849 related to the Company's Former Term Loan Facility and (iii) Commodore's Former Credit Facility. (P) The adjustment reflects the elimination of (i) the historical debt of Osborn of $14,200 and (ii) the combined historical debt of the acquisitions and dispositions by Osborn of $2,352. (Q) The adjustment reflects the issuance of the Notes for proceeds of $150,284 with an aggregate principal amount at maturity of $277,000. (R) The adjustment reflects the net effect of (i) the elimination of the historical stockholders' equity of Osborn of $31,910, (ii) the elimination of the combined stockholders' deficit of the acquisitions and dispositions by Osborn of $5,796, (iii) the Equity Investment (as defined) of $54,800, (iv) the equity investment of $600 by certain members of the Company's management team in January 1997 (the "Management Equity Investment"), and (v) in connection with the Osborn Acquisition, the contribution by Frank D. Osborn, the President and Chief Executive Officer of Osborn, of certain shares of common stock of Osborn to the Company in exchange for shares of Class A Common Stock having a deemed value of $1,800 (the "Osborn Contribution"). See "Certain Transactions--Management and Affiliates Equity Investments." The pro forma equity adjustments exclude certain equity investments made subsequent to December 31, 1996, which were not made in connection with the transactions given effect in the pro forma financial statements. These equity investments totaled $3,750. (S) The adjustment reflects the allocation of the purchase price of Benchmark, including Benchmark's acquisitions which were pending at December 31, 1996, to the assets acquired and liabilities assumed resulting in an adjustment to property and equipment to their estimated fair values and the recording of goodwill associated with the acquisitions as follows:
ALLOCATION OF CARRYING PURCHASE PRICE VALUE ADJUSTMENTS -------------- -------------- -------------- Cash and cash equivalents ............... $ 11,213 $ 11,983 $ (770) Accounts receivable, net ................ 5,008 6,422 (1,414) Prepaid expenses and other .............. 666 671 (5) Property and equipment, net ............. 23,308 15,509 7,799 Intangible and other assets, net ........ 139,295 46,109 93,186 Deferred financing ...................... 12,910 451 12,459 Accounts payable and other accrued expenses ............................ (5,864) (6,081) (217) Other long-term liabilities ............. (136) (193) (57) -------------- Total purchase price and deferred financing charges ................. $ 186,400 ==============
(T) Benchmark deposited $150 in escrow as security for Benchmark's obligation to consummate the acquisition of WFMX-FM and WSIC-AM located in Statesville, North Carolina. The adjustment reflects the use of the $150 deposit to pay a portion of the purchase price in connection with the acquisition. 35 38 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (U) The adjustment reflects (i) borrowings of $184,250 under the New Credit Facility with an annual interest rate of 12.0% and (ii) repayment of the existing debt of Benchmark and the pending acquisitions of Benchmark of $45,042, including the current portion of $14,259, in connection with the Benchmark Acquisition and the related financing. (V) The adjustment reflects (i) the net effect of the elimination of the historical partnership capital of Benchmark and the pending acquisitions of Benchmark, based on the purchase method of accounting, of $29,829 and (ii) the common equity investment of $2,000 by a former partner of Benchmark. See "Certain Transactions -- Management and Affiliates Equity Investments." (W) As part of the Benchmark Acquisition, a subsidiary of HM Fund III (the "Fund III Acquisition Sub") entered into a senior credit agreement (the "Acquisition Sub Credit Agreement") with Bankers Trust Company to borrow up to $62,000, the proceeds of approximately $60,000 of which were loaned to Benchmark to enable Benchmark to consummate four separate acquisitions of radio stations properties and for certain other corporate purposes of Benchmark. The Company has unconditionally guaranteed all of the Fund III Acquisition Sub's indebtedness under the Acquisition Sub Credit Agreement. HM Fund III has agreed, and is required, to purchase the outstanding obligations owing to Bankers Trust Company under the Acquisition Sub Credit Agreement from Bankers Trust Company upon the occurrence of certain events, including a default in the payment of principal or interest when due under the terms of the Acquisition Sub Credit Agreement. Simultaneously with the Benchmark Acquisition, the Fund III Acquisition Sub was merged with the Company and the Acquisition Sub Credit Agreement was repaid (the "Repayment") with proceeds of the New Credit Facility. In connection with the Repayment, the Company issued $750 of Class C Common Stock to HM Fund III in consideration of its agreement to purchase the obligations owing to Bankers Trust Company under the Acquisition Sub Credit Agreement and recorded an extraordinary charge of $750. The related pro forma adjustments are as follows: Loans to Benchmark under the Acquisition Sub Credit Agreement ........................... $ 60,000 Repayment of the Acquisition Sub Credit Agreement in connection with the Benchmark Acquisition with proceeds from the New Credit Facility ................................ $(60,000) Issuance of Common Stock in connection with the Company's guarantee ............................ $ 750 Extraordinary change ........................... $ (750)
(X) The adjustment reflects the proceeds of the Offering of $100,000, net of fees and expenses of $10,000. (Y) The adjustment reflects the allocation of the purchase prices of the Other Acquisitions to the assets acquired and liabilities assumed resulting in an adjustment to property and equipment to their estimated fair values and the recording of goodwill associated with the acquisitions as follows:
ALLOCATION CARRYING OF PURCHASE VALUE OF OTHER PRICES ACQUISITIONS ADJUSTMENTS ------------ -------------- -------------- Cash and cash equivalents ..................................... $ -- $ 379 $ (379) Account receivable, net ....................................... -- 3,794 (3,794) Prepaid expenses and other .................................... -- 251 (251) Property and equipment, net ................................... 10,379 6,870 3,509 Intangibles and other assets, net ............................. 63,421 25,881 37,540 Deferred financing ............................................ 5,535 357 5,178 Accounts payable and other accrued expenses ................... -- (1,253) (1,253) Other long-term liabilities ................................... -- (1,369) (1,369) -------------- Total purchase prices and deferred financing charges ... $ 79,335 ==============
(Z) The adjustment reflects the elimination of the historical debt of the Other Acquisitions of $19,410, including the current portion of $2,088. (AA) The adjustment reflects borrowings of $79,335 under the New Credit Facility with an annual interest rate of 12.0%. (BB) The adjustment reflects the net effect of the elimination of the historical equity of the Other Acquisitions based on the purchase method of accounting of $15,500. 36 39 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (CC) Pro forma net loss per share is based on the weighted average number of shares of Common Stock and Common Stock equivalents outstanding during the pro forma period. The pro forma weighted average shares include all shares of Common Stock outstanding prior to the Offering, shares to be issued in the Offering and the additional shares issued in connection with certain acquisitions all adjusted for the Recapitalization. 37 40 SELECTED HISTORICAL FINANCIAL DATA The following financial information should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition," "Business," the Consolidated Financial Statements of the Company and its predecessor, Commodore, and the related notes thereto, included elsewhere in this Prospectus. THE COMPANY (AND ITS PREDECESSOR, COMMODORE) The operating and other data in the following table have been derived from audited financial statements of the Company for the period October 17, 1996 through December 31, 1996, the audited financial statements of Commodore for the period January 1, 1996 through October 16, 1996 and for the years ended December 31, 1995 and 1994, all of which are included elsewhere in this Prospectus, and from audited financial statements for the years ended December 31, 1993 and 1992. The selected balance sheet data in the following table have been derived from the audited financial statements of the Company as of December 31, 1996 and from the audited financial statements of Commodore as of December 31, 1995 which are included elsewhere in this Prospectus, and from the audited financial statements of Commodore as of December 31, 1994, 1993 and 1992.
COMMODORE THE COMPANY -------------------------------------------------------------------- ---------------- YEARS ENDED DECEMBER 31, JANUARY 1, 1996-| |OCTOBER 17, 1996 --------------------------------------------------- OCTOBER 16, | | DECEMBER 31, 1992 1993 1994 1995 1996(1) | | 1996(2) --------- --------- --------- --------- ------------ | |--------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) | | | | OPERATING DATA: | | Net revenue .............................. $ 17,961 $ 19,798 $ 26,225 $ 30,795 $ 31,957 | | $ 10,303 Station operating expenses ............... 12,713 13,509 16,483 19,033 21,291 | | 6,283 Depreciation and amortization ............ 1,676 1,129 2,145 1,926 2,158 | | 1,331 Corporate expenses ....................... 1,602 2,531 2,110 2,051 1,757 | | 601 Other operating expense(3) ............... -- 1,496 2,180 2,007 13,834 | | 744 Operating income (loss) .................. 1,970 1,133 3,307 5,778 (7,083) | | 1,344 Interest expense ......................... 4,614 4,366 3,152 7,806 8,861 | | 5,035 Extraordinary gain (loss) on | | extinguishment of debt ................. 430 -- -- (444) -- | | -- Net loss ................................. (2,580) (3,782) (527) (2,240) (17,836) | | (3,756) OTHER DATA: | | Broadcast cash flow(4) ................... $ 5,248 $ 6,289 $ 9,742 $ 11,762 $ 10,666 | | $ 4,020 Broadcast cash flow margin(4) ............ 29.2% 31.8% 37.1% 38.2% 33.4% | | 39.0% EBITDA(5) ................................ $ 3,646 $ 3,758 $ 7,632 $ 9,711 $ 8,909 | | $ 3,419 Cash flows related to: | | Operating activities .................. (406) 477 4,061 1,245 1,990 | | (49) Investing activities .................. (458) (10,013) (50) (4,408) (34,358) | | (127,372) Financing activities .................. 951 9,377 (2,855) 12,013 26,724 | | 132,449 Capital expenditures ..................... 371 333 623 321 449 | | 808 Pro forma loss per common share(6) ....... | | (0.40) Weighted average number of | | Shares outstanding(6) ................. | | 9,369,184 BALANCE SHEET DATA (END OF PERIOD): | | Cash and cash equivalents ................ $ 1,045 $ 887 $ 2,042 $ 10,891 | | $ 5,028 Working capital, excluding current | | portion of long-term debt ............. 1,094 3,393 3,012 13,729 | | 8,553 Intangible and other assets, net ......... 13,819 22,419 21,096 27,422 | | 208,555 Total assets ............................. 27,508 36,192 36,283 52,811 | | 238,568 Long-term debt, including current | | portion ............................... 51,934 41,773 36,962 66,261 | | 139,512 Redeemable preferred stock ............... 5,800 10 8,414 -- | | -- Total stockholders' equity (deficit) ..... (28,766) (8,097) (18,038) (18,555) | | 91,143
(1) The historical financial data set forth includes the results of operations of Commodore through October 16, 1996, the date of the Commodore Acquisition. (2) The historical financial data set forth for the Company includes the balance sheet data and results of operations of Commodore from its date of acquisition on October 16, 1996. (3) Other operating expenses consist of separation compensation in 1993 and long-term incentive compensation under restructured employment agreements with Commodore's former President and Chief Executive Officer and its former Chief Operating Officer in 1995 and 1994. In the period ended October 16, 1996, it consists of merger related compensation charges in connection with the Company's acquisition of 38 41 Commodore and in the period ended December 31, 1996, it includes compensation charges in connection with certain warrants issued to the President and Chief Executive Officer of the Company. Such expenses are non-cash and/or are not expected to recur. (4) Broadcast cash flow consists of operating income before depreciation, amortization, corporate expense and other expense. See "Glossary of Certain Terms and Market and Industry Data." (5) EBITDA consists of operating income before depreciation, amortization and other expense. See "Glossary of Certain Terms and Market and Industry Data." (6) Reflects the effect of the Recapitalization on the number of shares outstanding. 39 42 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion and analysis of financial condition and results of operations of the Company and its predecessor, Commodore, should be read in conjunction with the consolidated financial statements and related notes thereto of the Company and Commodore included elsewhere in this Prospectus. Periodically, the Company may make statements about trends, future plans and the Company's prospects. Actual results may differ materially from those described in such forward looking statements based on the risks and uncertainties facing the Company, including but not limited to, the following: business conditions and growth in the radio broadcasting industry and the general economy; competitive factors; changes in interest rates; the failure or inability to renew one or more of the Company's broadcasting licenses; and the factors described in "Risk Factors." A radio broadcast company's revenues are derived primarily from the sale of time to local and national advertisers. Those revenues are affected by the advertising rates that a radio station is able to charge and the number of advertisements that can be broadcast without jeopardizing listener levels (and resulting ratings). Advertising rates tend to be based upon demand for a station's advertising inventory and its ability to attract audiences in targeted demographic groups, as measured principally by Arbitron. Radio stations attempt to maximize revenues by adjusting advertising rates based upon local market conditions, controlling advertising inventory and creating demand and audience ratings. Seasonal revenue fluctuations are common in the radio broadcasting industry and are due primarily to fluctuations in advertising expenditures by local and national advertisers, with revenues typically being lowest in the first quarter and highest in the second and fourth quarters of each year. A radio station's operating results in any period also may be affected by the occurrence of advertising and promotional expenditures that do not produce commensurate revenues in the period in which the expenditures are made. Because Arbitron reports audience ratings on a quarterly basis, a radio station's ability to realize revenues as a result of increased advertising and promotional expenses and any resulting audience ratings improvements may be delayed for several months. In October 1996, the Company commenced operations upon consummation of the Commodore Acquisition. Upon completion of the Pending Acquisitions, the Company will own and operate or provide services to 121 radio stations serving 31 mid-sized markets. The Company anticipates that it will consummate the Pending Acquisitions; however, the closing of each such acquisition is subject to various conditions, including FCC and other governmental approvals, which are beyond the Company's control, and the availability of financing to the Company on acceptable terms. No assurances can be given that regulatory approval will be received, that the New Credit Facility, the Commodore Indenture, the Indenture or any other loan agreements to which the Company will be a party will permit additional financing for the Pending Acquisitions or that such financing will be available to the Company on acceptable terms. See "Risk Factors -- Risks of Acquisition Strategy." The Company incurred, and will incur, substantial indebtedness to finance the Commodore Acquisition, the Osborn Transactions, the Benchmark Acquisition and the Pending Acquisitions for which it has, and will continue to have, significant debt service requirements. In addition, the Company has, and will continue to have, significant charges for depreciation and amortization expense related to the fixed assets and intangibles acquired, or to be acquired, in its acquisitions. Consequently, the Company expects that it will report net losses for the foreseeable future. In the following analysis, management discusses broadcast cash flow and EBITDA. Broadcast cash flow consists of operating income before depreciation, amortization, corporate expenses and other expense. EBITDA consists of operating income before depreciation, amortization and other expense. Although broadcast cash flow and EBITDA are not measures of performance calculated in accordance with generally accepted accounting principles ("GAAP"), management believes that they are useful to an investor in evaluating the Company because they are measures widely used in the broadcast industry to evaluate a radio company's operating performance. However, broadcast cash flow and EBITDA should not be considered in isolation or as substitutes for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP or as a measure of liquidity or profitability. 39 43 THE COMPANY (AND ITS PREDECESSOR, COMMODORE) Commodore was acquired by and became a wholly-owned subsidiary of the Company on October 16, 1996 upon consummation of the Commodore Acquisition. The Company is a holding company and has no significant operations or operating assets of its own. The historical results of operations for the year ended December 31, 1996 reflect the combined results of the Company since the date of its acquisition of Commodore with the results of operations of Commodore from January 1, 1996 through October 16, 1996. The results of operations for the years ended December 31, 1995, 1994 and 1993 reflect the results of operations of Commodore. As of December 31, 1996, Commodore owned, operated or provided services to 33 radio stations in six mid-sized markets. The following table presents stations acquired by Commodore or to which Commodore began providing services from January 1, 1993 through December 31, 1996.
MONTH YEAR MARKET STATION ACQUIRED ---- ------ ------- -------- 1996 Acquisitions Coal Grove, Ohio . . . . . . . . . . . . . WBVB-FM October Ironton, Ohio . . . . . . . . . . . . . . WIRO-AM October WMLV-FM October Huntington, West Virginia . . . . . . . . WKEE-FM October WKEE-AM October Milton, West Virginia . . . . . . . . . . WFXN-FM October WZZW-AM October Fairfield, Connecticut . . . . . . . . . . WSTC-AM May WKHL-FM May WINE-AM March WRKI-FM March Ft. Pierce-Stuart- Vero Beach, Florida . . WBBE-FM May WAVW-FM May WAXE-AM May Westchester-Putnam Counties, New York . . WPUT-AM March WZZN-FM March WAXB-FM March 1995 Acquisitions Ft. Pierce-Stuart-Vero Beach, Florida . . WPAW-FM August WQOL-FM June Allentown-Bethlehem, Pennsylvania . . . . WKAP-AM March 1993 Acquisitions Allentown-Bethlehem, Pennsylvania . . . . WZZO-FM December
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 Net Revenue. Net revenue increased approximately $11.5 million or 37.3% to $42.3 million in the year ended December 31, 1996 from $30.8 million in the year ended December 31, 1995. The inclusion of revenue from the acquisitions of radio stations and revenue generated from JSAs and LMAs entered into during the year ended December 31, 1996 provided approximately $10.8 million of the increase. For stations owned and operated for a comparable period in 1996 and 1995, net revenue improved $700,000 or 2.4% to $30.0 million in 1996 from $29.3 million in 1995 primarily due to increased ratings and improved selling efforts. 40 44 Station Operating Expenses. Station operating expenses increased approximately $8.6 million or 45.3% to $27.6 million in the year ended December 31, 1996 from $19.0 million during the year ended December 31, 1995. The increase was primarily attributable to the station operating expenses of the radio station acquisitions and the JSAs and LMAs entered into during the year ended December 31, 1996, which contributed $9.0 million to the increase. For stations owned and operated for a comparable period in 1996 and 1995, station operating expenses declined approximately $400,000, or 2.2% to $17.6 million in 1996 from $18.0 million in 1995 which reflected more efficient operations. Broadcast Cash Flow. As a result of the factors described above, broadcast cash flow increased approximately $2.9 million or 24.6% to $14.7 million in the year ended December 31, 1996 from $11.8 million in the year ended December 31, 1995. The broadcast cash flow margin was 34.8% for the period in 1996 as compared to 38.2% during the same period in 1995. The inclusion of broadcast cash flow from acquisitions and LMAs accounted for $1.7 million of the increase. Excluding the effects of the acquisitions and LMAs, broadcast cash flow increased $1.1 million or 9.7% to $12.4 million in 1996 from $11.3 million in 1995 and the broadcast cash flow margin increased to 41.3% from 38.6%. Corporate Expenses. Corporate expenses increased approximately $400,000 or 20.0% during the 1996 period to $2.4 million from $2.0 million in the 1995 period as a result of higher salary expense for additional staffing. EBITDA. As a result of the factors described above, EBITDA increased approximately $2.6 million or 26.8% to $12.3 million in the year ended December 31, 1996 from $9.7 million in the year ended December 31, 1995. The EBITDA margin decreased to 29.2% in 1996 period from 31.5% in 1995 period. Other Operating Expenses. Depreciation and amortization increased approximately $1.6 million or 84.2% to $3.5 million in 1996 from $1.9 million in 1995 primarily due to certain radio station acquisitions consummated in 1996. In 1996, Commodore recognized approximately $13.8 million in merger related compensation charges in connection with the Commodore Acquisition. Merger related long-term incentive compensation expense incurred by Commodore pursuant to the prior employment agreements of Bruce A. Friedman and James T. Shea was $2.0 million in 1995. Other (Income) Expenses. Interest expense increased approximately $6.1 million or 78.2% to $13.9 million in the year ended December 31, 1996 from $7.8 million during the same period in 1995 primarily due to the interest expense associated with (i) the Commodore Notes (ii) $24.7 million in acquisition and working capital funding from Commodore's Former Credit Facility, and (iii) $35.0 million in acquisition funding from the Company's Former Term Loan Facility. Other (income) expenses, net, decreased approximately $2.2 million to $1.8 million in expenses for the year ended December 31, 1996 from $400,000 in income for the period ended December 31, 1995. The increase in expense was primarily due to approximately $500,000 in expenses associated with the filing of Commodore's Registration Statement on Form S-1 with the Commission on May 17, 1996, which was subsequently withdrawn, and approximately $1.4 million of merger related costs and expenses in connection with the Commodore Acquisition. Commodore earned $300,000 in interest income on its temporary cash investments in 1996. Additionally, there was a $400,000 decrease in the loss on extraordinary items in 1996 as there was no early extinguishment of debt during the period. Net Loss. As a result of the factors described above, net loss increased approximately $19.4 million or 881.8% to $21.6 million for the year ended December 31, 1996 from $2.2 million for the year ended December 31, 1995. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 Net Revenue. Net revenue increased approximately $4.6 million or 17.6% to $30.8 million in 1995 from $26.2 million in 1994. The inclusion of revenue from the acquisition and revenue generated from JSAs and LMAs entered into during 1995 provided approximately $1.5 million of the increase. For stations owned and operated for a comparable period in 1995 and 1994, net revenue improved approximately $3.1 million or 11.8% to $29.3 million in 1995 from $26.2 million in 1994, primarily due to higher ratings and improved selling efforts. Station Operating Expenses. Station operating expenses increased approximately $2.5 million or 15.2% to $19.0 million in 1995 from $16.5 million in 1994 partially due to the inclusion of station operating expenses from the newly acquired radio station and from the JSA and LMA activity in 1995, which contributed approximately $1.0 million 41 45 to the increase. For stations owned and operated for a comparable period in 1995 and 1994, station operating expenses increased approximately $1.5 million or 9.1% to $18.0 million in 1995 from $16.5 million in 1994 due to increased selling expenses. Broadcast Cash Flow. As a result of the factors described above, broadcast cash flow increased approximately $2.1 million or 21.6% to $11.8 million in 1995 from $9.7 million in 1994. The broadcast cash flow margin was 38.2% in 1995 as compared to 37.0% in 1994. The inclusion of broadcast cash flow from acquisitions, JSAs and LMAs accounted for $500,000 of the increase. Excluding the effects of the acquisitions, broadcast cash flow increased $1.6 million or 16.5% to $11.3 million in 1995 from $9.7 million in 1994 and the broadcast cash flow margin increased to 38.6% from 37.0%. Corporate Operating Expenses. Corporate expenses decreased approximately $100,000 or 4.8% to $2.0 million in 1995 from $2.1 million in 1994 as a result of reduced travel and entertainment expenses. EBITDA. As a result of the factors described above, EBITDA increased approximately $2.1 million or 27.6% to $9.7 million in the year ended December 31, 1995 from $7.6 million in the year ended December 31, 1994. The EBITDA margin increased to 31.5% in 1995 from 29.0% in 1995. Other Operating Expenses. Depreciation and amortization decreased approximately $200,000 or 9.5% to $1.9 million in 1995 from $2.1 million in 1994 primarily as a result of Commodore fully amortizing certain costs associated with the acquisition in December 1993. Long-term incentive compensation decreased approximately $200,000 or 9.1% to $2.0 million in 1995 from $2.2 million in 1994. The 1995 expense reflects the balance of the long-term incentive compensation obligations due Mr. Friedman and Mr. Shea pursuant to their prior employment agreements. Other (Income) Expenses. Interest expense increased approximately $4.6 million or 143.8% to $7.8 million in 1995 from $3.2 million in 1994. The increase was due primarily to higher floating rates on Commodore's prior senior credit facilities and the cash and noncash interest on the Commodore Notes issued in the Recapitalization Transactions (as defined) which was partially offset by an increase in the amortization of the deferred financing charges associated with the Recapitalization Transactions and Commodore's prior credit facilities. "Recapitalization Transactions" means the completed offering of the Commodore Notes, the net proceeds of which were used to repay indebtedness of Commodore and redeem certain outstanding shares of preferred stock of Commodore. Other income, net, increased approximately $800,000 or 200.0% to $400,000 in income in 1995 from $400,000 in expenses in 1994 primarily due to a decrease in the loss on sale of assets. Additionally, there was a decrease of approximately $200,000 or 66.7% in provision for income taxes and an approximate $400,000 loss on the early extinguishment of debt in 1995. Net Loss. As a result of the factors described above, net loss increased approximately $1.7 million or 340.0% to $2.2 million in 1995 from $500,000 in 1994. LIQUIDITY AND CAPITAL RESOURCES The pursuit by the Company of its acquisition strategy has required a significant portion of the Company's capital resources. In October 1996, the Company funded the $213.6 million purchase price (including assumed debt of $93.7 million) for its first acquisition, the Commodore Acquisition, from the proceeds of the sale of $94.0 million of Class A Common Stock to affiliates of Hicks Muse, R. Steven Hicks and certain other investors and with $34.8 million of borrowings under the Company's Former Term Loan Facility. The Company funded the $143.7 million purchase price (including transaction costs) for the Osborn Transactions from the proceeds of the issuance of the Notes, the Equity Investment, the Management Equity Investment and the Osborn Contribution. The Company funded the $12.1 million purchase price (including transaction costs) for the Space Coast Acquisitions with $12.1 million of borrowings under the Refinanced Credit Facility. The Company funded the $186.4 million purchase price (including transactions costs) for the Benchmark Acquisition through a combination of borrowings under the New Credit Facility and the issuance of capital stock. As a result of the financing of its acquisitions, the Company has a substantial amount of long-term indebtedness, and for the foreseeable future, payments under the Company's credit agreement, payments under the Company's outstanding subordinated notes and future acquisitions will be the Company's principal uses of cash. 42 46 In October 1996, the Company assumed the Commodore Notes in connection with the Commodore Acquisition. The Commodore Notes accrue interest at a stated rate of 13 1/4% per annum of their face value of $76.8 million. The Commodore Notes require semi-annual cash interest payments on each May 1 and November 1 of $2.9 million through May 1, 1998 and $5.2 million from May 1, 1998 until maturity. On February 20, 1997, the Company issued the Notes at a substantial discount from their principal amount at maturity of $277.0 million in aggregate. The Notes generated gross proceeds of approximately $150.3 million and pay no cash interest until August 1, 2002. Accordingly, the carrying value will increase through accretion until August 1, 2002. Thereafter, interest will be payable semi-annually, in cash, on February 1 and August 1 of each year. In connection with the Benchmark Acquisition, the Company entered into the New Credit Facility. Borrowings under the New Credit Facility bear interest at floating rates and require interest payments on varying dates depending on the interest rate option selected by the Company. The New Credit Facility consists of [to be completed]. All loans outstanding under the New Credit Facility will mature in . See "Description of Indebtedness." In addition to debt service, the Company's principal liquidity requirements will be for working capital and general corporate purposes, including capital expenditures, which are not expected to be material in amount, and to consummate the Pending Acquisitions and, as appropriate opportunities arise, to acquire additional radio stations. The Company used the $10.0 million in net proceeds of the Osborn Ft. Myers Disposition to repay indebtedness under the Refinanced Credit Facility. The Company intends to fund the $106.7 million aggregate purchase price for the Pending Acquisitions through a combination of borrowings under the New Credit Facility and a combination of indebtedness of Commodore and/or the Company and/or capital stock of the Company or its subsidiaries. See "Pro Forma Financial Information." The Company anticipates that it will fund the Pending Acquisitions with indebtedness, rather than capital stock, to the fullest extent then permitted under the debt incurrence covenants contained in the New Credit Facility, as it may be amended, the Commodore Indenture and the Indenture. See "Description of Indebtedness." The Company has not determined the terms of any such indebtedness or capital stock. The Company's ability to make such borrowings and issue such indebtedness and capital stock will depend upon many factors, including, but not limited to, the Company's success in operating and integrating its radio stations and the condition of the capital markets at the times of consummation of the Pending Acquisitions. No assurances can be given that such financings can be consummated on terms considered to be favorable by management or at all. Management believes that cash from operating activities, together with available revolving credit borrowings under the New Credit Facility, should be sufficient to permit the Company to fund its operations and meet its obligations under the agreements governing its existing indebtedness. The Company may require financing for additional future acquisitions, if any, and there can be no assurance that it would be able to obtain such financing on terms considered to be favorable by management. Management evaluates potential acquisition opportunities on an on-going basis and has had, and continues to have, preliminary discussions concerning the purchase of additional stations. The Company expects that in connection with the financing of future acquisitions, it may consider disposing of stations in its markets. The Company has no current plans or arrangements to dispose of any of its stations other than the disposition of station KASH-AM in Anchorage, Alaska after consummation of the Community Pacific Acquisition. Net cash provided by operating activities was $1.9 million, $1.2 million and $4.1 million for the years ended December 31, 1996, 1995 and 1994, respectively. Changes in the Company's net cash provided by operating activities are primarily the result of the Company's completed acquisitions and station operating agreements entered into during the periods and their effects on income from operations and working capital requirements. Net cash used in investing activities was $161.7 million, $4.4 million and $50,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Net cash provided by financing activities was $159.2 million and $12.0 million for the years ended December 31, 1996 and 1995, respectively, and net cash used by financing activities was $2.9 million in 1994. These cash flows primarily reflect the borrowings, capital contributions and expenditures for station acquisitions and dispositions and includes the effects of the Commodore Acquisition in 1996. RECENT PRONOUNCEMENTS In February 1997, the FASB issued FASB Statement No. 128 "Earnings Per Share ("SFAS No. 128")" which establishes standards for computing and presenting earnings per share. SFAS No. 128 is effective for fiscal years 43 47 beginning after December 15, 1997. Management does not believe the implementation of SFAS No. 128 will have a material effect on its financial statements. In February 1997, the FASB issued FASB Statement No. 129 "Disclosure of Information About Capital Structure" ("SFAS No. 129") which establishes disclosure requirements for an entity's capital structure. SFAS No. 129 is effective for fiscal years beginning after December 15, 1997. Management does not believe the implementation of SFAS No. 129 will have a material effect on its financial statements. EXTRAORDINARY ITEM In connection with the Benchmark Acquisition, Capstar issued $750,000 of Class C Common Stock to an affiliate of Hicks Muse in consideration for its agreement to purchase the outstanding obligations of Bankers Trust Company under the Acquisition Sub Credit Agreement upon the occurrence of certain events. The issuance of Class C Common Stock in connection with the agreement to purchase the outstanding obligations of Bankers Trust Company under the Acquisition Sub Credit Agreement will be reported as an extraordinary item in the period in which the Company consummated the Benchmark Acquisition. Had the Benchmark Acquisition been consummated at December 31, 1996, the Company would have recorded an extraordinary charge of approximately $750,000. 44 48 BUSINESS THE COMPANY The Company is the largest radio broadcaster in the United States operating exclusively in mid-sized markets. The Company currently owns and operates or provides services to 99 radio broadcasting stations in 28 mid-sized markets located primarily in the northeastern, southeastern and western United States. The Company has entered into seven agreements to acquire 32 additional stations in seven new markets (including ten stations in four new markets for which the Company currently provides services pursuant to an LMA) and three existing markets, which acquisitions are expected to occur subsequent to the Offering. Upon completion of the Pending Acquisitions, the Company will own and operate or provide services to 121 radio broadcasting stations in 31 mid-sized markets located throughout the country. These stations comprise the leading radio group, in terms of revenue share and/or audience share, in 20 of these markets. In February 1996, as a result of the passage of the Telecom Act, radio broadcasting companies were permitted to increase their ownership of stations within a single market from a maximum of four to a maximum of between five and eight stations, depending on market size. More importantly, the Telecom Act also eliminated the national ownership restriction that generally had limited companies to the ownership of no more than 40 stations (20 AM and 20 FM) throughout the United States. In order to capitalize on the opportunities created by the Telecom Act, R. Steven Hicks, an executive with over 30 years of experience in the radio broadcasting industry, and Hicks Muse formed Capstar to acquire and operate radio station clusters in mid-sized markets. The Company generally defines mid-sized markets as those MSAs ranked between 50 and 200, each of which has approximately $10.0 million to $35.0 million in radio advertising revenue. The Company believes that mid-sized markets represent attractive operating environments because, as compared to the 50 largest markets in the United States, they are generally characterized by (i) lower radio station purchase prices as a multiple of broadcast cash flow, (ii) less sophisticated and undercapitalized competitors, including both radio and competing advertising media such as newspaper and television, and (iii) less direct format competition resulting from fewer stations in any given market. The Company believes that the attractive operating characteristics of mid-sized markets coupled with the opportunity provided by the Telecom Act to create in-market radio station cluster groups will enable the Company to achieve substantial revenue growth and cost efficiencies. As a result, management believes that the Company can generate broadcast cash flow margins that are comparable to the higher margins that heretofore were generally achievable only in the top 50 markets. To effectively and efficiently manage its stations, the Company has developed a flexible management structure designed to manage a large and growing portfolio of radio stations throughout the United States. Initially, the station portfolio will be organized into three regions, the Northeast, the Southeast and the West, each of which will be managed by regional executives in conjunction with general managers in each of the Company's markets. STATION PORTFOLIO In October 1996, the Company consummated its first acquisition when it purchased Commodore. Since such time, the Company has consummated the Osborn Acquisition in February 1997, the Space Coast Acquisitions in April 1997 and the Benchmark Acquisition in June 1997. On a pro forma basis after giving effect to such acquisitions as if they had occurred on January 1, 1996, the Company would have had net revenue and broadcast cash flow of $ million and $ million, respectively, for the year ended December 31, 1996. The Company has agreed, subject to various conditions, to acquire 32 additional radio stations (22 FM and 10 AM) in seven separate transactions. The Company's portfolio is comprised of three geographical regions -- the Northeast Region, the Southeast Region and the West Region -- which will include a total of 121 stations located in 31 mid-sized markets in the United States upon completion of the Pending Acquisitions. On a pro forma basis after giving effect to the Pending Acquisitions as if they had occurred on January 1, 1996, the Company would have had net revenue and broadcast cash flow of $ million and $ million, respectively, for the year ended December 31, 1996. 45 49
COMPANY COMPANY COMPANY MSA STATIONS REVENUE AUDIENCE --------------- SHARE SHARE MARKET(1) RANK(2) FM AM RANK(3) RANK(4) SOURCE COMPANY --------- ------- -- -- ------- ------- -------------- NORTHEAST REGION Allentown-Bethlehem, PA(5) . . 64 2 2 1 1 Commodore Melbourne-Titusville-Cocoa, FL 96 3 2 1 1 Space Coast Fairfield County, CT(6) . . . . 112 3 3 2 2 Commodore Ft. Pierce-Stuart-Vero Beach, FL(5) 121 5 1 1 1 Commodore Huntington, WV-Ashland, KY(5) . 139 5 5 1 1 Commodore Salisbury-Ocean City, MD . . . 153 2 -- 3 4 Benchmark Dover, DE . . . . . . . . . . . NA 2 1 1 1 Benchmark Wilmington, DE . . . . . . . . NA 1 1 2 2 Commodore Westchester-Putnam Counties, NY(7) NA 3 2 NA 1 Commodore -- -- SUBTOTAL . . . . . . . . 26 17 SOUTHEAST REGION Greenville, SC . . . . . . . . 59 3 1 2 2 Benchmark Columbia, SC . . . . . . . . . 88 4 2 1 1 Benchmark/Emerald City Huntsville, AL . . . . . . . . 114 1 2 1 1 Osborn Jackson, MS . . . . . . . . . . 118 2 2 2 2 Benchmark Shreveport, LA . . . . . . . . 126 1 1 2 3 Benchmark Montgomery, AL . . . . . . . . 142 3 -- 2 2 Benchmark Asheville, NC . . . . . . . . . 179 1 1 1 1 Osborn Tuscaloosa, AL . . . . . . . . 212 2 1 1 1 Osborn Wheeling, WV(5) . . . . . . . . 213 5 2 1 1 Osborn Winchester, VA . . . . . . . . 219 2 1 2 1 Benchmark Jackson, TN . . . . . . . . . . 257 2 1 1 1 Osborn Roanoke, VA . . . . . . . . . . NA 4 1 2 1 Benchmark/Cavalier/WRIS Lynchburg, VA . . . . . . . . . NA 3 1 1 1 Benchmark/Cavalier Statesville, NC . . . . . . . . NA 1 1 NA NA Benchmark Gadsden, AL(8) . . . . . . . . NA 1 1 NA 1 Osborn -- -- SUBTOTAL . . . . . . . . 35 18 WEST REGION Stockton, CA(5) . . . . . . . . 85 1 1 3 3 Community Pacific Des Moines, IA(5) . . . . . . . 89 2 1 4 4 Community Pacific Madison, WI . . . . . . . . . . 120 4 2 1 1 Madison Modesto, CA(5) . . . . . . . . 121 1 1 2 2 Community Pacific Anchorage, AK(5) . . . . . . . 165 4 2 2 1 Community Pacific/COMCO Fairbanks, AK(6) . . . . . . . NA 2 1 NA 1 COMCO Yuma, AZ . . . . . . . . . . . NA 2 1 NA 1 Commonwealth -- -- SUBTOTAL . . . . . . . . 16 9 -- -- TOTAL(9) . . . . . . . . 77 44 == ==
- --------------- NA Information not available. (1) Actual city of license may be different from metropolitan market served. Market may be different from market definition used under FCC multiple ownership rules. (2) MSA rank obtained from Arbitron's Summer 1996 Radio Market Survey Schedule. (3) Company revenue share rank compiled from data in BIA Publications Radio Analyzer-BIA's Master Access, Version 1.7 (copyright 1996) ( current as of February 27, 1997), based upon 1996 gross revenue for the indicated markets. (4) Company audience share rank obtained from Arbitron's Radio Market Reports, based on average quarter hour estimates for the last available reporting period ending either Spring, Summer or Fall 1996 for the demographic of persons ages 25-54, listening Monday through Sunday, 6 a.m. to midnight, except for the Yuma, Arizona market which was obtained from AccuRatings(TM). To account for listeners lost to other nearby markets, a radio station's "local" audience share is derived by comparing the radio station's average quarter hour share to the total average quarter hour share for all stations whose signals are heard within the MSA, excluding audience share for listeners who listen to stations whose signals originate outside the MSA. (5) The Company provides certain sales and marketing services to stations WKAP-AM in Allentown, Pennsylvania, WPAW-FM in Ft. Pierce-Stuart-Vero Beach, Florida and WEEL-FM in Wheeling, West Virginia, pursuant to JSAs. The Company provides certain sales, programming and marketing services to station WHRD-AM in Huntington, West Virginia, and, pending consummation of the Community Pacific Acquisition, to stations KFIV-AM and KJSN-FM in Modesto, California, KVFX-FM and KJAX-FM in Stockton, California, KASH-FM, 46 50 KENI-AM and KBFX-FM in Anchorage, Alaska, and KDMI-AM, KHKI-FM and KGGO-FM in Des Moines, Iowa, pursuant to LMAs. The chart includes these stations. (6) Fairfield County is a CSA as defined by Arbitron. The CSA includes the Arbitron markets of Bridgeport, Stamford- Norwalk and Danbury, Connecticut with market rankings of 112, 132 and 191, respectively. MSA rank is listed for the Bridgeport market only. The combined rank for the CSA has not been estimated. Fairbanks, Alaska is a CSA as defined by Arbitron, for which audience share rank was obtained from Arbitron's Fall 1996 CSA Market Report. (7) Westchester-Putnam Counties, New York are a sub-set of the greater New York City Metropolitan Area, which is ranked as the largest MSA by Arbitron. (8) Company audience share rank obtained from Arbitron's June 1996 County Report (for field work performed in 1995) survey, from the County of Etowah, Alabama which is Gadsden's home county. (9) The chart does not include (i) station WING-FM in Dayton, Ohio, which is owned by the Company and for which an unrelated third party, who has an option to purchase such station, currently provides certain sales, programming and marketing services pursuant to an LMA, (ii) station WDRR-FM in Ft. Myers, Florida, in which the Company owns a 50% nonvoting interest and which the Company intends to sell or (iii) station KASH-AM in Anchorage, Alaska, which the Company will own upon consummation of the acquisition of Community Pacific, but expects to sell subsequent thereto to remain in compliance with the station ownership limitations under the Communications Act. See "The Pending Acquisitions." ACQUISITION STRATEGY The Company is the leading consolidator of radio stations in mid-sized markets throughout the United States. Management has achieved this position through the application of an acquisition strategy that it believes allows the Company to develop radio station clusters at attractive prices. First, the Company enters attractive new mid-sized markets by acquiring a leading station (or a group that owns a leading station) in such market. The Company then utilizes the initial acquisition as a platform to acquire additional stations which further enhance the Company's position in a given market. Management believes that once it has established operations in a market with an initial acquisition, it can acquire additional stations at reasonable prices and, by leveraging its existing infrastructure, knowledge of and relationships with advertisers and substantial management experience, improve the operating performance and financial results of those stations. OPERATING STRATEGY The Company's objective is to maximize the broadcast cash flow of each of its radio station clusters through the application of the following strategies: Enhance Revenue Growth through Multiple Station Ownership. Management believes that the ownership of multiple stations in a market allows the Company to coordinate its programming to appeal to a broad spectrum of listeners. Once the station cluster has been created, the Company can provide one-stop shopping to advertisers attempting to reach a wide range of demographic groups. Simplifying the buying of advertising time for customers encourages increased advertiser usage thereby enhancing the Company's revenue generating potential. Broad demographic coverage also allows the Company to compete more effectively against alternative media, such as newspaper and television, thus potentially increasing radio's share of the total advertising dollars spent in a given market. Create Low Cost Operating Structure. Management believes that it is less expensive to operate radio stations in mid-sized markets than in large markets for several reasons. First, because stations in mid-sized markets typically have less direct format competition, the Company is less reliant on expensive on-air talent and costly advertising and promotional campaigns to capture listeners. Second, the ownership of multiple stations within a market allows the Company to achieve substantial cost savings through the consolidation of facilities, management, sales and administrative personnel, operating resources (such as on-air talent, programming and music research) and through the reduction of redundant corporate expenses. Furthermore, management expects that the Company, as a result of the large size of its portfolio, combined with the consolidated purchasing power of the Hicks Muse portfolio companies, will be able to realize substantial economies of scale in such areas as national representation commissions, employee benefits, casualty insurance premiums, long distance telephone rates and other operating expenses. Finally, the incorporation of digital automation in certain markets allows the Company to operate radio stations at off-peak hours with minimal human involvement while improving the quality of programming. 47 51 Utilize Sophisticated Operating Techniques. Following the acquisition of a station or station group, the Company seeks to capitalize on management's extensive large market operating experience by implementing sophisticated techniques such as advertising inventory management systems, sales training programs and in-depth music research studies which improve both the efficiency and profitability of its stations. Prior to the passage of the Telecom Act, management believes that many operators in mid-sized markets did not generate sufficient revenue to justify the incurrence of expenditures to develop these techniques. Provide Superior Customer Service. The Company believes that advertising customers in mid-sized markets typically do not have extensive resources to create and implement advertising campaigns. The Company provides many of its advertising customers with extensive advertising support which may include (i) assistance in structuring advertising and promotional campaigns, (ii) creating and producing customer advertisements and (iii) analyzing the effectiveness of the customer's media programs. Management believes that this type of superior customer service attracts new customers to the Company and increases the loyalty of the Company's existing customers, thereby providing stability to the Company's revenue, often despite fluctuations in station ratings. Develop Decentralized Management Structure. The Company has developed experienced, highly motivated, regional and local management teams, derived primarily from station groups acquired by the Company, and has decentralized decision-making so that these regional and local managers have the flexibility to develop operating cultures that capitalize on the unique qualities of each region and market. The Company also relies on local managers to source additional acquisition opportunities. In addition, in order to incentivize regional management, the Company intends to link compensation to regional operating performance as well as the combined results of the Company. OWNERSHIP AND MANAGEMENT In April 1996, Hicks Muse combined its financial expertise with the operating experience of R. Steven Hicks to form the Company. Mr. Hicks is a 30-year veteran of the radio broadcasting industry (including 18 years as a station owner) who has owned and operated or managed in excess of 150 radio stations in large and mid-sized markets throughout the United States. In addition, in 1993, Mr. Hicks co-founded SFX for which he served as Chief Executive Officer for three years until his resignation in 1996. Hicks Muse is a private investment firm based in Dallas, New York, St. Louis and Mexico City that specializes in acquisitions, recapitalizations and other principal investing activities. Since the firm's inception in 1989, affiliates of Hicks Muse have completed more than 70 transactions having a combined transaction value exceeding $19.0 billion. In 1994, an affiliate of Hicks Muse made its first major investment in the radio broadcasting industry when Hicks, Muse, Tate & Furst Equity Fund II, L.P. founded Chancellor, which, in the three years since its inception, has become one of the largest radio broadcasting companies in the United States. HM Fund III and its affiliates have invested $148.5 million in the Class A Common Stock of Capstar. The Company has designed an organizational structure to effectively manage its existing station portfolio as well as to accommodate future in-market or group acquisitions. Each of the Company's existing and future operating regions is or, will be, headquartered within the region and staffed with a team of regional executives which manage, or will manage, the operations of that region's station portfolio. A chief executive officer and/or a chief operating officer of each region oversees the regional and general managers of the stations within a particular region. In addition, a controller in each region directly oversees the business managers of the stations within a region. Each regional operating executive reports directly to R. Steven Hicks while each regional controller reports to the Company's chief financial officer. In assembling each of the existing regional management teams, the Company has sought to retain the senior management of some of the station groups that it has acquired so as to (i) retain and capitalize on the local market experience and knowledge of these experienced executives and (ii) foster a culture that is consistent with the unique attributes of each of the local markets acquired. Furthermore, the Company believes that each of its regional executives possesses considerable knowledge of its region's competitors and is therefore well situated to identify strategic acquisition candidates. R. Steven Hicks, the President and Chief Executive Officer of the Company, has invested $3.1 million in Class A Common Stock. Certain other members of the Company's management, including certain of the Company's regional executives, have invested an additional $6.1 million in Class A Common Stock. The Company's regional executive 48 52 management teams are compensated based upon the financial performance of their respective regions and the Company as a whole with such compensation awarded in the form of cash bonuses and stock options. Management believes that the ownership interests of management and this compensation structure fosters teamwork and the sharing of the best practices across regions to maximize the overall financial performance of the Company. Each of the Company's regional executives has extensive experience operating radio stations in mid-sized markets, as described below. Northeast Region. The chief executive officer of the Northeast Region is James T. Shea, Jr., the President (and former Chief Operating Officer) of Commodore. Mr. Shea has more than 20 years of experience in the radio broadcasting industry. Mr. Shea's operating knowledge and strong advertiser relationships helped Commodore become a leading radio group in each of its markets. Pro forma for the Pending Acquisitions, Mr. Shea will manage 43 stations in nine markets in the Northeast Region. Southeast Region. Frank D. Osborn, President and Chief Executive Officer of Osborn since its inception in 1984, is the chief executive officer of the Southeast Region. Mr. Osborn brings more than 19 years of radio industry experience to the Company, including prior positions as Senior Vice President of Price Communications, Vice President of Finance and Administration at NBC Radio and General Manager of WYNY-FM in New York City. Mr. Osborn has been successful in developing leading station clusters in each of Osborn's markets. The Company intends to hire a chief operating officer for the Southeast Region, who will assist Mr. Osborn in overseeing the operations of the radio stations in the region. Pro forma for the Pending Acquisitions, the Southeast Region will include 53 stations in 15 markets. West Region. The West Region will be managed by two radio executives, David J. Benjamin III and Dex Allen, with an aggregate of 52 years of experience in the radio broadcasting industry. Mr. Benjamin, the current President and Chief Executive Officer of Community Pacific, will serve as the chief executive officer of the West Region upon consummation of the Community Pacific Acquisition. Mr. Allen has served as the managing member of Commonwealth since 1984 and is expected to continue to serve in such position until the consummation of the Commonwealth Acquisition. Mr. Allen became the president and chief operating officer of the West Region effective January 1, 1997. Pro forma for the Pending Acquisitions, the West Region will include 25 stations in seven markets. REGIONAL OPERATING GROUPS Northeast Region The Company's portfolio of radio stations in the Northeast Region includes 43 radio stations (26 FM and 17 AM) located in nine markets in Connecticut, Delaware, Florida, Kentucky, Maryland, New York, Ohio, Pennsylvania and West Virginia. The Company will have the leading radio station cluster based on revenue share rank in five of its nine markets. History. The Commodore Acquisition, which initially formed the basis for the Northeast Region, provided the Company with 33 stations located in the following six markets: Allentown-Bethlehem, Pennsylvania (four stations); Fairfield County, Connecticut (six stations); Ft. Pierce-Stuart-Vero Beach, Florida (six stations); Huntington, West Virginia-Ashland, Kentucky (10 stations); Westchester-Putnam Counties, New York (five stations); and Wilmington, Delaware (two stations). Commodore entered each of these six markets with an initial acquisition of one or two stations during the 1980's. The portfolio of Commodore stations has undergone significant growth during the past two years, as the management team completed acquisitions of 22 stations in the six original markets in 1995 and 1996, especially after the passage of the Telecom Act in February 1996. As a result of the recent acquisition of many of the Commodore stations, management believes that the station clusters in the original Commodore markets have not yet realized the full potential of their recent consolidations. Recently completed acquisitions will enhance the Company's Northeast Region station portfolio through the addition of 10 stations in three new markets. The Benchmark Acquisition provided the Company with three stations in Dover, Delaware and two stations in Salisbury-Ocean City, Maryland, and the Space Coast Acquisitions provided the Company with five new stations in the Melbourne-Titusville-Cocoa, Florida market. The Company expects to realize substantial revenue growth and economies of scale from these acquisitions in the Northeast Region because each 49 53 of the three new markets is adjacent to one of the original Commodore markets, as both the Dover and Salisbury-Ocean City markets are near Wilmington, and Melbourne-Titusville-Cocoa is adjacent to Ft. Pierce-Stuart-Vero Beach. Management. The chief executive officer of the Northeast Region is James T. Shea, Jr., the President (and former Chief Operating Officer) of Commodore, who has more than 20 years of experience in the radio broadcasting industry. Under the guidance of Mr. Shea, Commodore grew from 11 stations in 1992 to its current size. In addition, Commodore realized compound annual growth in estimated net revenue and broadcast cash flow of 28.7% and 32.6%, respectively, for the three years ending December 31, 1996. Reporting to Mr. Shea will be regional managers, each of whom will oversee the operations of several markets. In addition, each of the markets in the Northeast Region will be managed by a general manager who will manage the day-to-day operations of the radio stations in each market. Markets. Management believes that the station portfolio in the Northeast Region has significant growth potential resulting from the recent formation of station clusters in most of the Company's markets. The Company's Allentown-Bethlehem, Pennsylvania market is the most developed of Commodore's radio station clusters and has been operating as a cluster for approximately two years. In this market, the Company owns four stations, including two of the five viable stations in the market. The two FM and two AM stations target a broad demographic spectrum with four different formats: News/Talk; Contemporary Hit Radio; Album Rock; and Middle of the Road. The potential of radio station clustering is highlighted by this group's results. The stations comprise the leading radio station group in the market based on local audience share and maintain the number one revenue rank. Furthermore, the cluster has increased net revenue from $7.4 million in 1993 to an estimated $10.2 million in 1996, representing compound annual growth of 11.8%, and has increased its broadcast cash flow margins from 33.8% to 48.1% during the same period. These financial results exclude station WKAP-AM, with which Commodore entered into a JSA in March 1995. The Company seeks to replicate the success it has enjoyed in Allentown-Bethlehem with station clusters in each of the other markets in the Northeast Region. Management believes that the recently formed clusters in most of the other markets in the region should be able to generate substantial cash flow improvements given the Company's strong station positions. For example, in Huntington, West Virginia-Ashland, Kentucky, the Company owns or provides services to ten stations, including six of the ten viable stations in the market. Commodore acquired two of the stations in 1982, entered into LMAs with eight additional stations in April 1996 and subsequently acquired seven of these stations in October 1996. On a combined basis, this newly formed cluster has the number one revenue and audience share ranks in the market. In markets such as Salisbury-Ocean City, Maryland where the Company has only two stations, the Company will seek to enhance its station cluster through future acquisitions of additional stations, or, if that proves not to be feasible, consider exiting the market. 50 54 The following table summarizes certain information relating to the Company's radio stations in the Northeast Region.
TARGET COMPANY STATION DEMO- REVENUE AUDIENCE MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) FORMAT - ----------------------- -------- ------- ------- ----- ------- ------- ------ ALLENTOWN-BETHLEHEM, PA . 64 1 WAEB-AM . . . . . . . . 1982 Commodore 35+ 6 News/Talk WAEB-FM . . . . . . . . 1982 Commodore W18-49 3 Contemporary Hits Radio WZZO-FM . . . . . . . . 1993 Commodore M18-49 4 Album Rock WKAP-AM(5) . . . . . . 1995 Commodore 35+ 8 Middle-of-the-Road MELBOURNE-TITUSVILLE- COCOA, FL 96 1 WMMB-AM . . . . . . . . 1986 Space Coast 50+ 5t Middle-of-the-Road WGGD-FM . . . . . . . . 1986 Space Coast 35-64 4 Oldies WMYM-AM . . . . . . . . 1982 Space Coast 35-64 7t Adult Contemporary WLRQ-FM . . . . . . . . 1982 Space Coast 25-54 1 Adult Contemporary WHKR-FM . . . . . . . . 1989 Space Coast 25-54 3 Classical FAIRFIELD COUNTY, CT(6) . 112 2 WNLK-AM . . . . . . . . 1989 Commodore 35+ 9t Talk WEFX-FM . . . . . . . . 1989 Commodore M18-49 6 Classic Rock WSTC-AM . . . . . . . . 1996 Commodore 25-54 9t News/Talk WKHL-FM . . . . . . . . 1996 Commodore 25-54 4 Oldies WINE-AM . . . . . . . . 1996 Commodore 25-54 14 News WRKI-FM . . . . . . . . 1996 Commodore M18-49 7 Album Rock FT. PIERCE-STUART-VERO BEACH, FL 121 1 WZZR-FM . . . . . . . . 1987 Commodore M18-49 2 Album Rock WQOL-FM . . . . . . . . 1995 Commodore 25-54 3t Oldies WPAW-FM(5) . . . . . . 1995 Commodore 25-54 7 Country WBBE-FM . . . . . . . . 1996 Commodore 25-54 1 Classic Country WAVW-FM . . . . . . . . 1996 Commodore 25-54 5t Country WAXE-AM . . . . . . . . 1996 Commodore 35+ 14t Nostalgia HUNTINGTON, WV-ASHLAND, KY 139 1 WTCR-AM . . . . . . . . 1982 Commodore 25-54 10 Classic Country WTCR-FM . . . . . . . . 1982 Commodore 25-54 1 Country WIRO-AM . . . . . . . . 1996 Commodore M25-54 14t Sports WHRD-AM(5) . . . . . . 1996 Commodore M25-54 NA Sports WZZW-AM . . . . . . . . 1996 Commodore M25-54 NA Sports WKEE-AM . . . . . . . . 1996 Commodore 35t 12t Middle-of-the-Road WKEE-FM . . . . . . . . 1996 Commodore 25-54 2 Country WAMX-FM . . . . . . . . 1996 Commodore M25-54 5t Classic Rock WFXN-FM . . . . . . . . 1996 Commodore M25-54 7 Classical WBVB-FM . . . . . . . . 1996 Commodore M18-49 8 Adult Contemporary SALISBURY-OCEAN CITY, MD 153 3 WWFG-FM . . . . . . . . 1993 Benchmark 25-54 4 Country WOSC-FM . . . . . . . . 1994 Benchmark 18-34 12 Contemporary Hits Radio DOVER, DE . . . . . . . . NA 1 WDSD-FM . . . . . . . . 1990 Benchmark 25-54 1 Country WSRV-FM . . . . . . . . 1994 Benchmark 25-54 2 Adult Contemporary WDOV-AM . . . . . . . . 1990 Benchmark 25-54 NA News/Talk WILMINGTON, DE . . . . . NA 2 WJBR-AM . . . . . . . . 1985 Commodore W25-54 5t Middle-of-the-Road WJBR-FM . . . . . . . . 1985 Commodore 35+ 2 Adult Contemporary WESTCHESTER-PUTNAM COUNTIES, NY(6)(7) NA NA WFAS-AM . . . . . . . . 1986 Commodore 35+ NA Middle-of-the-Road WPUT-AM . . . . . . . . 1996 Commodore 35+ NA Country WFAS-FM . . . . . . . . 1986 Commodore W25-54 1 Adult Contemporary WZZN-FM . . . . . . . . 1996 Commodore W25-54 NA Album Rock WAXB-FM . . . . . . . . 1996 Commodore 25-54 NA Oldies
- -------------- NA Information not available. t Tied with another radio station. (1) Actual city of license may be different from metropolitan market served. Market may be different from market definition used under FCC multiple ownership rules. (2) MSA rank obtained from Arbitron's Summer 1996 Radio Market Survey Schedule. Fairfield County is a CSA as defined by Arbitron. The CSA includes the Arbitron markets of Bridgeport, Stamford-Norwalk, and Danbury, Connecticut with market rankings of 112, 132, and 191, respectively. MSA Rank is listed for the Bridgeport market only. The combined rank for the CSA has not been estimated. (3) Company revenue share rank obtained from data in BIA Publications -- Radio Analyzer, BIA's Master Access, Version 1.7 (copyright 1996) (current as of February 27, 1997), based upon 1996 gross revenue for the indicated markets. Rankings for Wilmington, Delaware and Dover, Delaware markets were determined separately, using the City of License to determine the split of the market. 51 55 (4) Station audience share rank obtained from Arbitron's Radio Market Reports, based on average quarter hour estimates for the reporting period ending Fall 1996, for the demographic of persons ages 25-54, listening Monday through Sunday, 6 a.m. to midnight. To account for listeners lost to other nearby markets, a radio station's "local" audience share is derived by comparing the radio station's average quarter hour share to the total average quarter hour share for all stations whose signals are heard within the MSA, excluding audience share for listeners who listen to stations whose signals originate outside the MSA. (5) The Company provides certain sales and marketing services to stations WKAP-AM in Allentown, Pennsylvania and WPAW-FM in Ft. Pierce-Stuart-Vero Beach, Florida, pursuant to JSAs. The Company provides certain sales, programming and marketing services to station WHRD-AM in Huntington, West Virginia pursuant to an LMA. (6) Fairfield County, Connecticut and Westchester-Putnam Counties, New York, CSA audience share and revenues obtained from Arbitron's Custom Survey Area Report for the Fall 1996 period. (7) Westchester-Putnam Counties, New York are sub-sets of the greater New York City Metropolitan Area, which is ranked as the largest MSA by Arbitron. Southeast Region Upon consummation of the Pending Acquisitions, the Company's portfolio of radio stations in the Southeast Region will include 53 radio stations (35 FM and 18 AM) located in 15 markets in Alabama, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Virginia and West Virginia. The Company's stations will comprise the leading radio station group based on revenue share rank in eight of these markets. History. Osborn is the core of the Southeast Region with 20 stations located in the following six markets: Huntsville, Alabama (three stations); Asheville, North Carolina (two stations); Tuscaloosa, Alabama (three stations); Wheeling, West Virginia (seven stations); Jackson, Tennessee (three stations); and Gadsden, Alabama (two stations). Osborn's portfolio of stations and markets has undergone significant growth during the past two years, during which time Osborn has completed acquisitions of 12 stations in seven markets. Management believes that the station clusters in the six markets have not yet reached the full potential of their recent consolidations. The recently-completed Benchmark Acquisition will enhance the Company's Southeast Region station portfolio by providing the Company with 26 stations in the following new markets: Greenville, South Carolina (four stations); Columbia, South Carolina (five stations); Roanoke, Virginia (two stations); Lynchburg, Virginia (one station); Jackson, Mississippi (four stations); Shreveport, Louisiana (two stations); Montgomery, Alabama (three stations); Winchester, Virginia (three stations); and Statesville, North Carolina (two stations). The Pending Acquisitions will enhance the Company's Southeast Region station portfolio through the acquisition of seven additional stations in three existing markets. The Cavalier Acquisition will contribute five stations in the Roanoke and Lynchburg, Virginia markets; the Emerald City Acquisition will contribute an additional station in the Columbia, South Carolina market; and the WRIS Acquisition will contribute an additional station in the Roanoke, Virginia market, further enhancing the Company's market clusters. The Company's management believes that the addition of the southeast Benchmark, Cavalier, Emerald City and WRIS radio stations will enhance the Southeast Region's operations by creating a greater critical mass in the region, and by entering new markets which offer additional consolidation opportunities. Management. The chief executive officer of the Southeast Region is Frank D. Osborn, the former Chief Executive Officer of Osborn, who brings to the Company over 19 years of experience in the radio industry, including prior positions as Senior Vice President of Price Communications, Vice President of Finance and Administration at NBC Radio and General Manager of WYNY-FM in New York City. The Company believes that Mr. Osborn's significant contacts and station owner relationships in the radio industry, particularly in the southeast, will facilitate the Company's efforts to acquire additional radio stations in the region. The Company intends to hire a chief operating officer for the Southeast Region, who will assist Mr. Osborn in overseeing the operations of the radio stations in the Southeast Region. In addition, each of the markets in the Southeast Region will be run by a general manager who will manage the day-to-day operations of the radio stations in each market. Markets. Management believes that the portfolio of markets in the Southeast Region has significant consolidation and future add-on acquisition potential. Management hopes to replicate its success in Wheeling, West Virginia, where the Company has the number one radio franchise. Osborn purchased four stations and entered into a JSA with a fifth station in the past year in order to add to its two existing radio stations. The stations target a broad demographic spectrum with five different formats: Country; Adult Contemporary; Adult; Classic Rock; and Oldies. 52 56 Osborn also operates the Country Music Hall and Jamboree in the Hills, a country music festival, which complement the strong radio station cluster in Wheeling. The Company's stations comprise the leading radio station group in the Wheeling market based on local audience share and maintain the number one revenue rank. The Company believes that Osborn has not yet fully realized the benefits of the economies of scale or revenue enhancements associated with the recent acquisitions in Wheeling. The Company seeks to duplicate this strategy in each of its other southeast markets. For example, upon consummation of the Cavalier Acquisition and the WRIS Acquisition, the Southeast Region will combine Benchmark's three radio stations in the Roanoke and Lynchburg, Virginia markets with five Cavalier radio stations and one WRIS station located in those markets. Management believes that the Company's strong position in these markets will enable its radio clusters to generate substantial revenue and broadcast cash flow growth. The following table summarizes certain information relating to the Company's radio stations in the Southeast Region, assuming consummation of the Pending Acquisitions.
TARGET COMPANY STATION DEMO- REVENUE AUDIENCE MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) FORMAT - ----------------------- -------- ------- ------- ----- ------- ------- ------ GREENVILLE, SC . . . . . 59 2 WJMZ-FM . . . . . . . . 1990 Benchmark 25-54 2 Urban WESC-FM . . . . . . . . 1995 Benchmark 25-54 4 Country WESC-AM . . . . . . . . 1995 Benchmark 25-54 16t Sports WFNQ-FM . . . . . . . . 1995 Benchmark 25-54 7 Country COLUMBIA, SC . . . . . . 88 1 WCOS-FM . . . . . . . . 1993 Benchmark 25-54 2 Country WHKZ-FM . . . . . . . . 1993 Benchmark 25-54 10 Country WVOC-AM . . . . . . . . 1994 Benchmark 25-54 8t News/Talk WSCQ-FM . . . . . . . . 1997 Benchmark 25-54 11t Adult WCOS-AM . . . . . . . . 1993 Benchmark 25-54 13t Country WNOK-FM . . . . . . . . 1994 Emerald City 25-54 3t Contemporary Hits HUNTSVILLE, AL . . . . . 114 1 WDRM-FM . . . . . . . . 1997 Osborn 25-54 1 Country WHOS-AM . . . . . . . . 1997 Osborn 25-54 NA Country WBHP-AM . . . . . . . . 1997 Osborn 25-54 21t Country JACKSON, MS . . . . . . . 118 2 WJMI-FM . . . . . . . . 1996 Benchmark 25-54 4 Urban WOAD-AM . . . . . . . . 1996 Benchmark 25-54 10t Gospel WKXI-AM . . . . . . . . 1996 Benchmark 25-54 20 Urban WKXI-FM . . . . . . . . 1996 Benchmark 25-54 2 Urban SHREVEPORT, LA . . . . . 126 2 KRMD-FM . . . . . . . . 1996 Benchmark 25-54 1 Country KRMD-AM . . . . . . . . 1996 Benchmark 25-54 14 Country MONTGOMERY, AL . . . . . 142 2 WZHT-FM . . . . . . . . 1997 Benchmark 25-54 1 Urban WMCZ-FM . . . . . . . . 1997 Benchmark 25-54 4 Urban/Adult Contemporary WDHT-FM . . . . . . . . 1997 Benchmark 25-54 NA Urban ASHEVILLE, NC . . . . . . 179 1 WWNC-AM . . . . . . . . 1994 Osborn 25-54 3 Country WKSF-FM . . . . . . . . 1994 Osborn 25-54 1 Hot Country TUSCALOOSA, AL . . . . . 212 1 WACT-AM . . . . . . . . 1997 Osborn 25-54 10t Gospel WACT-FM . . . . . . . . 1997 Osborn 25-54 9 Country WTXT-FM . . . . . . . . 1997 Osborn 25-54 1 Country Radio/Urban WHEELING, WV . . . . . . 213 1 WWVA-AM . . . . . . . . 1987 Osborn 25-54 8t Country WOVK-FM . . . . . . . . 1987 Osborn 25-54 1 Hot Country WKWK-FM . . . . . . . . 1996 Osborn 25-54 2 Adult Contemporary WBBD-AM . . . . . . . . 1996 Osborn 25-54 8t Adult WRIR-FM . . . . . . . . 1996 Osborn 25-54 5 Classic Rock WEGW-FM . . . . . . . . 1996 Osborn 25-54 4 Classic Rock WEEL-FM(5) . . . . . . 1996 Osborn 25-54 6t Oldies
53 57
TARGET COMPANY STATION DEMO- REVENUE AUDIENCE MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) FORMAT - ----------------------- -------- ------- ------- ----- ------- ------- ------ WINCHESTER, VA . . . . . 219 2 WUSQ-FM . . . . . . . . 1991 Benchmark 25-54 1 Country WFQX-FM . . . . . . . . 1994 Benchmark 18-49 4 Contemporary Hits Radio WNTW-AM . . . . . . . . 1994 Benchmark 25-54 NA News/Talk JACKSON, TN . . . . . . . 257 1 WTJS-AM . . . . . . . . 1986 Osborn 25-54 8t News/Talk WTNV-FM . . . . . . . . 1986 Osborn 25-54 3 Country WYNU-FM . . . . . . . . 1997 Osborn 25-54 1 Classic Rock ROANOKE, VA . . . . . . . NA 1 WROV-AM . . . . . . . . 1996 Benchmark 25-54 NA Oldies WROV-FM . . . . . . . . 1996 Benchmark 18-49 1 Album Rock WRDJ-FM . . . . . . . . 1996 Cavalier 35-64 8t Oldies WJJS-FM . . . . . . . . 1996 Cavalier 18-34 3 Contemporary Hits WJLM-FM . . . . . . . . 1969 WRIS 25-54 5 Country LYNCHBURG, VA . . . . . . NA 1 WLDJ-FM . . . . . . . . 1996 Cavalier 35-64 2 Oldies WJJX-FM . . . . . . . . 1996 Cavalier 18-34 4t Contemporary Hits WJJS-AM . . . . . . . . 1996 Cavalier 18-34 8t Contemporary Hits WYYD-FM . . . . . . . . 1995 Benchmark 25-54 1 Country STATESVILLE, NC . . . . . NA NA WFMX-FM . . . . . . . . 1996 Benchmark 25-54 NA Country WSIC-AM . . . . . . . . 1996 Benchmark 25-54 NA News/Talk GADSDEN, AL(6) . . . . . NA NA WAAX-AM . . . . . . . . 1994 Osborn 25-54 5 News/Talk WQEN-FM . . . . . . . . 1994 Osborn 25-54 2 Adult Contemporary
NA Information not available. t Tied with another radio station. (1) Actual city of license may be different from metropolitan market served. Market may be different from market definition used under FCC multiple ownership rules. (2) MSA rank obtained from Arbitron's Summer 1996 Radio Market Survey Schedule. The table does not include (i) station WING-FM in Dayton, Ohio, which station is owned by the Company and for which an unrelated third party, who has an option to purchase such station, currently provides certain sales, programming and marketing services pursuant to an LMA or (ii) station WDRR-FM in Ft. Myers, Florida, in which the Company owns a 50% nonvoting interest and which the Company intends to sell. (3) Company revenue share rank obtained from data in BIA Publications-Radio Analyzer, BIA's MasterAccess, version 1.7 (copyright 1996) (current of February 27, 1997), based upon 1996 gross revenue for the indicated markets. Rankings for the Roanoke, Virginia and Lynchburg, Virginia markets were determined separately, using the City of License to determine the split of the market. (4) Station audience share rank obtained from Arbitron's Radio Market Reports, based on average quarter hour estimates for the reporting period ending Fall 1996, except for Winchester, Virginia, Asheville, North Carolina, Tuscaloosa, Alabama, Wheeling, West Virginia and, Jackson, Tennessee, which are reported as of Spring or Summer 1996 because the markets were not ranked for the Fall 1996 period, for the demographic of persons ages 25-54, listening Monday through Sunday, 6 a.m. to midnight. To account for listeners lost to other nearby markets, a radio station's "local" audience share is derived by comparing the radio station's average quarter hour share to the total average quarter hour share for all stations whose signals are heard within the MSA, excluding audience share for listeners who listen to stations whose signals originate outside the MSA. (5) The Company provides certain sales and marketing services to station WEEL-FM in Wheeling, West Virginia, pursuant to a JSA. (6) Audience share rank obtained from Arbitron's June 1996 County Report (for field work performed in 1995) survey, from the County of Etowah, Alabama which is Gadsden's home county. West Region Upon consummation of the Pending Acquisitions, the Company will own and operate or provide services to 25 radio stations (16 FM and nine AM) in the West Region. These stations are located in seven markets in Alaska, Arizona, California, Iowa and Wisconsin. The Company's stations will comprise the leading radio station cluster based on revenue share in one of these markets. History. The West Region will be formed through the completion of four pending acquisitions: COMCO (six stations); Commonwealth (three stations); Community Pacific (10 stations); and Madison (six stations). Each of these 54 58 acquisitions provides the Company with a leading station cluster in at least one of the markets in the West Region. The acquisition of COMCO provides the Company with three stations in the Fairbanks, Alaska market. All of the stations acquired as part of the Commonwealth Acquisition are located in Yuma, Arizona. In Madison, Wisconsin, the Company is ranked number one in revenue and audience share. In Anchorage, Alaska, the Company will create a newly formed station cluster with the number one revenue and audience share ranks through the acquisitions of COMCO and Community Pacific. Management. The West Region will be managed by two radio executives, David J. Benjamin and Dex Allen, with an aggregate of 52 years of experience in the radio broadcasting industry. Mr. Benjamin, the current President and Chief Executive Officer of Community Pacific, will serve as the chief executive officer of the West Region upon consummation of the Community Pacific Acquisition. Mr. Allen has served as the managing member of Commonwealth since 1984 and is expected to continue to serve in such position until the consummation of the Commonwealth Acquisition. Mr. Allen became the president and chief operating officer of the West Region effective January 1, 1997. Mr. Allen has extensive experience operating radio stations in large markets, having served as both general manager and sales manager at various stations in San Diego prior to his employment by Commonwealth. Most recently, Mr. Allen has been a successful owner and operator of radio stations located in mid-sized markets. The Company expects that the significant operating experience of Mr. Benjamin and Mr. Allen will serve to improve the results of the stations in the West Region and also benefit the Company in the pursuit of additional acquisitions throughout the West Region. Markets. Although the Company's station clusters in the West Region have leading positions based on audience share in four of the seven markets, management believes that substantial opportunity exists to improve the profitability of these clusters by acquiring additional stations in each of these markets. For example, in the Des Moines, Iowa market, the Company operates two FM stations and one AM station. Both FM stations serve the Adult 25-54 demographic, one of which is programmed as an album oriented rock station and the other as a country station. The Company intends to pursue acquisitions of additional stations in the Des Moines, Iowa market in order to capitalize on its existing infrastructure and market presence and to enhance the financial performance of the station cluster. Management intends to pursue such add-on acquisitions in each of the markets in the West Region. Management expects to divide the current West Region into additional geographic regions as more stations are acquired in the midwest and western United States and as more experienced management personnel are added to the Company. The following table summarizes certain information relating to the Company's radio stations in the West Region, assuming the consummation of the Pending Acquisitions.
TARGET COMPANY STATION DEMO- REVENUE AUDIENCE MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) FORMAT - ----------------------- -------- ------- ------- ----- ------- ------- ------ STOCKTON, CA . . . . . . 85 3 KVFX-FM(5) . . . . . . 1994 Community Pacific 18-49 4 Classic Rock KJAX-AM(5) . . . . . . 1996 Community Pacific 35-64 6 Talk DES MOINES, IA . . . . . 89 4 KHKI-FM(5) . . . . . . 1995 Community Pacific 25-54 7 Country KGGO-FM(5) . . . . . . 1995 Community Pacific 25-54 5 Album Rock KDMI-AM(5) . . . . . . 1995 Community Pacific NA NA Religion MADISON, WI . . . . . . . 120 1 WIBA-AM . . . . . . . . 1995 Madison 35-64 8t News/Talk WIBA-FM . . . . . . . . 1995 Madison 25-54 4 Classic Rock WMAD-FM . . . . . . . . 1995 Madison 18-34 5 Modern Rock WTSO-AM . . . . . . . . 1997 Madison 35-64 14 News/Talk WZEE-FM . . . . . . . . 1997 Madison 18-49 2 Hot Adult Contemporary WMLI-FM . . . . . . . . 1997 Madison 35-64 13 Soft Hits MODESTO, CA . . . . . . . 121 2 KJSN-FM(5) . . . . . . 1982 Community Pacific 25-54 3 Soft Adult Contemporary KFIV-AM(5) . . . . . . 1982 Community Pacific 35-64 7t Talk
55 59
TARGET COMPANY STATION DEMO- REVENUE AUDIENCE MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) FORMAT - ----------------------- -------- ------- ------- ----- ------- ------- ------ ANCHORAGE, AK(6)............. 165 2 KBFX-FM(5)................. 1993 Community Pacific 18-49 7 Classic Rock KASH-FM(5)................. 1985 Community Pacific 25-54 1t Country KENI-AM(5)................. 1995 Community Pacific 25-54 3t News/Talk KYAK-AM.................... 1993 COMCO 25-54 13t Adult Contemporary KGOT-FM.................... 1993 COMCO 25-54 4 Contemporary Hits KYMG-FM.................... 1984 COMCO 25-54 5 Adult Contemporary FAIRBANKS, AK(7)............. NA NA KIAK-FM.................... 1993 COMCO 25-54 1 Country KIAK-AM.................... 1993 COMCO 25-54 7 News/Talk KAKQ-FM.................... 1994 COMCO 25-54 2t Adult Contemporary YUMA, AZ..................... NA NA KYJT-FM.................... 1986 Commonwealth 25-49 1 Classic Hits KTTI-FM.................... 1995 Commonwealth 25-54 2 Country KBLU-AM.................... 1995 Commonwealth 35-64 8t Oldies
- --------------------------- NA Information not available. t Tied with another radio station. (1) Actual city of license may be different from metropolitan market served. Market may be different from market definition used under FCC multiple ownership rules. (2) MSA rank obtained from Arbitron's Summer 1996 Radio Market Survey Schedule. (3) Company revenue share rank obtained from data in BIA Publications-Radio Analyzer, BIA's MasterAccess, version 1.7, 1996 (current as of February 27, 1997), based upon 1996 gross revenue for the indicated markets. (4) Company audience share rank obtained from Arbitron's Radio Market Reports, based on average quarter hour estimates for the reporting period ending Fall 1996, for the demographic of persons ages 25-54, listening Monday through Sunday, 6 a.m. to midnight, except for the Yuma, Arizona market which was obtained from AccuRatings(TM). To account for listeners lost to other nearby markets, a radio station's "local" audience share is derived by comparing the radio station's average quarter hour share to the total average quarter hour share for all stations whose signals are heard within the MSA, excluding audience share for listeners who listen to stations whose signals originate outside the MSA. (5) The Company provides certain sales, programming and marketing services, pending the consummation of the Community Pacific Acquisition, to stations KVFX-FM and KJAX-AM in Stockton, California; KHKI-FM, KGGO-FM and KDMI-AM in Des Moines, Iowa; KJSN-FM and KFIV-AM in Modesto, California; and KBFX-FM, KASH-FM and KENI-AM in Anchorage, Alaska. (6) The table does not include station KASH-AM in Anchorage, Alaska. The Company expects to sell station KASH-AM subsequent to consummation of the Community Pacific Acquisition in order to remain in compliance with the station ownership limitations under the Communications Act. (7) Fairbanks, Alaska is a CSA as defined by Arbitron. Audience share and audience share rank obtained from Arbitron's Fall 1996 CSA Market Report. OTHER BUSINESSES The Company operates several country music-related entertainment businesses in Wheeling, West Virginia. The Company enhances and capitalizes on its strong ratings in country music by integrating its radio stations with its Capitol Music Hall, a 2,500-seat theater that hosts approximately 100 music, comedy and dramatic performances each year, and Jamboree in the Hills, an annual outdoor festival featuring 20 or more country music stars held on a 200-acre site owned by the Company outside of Wheeling. The Company also distributes programmed music, primarily Muzak, in the Atlanta, Macon and Albany, Georgia and Ft. Myers, Florida markets. As the exclusive Muzak franchisee in these markets, the Company provides subscribers with commercial-free Muzak programming ranging from traditional background music to newer formats including country and soft rock. The Company also sells, leases and installs the equipment required to receive the programming via satellite and other media and also designs, sells and installs sound, closed-circuit video and security systems and equipment in locations such as offices, schools, hospitals, shopping malls and stadiums. In addition, the Company is an authorized distributor of the Rauland-Borg line of communications equipment for schools and hospitals in various markets. 56 60 INDUSTRY OVERVIEW Radio stations generate the majority of their revenue from the sale of advertising time to local and national spot advertisers and national network advertisers. Radio serves primarily as a medium for local advertising. During the past decade, local advertising revenue as a percentage of total radio advertising revenue in a given market has ranged from approximately 74% to 78%. The growth in total radio advertising revenue tends to be fairly stable and has generally grown at a rate faster than the Gross National Product (the "GNP"). With the exception of 1991, when total radio advertising revenue fell by approximately 3.1% compared to the prior year, advertising revenue has risen in each of the past 15 years more rapidly than either inflation or the GNP. Total advertising revenue in 1995 of $11.5 billion, which represents a 7.6% increase over 1994, as reported by the Radio Advertising Bureau ("RAB"), was its highest level in the industry's history. Radio is considered an efficient means of reaching specifically identified demographic groups. Stations are typically classified by their on-air format, such as country, adult contemporary, oldies or news/talk. A station's format and style of presentation enable it to target certain demographic and psychographic groups. By capturing a specific listening audience share of a market's radio audience, with particular concentration in a targeted demographic group, a station is able to market its broadcasting time to advertisers seeking to reach a specific audience. Advertisers and stations utilize data published by audience measuring services, such as Arbitron, to estimate how many people within particular geographical markets and demographic groups listen to specific stations. Stations determine the number of advertisements broadcast hourly that will maximize available revenue dollars without jeopardizing listening levels. Although the number of advertisements broadcast during a given time period may vary, the total number of advertisements broadcast on a particular station generally does not vary significantly from year to year. A station's local sales staff generates the majority of its local and regional advertising sales through direct solicitations of local advertising agencies and businesses. To generate national advertising sales, a station will engage a firm that specializes in soliciting radio advertising sales on a national level. National sales representatives obtain advertising principally from advertising agencies located outside the station's market and receive commissions based on the revenue from the advertising obtained. The Company has entered into a national advertising agreement with Katz Communications, Inc., a national advertising firm. According to the RAB's Radio Marketing Guide and Fact Book for Advertisers, 1993-1994, radio reaches approximately 96% of all Americans over the age of 12 each week. More than one-half of all radio listening is done outside the home, in contrast to other advertising mediums, and 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. The highest portion of radio listenership occurs during the morning, particularly between the time a listener wakes up and the time the listener reaches work. This "morning drive time" period reaches more than 85% of people over 12 years of age and, as a result, radio advertising sold during this period achieves premium advertising rates. Radio listeners have gradually shifted over the years from AM (amplitude modulation) to FM (frequency modulation) stations. FM reception, as compared to AM, is generally clearer and provides greater tonal range and higher fidelity. FM's listener share is now in excess of 75%, despite the fact that the number of AM and FM commercial stations in the United States is approximately equal. COMPETITION; CHANGES IN BROADCASTING INDUSTRY The radio broadcasting industry is highly competitive. The success of each of the Company's stations depends largely upon its audience ratings and its share of the overall advertising revenue within its market. The Company's stations compete for listeners and advertising revenue directly with other radio stations within their respective markets. Radio stations compete for listeners primarily on the basis of program content that appeals to a particular demographic group. By building a strong listener base consisting of a specific demographic group in each of its markets, the Company is able to attract advertisers seeking to reach those listeners. Factors that are material to a radio station's competitive position include management experience, the station's local audience rank in its market, transmitter power, assigned frequency, audience characteristics, local program 57 61 acceptance and the number and characteristics of other radio stations in the market area. The Company attempts to improve its competitive position with promotional campaigns aimed at the demographic groups targeted by its stations and by sales efforts designed to attract advertisers. Recent changes in the FCC's policies and rules permit increased ownership and operation of multiple local radio stations. Management believes that radio stations that elect to take advantage of joint arrangements such as LMAs or JSAs may in certain circumstances have lower operating costs and may be able to offer advertisers more attractive rates and services. Although the Company currently operates several multiple station groups and intends to pursue the creation of additional multiple station groups, the Company's competitors in certain markets include operators of multiple stations or operators who already have entered into LMAs or JSAs. The radio broadcasting industry is highly competitive, although some barriers to entry exist. The operation of a radio broadcast station requires a license from the FCC and the number of radio stations that can operate in a given market is limited by the availability of FM and AM radio frequencies allotted by the FCC to communities in that market, as well as by the FCC's multiple ownership rules that regulate the number of stations that may be owned and controlled by a single entity. See "-- Federal Regulation of Radio Broadcasting." The Company's stations also compete for advertising revenue with other media, including broadcast television, cable television, newspapers, magazines, direct mail, coupons and billboard advertising. In addition, the radio broadcasting industry is subject to competition from new media technologies that are being developed or introduced, such as the delivery of audio programming by cable television systems, by satellite and by DAB. DAB may deliver by satellite to nationwide and regional audiences, multi-channel, multi-format, digital radio services with sound quality equivalent to compact discs. The delivery of information through the presently unregulated Internet also could create a new form of competition. The radio broadcasting industry historically has grown despite the introduction of new technologies for the delivery of entertainment and information, such as television broadcasting, cable television, audio tapes and compact disks. A growing population and greater availability of radios, particularly car and portable radios, have contributed to this growth. There can be no assurance, however, that the development or introduction in the future of any new media technology will not have an adverse effect on the radio broadcasting industry. The FCC has allocated spectrum for a new technology, digital audio radio services ("DARS"), to deliver audio programming. The FCC has adopted licensing and operating rules for DARS and in April 1997 awarded two licenses for this service. DARS may provide a medium for the delivery by satellite or terrestrial means of multiple new audio programming formats to local and/or national audiences. Digital technology also may be used in the future by terrestrial radio broadcast stations either on existing or alternate broadcasting frequencies, and the FCC has stated that it will consider making changes to its rules to permit AM and FM radio stations to offer digital sound following industry analysis of technical standards. In addition, the FCC has authorized an additional 100 kHz of bandwidth for the AM band and has allotted frequencies in this new band to certain existing AM station licensees that applied for migration to the expanded AM band prior to the FCC's cut-off date, subject to the requirement that such licensees apply to the FCC to implement operations on their expanded band frequencies. At the end of a transition period, those licensees will be required to return to the FCC either the license for their existing AM band station or the license for the expanded AM band station. The Company cannot predict what other matters might be considered in the future by the FCC, nor can it assess in advance what impact, if any, the implementation of any of these proposals or changes might have on its business. The Company employs a number of on-air personalities and generally enters into employment agreements with certain of these personalities to protect its interests in those relationships that it believes to be valuable. The loss of certain of these personalities could result in a short-term loss of audience share, but the Company does not believe that any such loss would have a material adverse effect on the Company. FEDERAL REGULATION OF RADIO BROADCASTING The ownership, operation and sale of radio stations are subject to the jurisdiction of the FCC, which acts under authority granted by the Communications Act. Among other things, the FCC assigns frequency bands for broadcasting; determines the particular frequencies, locations and operating power of stations; issues, renews, revokes and modifies station licenses; determines whether to approve changes in ownership or control of station licenses; regulates equipment 58 62 used by stations; and adopts and implements regulations and policies that directly affect the ownership, operation and employment practices of stations. The FCC has the power to impose penalties for violation of its rules or the Communications Act. The following is a brief summary of certain provisions of the Communications Act and of specific FCC regulations and policies. Reference should be made to the Communications Act, FCC rules and the public notices and rulings of the FCC for further information concerning the nature and extent of federal regulation of radio stations. FCC Licenses. Radio stations operate pursuant to broadcasting licenses that are ordinarily granted by the FCC for maximum terms of eight years and are subject to renewal upon application to the FCC. The FCC licenses for the Company's stations are held by certain of the Company's subsidiaries. During certain periods when renewal applications are pending, petitions to deny license renewals can be filed by interested parties, including members of the public. Historically, the Company's management has not experienced any material difficulty in renewing any licenses for stations under its control. The FCC is required to hold hearings on a station's renewal application if a substantial or material question of fact exists as to whether (i) the station has served the public interest, convenience and necessity, (ii) there have been serious violations by the licensee of the Communications Act or the FCC rules thereunder or (iii) there have been other violations by the licensee of the Communications Act or the FCC rules thereunder that, taken together, constitute a pattern of abuse. Historically, FCC licenses have generally been renewed. The Company has no reason to believe that its licenses will not be renewed in the ordinary course, although there can be no assurance to that effect. The non-renewal of one or more of the Company's licenses could have a material adverse effect on the Company. The FCC classifies each AM and FM station. An AM station operates on either a clear channel, regional channel or local channel. A clear channel is one on which AM stations are assigned to serve wide areas. Clear channel AM stations are classified as either: Class A stations, which operate on an unlimited time basis and are designated to render primary and secondary service over an extended area; Class B stations, which operate on an unlimited time basis and are designed to render service only over a primary service area; and Class D stations, which operate either during daytime hours only, during limited times only or on an unlimited time basis with low nighttime power. A regional channel is one on which Class B and Class D AM stations may operate and serve primarily a principal center of population and the rural areas contiguous to it. A local channel is one on which AM stations operate on an unlimited time basis and serve primarily a community and the suburban and rural areas immediately contiguous thereto. Class C AM stations operate on a local channel and are designed to render service only over a primary service area that may be reduced as a consequence of interference. The minimum and maximum facilities requirements for an FM station are determined by its class. FM class designations depend upon the geographic zone in which the transmitter of the FM station is located. In general, commercial FM stations are classified as follows, in order of increasing power and antenna height: Class A, B1, C3, B, C2, C1 and C. The table in Annex A hereto sets forth the market, FCC license classification and frequency of each of the Company's stations (including those with which the Company has or will have a JSA or LMA), assuming the consummation of the Pending Acquisitions, and the date on which each station's FCC license expires. Each of the Company's AM stations is a regional channel station other than WSTC-AM, WFAS-AM, WIRO-AM, WBBD-AM, WBHP-AM, WMMB-AM, KRMD- AM, WSIC-AM, WCOS-AM and WROV-AM, which are local channel stations, and WINE-AM, WPUT-AM, WKEE-AM, WWVA-AM, WHOS-AM, WESC-AM, KYAK-AM and WTSO-AM, which are clear channel stations. Ownership Matters. The Communications Act prohibits the assignment of a broadcast license or the transfer of control of a broadcast licensee without the prior approval of the FCC. In determining whether to grant such approval, the FCC considers a number of factors pertaining to the licensee, including compliance with the various rules limiting common ownership of media properties, the "character" of the licensee and those persons holding "attributable" interests therein, and compliance with the Communications Act's limitations on alien ownership as well as compliance with other FCC policies, including FCC equal employment opportunity requirements. A transfer of control of a corporation controlling a broadcast license may occur in various ways. For example, a transfer of control occurs if an individual stockholder gains or loses "affirmative" or "negative" control of such 59 63 corporation through issuance, redemption or conversion of stock. "Affirmative" control would consist of control of more than 50% of such corporation's outstanding voting power and "negative" control would consist of control of exactly 50% of such voting power. To obtain the FCC's prior consent to assign or transfer control of a broadcast license, appropriate applications must be filed with the FCC. If the application involves a "substantial change" in ownership or control, the application must be placed on public notice for a period of approximately 30 days during which petitions to deny the application may be filed by interested parties, including members of the public. If the application does not involve a "substantial change" in ownership or control, it is a "pro forma" application. The "pro forma" application is nevertheless subject to having informal objections filed against it. If the FCC grants an assignment or transfer application, interested parties have approximately 30 days from public notice of the grant to seek reconsideration of that grant. Generally, parties that do not file initial petitions to deny or informal objections against the application face a high hurdle in seeking reconsideration of the grant. The FCC normally has approximately an additional ten days to set aside such grant on its own motion. When passing on an assignment or transfer application, the FCC is prohibited from considering whether the public interest might be served by an assignment or transfer of the broadcast license to any party other than the assignee or transferee specified in the application. In response to the Telecom Act, the FCC amended its multiple ownership rules to eliminate the national limits on ownership of AM and FM stations. Additionally, it established new local ownership rules that use a sliding scale of permissible ownership, depending on market size. In radio markets with 45 or more commercial radio stations, a licensee may own up to eight stations, no more than five of which can be in a single radio service (i.e., no more than five AM or five FM). In radio markets with 30 to 44 commercial radio stations, a licensee may own up to seven stations, no more than four of which can be in a single radio service. In radio markets having 15 to 29 commercial radio stations, a licensee may own up to six radio stations, no more than four of which can be in a single radio service. Finally, in radio markets having 14 or fewer commercial radio stations, a licensee may own up to five radio stations, no more than three of which can be in the same service; provided that the licensee may not own more than one half of the radio stations in the market. FCC ownership rules continue to permit an entity to own one FM and one AM station in a local market regardless of market size. The Communications Act and FCC rules also prohibit the common ownership, operation or control of a radio broadcast station and a television broadcast station serving the same geographic market (subject to a waiver of such prohibition if certain conditions are satisfied) and of a radio broadcast station and a daily newspaper serving the same geographic market. Under these rules, absent waivers, the Company would not be permitted to acquire any daily newspaper or television broadcast station (other than low-power television) in any geographic market in which it now owns radio broadcast properties. On October 1, 1996, the FCC commenced a proceeding to explore possible revisions of its policies concerning waiver of the newspaper/radio cross-ownership restrictions. The FCC generally applies its ownership limits to "attributable" interests held by an individual, corporation, partnership or other association. In the case of corporations holding, or through subsidiaries controlling, broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the corporation's voting stock (or 10% or more of such stock in the case of insurance companies, investment companies and bank trust departments that are passive investors) are generally attributable. R. Steven Hicks, the Company's President, Chief Executive Officer and Chairman of the Board, is the Chairman, Chief Executive Officer and a director of GulfStar, which is the licensee through its subsidiaries of radio stations in various markets throughout the states of Texas, Louisiana, Arkansas and New Mexico and is seeking to acquire additional radio stations in the states of Texas and Louisiana. Thomas O. Hicks, a director of Capstar and GulfStar, is the President and a director of HM2/Chancellor Holdings, Inc., which through its subsidiaries holds attributable interests in radio stations in various markets in the States of California, Florida, Minnesota, New York, Ohio, Kentucky, Arizona, Colorado, Georgia, Maryland, Pennsylvania, New Jersey, Wisconsin and Washington, D.C. and is seeking to acquire an interest in stations in Illinois and Michigan. Thomas O. Hicks is also the President, Chief Executive Officer and Chief Operating Officer and 100% stockholder of HM3/Sunrise, Inc., which through subsidiaries owns television stations in California, New York and Michigan and is seeking to acquire an attributable interest in a television station in Ohio. Eric C. Neuman is an Executive Vice President and a director of Capstar, a Vice President of GulfStar, the Vice President and Secretary of HM2/Chancellor Holdings, Inc., and the Vice President of HM3/Sunrise, Inc. 60 64 In determining whether the Company is in compliance with the local ownership limits on AM and FM stations, the FCC will consider the Company's AM and FM holdings as well as the attributable broadcast interests of the Company's officers, directors and attributable stockholders. Accordingly, the attributable broadcast interests of the Company's officers and directors described in the preceding paragraph will limit the number of radio stations the Company may acquire or own in any market in which such officers or directors hold or acquire attributable broadcast interests. In addition, the Company's officers and directors may from time to time hold various nonattributable interests in media properties. Under its "cross-interest" policy, the FCC considers certain "meaningful" relationships among competing media outlets in the same market, even if the ownership rules do not specifically prohibit the relationship. Under the cross-interest policy, the FCC in certain instances may prohibit one party from acquiring an attributable interest in one media outlet and a substantial non-attributable economic interest in another media outlet in the same market. Under this policy, the FCC may consider significant equity interests combined with an attributable interest in a media outlet in the same market, joint ventures, and common key employees among competitors. The cross-interest policy does not necessarily prohibit all of these interests, but requires that the FCC consider whether, in a particular market, the "meaningful" relationships between competitors could have a significant adverse effect upon economic competition and program diversity. Heretofore, the FCC has not applied its cross-interest policy to LMAs and JSAs between broadcast stations. In its ongoing rulemaking proceeding concerning the attribution rules described below, the FCC has sought comment on, among other things, (i) whether the cross-interest policy should be applied only in smaller markets and (ii) whether non-equity financial relationships such as debt, when combined with multiple business interrelationships such as LMAs and JSAs, raise concerns under the cross-interest policy. The Communications Act prohibits the issuance of broadcast licenses to, or the holding of broadcast licenses by, any corporation of which more than 20% of the capital stock is owned of record or voted by non-U.S. citizens or their representatives or by a foreign government or a representative thereof, or by any corporation organized under the laws of a foreign country (collectively, "Aliens"). The Communications Act also authorizes the FCC, if the FCC determines that it would be in the public interest, to prohibit the issuance of a broadcast license to, or the holding of a broadcast license by, any corporation directly or indirectly controlled by any other corporation of which more than 25% of the capital stock is owned of record or voted by Aliens. The Company has been advised that the FCC staff has interpreted this provision to require a public interest finding in favor of such a grant or holding before a broadcast license may be granted to or held by any such corporation and has made such a finding only in limited circumstances generally involving licenses other than broadcast licenses. The FCC has issued interpretations of existing law (i) under which these restrictions in modified form apply to other forms of business organizations, including partnerships and (ii) indicating how alien interests in a company that are held directly through intermediate entities should be considered in determining whether that company is in compliance with these alien ownership restrictions. As a result of these provisions, the licenses granted to the radio station subsidiaries of the Company by the FCC could be revoked if, among other restrictions imposed by the FCC, more than 25% of the Capstar's stock were directly or indirectly owned or voted by Aliens. Accordingly, Capstar's Restated Certificate of Incorporation restricts the ownership, voting and transfer of Capstar's capital stock in accordance with the Communications Act and the rules of the FCC, and prohibits ownership of more than 25% of Capstar's outstanding capital stock (or more than 25% of the voting rights it represents) by or for the account of Aliens or corporations otherwise subject to domination or control by Aliens. The Restated Certificate of Incorporation authorizes Capstar's Board of Directors to adopt such provisions as it deems necessary to enforce these prohibitions. In addition, the Restated Certificate of Incorporation provides that shares of capital stock of Capstar determined by Capstar's Board of Directors to be owned beneficially by an Alien or an entity directly or indirectly owned by Aliens in whole or in part shall always be subject to redemption by Capstar by action of the Board of Directors to the extent necessary, in the judgment of the Board of Directors, to comply with these alien ownership restrictions. Local Marketing Agreements. Over the past few years, a number of radio stations have entered into what have commonly been referred to as local marketing agreements or LMAs. While these agreements may take varying forms, under a typical LMA, separately owned and licensed radio stations agree to enter into cooperative arrangements of varying sorts, subject to compliance with the requirements of antitrust laws and with the FCC's rules and policies. Under these arrangements, separately-owned stations could agree to function cooperatively in programming, advertising sales and similar matters, subject to the requirement that the licensee of each station maintain independent control over the programming and operations of its own station. One typical type of LMA is a programming agreement between two separately-owned radio stations serving a common service area, whereby the licensee of one station programs substantial 61 65 portions of the broadcast day on the other licensee's station, subject to ultimate editorial and other controls being exercised by the latter licensee, and sells advertising time during those program segments. Such arrangements are an extension of the concept of "time brokerage" agreements, under which a licensee of a station sells blocks of time on its station to an entity or entities that program the blocks of time and sell their own commercial advertising announcements during the time periods in question. The FCC has specifically revised its "cross-interest" policy to make that policy inapplicable to time brokerage arrangements. Furthermore, the staff of the FCC's Mass Media Bureau has held that LMAs are not contrary to the Communications Act provided that the licensee of the station that is being substantially programmed by another entity maintains complete responsibility for, and control over, programming and operations of its broadcast station and assures compliance with applicable FCC rules and policies. The FCC's multiple ownership rules specifically permit radio station LMAs to continue to be entered into and implemented, but provide that a licensee or a radio station that brokers more than 15% of the weekly broadcast time on another station serving the same market will be considered to have an attributable ownership interest in the brokered station for purposes of the FCC's multiple ownership rules. As a result, in a market where it owns a radio station, the Company would not be permitted to enter into an LMA with another local radio station in the same market that it could not own under the revised local ownership rules, unless the Company's programming constituted 15% or less of the other local station's programming time on a weekly basis. The FCC rules also prohibit a broadcast licensee from simulcasting more than 25% of its programming on another station in the same broadcast service (i.e., AM-AM or FM-FM) through a time brokerage or LMA arrangement where the brokered and brokering stations which it owns or programs serve substantially the same area. Such 25% simulcasting limitation also applies to commonly owned stations in the same broadcast service that serve substantially the same area. Joint Sales Agreements. Over the past few years, a number of radio stations have entered into cooperative arrangements commonly known as joint sales agreements or JSAs. While these agreements may take varying forms, under the typical JSA, a station licensee obtains, for a fee, the right to sell substantially all of the commercial advertising on a separately- owned and licensed station in the same market. The typical JSA also customarily involves the provision by the selling licensee of certain sales, accounting and "back office" services to the station whose advertising is being sold. The typical JSA is distinct from an LMA in that a JSA normally does not involve programming. The FCC has determined that issues of joint advertising sales should be left to enforcement by antitrust authorities, and therefore does not generally regulate joint sales practices between stations. Currently, stations for which a licensee sells time under a JSA are not deemed by the FCC to be attributable interests of that licensee. However, in connection with its ongoing rulemaking proceeding concerning the attribution rules, the FCC is considering whether JSAs should be considered attributable interests or within the scope of the FCC's cross-interest policy, particularly when JSAs contain provisions for the supply of programming services and/or other elements typically associated with LMAs. If JSAs become attributable interests as a result of changes in the FCC rules, the Company may be required to terminate any JSA it might have with a radio station which the Company could not own under the FCC's multiple ownership rules. Programming and Operation. The Communications Act requires broadcasters to serve the "public interest." The FCC gradually has relaxed or eliminated many of the more formalized procedures it had developed in the past to promote the broadcast of certain types of programming responsive to the needs of a station's community of license. A licensee continues to be required, however, to present programming that is responsive to issues of the station's community and to maintain certain records demonstrating such responsiveness. Complaints from listeners concerning a station's programming often will be considered by the FCC when it evaluates renewal applications of a licensee, although listener complaints may be filed at any time and generally may be considered by the FCC at any time. Stations also must pay regulatory and application fees and follow various rules promulgated under the Communications Act that regulate, among other things, political advertising, sponsorship identifications, the advertisement of contests and lotteries, obscene and indecent broadcasts, and technical operations, including limits on radio frequency radiation. In addition, licensees must develop and implement affirmative action programs designed to promote equal employment opportunities and must submit reports to the FCC with respect to these matters on an annual basis and in connection with a renewal application. 62 66 Failure to observe these or other rules and policies can result in the imposition of various sanctions, including monetary forfeitures, the grant of "short term" (less than the full term) license renewal or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license. Proposed and Recent Changes. The FCC has a pending rulemaking proceeding that seeks, among other things, comment on whether the FCC should modify its radio and television broadcast ownership "attribution" rules by (i) raising the basic benchmark for attributing ownership in a corporate licensee from 5% to 10% of the licensee's outstanding voting power, (ii) increasing from 10% to 20% of the licensee's outstanding voting power the attribution benchmark for "passive investors" in corporate licensees, (iii) attributing certain minority stockholdings in corporations with a single majority shareholder and (iv) attributing certain LMA, JSA, debt or non-voting stock interests that have heretofore been non-attributable. Moreover, Congress and the FCC have under consideration, and in the future may consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could affect, directly or indirectly, the operation, ownership and profitability of the Company's radio stations, result in the loss of audience share and advertising revenues for the Company's radio stations, and affect the ability of the Company to acquire additional radio stations or to finance those acquisitions. Such matters may include spectrum use or other fees on FCC licenses; foreign ownership of broadcast licenses; revisions to the FCC's equal employment opportunity rules and rules relating to political broadcasting; technical and frequency allocation matters; proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages on radio; changes in the FCC's cross-interest, multiple ownership and attribution policies; new technologies such as DAB; and proposals to auction the right to use the radio broadcast spectrum to the highest bidder. The Company cannot predict what other matters might be considered in the future by the FCC or Congress, nor can it judge in advance what impact, if any, the implementation of any of these proposals or changes might have on its business. Federal Antitrust Laws. In addition to the risks associated with the acquisition of radio stations, the Company is also aware of the possibility that certain acquisitions it proposes to make may be investigated by the FTC or the DOJ, which are the agencies responsible for enforcing the federal antitrust laws. The agencies have recently investigated several radio station acquisitions where an operator proposed to acquire new stations in its existing markets, including the Benchmark Acquisition, which was resolved favorably to the Company. Any decision by the FTC or the DOJ to challenge a proposed acquisition could affect the ability of the Company to consummate the acquisition or to consummate it on the proposed terms. For an acquisition meeting certain size thresholds, the HSR Act and the rules promulgated thereunder require the parties to file Notification and Report Forms with the FTC and the DOJ and to observe specified waiting period requirements before consummating the acquisition. During the initial 30 day period after the filing, the agencies decide which of them will investigate the transaction. If the investigating agency determines that the transaction does not raise significant antitrust issues, then it will either terminate the waiting period or allow it to expire after the initial 30 days. On the other hand, if the agency determines that the transaction requires a more detailed investigation, then at the conclusion of the initial 30 day period, it will issue a formal request for additional information ("Second Request"). The issuance of a Second Request extends the waiting period until the twentieth calendar day after the date of substantial compliance by all parties to the acquisition. Thereafter, such waiting period may only be extended by court order or with the consent of the parties. In practice, complying with a Second Request can take a significant amount of time. In addition, if the investigating agency raises substantive issues in connection with a proposed transaction, then the parties frequently engage in lengthy discussions or negotiations with the investigating agency concerning possible means of addressing those issues, including but not limited to persuading the agency that the proposed acquisition would not violate the antitrust laws, restructuring the proposed acquisition, divestiture of other assets of one or more parties, or abandonment of the transaction. Such discussions and negotiations can be time-consuming, and the parties may agree to delay consummation of the acquisition during their pendency. At any time before or after the consummation of a proposed acquisition, the FTC or the DOJ could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the acquisition or seeking divestiture of the business acquired or other assets of the Company. Acquisitions that are not 63 67 required to be reported under the HSR Act may be investigated by the FTC or the DOJ under the antitrust laws before or after consummation. In addition, private parties may under certain circumstances bring legal action to challenge an acquisition under the antitrust laws. The Company does not believe that any Pending Acquisition will be adversely affected in any material respect by review under the HSR Act. The Company has received early termination of the applicable waiting period under the HSR Act in regard to the Community Pacific Acquisition and the Madison Acquisition, and no other Pending Acquisition is subject to the HSR Act. As part of its increased scrutiny of radio station acquisitions, the DOJ has stated publicly that it believes that LMAs, JSAs and other similar agreements customarily entered into in connection with radio station transfers prior to the expiration of the waiting period under the HSR Act could violate the HSR Act. EMPLOYEES At December 31, 1996, the Company had a staff of 303 full-time employees and 139 part-time employees. If the Osborn Transactions, the Benchmark Acquisition and the Space Coast Acquisitions had been consummated as of December 31, 1996, the Company would have had a staff of approximately 880 full-time employees and 425 part-time employees as of such date. There are no collective bargaining agreements between the Company and its employees. The Company does have, however, one union member employed in connection with its Muzak franchise in Atlanta, Georgia, and is negotiating a collective bargaining agreement with the American Federation of Television and Radio Artists of America ("AFTRA") which represents the on-air performance staff of WFAS-AM/FM in Westchester County, New York for collective bargaining purposes. WFAS-AM/FM has approximately nine employees that would be represented by AFTRA. The Company believes that its relations with its employees are good. SEASONALITY Seasonal revenue fluctuations are common in the radio broadcasting industry and are due primarily to fluctuations in advertising expenditures by retailers. The Company's revenues and broadcast cash flows are typically lowest in the first quarter and highest in the second and fourth quarters. PROPERTIES AND FACILITIES The types of properties required to support each of the Company's radio stations include offices, studios and transmitter/antenna sites. A station's studios are generally housed with its offices in downtown or business districts. The transmitter/antenna sites generally are located so as to provide maximum market coverage. The Company owns transmitter and antenna sites in Gadsden and Tuscaloosa, Alabama; Norwalk and Brookfield, Connecticut; Wilmington and Dover, Delaware; Ft. Pierce, Melbourne, Port St. Lucie and Vero Beach, Florida; Catlettsburg, Kentucky; Jackson, Mississippi; Hartsdale and Brewster, New York; Asheville and Statesville, North Carolina; Dayton, Ohio; Whitehall, Pennsylvania; Columbia, Garrison and Greenville, South Carolina; Jackson, Tennessee; Amherst County, Bedford County, Roanoke and Winchester, Virginia; and Huntington and Wheeling, West Virginia. The Company also leases transmitter and antenna sites in Huntsville and Tuscaloosa, Alabama; Stamford, Connecticut; Bethany Beach, Delaware; Indian River County, Cocoa and Vero Beach, Florida; Caddo Parish, Louisiana; Jackson and Pelahatchi, Mississippi; Asheville and Cool Springs, North Carolina; Bridgeport and Dayton, Ohio; Washington Township and Bethlehem, Pennsylvania; Columbia, South Carolina; Boonea Mill and Winchester, Virginia; Huntington, Milton and Cabell County and Wheeling, West Virginia; Pawling and Bedford, New York; and Ocean City, Maryland. The Company typically leases studio and office space, although it owns its facilities in Gadsden and Tuscaloosa, Alabama; Brookfield, Connecticut; Dover, Delaware; Port St. Lucie and Ft. Pierce, Florida; Catlettsburg, Kentucky; Shreveport, Louisiana; Hartsdale and Patterson, New York; Asheville and Statesville, North Carolina; Columbia and Greenville, South Carolina; Jackson, Tennessee; Roanoke, Virginia; and Huntington and Wheeling, West Virginia. 64 68 The Company generally considers its facilities to be suitable and of adequate size for its current and intended purposes. The Company does not anticipate any difficulties in renewing any facility leases or in leasing additional space, if required. The Company owns substantially all of its other equipment, consisting principally of transmitting antennae, transmitters, studio equipment and general office equipment. The towers, antennae and other transmission equipment used by the Company's stations are generally in good condition, although opportunities to upgrade facilities are continuously reviewed. The principal executive offices of the Company are located at 600 Congress Avenue, Suite 1400, Austin, Texas 78701. The telephone number of the Company at that address is (512) 404-6840. LITIGATION The Company is involved in litigation from time to time in the ordinary course of its business. In management's opinion, the litigation in which the Company is currently involved, individually and in the aggregate, is not material to the Company's financial condition or results of operations. THE PENDING ACQUISITIONS As part of the Company's overall strategy to take advantage of the passage of the Telecom Act, the Company has entered into agreements to acquire or assume agreements to provide services to an additional 32 stations in seven new markets and three existing markets and, upon completion of the Pending Acquisitions, the Company will own and operate or provide services to 121 radio stations in 31 mid-sized markets located throughout the United States. The Company must obtain additional financing to consummate the Pending Acquisitions and there can be no assurance that such financing will be available to the Company on terms acceptable to its management or at all. The consummation of the Pending Acquisitions is subject to various conditions, including FCC and other regulatory approval. The consummation of the Offering is not conditioned on the consummation of any of the Pending Acquisitions. No assurances can be given that the Pending Acquisitions will be consummated or that, if completed, they will be successful. COMMUNITY PACIFIC ACQUISITION On December 26, 1996, the Company agreed to acquire substantially all of the assets of Community Pacific (the "Community Pacific Acquisition"). The purchase price of the Community Pacific Acquisition will equal approximately $35.0 million payable in cash. Community Pacific owns and operates 11 radio stations (six FM and five AM) in four markets located in Anchorage, Alaska, Modesto and Stockton, California and Des Moines, Iowa. In January 1997, the Company and Community Pacific each filed an (i) application with the FCC for approval to transfer control of such radio stations to the Company and (ii) a Notification and Report Form with the DOJ and the FTC. The applicable waiting period under the HSR Act terminated on February 21, 1997, after which time the Company and Community Pacific entered into an LMA in connection with Community Pacific's radio stations pursuant to which the Company provides certain sales, programming and marketing services for Community Pacific's stations under an LMA. The FCC approved the Community Pacific Acquisition in April 1997. The Company anticipates that the Community Pacific Acquisition will be consummated in November 1997. See "-- COMCO Acquisition." Under the terms of the acquisition agreement, which was entered into by Pacific Star, the acquisition agreement may be terminated by Community Pacific prior to consummation of the asset purchase under various circumstances, including, but not limited to, a material breach of any representation, warranty, covenant or agreement, by Pacific Star. If the acquisition agreement is terminated due to a material breach of any representation, warranty, covenant or agreement by Pacific Star, then Community Pacific will be entitled to liquidated damages in the amount of $2.6 million as Community Pacific's exclusive remedy. Pacific Star has secured its obligation to consummate the asset purchase by placing into escrow a letter of credit in the amount of $2.6 million. See "Description of Indebtedness -- Letters of Credit." 65 69 MADISON ACQUISITION On January 27, 1997, the Company agreed to acquire substantially all of the assets of Madison (the "Madison Acquisition"). The purchase price of the Madison Acquisition will equal approximately $38.8 million payable in cash. Madison owns and operates six radio stations (four FM and two AM) in Madison, Wisconsin. In February 1997, the Company and Madison filed an application with the FCC for approval to transfer control of such radio stations to the Company. The Company and Madison filed a Notification and Report Form with the DOJ and the FTC in February 1997. The applicable waiting period under the HSR Act terminated on March 11, 1997. The Company anticipates that the Madison Acquisition will be consummated in October 1997. Under the terms of the acquisition agreement, which was entered into by Point Madison Acquisition Company, Inc., a subsidiary of the Company ("Madison Acquisition Co."), the acquisition agreement may be terminated by Madison prior to consummation of the asset purchase under various circumstances, including a material breach of any representation, warranty, covenant or agreement by Madison Acquisition Co. If the acquisition agreement is terminated due to a material breach of any representation, warranty, covenant or agreement by Madison Acquisition Co., then Madison will be entitled to liquidated damages in the amount of $3.2 million as Madison's exclusive remedy. Madison Acquisition Co. has secured its obligation to consummate the asset purchase by placing into escrow a letter of credit in the amount of $3.2 million. See "Description of Indebtedness -- Letters of Credit." COMMONWEALTH ACQUISITION On January 27, 1997, the Company agreed to acquire substantially all of the assets of Commonwealth (the "Commonwealth Acquisition"). The purchase price of the Commonwealth Acquisition will equal approximately $5.3 million payable in cash. Commonwealth owns and operates three radio stations (two FM and one AM) in Yuma, Arizona. In February 1997, the Company and Commonwealth filed an application with the FCC for approval to transfer control of such radio stations to the Company. No filing under the HSR Act is required. The Company anticipates that the Commonwealth Acquisition will be consummated in October 1997. Under the terms of the acquisition agreement, which was entered into by Pacific Star., the acquisition agreement may be terminated by Commonwealth prior to consummation of the asset purchase under various circumstances, including a material breach of any representation, warranty, covenant or agreement by Pacific Star. If the acquisition agreement is terminated due to a material breach of any representation, warranty, covenant or agreement, by Pacific Star, then Commonwealth will be entitled to liquidated damages in the amount of $262,500 as Commonwealth's exclusive remedy. Pacific Star has secured its obligation to consummate the asset purchase by placing into escrow a letter of credit in the amount of $262,500. See "Description of Indebtedness -- Letters of Credit." CAVALIER ACQUISITION On January 27, 1997, the Company agreed to acquire substantially all of the assets of Cavalier (the "Cavalier Acquisition"). The purchase price of the Cavalier Acquisition will equal approximately $8.3 million payable in cash. Cavalier owns and operates five radio stations (four FM and one AM) in the Roanoke and Lynchburg, Virginia markets. In February 1997, the Company and Cavalier filed an application with the FCC for approval to transfer control of such radio stations to the Company. No filing under the HSR Act is required. The Company anticipates that the Cavalier Acquisition will be consummated in October 1997. Under the terms of the acquisition agreement, which was entered into by Cavalier Acquisition Co., the acquisition agreement may be terminated by Cavalier prior to consummation of the asset purchase under various circumstances, including a material breach of any representation, warranty, covenant or agreement, by Cavalier Acquisition Co. If the acquisition agreement is terminated due to a material breach of any representation, warranty, covenant or agreement by Cavalier Acquisition Co., then Cavalier will be entitled to liquidated damages in the amount of $900,000 as Cavalier's exclusive remedy. Cavalier Acquisition Co. has secured its obligation to consummate the asset purchase by placing into escrow a letter of credit in the amount of $900,000. See "Description of Indebtedness -- Letters of Credit." 66 70 COMCO ACQUISITION On February 3, 1997, the Company agreed to acquire substantially all of the assets of COMCO (the "COMCO Acquisition"). The purchase price of the COMCO Acquisition will equal approximately $6.7 million payable in cash. COMCO owns and operates six radio stations (four FM and two AM) in the Anchorage and Fairbanks, Alaska markets. The Company and COMCO filed an application with the FCC for approval to transfer control of such radio stations to the Company in February 1997. No filing under the HSR Act is required. The Company anticipates that the COMCO Acquisition will be consummated in October 1997. Under the terms of the agreement, which was entered into by Pacific Star, the acquisition agreement may be terminated by COMCO prior to consummation of the asset purchase under various circumstances, including a material breach of any representation, warranty, covenant or agreement, by Pacific Star. If the acquisition agreement is terminated due to a material breach of any representation, warranty, covenant or agreement by Pacific Star, then COMCO will be entitled to liquidated damages in the amount of $335,000 as COMCO's exclusive remedy. Pacific Star has secured its obligation to consummate the asset purchase by placing into escrow a letter of credit in the amount of $335,000. See "Description of Indebtedness -- Letters of Credit." Upon consummation of the Community Pacific Acquisition and the COMCO Acquisition, the Company will own and operate seven radio stations (four FM and three AM) in the Anchorage, Alaska market, which number exceeds the multiple station ownership limitations under the Communications Act. Accordingly, the Company has sought permission from the FCC to consummate both the Community Pacific Acquisition and the COMCO Acquisition provided that the Company agrees to sell radio station KASH-AM in Anchorage, Alaska within 18 months of the date on which the Community Pacific Acquisition is consummated. The Company would be in compliance with the ownership limitations of the Communications Act in the Anchorage, Alaska market once it disposes of KASH-AM. No assurances can be given that the FCC will grant permission to the Company to consummate both the Community Pacific Acquisition and the COMCO Acquisition and dispose of KASH- AM, or if the FCC grants such permission, that the Company will be able to sell KASH-AM. See "-- Community Pacific Acquisition." EMERALD CITY ACQUISITION On March 10, 1997, the Company agreed to acquire substantially all of the assets of Emerald City (the "Emerald City Acquisition") used or useful in the operations of Emerald City's three radio stations (two FM and one AM) in the Columbia, South Carolina market. The Company has agreed to assign WNOK Acquisition Co.'s right to acquire two of Emerald City's radio stations (WOIC-AM and WMFX-FM) on or before the date on which the Company acquires Emerald City's third radio station (WNOK-FM) to Clear Channel Radio Licensing, Inc. The purchase price of the Emerald City Acquisition will equal approximately $14.9 million payable in cash, of which approximately $9.5 million has been allocated to station WNOK-FM and will be payable by the Company. The Company and Emerald City intend to file an application with the FCC in April 1997 for approval to transfer control of WNOK-FM to the Company. No assurances can be given that the FCC will grant permission to the Company to consummate the Emerald City Acquisition. No filing under the HSR Act is required. The Company anticipates that the Emerald City Acquisition will be consummated in July 1997. Under the terms of the agreement, which was entered into by WNOK Acquisition Company, Inc., a subsidiary of the Company ("WNOK Acquisition Co."), the acquisition agreement may be terminated by Emerald City prior to consummation of the asset purchase under various circumstances, including a material breach of any representation, warranty, covenant or agreement by WNOK Acquisition Co. If the acquisition agreement is terminated due to a material breach of any representation, warranty, covenant or agreement by WNOK Acquisition Co., then Emerald City will be entitled to liquidated damages in the amount of $500,000 as Emerald City's exclusive remedy. WNOK Acquisition Co. has secured its obligation to consummate the asset purchase by placing into escrow cash in the amount of $75,000 and has agreed that $425,000 of the loan described below will be forgiven if Emerald City becomes entitled to liquidated damages. In connection with the Emerald City Acquisition, the Company has loaned Emerald City approximately $13.5 million, the proceeds of which were used by Emerald City (i) to pay matured indebtedness of Emerald City to Clear 67 71 Channel Radio, Inc. in the amount of approximately $13.3 million, including principal and interest, and (ii) for other business purposes in the amount of approximately $200,000. The loan matures on the earlier to occur of (i) October 31, 1997, (ii) the closing of the Emerald City Acquisition or (iii) within 75 days after the termination of the acquisition agreement with WNOK Acquisition Co. WRIS ACQUISITION On April 11, 1997, the Company agreed to acquire substantially all of the assets of WRIS used or held for use in the operation of station WJLM-FM in Salem, Virginia (the "WRIS Acquisition"). The purchase price of the WRIS Acquisition will equal approximately $3.1 million payable in cash. In April 1997, the Company and WRIS will file an application with the FCC for approval to transfer control of such radio station to the Company. No filing under the HSR Act is required. The Company anticipates that the WRIS Acquisition will be consummated in August 1997. Under the terms of the acquisition agreement, which was entered into by Capstar Acquisition Company, Inc., a subsidiary of the Company ("Capstar Acquisition Co."), the acquisition agreement may be terminated by WRIS prior to consummation of the asset purchase under various circumstances, including a material breach of any representation, warranty, covenant or agreement by Capstar Acquisition Co. If the acquisition agreement is terminated due to a material breach of any representation, warranty, covenant or agreement by Capstar Acquisition Co., then WRIS will be entitled to liquidated damages in the amount of $150,000 as WRIS's exclusive remedy. Capstar Acquisition Co. has secured its obligation to consummate the asset purchase by placing into escrow a letter of credit in the amount of $150,000. See "Description of Indebtedness - -- Letters of Credit." POSSIBLE ACQUISITIONS The Company has entered into seven separate nonbinding letters of intent to acquire and/or exchange substantially all of the assets of the respective potential sellers used or useful in the operations of each seller's radio stations, each of which is subject to various conditions, including the ability of the Company to enter into a definitive agreement to acquire such assets. No assurances can be given that definitive agreements will be entered into to acquire such assets or that such acquisitions will be consummated. As part of the Company's ongoing acquisition strategy, the Company is continually evaluating certain other potential acquisition opportunities. See "Risk Factors - -- Risks of Acquisition Strategy." MANAGEMENT The directors and executive officers of the Company are listed below. Each of the directors will hold office until the next annual meeting of stockholders and until his successor has been duly elected and qualified. The holders of the Class A Common Stock, voting separately as a class, will be entitled to elect two members of Capstar's Board of Directors (the "Class A Directors"). Executive officers are generally elected annually by the Board of Directors to serve, subject to the discretion of the Board of Directors, until their successors are appointed. 68 72
NAME AGE POSITION - ---- --- -------- R. Steven Hicks 47 Chairman of the Board, President, Chief Executive Officer and Director Paul D. Stone 36 Executive Vice President and Chief Financial Officer William S. Banowsky, Jr. 35 Executive Vice President, General Counsel and Secretary Eric C. Neuman 52 Executive Vice President and Director James T. Shea, Jr. 44 President of Commodore Frank D. Osborn 49 President and Chief Executive Officer of Osborn David J. Benjamin, III (1) 50 Chairman of the Board and Chief Executive Officer of Pacific Star Dex Allen 54 President and Chief Operating Officer of Pacific Star Thomas O. Hicks 51 Director Lawrence D. Stuart, Jr. 52 Director
- --------------------------- (1) David J. Benjamin, III will become the President and Chief Operating Officer of Pacific Star upon consummation of the Community Pacific Acquisition. R. Steven Hicks has served as the Chairman of the Board, President, Chief Executive Officer and as a director of the Company since its inception in October 1996. Mr. Hicks has also served as Chairman of the Board and Chief Executive Officer of GulfStar since January 1987. From November 1993 to May 1996, he was President and Chief Executive Officer of SFX, a publicly traded radio broadcasting company. Mr. Hicks is a 30-year veteran of the radio broadcasting industry, including 18 years as a station owner. Mr. Hicks is the brother of Thomas O. Hicks. Paul D. Stone has served as Executive Vice President and the Chief Financial Officer of the Company since January 1997. Mr. Stone was an Executive Vice President and the Chief Financial Officer of GulfStar from April 1996 until January 1997 at which time Mr. Stone resigned from such positions. Prior to January 1997, Mr. Stone was Vice President and Controller of Hicks Muse for six years. He holds a Masters Degree in Accounting from the University of North Texas and is a Certified Public Accountant. William S. Banowsky, Jr. has served as Executive Vice President and the General Counsel of the Company since January 1997. Mr. Banowsky was an attorney with Snell, Banowsky & Trent, P.C., Dallas, Texas, for six years before joining the Company. Prior to that time, he was an attorney for Johnson & Gibbs, P.C., Dallas, Texas, for four years. Eric C. Neuman has served as Executive Vice President and a director of the Company since its inception in October 1996. Mr. Neuman has served as an officer of Hicks Muse since 1993 and as a Senior Vice President thereof since 1996. Before joining Hicks Muse, Mr. Neuman served for eight years as Managing General Partner of Communications Partners, Ltd., a Dallas-based private investment firm. Mr. Neuman has served as a director of Chancellor Broadcasting Company since 1996. James T. Shea, Jr. is President of Commodore and has served in such position since October 16, 1996. Mr. Shea joined Commodore as the President of its MidAtlantic Region in March 1992. He joined Wilks-Schwartz as Vice President, General Manager, and Partner of WKRZ, Wilkes Barre, Pennsylvania in 1980, and became Vice President, General Manager and Partner of WQQQ/WEEX, Allentown, Pennsylvania in 1984, was promoted to Executive Vice 69 73 President and Partner in 1986 and served in such capacity until 1992. Prior to serving as President of Commodore, Mr. Shea served as Chief Operating Officer of Commodore from January 1995 to October 1996. Frank D. Osborn has been President and Chief Executive Officer of Osborn since Osborn's inception in 1984. He is Chairman of the Board of Fairmont Communications and is a member of the Board of Directors of Northstar Television Group. From 1983 to 1985, Osborn served as Senior Vice President/Radio for Price Communications Corporation. From 1981 to 1983, Mr. Osborn served as Vice President and General Manager of WYNY, NBC's New York FM radio station, and was Vice President of Finance and Administration of NBC Radio from 1977 to 1981. David J. Benjamin, III, has been President and Chief Executive Officer of Community Pacific since 1992. Prior to such time, he co-founded and served as Chairman and Chief Executive Officer of Community Pacific's predecessor, Community Pacific Broadcasting Corporation, which positions he had held since 1974. Mr. Benjamin is a former President of the Oregon Association of Broadcasters and a former board member of the National Association of Broadcasters. Upon consummation of the Community Pacific Acquisition, Mr. Benjamin will serve as Chairman of the Board and Chief Executive Officer of Pacific Star. Dex Allen serves as the President and Chief Operating Officer of Pacific Star. Mr. Allen has served as the managing member of Commonwealth since 1984 and is expected to continue to serve in such position until consummation of the Commonwealth Acquisition. Prior to 1984, Mr. Allen was Vice President/General Manager of KOGO-AM and KPRI-FM in San Diego, California and the Sales Manager of KCBQ-AM in San Diego, California. Mr. Allen is a 29-year veteran of the radio broadcasting industry, including 12 years as a station owner. Thomas O. Hicks has been a director of the Company since its inception in October 1996. Thomas O. Hicks has been Chairman and Chief Executive Officer of Hicks Muse since co-founding the firm in 1989. Prior to forming Hicks Muse, Thomas O. Hicks co-founded Hicks & Haas Incorporated in 1983 and served as its Co-Chairman and Co-Chief Executive Officer through 1989. Thomas O. Hicks also serves as a director of Chancellor Broadcasting Company, Berg Electronics Corp., Sybron International Corporation and Neodata Corporation. Thomas O. Hicks is the brother of R. Steven Hicks. Lawrence D. Stuart, Jr. has served as a director of the Company since January 1997. Mr. Stuart has been a Managing Director and Principal of Hicks Muse since 1995. Prior to joining Hicks Muse, Mr. Stuart had served for over 20 years as the principal outside legal counsel for the investment firms and portfolio companies led by Thomas O. Hicks. From 1989 to 1995, Mr. Stuart was the Managing Partner of the Dallas office of Weil, Gotshal & Manges (a Limited Liability Partnership including Professional Corporations). ELECTION OF DIRECTORS The Restated Certificate of Incorporation of Capstar provides that the Board of Directors shall consist of at least five but no more than nine directors, two of whom shall be elected by the holders of the Class A Common Stock voting as a class, and the remainder of whom (the "Classified Directors") shall be elected by the holders of the Class A Common Stock and the Class C Common Stock, voting together as a single class. It is expected that the Class A directorships will be vacant immediately following the completion of the Offering and will be filled at the next annual meeting of the stockholders of Capstar, provided that such vacancies may be filled by the Board of Directors before the next annual meeting of stockholders and such appointees would then be nominated for election as the Class A Directors at the next annual meeting of stockholders. The Classified Directors are divided into three classes of directors, designated as Class I, Class II and Class III directors. The Class A Directors will be elected for one-year terms at each annual meeting of the stockholders of Capstar commencing after the Offering. The Classified Directors will be elected for three-year terms. The initial term of office of the Class I directors expires at the 1998 annual meeting of stockholders, the initial term of the Class II directors expires at the 1999 annual meeting of stockholders and the initial term of the Class III directors expires at the 2000 annual meeting of stockholders. Beginning with the 1998 annual meeting, and at each annual meeting of stockholders thereafter, Classified Directors in the class to be elected at such meeting will be elected to succeed those directors whose terms expire at such meeting. The Class I director is Eric C. Neuman; the Class II director is Lawrence D. Stuart, Jr.; and the Class III directors are R. Steven Hicks and Thomas O. Hicks. 70 74 BOARD COMMITTEES In January 1997, the Company's Board of Directors established an Audit Committee and a Compensation Committee. The Audit Committee's functions include recommending to the Board of Directors the engagement of the Company's independent public accountants, reviewing with such accountants the plans for and the results and scope of their auditing engagement and certain other matters relating to their services provided to the Company, including the independence of such accountants. The Compensation Committee determines the compensation of executive officers and administers the Stock Option Plan and the Stock Purchase Plan. Lawrence D. Stuart, Jr. and Eric C. Neuman currently serve on the Audit Committee. The Audit Committee will consist of two independent directors who will be appointed after the Offering. R. Steven Hicks, Thomas O. Hicks and Mr. Stuart serve on the Compensation Committee. EXECUTIVE COMPENSATION The following table sets forth certain information concerning the compensation received or accrued by the Company's Chief Executive Officer and its other most highly compensated executive officers (collectively, the "Named Executive Officers") for services rendered during the fiscal year ended December 31, 1996. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION ---------------------------------- ----------------------- OTHER SECURITIES ALL OTHER ANNUAL UNDERLYING LTIP COMPENSATION NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION OPTIONS(#) PAYOUTS($) ($) - --------------------------- --------- -------- ------------ ---------- ---------- --- R. Steven Hicks...................... 135,400 -- -- 930,000(1) -- 744,000(1) Chairman of the Board, President and Chief Executive Officer James T. Shea, Jr.................... 262,500 -- 6,000 720,880 170,000 3,412,495(2) President of Commodore Frank D. Osborn...................... 387,000 300,000 -- -- -- 1,778,375(3) President of Osborn
(1) See "Certain Transactions -- Warrants." (2) Represents the amount paid to Mr. Shea in connection with the Commodore Acquisition in settlement of such executive officer's outstanding options to purchase shares of common stock of Commodore. (3) Frank D. Osborn became an executive officer of the Company upon consummation of the Osborn Acquisition in February 1997. Mr. Osborn's employment agreement with Osborn prior to the Osborn Acquisition obligated Osborn to pay $16,000 annually into a retirement benefit arrangement for Mr. Osborn. Mr. Osborn elected to have such amount deposited into Osborn's Non-Qualified Deferred Compensation Plan. In 1996, Mr. Osborn also received $1,746,875 in compensation from the exercise of non-qualified stock options granted by Osborn and $15,500 from the exercise of incentive stock options granted by Osborn. 71 75 The following table contains information about stock options and stock purchase rights granted to the Named Executive Officers during the fiscal year ended December 31, 1996. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ---------------------------------------- POTENTIAL REALIZABLE VALUE NUMBER OF PERCENT OF TOTAL AT ASSUMED ANNUAL RATES SECURITIES OPTIONS OF STOCK PRICE APPRECIATION UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1) OPTIONS EMPLOYEES PRICE EXPIRATION --------------------------- NAME GRANTED(#) IN 1996 PER SHARE DATE 5%($) 10%($) ---- ---------- ---------------- --------- --------- ---------- ------------ R. Steven Hicks.................... 930,000(2) 100% $10.00(2) 10-16-06 $5,848,720 $14,821,805 James T. Shea, Jr.................. 72,088(3) 17.86% $10.00 11-26-06 $ 453,358 $ 1,148,897 35,000(4) 8.67% $10.00 12-26-96 -- -- Frank D. Osborn.................... -- -- -- -- -- --
- --------------------------- (1) The assumed rates are compounded annually for the full terms of the options and warrants. (2) See "Certain Transactions -- Warrants." (3) Represents options granted pursuant to the Company's Stock Option Plan (as defined). (4) Represents stock purchase rights granted pursuant to the Company's Stock Purchase Plan (as defined). The following table sets forth certain information (i) with respect to the number of shares of Common Stock issued upon exercises of options and stock purchase rights by the Named Executive Officers during the fiscal year ended December 31, 1996 and (ii) with respect to the unexercised options granted under the Stock Option Plan held by the Named Executive Officers at December 31, 1996. AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT SHARES DECEMBER 31, 1996 DECEMBER 31, 1996($)(1) ACQUIRED VALUE -------------------------- -------------------------- NAME ON EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ----------- ----------- ------------- ----------- ------------- R. Steven Hicks................. -- -- 744,000(2) 186,000(2) $744,000 $186,000 James T. Shea, Jr............... -- -- -- 72,088(3) -- 72,088 35,000(4) -- -- -- -- -- Frank D. Osborn................. -- -- -- -- -- --
- --------------------------- (1) There is no public market for the Common Stock. Based on the per share price of the Equity Investment and the Osborn Contribution of $11.00. (2) See "Certain Transactions-- Warrants." (3) Represents options granted pursuant to the Stock Option Plan. (4) Represents stock purchase rights granted pursuant to the Stock Purchase Plan. EMPLOYMENT AGREEMENTS R. Steven Hicks Employment Agreement. Capstar has entered into an employment agreement with R. Steven Hicks pursuant to which Mr. Hicks serves as Chairman of the Board, President and Chief Executive Officer of Capstar. Mr. Hicks' employment agreement terminates on December 31, 2001, and will be automatically renewed for successive one year terms unless Mr. Hicks or Capstar gives the other party written notice of his or its intention not to renew the employment agreement at least six months prior to the date the employment agreement would otherwise expire (but no more than 12 months prior to such expiration date). Mr. Hicks' current base salary is $250,000 per year and is subject to further annual increases at least equal to five percent of the then current annual base salary. He is also entitled to 72 76 receive such annual performance bonuses as Capstar's Board of Directors may determine. Further, Mr. Hicks is entitled to receive stock options to purchase shares of Class A Common Stock. If Capstar terminates Mr. Hicks' employment for cause or Mr. Hicks terminates his employment for other than good reason, Capstar must pay Mr. Hicks all accrued obligations and other benefits earned prior to the date of termination. If Capstar terminates Mr. Hicks' employment agreement other than for cause or Mr. Hicks terminates his employment agreement for good reason, Mr. Hicks' employment agreement provides for (A) a lump sum payment of (x) two times Mr. Hicks' then current annual salary and (y) any accrued obligations and other benefits earned prior to the date of termination and (B) unless the Board of Directors of the Company determines that Mr. Hicks has not satisfactorily performed his obligations and duties under the agreement, the immediate vesting of all stock options between the Company and Mr. Hicks and the right to exercise those options until the earlier of (x) the expiration date of those options or (y) the 90th day after Mr. Hicks' termination. Mr. Hicks has entered into a substantially similar employment agreement with GulfStar. James T. Shea, Jr. Employment Agreement. Capstar and Commodore have entered into an employment agreement with James T. Shea, Jr. pursuant to which Mr. Shea serves as the President of Commodore. Mr. Shea's employment agreement terminates on April 30, 1999. Mr. Shea's current base salary is $275,625, which increases at the beginning of each calendar year by an amount which shall not be less than five percent of his then current base salary. Mr. Shea is also entitled to receive annual bonuses as the Board of Directors of Commodore may determine, provided that the bonus shall not be more than $150,000. In addition, the employment agreement provides for an automobile allowance, participation in the retirement, savings, and welfare benefit plans of Commodore, a life insurance policy of $650,000 and stock options to purchase 720,880 shares of Class A Common Stock of the Company at $1.00 per share under the Stock Option Plan (which stock options were granted in 1996). If Commodore terminates Mr. Shea's employment for cause, Commodore is obligated to pay Mr. Shea's then accrued base salary, reimbursable expenses, and any other compensation then due and owing. In addition, Commodore must continue to fund Mr. Shea's life insurance policy. If the employment agreement is terminated due to death or disability, without cause or by Mr. Shea for good reason, Mr. Shea will be entitled to (i) the continuation of his annual base salary, as then in effect, for a period equal to (A) if the termination date occurs after April 21, 1998 but prior to April 30, 1999, a 12-month period commencing on the termination date or (B) if the termination date occurs on or prior to April 21, 1998, the lesser of (x) a 24-month period commencing on the termination date and (y) the period starting on the termination date and ending on April 30, 1999, (ii) a pro rata amount of his annual bonus, (iii) any annual base salary and annual bonus then accrued but not yet paid, (iv) the continuation of his welfare benefits for a period equal to (A) if the termination date occurs after April 21, 1998 but prior to April 30, 1999, a 12-month period commencing on the termination date or (B) if the termination date occurs on or prior to April 21, 1998, the lesser of (x) a 24-month period commencing on the termination date and (y) the period starting on the termination date and ending on April 30, 1999, (v) the continuation of his life insurance policy, (vi) any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans and programs, (vii) reimbursement for certain expenses incurred as of the termination date but not yet paid as of the date of termination and (viii) any other rights afforded to him under other written agreements between Mr. Shea and the Company. Frank D. Osborn Employment Agreement. Upon consummation of the Osborn Acquisition, Osborn entered into an employment agreement with Frank D. Osborn pursuant to which Mr. Osborn serves as the President and Chief Executive Officer of Osborn. Mr. Osborn's employment agreement terminates on the fifth anniversary of the consummation of the Osborn Acquisition. Mr. Osborn's base salary is $375,000, and commencing on January 1, 1998, and on each subsequent January 1, his base salary will be adjusted to reflect the annual increase in the Consumer Price Index during the preceding year. Mr. Osborn is entitled to a $300,000 signing bonus. In addition, Mr. Osborn is entitled to a guaranteed bonus of $25,000 per month for a period of 60 months after the date of the agreement and an annual bonus as determined by Osborn's Board of Directors. Further, Mr. Osborn was granted non-qualified stock options for 1,500,000 shares of Class A Common Stock of the Company. Except as otherwise provided in the employment agreement or in the Stock Option Plan, the stock options will vest with respect to 20.0% of the shares of Class A Common Stock subject thereto on the first anniversary of the date of grant, and 1/60th of such shares shall vest on the last day of each calendar month thereafter. If Mr. Osborn's employment is terminated by Osborn for cause or by Mr. Osborn for other than good reason, Osborn is obligated to pay all accrued obligations and other benefits to Mr. Osborn. If the employment agreement is terminated by Osborn other than for cause or disability or by Mr. Osborn for good reason, Mr. Osborn's employment agreement provides for (A) a lump sum payment of any accrued obligations and other benefits earned prior to the date of termination, (B) the payment in regular installments of (x) if the remainder of the employment period is 24 months or less, Mr. Osborn's then current salary for the remainder of the employment period, 73 77 (y) if the remainder of the employment period is more than 24 months but less than 36 months, twice the sum of Mr. Osborn's then current salary, plus Mr. Osborn's then current salary for a period of 12 months after the 24 months have expired from the termination date, (C) the payment of the guaranteed bonus as if Mr. Osborn's employment had not been terminated and (D) unless the Board of Directors of Osborn determines that Mr. Osborn has not satisfactorily performed his obligations and duties under the agreement, the immediate vesting of all stock options between the Company and Mr. Osborn and the right to exercise those options until the earlier of (x) the expiration date of those options or (y) the 90th day after Mr. Osborn's termination. Mr. Osborn is also entitled to participate in Osborn's employee medical benefit plan for 24 months following termination unless Osborn fails to achieve 60.0% of its annual budget for operating profit for the last calendar year ended prior to termination. In that case, Mr. Osborn is entitled to participate in such plan for 12 months following termination. Paul D. Stone Employment Agreement. Capstar has entered into an employment agreement with Paul D. Stone pursuant to which Mr. Stone serves as an Executive Vice President and the Chief Financial Officer of Capstar. Mr. Stone's employment agreement terminates on December 31, 2001, and will be renewed automatically for successive one year terms unless Mr. Stone or Capstar gives the other party written notice of his or its intention not to renew the employment agreement at least six months prior to the date the employment agreement would otherwise expire (but no more than 12 months prior to such expiration date). Mr. Stone's current base salary is $200,000 per year, subject to annual increases at least equal to the percentage increase, if any, in the Consumer Price Index during the preceding calendar year. Mr. Stone is also entitled to receive such annual bonuses as Capstar's Board of Directors may determine. Further, Mr. Stone is entitled to receive stock options to purchase shares of Class A Common Stock. If Capstar terminates Mr. Stone's employment for cause or Mr. Stone terminates his employment for other than good reason, Capstar must pay Mr. Stone all accrued obligations and other benefits earned prior to the date of termination. If Capstar terminates Mr. Stone's employment agreement other than for cause or Mr. Stone terminates his employment agreement for good reason, Mr. Stone's employment agreement provides for (A) a lump sum payment of (x) two times Mr. Stone's then current annual salary and (y) any accrued obligations and other benefits earned prior to the date of termination and (B) unless the Board of Directors of the Company determines that Mr. Stone has not satisfactorily performed his obligations and duties under the agreement, the immediate vesting of all stock options between the Company and Mr. Stone and the right to exercise those options until the earlier of (x) the expiration date of those options or (y) the 90th day after Mr. Stone's termination. William S. Banowsky, Jr. Employment Agreement. Capstar has entered into an employment agreement with William S. Banowsky pursuant to which Mr. Banowsky serves as an Executive Vice President and the General Counsel of the Company. Mr. Banowsky's employment agreement terminates on December 31, 2001, and will be renewed automatically for successive one-year terms unless Mr. Banowsky or Capstar gives the other party written notice of his or its intention not to renew the employment agreement at least six months prior to the date the employment agreement would otherwise expire (but not more than 12 months prior to such expiration date). Mr. Banowsky's current base salary is $200,000 per year, subject to annual increases at least equal to the percentage increase, if any, in the Consumer Price Index during the preceding calendar year. Mr. Banowsky is also entitled to receive such annual bonuses as the Company's Board of Directors may determine. Further, Mr. Banowsky is entitled to receive stock options to purchase shares of Class A Common Stock. If Capstar terminates Mr. Banowsky's employment for cause or Mr. Banowsky terminates his employment for other than good reason, Capstar must pay Mr. Banowsky all accrued obligations and other benefits earned prior to the date of termination. If Capstar terminates Mr. Banowsky's employment agreement other than for cause or Mr. Banowsky terminates his employment agreement for good reason, Mr. Banowsky's employment agreement provides for (A) a lump sum payment of (x) two times Mr. Banowsky's then current annual salary and (y) any accrued obligations and other benefits earned prior to the date of termination and (B) unless the Board of Directors of the Company determines that Mr. Banowsky has not satisfactorily performed his obligations and duties under the agreement, the immediate vesting of all stock options between the Company and Mr. Banowsky and the right to exercise those options until the earlier of (x) the expiration date of those options or (y) the 90th day after Mr. Banowsky's termination. Dex Allen Employment Agreement. Dex Allen is the President and Chief Operating Officer of Pacific Star. Pacific Star and Mr. Allen have entered into an employment agreement having the following terms: (i) Mr. Allen will serve as President and Chief Operating Officer of Pacific Star; (ii) Mr. Allen's term of employment is five years, provided that on the fifth anniversary and on each anniversary thereafter, Mr. Allen's employment period shall automatically be extended for one additional year unless Mr. Allen or Pacific Star gives the other party written notice 74 78 of his or its intention not to renew the employment agreement at least six months prior to such anniversary (but no more than 12 months prior to such anniversary); (iii) Mr. Allen will receive a base salary of $150,000 during his first year of employment, which will increase to $200,000 per year thereafter, subject to further annual increases at least equal to the percentage increase, if any, in the Consumer Price Index during the preceding calendar year; and (iv) Mr. Allen will be entitled to receive an annual bonus of at least $50,000 per year if certain financial goals, as determined by Pacific Star's Board of Directors are achieved. The Company and Mr. Allen also agreed that (i) if Pacific Star terminates Mr. Allen's employment for cause or Mr. Allen terminates his employment for other than good reason, Pacific Star will only be obligated to make a lump sum payment to Mr. Allen of any accrued obligations of Pacific Star to Mr. Allen, including Mr. Allen's salary earned or accrued through the date of his termination, and (ii) if Pacific Star terminates Mr. Allen's employment other than for cause or disability or Mr. Allen terminates his employment for good reason, Mr. Allen's employment agreement provides for (A) a severance payment of Mr. Allen's then current base salary in regular installments for a one year period, (B) a lump sum payment of any accrued obligations and other benefits earned prior to the date of termination, and (C) unless the Board of Directors of Pacific Star determines that Mr. Allen has not satisfactorily performed his obligations and duties under the agreement, the immediate vesting of all stock options between the Company and Mr. Allen and the right to exercise those options until the earlier of (x) the expiration date of those options or (y) the 90th day after Mr. Allen's termination. David J. Benjamin, III Employment Agreement. Upon consummation of the Community Pacific Acquisition, Pacific Star will enter into an employment agreement with David J. Benjamin, III pursuant to which Mr. Benjamin will serve as Chairman and Chief Executive Officer of Pacific Star and chief executive officer of the West Region. Mr. Benjamin's employment agreement will terminate on the fifth anniversary of the consummation of the Community Pacific Acquisition. The employment agreement will automatically be renewed for successive one-year terms unless Mr. Benjamin or the Company gives written notice of his or its intention not to renew the agreement at least six months (but no more than 12 months) prior to the date the agreement would otherwise expire. Mr. Benjamin's base salary will be $200,000, subject to annual increases at least equal to the percentage increase, if any, in the Consumer Price Index during the preceding calendar year. Mr. Benjamin is also entitled to receive an annual bonus of $50,000 per year if certain financial goals, as determined by the Board of Directors of Pacific Star, are achieved. In addition, Mr. Benjamin is entitled to receive stock options to purchase shares of Common Stock. Except as otherwise provided in the employment agreement or in the Stock Option Plan, the stock options will vest with respect to 20.0% of the shares of Common Stock subject thereto on the first anniversary of the date of grant, and 1/60th of such shares shall vest on the last day of each calendar month thereafter. If the Company terminates Mr. Benjamin's employment for cause or Mr. Benjamin terminates his employment for other than good reason, Pacific Star will not be obligated to make any further salary payments to Mr. Benjamin except those earned prior to the date of termination. If Pacific Star terminates Mr. Benjamin's employment without cause or Mr. Benjamin terminates his employment for good reason, Mr. Benjamin's employment agreement provides for (A) a lump sum payment equal to any accrued obligations of Pacific Star to Mr. Benjamin, (B) in regular installments of (x) if the remainder of the employment period is less than 24 months, Mr. Benjamin's then annual salary for the remainder of the employment period, (y) if the remainder of the employment period is more than 24 but less than 36 months, the sum of two times Mr. Benjamin's then annual salary plus his annual salary for a period of 12 months after 24 months have expired from the date of his termination, or (z) if the remainder of the employment period is greater than 36 months, the sum of two times Mr. Benjamin's then annual salary plus his annual salary for a period of 12 months after 24 months have expired from the date of his termination and (C) the payment of his bonus as if the termination did not occur and (D) unless the Board of Directors of Pacific Star determines that Mr. Benjamin has not satisfactorily performed his obligations and duties under the agreement, the immediate vesting of all stock options between the Company and Mr. Benjamin and the right to exercise those options until the earlier of (x) the expiration date of those options or (y) the 90th day after Mr. Benjamin's termination. Notwithstanding clause (B) of the immediately preceding sentence, if the Company's West Region fails to achieve at least 60.0% of its annual budget for operating profit for the last calendar year ended prior to termination, Pacific Star will only be obligated to pay Mr. Benjamin's then current salary for 12 months. If Mr. Benjamin's employment is terminated due to death or disability, Pacific Star shall pay all accrued obligations and investments, guaranteed bonuses and other benefits for 12 months after the termination date. 75 79 BENEFIT PLANS Stock Option Plan The Company's 1996 Stock Option Plan (the "Stock Option Plan") gives certain individuals and key employees of the Company and any parent corporation or subsidiary corporation thereof (such parent and subsidiary corporations are referred to as "Related Entities") who are responsible for the continued growth of the Company an opportunity to acquire a proprietary interest in the Company, and thus to create in such persons an increased interest in and a greater concern for the welfare of the Company and any Related Entities. After giving effect to the Recapitalization, the Stock Option Plan provides for the grant of options to acquire up to 9,000,000 shares of Class A Common Stock. Grants of stock options with respect to 706,895 shares of Class A Common Stock have been made under the Stock Option Plan. The Stock Option Plan is administered by the Company's Compensation Committee. The Compensation Committee has authority, subject to the terms of the Stock Option Plan (including the formula grant provisions and the provisions relating to incentive stock options contained therein), to determine when and to whom to make grants or awards under the Stock Option Plan, the number of shares to be covered by the grants or awards, the types and terms of the grants and awards, and in the case of grants of stock options, the exercise price of stock options. Moreover, the Compensation Committee will have the authority, subject to the provisions of the Stock Option Plan, to establish such rules and regulations as it deems necessary for the proper administration of the Stock Option Plan and to make such determinations and interpretations and to take such action in connection with the Stock Option Plan and any grants and awards thereunder as it deems necessary or advisable. The Compensation Committee's determinations and interpretations under the Stock Option Plan are final, binding and conclusive on all participants and need not be uniform and may be made by the Compensation Committee selectively among persons who receive, or are eligible to receive, grants and awards under the Stock Option Plan. Grants of "incentive stock options" within the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and non-qualified stock options (options which do not qualify under section 422 of the Code) may be made under the Stock Option Plan to key employees. Grants of non-qualified stock options may be made to eligible non-employees (as defined in the Stock Option Plan). No incentive stock option may be granted pursuant to the Stock Option Plan after October 16, 2006. The exercise price per share of Class A Common Stock under each option is fixed by the Compensation Committee at the time of grant and must equal at least 100.0% of the fair market value (as defined in the Stock Option Plan) of a share of Class A Common Stock on the date of grant; provided, however , that the exercise price of an incentive stock option granted to a person who, at the time of grant, owns shares of the Company or any Related Entity which possess more than 10.0% of the total combined voting power of all classes of stock of the Company or of any Related Entity may not be less than 110.0% of the fair market value of a share of Class A Common Stock on the date of grant. No option is exercisable after the expiration of ten years from the date of grant, unless, as to any non-qualified stock option, otherwise expressly provided in the option agreement; provided, however , that no incentive stock option granted to a person who, at the time of grant, owns stock of the Company, or any Related Entity, possessing more than 10.0% of the total combined voting power of all classes of stock of the Company, or any Related Entity, is exercisable after the expiration of five years from the date of grant. In the event of a change of control or sale of the Company, all outstanding stock options may, subject to the sole discretion of the Compensation Committee, become exercisable in full at such time or times as the Compensation Committee may determine. Each stock option accelerated by the Compensation Committee would terminate on such date (not later than the stated exercise date) as the Compensation Committee determines. Unless an option or other agreement provides otherwise, upon the date of death of an optionee (or upon the termination of an optionee because of such optionee's disability), the person who acquires the right to exercise the option of such optionee (or the optionee in the case of disability) must exercise such option within 180 days after the date of death (or termination in the case of disability), unless a longer period is expressly provided in such incentive stock option or a shorter period is established by the Compensation Committee, but in no event after the expiration date of such option. Following an optionee's termination of employment for cause, all stock options held by such optionee will immediately be canceled as of the date of termination of employment. Following an optionee's termination of employment for other than cause, such optionee must exercise his stock option within 30 days after the date of such termination, unless a longer period is expressly provided in such stock option or a shorter period is established by the Compensation Committee, provided that no incentive stock option shall be exercisable more than three months after such termination. 76 80 The option exercise price may be paid in cash or, in the discretion of the Compensation Committee, by the delivery of shares of Class A Common Stock of the Company then owned by the participant, or by a combination of these methods. Also, in the discretion of the Compensation Committee, payment may also be made by delivering a properly executed exercise notice to the Company together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds to pay the exercise price. Except as otherwise expressly provided in any non-qualified stock option, stock options may be transferred by a participant only by will or by the laws of descent and distribution and may be exercised only by the participant during his lifetime. If an optionee's employment is terminated for any reason or a change of control occurs, the Company, or its designee, may purchase the remaining options and/or shares of Class A Common Stock held by such optionee at a price per share equal to fair market value. Prior to the transfer by an optionee of any shares of Class A Common Stock issued to such optionee upon exercise of a stock option, the Company or its designee has the right to acquire such shares of Class A Common Stock on the same terms and conditions as the proposed transfer. Stock Purchase Plan The Company's 1996 Stock Purchase Plan (the "Stock Purchase Plan") gives certain key employees of the Company and any Related Entities who are expected to contribute materially to the success of the Company and any Related Entities an opportunity to acquire a proprietary interest in the Company, and thus to retain such persons and create in such persons an increased interest in and a greater concern for the welfare of the Company and any Related Entities. The Stock Purchase Plan provides for the grant of stock purchase rights to acquire up to 315,500 shares of Class A Common Stock. To date, grants of stock purchase rights with respect to 115,500 shares of Class A Common Stock have been made under the Stock Purchase Plan, all of which have been exercised. The Company intends to terminate the Stock Purchase Plan upon consummation of the Offering. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION There was no compensation committee of the Board of Directors during 1996. Compensation decisions in 1996 were made by the entire Board of Directors, the members of which were R. Steven Hicks (Capstar's President and Chief Executive Officer), Eric C. Neuman (an Executive Vice President of Capstar) and Thomas O. Hicks. In February 1997, R. Steven Hicks, Thomas O. Hicks and Lawrence D. Stuart, Jr. were appointed to the Compensation Committee of the Board of Directors, of which Thomas O. Hicks serves as chairman. COMPENSATION OF DIRECTORS Directors of the Company do not presently receive compensation for their services as directors. Directors of the Company are entitled to reimbursement of their reasonable out-of-pocket expenses in connection with their travel to and attendance at meetings of the Board of Directors or committees thereof. After the consummation of the Offering, the non-employee directors of Capstar will receive an annual retainer of $12,000 for serving as directors of Capstar and its subsidiaries. Non-employee directors will also receive attendance fees of $1,000 ($500 in the case of telephonic meetings) for each meeting which they attend. Directors who are officers or employees of the Company are not presently expected to receive compensation for their services as directors. Directors of Capstar will continue to be entitled to reimbursement of their reasonable out-of-pocket expenses in connection with their travel to and attendance at meetings of the Board of Directors or committees thereof. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company's Restated Certificate of Incorporation provides that no director of the Company shall be personally liable to the Company or its stockholders for monetary damages for breach of his fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) in respect of certain unlawful dividend payments or stock redemptions or purchases or (iv) for any transaction from which the 77 81 \ director derived an improper personal benefit. The effect of these provisions is to eliminate the rights of the Company and its stockholders (through stockholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of fiduciary duty as a director (including breaches resulting from grossly negligent behavior), except in the situations described above. The Company has entered into indemnification agreements with each of its directors and executive officers under which the Company has agreed to indemnify the director or officer to the fullest extent permitted by law and to advance expenses, if the director or officer becomes a party to or witness or other participant in any threatened, pending or completed action, suit or proceeding (a "Claim") by reason of any occurrence related to the fact that the person is or was a director, officer, employee, agent or fiduciary of the Company or a subsidiary of the Company or another entity at the Company's request (an "Indemnifiable Event"), unless a reviewing party (either outside counsel or a committee appointed by the Board of Directors) determines that the person would not be entitled to indemnification under applicable law. In addition, if a change in control or a potential change in control of the Company occurs and if the person indemnified so requests, the Company will establish a trust for the benefit of the indemnitee and fund the trust in an amount sufficient to satisfy all expenses reasonably anticipated at the time of the request to be incurred in connection with any Claim relating to an Indemnifiable Event. The reviewing party will determine the amount deposited in the trust. An indemnitee's rights under the indemnification agreement are not exclusive of any other rights under the Company's Restated Certificate of Incorporation or By-laws or applicable law. The Company believes that these provisions and agreements will assist the Company in attracting and retaining qualified individuals to serve as directors and officers. 78 82 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The table below gives effect to the Recapitalization and the Offering and sets forth, as if each of the foregoing had occurred on December 31, 1996, (i) the number and percentage of outstanding shares of each class of the capital stock of Capstar that are beneficially owned by (a) each person or group beneficially owning five percent or more of any class of the capital stock of Capstar, (b) each director of Capstar, (c) each Named Executive Officer, and (d) all directors and executive officers of Capstar as a group and (ii) the combined percentage of all classes of the capital stock of Capstar that is beneficially owned by each of such person or group of persons. Except as noted below, each individual or entity named below is believed to have sole investment and voting power with respect to all the shares of capital stock reflected below.
CLASS A CLASS B CLASS C COMMON STOCK (1) COMMON STOCK (2) COMMON STOCK (3) ------------------- -------------------- --------------------- NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT PERCENT OF OF OF OF OF OF OF ECONOMIC NAME OF BENEFICIAL OWNER SHARES CLASS SHARES CLASS SHARES CLASS INTEREST ------------------------ -------- --------- ---------- -------- ---------- -------- ---------- Capstar Broadcasting Partners, L.P. -- -- -- -- 12,238,452 97.5% % 200 Crescent Court, Suite 1600 Dallas, Texas 75201 Capstar BT Partners, L.P. -- -- 1,818,181 100% -- -- % 200 Crescent Court, Suite 1600 Dallas, Texas 75201 R. Steven Hicks (4) -- -- -- -- 1,258,255 9.3% % Thomas O. Hicks (5) 272,727 % 1,818,181 100% 13,496,707 100% % Eric C. Neuman -- -- -- -- -- -- -- Lawrence D. Stuart, Jr. -- -- -- -- -- -- -- James T. Shea, Jr. 35,000 * -- -- -- -- * Frank D. Osborn 163,636 * -- -- -- -- * All directors and executive officers as a group (10 persons) . 594,089 % 1,818,181 100% 13,496,707 100% %
- ------------------------------ * Less than one percent. (1) Capstar proposes to issue __________ shares of Class A Common Stock in the Offering (________ shares if the Underwriters exercise their over-allotment option in full). Such shares of Class A Common Stock will represent immediately after the Offering, _____% of the combined voting power of all classes of Common Stock (_____% if the Underwriters exercise their over-allotment option in full). The holders of the Class A Common Stock will be entitled as a class to elect two members of the Board of Directors of Capstar. See "Description of Capital Stock." (2) The holders of shares of Class B Common Stock will not be entitled to vote, except as required by law. The shares of Class B Common Stock are convertible in whole but not in part, at the option of the holder or holders thereof, into the same number of shares of Class A Common Stock, subject to certain conditions. See "Description of Capital Stock." (3) The holders of the Class C Common Stock will be entitled to vote with the holders of the Class A Common Stock on all matters submitted to a vote of stockholders of Capstar, except with respect to the election of the Class A Directors, certain "going private" transactions and as otherwise required by law and except under the circumstances described under "Description of Capital Stock." Each share of Class C Common Stock will be entitled to ten votes per share on all matters submitted to a vote of stockholders. See "Description of Capital Stock." (4) The number of shares of Class C Common Stock includes (i) 10,000 shares owned of record by R. Steven Hicks' children, (ii) 744,000 shares purchasable by R. Steven Hicks pursuant to the terms of the Warrant and (iii) 204,255 shares purchasable by R. Steven Hicks pursuant to the terms of the New Warrant. See "Certain Transactions -- Stockholders Agreements -- Affiliate Stockholders Agreement" and "-- Warrants." R. Steven Hicks has voting rights to the shares owned by his children under the terms of the Affiliate Stockholders Agreement. R. Steven Hicks disclaims beneficial ownership of the shares of Common Stock not owned by him of record. The shares owned of record by R. Steven Hicks and his children are subject to a voting agreement as described in "Certain Transactions -- Stockholders Agreements -- Affiliate Stockholders Agreement." (5) The number of shares of Class A Common Stock is comprised of 272,727 shares owned of record by Capstar Boston Partners, L.L.C., which shares are subject to a voting agreement as described in "Certain Transactions -- Stockholders Agreements -- Affiliate Stockholders Agreement. The number of shares of Class B Common Stock is comprised of the 1,818,181 shares owned of record by Capstar BT Partners, L.P., which shares are subject to the Affiliate Stockholders Agreement as described in "Certain Transactions -- 79 83 Stockholders Agreements -- Affiliate Stockholders Agreement." The number of shares of Class C Common Stock includes (i) 10,000 shares owned of record by R. Steven Hicks' children, which shares are subject to a voting agreement as described in "Certain Transactions -- Stockholders Agreements -- Affiliate Stockholders Agreement," (ii) 744,000 shares purchasable by R. Steven Hicks pursuant to the terms of the Warrant, which shares are subject to a voting agreement as described in "Certain Transactions -- Stockholders Agreements -- Affiliate Stockholders Agreement," (iii) 204,255 shares that are purchasable by R. Steven Hicks pursuant to the terms of the New Warrant, which shares are subject to a voting agreement as described in "Certain Transactions -- Stockholders Agreements -- Affiliate Stockholders Agreement," and (iv) 12,238,452 shares owned of record by Capstar L.P., of which the ultimate general partner is an entity controlled by Thomas O. Hicks and (iv) 300,000 shares owned of record by R. Steven Hicks who is a party to the Affiliate Stockholders Agreement, which shares are subject to a voting agreement as described in "Certain Transactions -- Stockholders Agreements -- Affiliate Stockholders Agreement," Hicks Muse is a party to the Affiliate Stockholders Agreement which agreement requires the parties to such agreement to vote their shares (i) in favor of the election to the Company's Board of Directors of such individuals as may be designated by Hicks Muse and its affiliates (including Capstar L.P.) and (ii) on other matters as the holders of a majority of the voting power of the outstanding shares of Common Stock vote on such matters. Thomas O. Hicks is the controlling stockholder of Hicks Muse and serves as its Chairman of the Board, President, Chief Executive Officer, Chief Operating Officer and Secretary. Accordingly, Thomas O. Hicks may be deemed to be the beneficial owner of all of the Common Stock subject to the Affiliate Stockholders Agreement. Thomas O. Hicks disclaims beneficial ownership of the shares of Common Stock not owned by him of record. CERTAIN TRANSACTIONS MONITORING AND OVERSIGHT AGREEMENT The Company has entered into a monitoring and oversight agreement (the "Monitoring and Oversight Agreement") with Hicks, Muse & Co. Partners, L.P. ("Hicks Muse Partners"). Pursuant thereto, the Company has agreed to pay to Hicks Muse Partners an annual fee of $100,000 for ongoing financial oversight and monitoring services. The annual fee is adjustable upward or downward at the end of each fiscal year to an amount equal to 0.2% of the budgeted consolidated annual net sales of the Company for the then-current fiscal year; provided, that such fee shall at no time be less than $100,000 per year. The annual fee in 1997 is estimated to be $320,000. Hicks Muse Partners is also entitled to reimbursement for any out-of-pocket expenses incurred by it in connection with rendering services under the Monitoring and Oversight Agreement. In addition, the Company has agreed to indemnify Hicks Muse Partners, its affiliates and shareholders, and their respective directors, officers, agents, employees and affiliates from and against all claims, actions, proceedings, demands, liabilities, damages, judgments, assessments, losses and costs, including fees and expenses, arising out of or in connection with the services rendered by Hicks Muse Partners in connection with the Monitoring and Oversight Agreement. Hicks Muse Partners has reserved the right to seek an increase in the amount of its annual fee based on the increased scope of the Company's operations. Any such increase will be subject to the approval of the Board of Directors of the Company, including a majority of the disinterested directors, based on the exercise of their independent judgment. The Monitoring and Oversight Agreement makes available on an ongoing basis the resources of Hicks Muse Partners concerning a variety of financial matters. The services that have been and will continue to be provided by Hicks Muse Partners could not otherwise be obtained by the Company without the addition of personnel or the engagement of outside professional advisors. The Monitoring and Oversight Agreement expires on the earlier to occur of (i) October 16, 2006 or (ii) the date on which HM Fund III and its affiliates cease to own beneficially, directly or indirectly, any securities of the Company or its successors. FINANCIAL ADVISORY AGREEMENT The Company is a party to a financial advisory agreement (the "Financial Advisory Agreement") with Hicks Muse Partners. Pursuant to the Financial Advisory Agreement, Hicks Muse Partners is entitled to receive a fee equal to 1.5% of the transaction value (as defined in the Financial Advisory Agreement) for each add-on transaction (as defined) in which the Company or any of its subsidiaries is involved. Hicks Muse Partners is also entitled to reimbursement for any out-of-pocket expenses incurred by it in connection with rendering services under the Financial Advisory Agreement. The term "transaction value" means the total value of any add-on transaction, including, without limitation, the aggregate amount of the funds required to complete the add-on transaction (excluding any fees payable pursuant to the Financial Advisory Agreement, but including the amount of any indebtedness, preferred stock or similar items assumed or remaining outstanding). The term "add-on transaction" means any future proposal for a tender offer, acquisition, sale, merger, exchange offer, recapitalization, restructuring, or other similar transaction directly or indirectly involving the Company or any of its subsidiaries and any other person or entity. In addition, the Company has agreed to indemnify Hicks Muse Partners, its affiliates and partners, and their respective directors, officers, agents, employees and affiliates from and against all claims, actions, proceedings, demands, liabilities, damages, judgments, assessments, 80 84 losses and costs, including fees and expenses, arising out of or in connection with the services rendered by Hicks Muse Partners in connection with the Financial Advisory Agreement. Pursuant to the Financial Advisory Agreement, Hicks Muse Partners provides investment banking, financial advisory and other similar services with respect to the add-on transactions in which the Company is involved. Such transactions require additional attention beyond that required to monitor and advise the Company on an ongoing basis and accordingly the Company pays separate financial advisory fees with respect to such matters in addition to those paid in connection with the Monitoring and Oversight Agreement. The services that have been and will continue to be provided by Hicks Muse Partners could not otherwise be obtained by the Company without the addition of personnel or the engagement of outside professional advisors. The Financial Advisory Agreement will terminate concurrently with the termination of the Financial Monitoring and Oversight Agreement. The Company has paid Hicks Muse Partners financial advisory fees of approximately $8.0 million since the Company's inception in October 1996. STOCKHOLDERS AGREEMENTS Affiliate Stockholders Agreement. R. Steven Hicks, five of his children, Capstar BT Partners, L.P., Capstar Boston Partners, L.L.C. and Capstar L.P. (the "Affiliate Stockholders") have entered into the Affiliate Stockholders Agreement with the Company and Hicks Muse that provides, among other things, that the Affiliate Stockholders may require the Company, subject to certain registration volume limitations, to effect up to three demand registrations of their Common Stock under the Securities Act at any time after consummation of a Qualified IPO (as defined in the Affiliate Stockholders Agreement). The Affiliate Stockholders Agreement also provides that in the event the Company proposes to register any shares of its Common Stock under the Securities Act, whether or not for its own account, the Affiliate Stockholders will be entitled, with certain exceptions, to include their shares of Common Stock in such registration. The Affiliate Stockholders Agreement also requires the Affiliate Stockholders, subject to certain conditions, to vote their shares (i) in favor of the election to the Company's Board of Directors of such individuals as may be designated by Hicks Muse and its affiliates (including Capstar L.P.) and (ii) on other matters as the holders of a majority of the voting power of the outstanding shares of Common Stock vote on such matters. If certain conditions are met, including Mr. Hicks serving as the President and Chief Executive Officer of the Company or holding not less than 3.0% of the fully-diluted Common Stock of the Company, the Affiliate Stockholders Agreement provides that Mr. Hicks shall be one of such designees to serve on the Company's Board of Directors. The Affiliate Stockholders Agreement provides that (i) R. Steven Hicks shall retain the voting rights of any securities (subject to such agreement) which he transfers, conveys, assigns or hypothecates to an affiliate or any of his family members and (ii) Mr. Hicks may not transfer, convey, assign or hypothecate any of his securities (subject to the Affiliate Stockholders Agreement) to an affiliate or to any family member of Mr. Hicks unless such affiliate or family member joins in the Affiliate Stockholders Agreement. Management Stockholders Agreement . Certain employees of the Company and other persons have entered into the Management Stockholders Agreement with the Company and Hicks Muse that provides, among other things, that in the event the Company proposes to register any shares of its Common Stock under the Securities Act, whether or not for its own account, the stockholders that are parties to the Management Stockholders Agreement will be entitled, with certain exceptions, to include their shares of Common Stock in such registration. REGISTRATION RIGHTS AGREEMENT Frank D. Osborn entered into a registration rights agreement with the Company upon consummation of the Osborn Acquisition which provides, among other things, that Mr. Osborn may require the Company to effect a demand registration of his Common Stock under the Securities Act at any time within 30 days after the tenth anniversary of the date of the registration rights agreement. Mr. Osborn's right to demand a registration will terminate upon the first to occur of a Qualified IPO or a change in control (both as defined in the registration rights agreement). Accordingly, Mr. Osborn's right to demand a registration will terminate upon completion of the Offering. If the Offering is not completed, then after receipt of a demand for registration of Common Stock pursuant to the registration rights agreement, the Company would have the option to purchase all of the shares of Common Stock, then held by Mr. Osborn for a 30-day period, at appraised value (as defined in the registration rights agreement). 81 85 WARRANTS On October 16, 1996, the Company issued a warrant (the "Warrant") to R. Steven Hicks. Pursuant to the terms of the Warrant, Mr. Hicks is entitled to purchase 744,000 shares of Class C Common Stock at any time or from time to time and, upon the fulfillment of a certain triggering event, may purchase an additional 186,000 shares of Class C Common Stock. The exercise price of the Warrant is equal to a per share price of $10.00 as increased by an annual rate of interest equal to 8.0% per year commencing as of October 16, 1996. The term "triggering event" means the date upon which distributions equal to an internal rate of return of at least 30.0%, calculated in accordance with generally accepted financial practice, on the initial investment of Capstar L.P. of $90.0 million in the Company (which investment was made on October 16, 1996) have been made to Hicks Muse and its affiliates and its and their respective officers, directors and employees (and members of their respective families (other than Mr. Hicks) and trusts for the primary benefit of those family members). The Warrant will terminate on October 16, 2006. The Warrant and the Class C Common Stock issuable thereunder are subject to the Affiliate Stockholders Agreement. Under the terms (prior to the Offering) of the Affiliate Stockholders Agreement, the Company issued a new warrant (the "New Warrant" and collectively with the Warrant, the "Warrants") to Mr. Hicks upon completion of the Hicks Muse Equity Investment (as defined). Pursuant to the terms of the New Warrant, Mr. Hicks is entitled to purchase 204,255 shares of Class C Common Stock at any time or from time to time and, upon the fulfillment of the triggering event (which is based on Capstar L.P.'s $34.8 million investment in the Company made on February 20, 1997), may purchase an additional 51,063 shares of Class C Common Stock. See "-- Management and Affiliate Equity Investments." The exercise price of the New Warrant is equal to a per share price of $11.00 per share as increased by an annual rate of interest equal to 8.0% per year commencing as of February 20, 1997. The New Warrant will terminate ten years from the date of grant. The remaining terms of the New Warrant are substantially similar to the terms of the Warrant. MANAGEMENT AND AFFILIATE EQUITY INVESTMENTS HM Fund III and its affiliates (including Capstar L.P.) have invested $125.7 million in the Class C Common Stock, including $90.0 million for 9,000,000 shares in connection with the Commodore Acquisition, $34.8 million for 3,163,452 shares in connection with the Osborn Acquisition (the "Hicks Muse Equity Investment") and $750,000 for 75,000 shares in connection with the Benchmark Acquisition. In connection with the Osborn Acquisition, Capstar BT Partners, L.P., a limited partnership controlled by Hicks Muse, invested $20.0 million for 1,818,181 shares of Class B Common Stock (the "BT Equity Investment" and, collectively with the Hicks Muse Equity Investment, the "Equity Investment"). In a similar transaction, Capstar Boston Partners, L.L.C., a Delaware limited liability company controlled by Hicks Muse, invested $3.0 million for 272,727 shares of Class A Common Stock. R. Steven Hicks, the President and Chief Executive Officer of Capstar, has invested $3.1 million for 310,000 shares of Class C Common Stock. James T. Shea, Jr., the chief executive officer of the Northeast Region, has invested $350,000 for 35,000 shares of Class A Common Stock. In connection with the Osborn Acquisition, Frank D. Osborn, the President and Chief Executive Officer of Osborn and the chief executive officer of the Southeast Region, contributed certain shares of common stock of Osborn to the Company in exchange for 163,636 shares of Class A Common Stock having a deemed value of $1.8 million. David J. Benjamin, who will serve as the chief executive officer of the West Region, and Dex Allen, who serves as the chief operating officer of the West Region, have each invested $400,000 for 36,363 shares of Class A Common Stock. In connection with the Benchmark Acquisition, Joseph L. Mathias IV, the President and Chief Operating Officer of Benchmark Communications, Inc., an indirectly wholly-owned subsidiary of Capstar, received 153,846 shares of Class A Common Stock having a deemed value of $2.0 million in consideration of part of his ownership interest in Benchmark. Certain other members of the Company's management have invested approximately $1.1 million for 113,000 shares of Class A Common Stock. INDEBTEDNESS OF MANAGEMENT In connection with his employment, Dex Allen, the chief operating officer of the West Region, purchased 36,363 shares of Class A Common Stock in exchange for $200,000 in cash and a promissory note payable to Capstar in the principal amount of $200,000. The note is secured by the Class A Common Stock purchased by Mr. Allen and bears interest at a rate of 9% per annum with interest payable monthly and principal payable at maturity. The note will 82 86 mature and be payable on the first to occur of (i) October 31, 1997 or (ii) consummation of the Commonwealth Acquisition. Such shares are subject to the Management Stockholders Agreement. See "-- Stockholders Agreements." David J. Benjamin, who will serve as the chief executive officer of the West Region upon consummation of the Community Pacific Acquisition, purchased 36,363 shares of Class A Common Stock in exchange for a promissory note payable to Capstar in the principal amount of $400,000. The note is secured by the Class A Common Stock purchased by Mr. Benjamin and bears interest at a rate of 9% per annum with principal and interest payments due at maturity. The note will mature and be payable on the first to occur of (i) November 10, 1997 or (ii) consummation of the Community Pacific Acquisition. The Company will have the right to repurchase Mr. Benjamin's shares of Class A Common Stock (by forgiveness of the note) if (i) the Community Pacific Acquisition is not closed by November 10, 1997 or (ii) the acquisition agreement therefor is terminated. Such shares are subject to the Management Stockholders Agreement. See "-- Stockholders Agreements." DESCRIPTION OF CAPITAL STOCK The following description of the capital stock of Capstar gives effect to the Recapitalization, which will occur prior to the Offering, and the proposed sale of shares of Class A Common Stock in the Offering. The Company's authorized capital stock consists of (i) 150,000,000 shares of Class A Common Stock, of which shares are issued and outstanding, (ii) 50,000,000 shares of Class B Common Stock of which 1,818,181 shares are issued and outstanding, and (iii) 50,000,000 shares of Class C Common Stock, of which 12,548,452 shares are issued and outstanding, and (iv) 10,000,000 shares of Preferred Stock, $.01 par value per share ("Preferred Stock"), none of which are issued and outstanding. In addition, the Company has reserved for issuance (i) 1,185,318 shares of Class C Common Stock upon the exercise of the Warrants and (ii) 9,000,000 shares of Class A Common Stock under the Stock Option Plan. See "Management -- Benefit Plans." COMMON STOCK The rights of holders of the Common Stock are identical in all respects, except for voting rights. All the outstanding shares of Class A Common Stock, Class B Common Stock and Class C Common Stock are, and the shares of Class A Common Stock sold in the Offering will be, upon issuance and payment of the purchase price therefor, validly issued, fully paid and nonassessable. Dividends. Subject to the right of the holders of any class of Preferred Stock, holders of shares of Common Stock are entitled to receive such dividends as may be declared by Capstar's Board of Directors out of funds legally available for such purpose. No dividend may be declared or paid in cash or property on any share of any class of Common Stock unless simultaneously the same dividend is declared or paid on each share of the other class of Common Stock, provided that, in the event of stock dividends, holders of a specific class of Common Stock shall be entitled to receive only additional shares of such class. Voting Rights. The Class A Common Stock and the Class C Common Stock vote together as a single class on all matters submitted to a vote of stockholders, with each share of Class A Common Stock entitled to one vote and each share of Class C Common Stock entitled to ten votes, except (i) that the holders of Class A Common Stock, voting as a separate class, are entitled initially to elect two members of the Board of Directors of Capstar; (ii) with respect to any proposed "going private" transaction (as defined in Rule 13e-3 under the Securities Exchange Act of 1934 (the "Exchange Act")) with Hicks Muse or any of its affiliates (a "Rule 13e-3 Transaction"), each share of Class A Common Stock and Class C Common Stock shall be entitled to one vote; and (iii) as otherwise required by law. The Class B Common Stock has no voting rights except as otherwise required by law. In the election of directors, the holders of Class A Common Stock, voting as a separate class, will be entitled to elect two persons to Capstar's Board of Directors, each of whom must be an "independent director." For this purpose, an "independent director" means a person who is not an officer or employee of Capstar or its subsidiaries, and who does not have a relationship which, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Capstar anticipates that the Class A Directors will be elected by the 83 87 holders of the Class A Common Stock at the next regularly scheduled annual meeting of stockholders of Capstar occurring after the Offering, provided that such vacancies may be filled by the Board of Directors before the next annual meeting of stockholders and such appointees would then be nominated for election as the Class A Directors at the next annual meeting of stockholders. The holders of Class A Common Stock and Class C Common Stock, voting as a single class, are entitled to elect the Classified Directors. Notwithstanding the foregoing, upon the earlier to occur of (i) the date on which Hicks Muse and its affiliates ceases to own beneficially more than 50% of the numbers of shares of Class C Common Stock owned by them upon completion of the Offering and (ii) the third anniversary date of the completion of the Offering, the holders of Class A Common Stock and Class C Common Stock shall vote together as a single class upon the election of all directors. Holders of Common Stock are not entitled to cumulate votes in the election of directors. Under Delaware law, the affirmative vote of the holders of a majority of the outstanding shares of any class of Common Stock is required to approve any amendment to the certificate of incorporation of Capstar that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class, or modify or change the powers, preferences or special rights of the shares of any class so as to affect such class adversely. Liquidation Rights. Upon liquidation, dissolution or winding-up of Capstar, the holders of the Common Stock are entitled to ratably share in all assets available for distribution after payment in full of creditors and holders of the Preferred Stock, if any. Conversion of Class B Common Stock. The shares of Class B Common Stock are convertible, in whole but not in part, at the option of the holder or holders thereof at any time into a like number of shares of Class A Common Stock, subject to certain conditions. Upon the sale or other transfer of any share or shares of Class B Common Stock to any person (subject to certain exceptions) other than Hicks Muse and its affiliates, each share so sold or transferred shall automatically be converted into one share of Class A Common Stock, subject to certain conditions. Conversion of Class C Common Stock. The shares of Class C Common Stock are convertible, in whole but not in part, at the option of the holder or holders thereof at any time into a like number of shares of Class A Common Stock. Upon the sale or other transfer of any share or shares of Class C Common Stock to any person other than Hicks Muse or its affiliates, each share so sold or transferred shall automatically be converted into one share of Class A Common Stock. Preemptive Rights. The holders of Common Stock are not entitled to preemptive or similar rights. Transfer Agent. Harris Trust & Savings Bank is the Transfer Agent and Registrar for the Class A Common Stock. PREFERRED STOCK Capstar is authorized to issue 10,000,000 shares of Preferred Stock. The Board of Directors of Capstar, in its sole discretion, may designate and issue one or more series of Preferred Stock from the authorized and unissued shares of Preferred Stock. Subject to limitations imposed by law or Capstar's Restated Certificate of Incorporation, the Board of Directors is empowered to determine the designation of and the number of shares constituting a series of Preferred Stock. The dividend rate for the series, the terms and conditions of any voting and conversion rights for the series, the amounts payable on the series upon redemption or upon the liquidation, dissolution or winding-up of Capstar, the provisions of any sinking fund for the redemption or purchase of shares of any series, and the preferences and relative rights among the series of Preferred Stock. Such rights, preferences, privileges and limitations could adversely effect the rights of holders of Common Stock. FOREIGN OWNERSHIP The Restated Certificate of Incorporation restricts the ownership, voting and transfer of Capstar's capital stock, including the Common Stock, in accordance with the Communications Act and the rules of the FCC, which prohibit ownership of more than 25% of Capstar's outstanding capital stock (or more than 25% of the voting rights it represents) by or for the account of Aliens or corporations otherwise subject to domination or control by Aliens. The Restated Certificate of Incorporation authorizes the Board of Directors to adopt such provisions as it deems necessary to enforce these prohibitions, including the inclusion of a legend regarding restrictions on foreign ownership of such stock on the certificates representing the Common Stock. In addition, the Restated Certificate of Incorporation provides that shares 84 88 of capital stock of Capstar determined by the Board of Directors to be owned beneficially by an Alien or an entity directly or indirectly owned by Aliens in whole or in part shall always be subject to redemption by Capstar by action of the Board of Directors to the extent necessary, in the judgment of the Board of Directors, to comply with the Alien ownership restrictions of the Communications Act and the FCC rules and regulations. CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND RESTATED BYLAWS OF THE COMPANY Capstar's Restated Certificate of Incorporation and Restated Bylaws include certain provisions that could have an anti-takeover effect. These provisions are intended to enhance the likelihood of continuity and stability in the composition of the Board of Directors and in the policies formulated by the Board of Directors. These provisions also are intended to help ensure that the Board of Directors, if confronted by a surprise proposal from a third party which has acquired a block of stock of the Company, will have sufficient time to review the proposal and appropriate alternatives to the proposal and to act in what it believes to be the best interests of the stockholders. The following is a summary of selected provisions included in the Restated Certificate of Incorporation and Restated Bylaws of the Company and is qualified in its entirety by reference to such documents, copies of which will be filed as exhibits to the Registration Statement of which this Prospectus forms a part. The Board of Directors has no current plans to formulate or effect additional measures that could have an anti-takeover effect. Classified Board of Directors. In addition to the Class A Directors, the Restated Certificate of Incorporation provides for three additional classes of directors, which serve staggered three-year terms and which shall be elected by the holders of the Class A Common Stock and Class C Common Stock, voting as a single class. Under certain circumstances, the classification of directors has the effect of making it more difficult for stockholders to change the composition of the Board of Directors in a relatively short period of time. At least two annual meetings of stockholders, instead of one, will generally be required to effect a change in a majority of the Board of Directors at any time Capstar has seven or more directors. See "Management." Stockholders may remove a director only for cause upon the vote of holders of at least 66 2/3% of the outstanding shares of Common Stock entitled to vote thereon. Advance Notice Requirements for Stockholder Proposals and Director Nominees. The Restated Bylaws will include an advance notice procedure with regard to business proposed to be submitted by a stockholder at any annual or special meeting of stockholders of the Company, including the nomination of candidates for election as directors. The procedure provides that a notice of proposed stockholder business must be timely given in writing to the Secretary of Capstar prior to the meeting. In all cases, to be timely, notice relating to an annual meeting must be received at the principal executive office of Capstar not less than 60 days nor more than 90 days before the first anniversary of the prior year's annual meeting. Notice to Capstar from a stockholder who proposes to nominate a person at a meeting for election as a director must contain all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act, including such person's written consent to being named in the proxy statement as a nominee and to serve as a director if elected. Special Meetings; Action by Written Consent. The Restated Certificate of Incorporation provides that special meetings of holders of Common Stock may be called only by Capstar's Board of Directors and that only business proposed by the Board of Directors may be considered at special meetings of the holders of Common Stock. The Restated Certificate of Incorporation also provides that holders of Common Stock may act at annual or special meetings of holders of Common Stock and by written consent. Blank Check Preferred Stock. Capstar's Restated Certificate of Incorporation provides that the Board of Directors of Capstar may authorize the issuance of up to 10,000,000 shares of preferred stock in one or more classes or series and may designate the dividend rate, voting rights and other rights, preferences and restrictions of each such class or series. The Board of Directors of Capstar has no present intention to issue any preferred stock; however, the Board of Directors of Capstar has the authority, without further shareholder approval, to issue one or more series of preferred stock that could, depending on the terms of such series, either impede or facilitate the completion or a merger, tender offer or other takeover attempt. Although the Board of Directors of Capstar is required to make any 85 89 determination to issue such stock based on its judgment as to the best interests of the stockholders of Capstar, the Board of Directors of Capstar could act in a manner that would discourage an acquisition attempt or other transaction that some, or a majority, of the stockholders might believe to be in their best interests or in which stockholders might receive a premium for their stock over the then market price of such stock. The Board of Directors of Capstar does not intend to seek stockholder approval prior to any issuance of such stock, unless otherwise required by law. SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW Generally, Section 203 of the General Corporation Law of the State of Delaware prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless one of the following events occurs: (i) prior to the date of the business combination, the transaction is approved by the board of directors of the corporation; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owns at least 85% of the outstanding voting stock; or (iii) on or after such date the business combination is approved by the board and by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years, did own) 15% or more of the corporation's voting stock. SHARES ELIGIBLE FOR FUTURE SALE Prior to the Offering, there has been no public market for the Common Stock of Capstar. The sale, or availability for sale, of substantial amounts of Common Stock in the public market subsequent to the Offering, could adversely affect the prevailing market price of the shares of Class A Common Stock and could impair Capstar's ability to raise additional capital through the sale of equity securities. Upon completion of the Offering, Capstar will have outstanding a total of shares of Class A Common Stock ( shares if the Underwriters' over-allotment option is exercised in full), 1,818,181 shares of Class B Common Stock and 12,548,452 shares of Class C Common Stock. Of these outstanding shares, the shares of Class A Common Stock sold in the Offering ( shares if the Underwriters' over-allotment option is exercised in full) will be freely transferable without restriction under the Securities Act, except for any such shares purchased by an "affiliate" (as defined in Rule 144 under the Securities Act) of Capstar, which shares will be subject to the resale volume limitations of Rule 144. The remaining 810,935 shares of Class A Common Stock, all 1,818,181 shares of Class B Common Stock and all 12,548,452 shares of Class C Common stock will be "restricted securities" for purposes of Rule 144 and may not be resold unless registered under the Securities Act or sold pursuant to an applicable exemption thereunder, including the exemption contained in Rule 144. In general, under Rule 144, as currently in effect, a stockholder (or stockholders whose shares are aggregated) who has beneficially owned restricted securities for at least one year (including persons who may be deemed "affiliates" of the Company under Rule 144) is entitled to sell a number of shares within any three-month period that does not exceed the greater of 1% of the then outstanding shares of the Common Stock or the average weekly trading volume of such stock during the four calendar weeks preceding such sale, subject to certain manner of sale limitations. A stockholder who is deemed not to have been an affiliate of the Company for at least three months prior to the date of sale and who has beneficially owned restricted securities for at least two years would be entitled to sell such shares under Rule 144 without regard to the volume or manner of sale limitations described above. Approximately 9,300,000 shares of the restricted securities of Capstar will be eligible for sale on the open market under Rule 144 (subject to the foregoing volume and manner of sale limitations of such rule) on October 16, 1997. Notwithstanding the foregoing, Capstar is a party to the Affiliate Stockholders Agreement with certain of its stockholders, including R. Steven Hicks and affiliates of Hicks Muse, which grants those stockholders, who after the Recapitalization will hold an aggregate of 14,639,360 to certain limitations, to effect up to three "demand" registrations under the Securities Act for the sale of such stockholders' shares of Common Stock. Capstar is also a party to the Stockholders Agreements with its other stockholders. The Stockholders Agreements provide that in the event that 86 90 Capstar proposes to register any shares of its Common Stock under the Securities Act, whether or not for its own account, at any time or times, the stockholders that are parties to the Stockholders Agreements shall be entitled, with certain exceptions, to include their shares of Common Stock in such registration unless the managing underwriters of such offering exclude some or all of such shares from such registration under the circumstances specified in the Stockholders Agreements. The parties to the Stockholders Agreements have waived their rights to participate as selling stockholders in the Offering. 87 91 DESCRIPTION OF INDEBTEDNESS SENIOR DISCOUNT NOTES The Notes were issued under an Indenture dated as of February 20, 1997 (the "Indenture"), between Capstar and U.S. Trust Company of Texas, N.A., as trustee (the "Trustee"). Capstar will offer (the "Exchange Offer") to exchange new notes ("New Notes") for the Notes. The terms of the New Notes are identical in all material respects to the Notes, except that the New Notes will have been registered under the Securities Act and, therefor, will not bear legends restricting their transfer. Upon the issuance of the New Notes, the Indenture will be subject to and governed by the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes and the New Notes are collectively referred to herein as the "Notes." The following summary of certain provisions of the Indenture and the Notes does not purport to be complete, is subject to, and is qualified in its entirety by reference to, the provisions of the Indenture and the Notes and assumes that the exchange offer has been completed. The Notes are unsecured, senior obligations of Capstar and are limited to $277,000,000 aggregate principal amount at maturity and will mature on February 1, 2009. No interest will accrue on the Notes prior to February 1, 2002. Thereafter, interest on the Notes will accrue at the rate of 12 3/4% and will be payable in cash semiannually on February 1 and August 1 commencing on August 1, 2002 to holders of record on the immediately preceding January 15 and July 15. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from February 1, 2002. Interest will be computed on the basis of a 360-day year comprised of twelve 30- day months. The yield to maturity of the Notes is 12 3/4% (computed on a semi-annual bond equivalent basis), calculated from February 20, 1997. The Notes were offered at a substantial discount from their principal amount at maturity. The Notes may be redeemed (subject to contractual and other restrictions with respect thereto and to the legal availability of funds therefor) at any time on or after February 1, 2002, in whole or in part, at the option of Capstar, at the redemption prices (expressed as a percentage of the accreted value thereof on the applicable redemption date) set forth below, plus accrued and unpaid interest, if any, to the redemption date, if redeemed during the 12-month period beginning February 1 of each of the years set forth below:
YEAR PERCENTAGE ---- ---------- 2002 106.375% 2003 105.313% 2004 104.250% 2005 103.188% 2006 102.125% 2007 100.000%
In addition, prior to February 1, 2001, Capstar may, at its option, use the net cash proceeds of one or more public equity offerings (as defined in the Indenture) or major asset sales (as defined in the Indenture) to redeem up to 25% of the principal amount at maturity of the Notes at a redemption price of 112.75% of the accreted value thereof at the redemption date of the Notes so redeemed; provided, however, that after any such redemption, at least 75% in aggregate principal amount at maturity of Notes would remain outstanding immediately after giving effect to such redemption. Any such redemption will be required to occur on or prior to the date that is one year after the receipt by Capstar of the proceeds of a public equity offering or major asset sale. Capstar shall effect such redemption on a pro rata basis. In addition, prior to February 1, 2002, Capstar may, at its option, redeem the Notes upon a change of control (as defined in the Indenture). See "-- Change of Control." The Commodore Indenture and the New Credit Facility restrict Commodore's ability to pay dividends or make other restricted payments to Capstar and, accordingly, may also limit the ability of Capstar to redeem the Notes. See "--New Credit Facility" and "--Commodore Notes." 88 92 Change of Control. The Indenture provides that, upon the occurrence of a change of control, each holder will have the right to require that Capstar purchase all or a portion of such holder's Notes in cash pursuant to the offer to purchase the Notes at a purchase price equal to (i) 101% of the accreted value on the change of control payment date (as defined therein) if the change of control payment date is on or before February 1, 2002 and (ii) 101% of the principal amount at maturity thereof, plus, without duplication, all accrued and unpaid interest, if any, to the change of control payment date if such change of control payment date is after February 1, 2002. Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock of Subsidiaries. Under the Indenture, Capstar will not, and will not permit any of its subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any indebtedness, other than permitted indebtedness, and Capstar's subsidiaries will not issue any preferred stock (as defined in the Indenture); provided, however, that Capstar and its subsidiaries may incur indebtedness and Capstar's subsidiaries may issue shares of preferred stock if, in either case, the Company's leverage ratio at the time of incurrence of such indebtedness or the issuance of such preferred stock, as the case may be, after giving pro forma effect to such incurrence or issuance as of such date and to the use of proceeds therefrom is less than 7.0 to 1. Limitation on Restricted Payments. The Indenture provides that neither Capstar nor any of its subsidiaries will, directly or indirectly, make any restricted payment (as defined in the Indenture) if at the time of such restricted payment and immediately after giving effect thereto: (i) a default or event of default shall have occurred and be continuing at the time of or after giving effect to such restricted payment; or (ii) the Company is not able to incur $1.00 of additional indebtedness (other than permitted indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock of Subsidiaries" covenant; or (iii) the aggregate amount of restricted payments made subsequent to the issue date of the Notes exceeds the sum of (a) (x) 100% of the aggregate consolidated EBITDA (as defined in the Indenture) of the Company (or, in the event such consolidated EBITDA shall be a deficit, minus 100% of such deficit) accrued subsequent to the issue date to the most recent date for which financial information is available to the Company, taken as one accounting period, less (y) 1.4 times consolidated interest expense (as defined in the Indenture) for the same period, plus (b) 100% of the aggregate net proceeds, received by Capstar from any person (other than a subsidiary of Capstar) from the issuance and sale on or subsequent to the issue date of qualified capital stock (as defined in the Indenture) of Capstar, plus (c) without duplication of any amount included in clause (iii)(b) above, 100% of the aggregate net proceeds, received by Capstar as a capital contribution on or after the issue date, plus (d) the amount equal to the net reduction in investments, other than permitted investments, made by Capstar or any of its subsidiaries in any person resulting from (i) repurchases or redemptions of such investments by such person, proceeds realized upon the sale of such investment to an unaffiliated purchaser and repayments of loans or advances or other transfers of assets by such person to Capstar or any subsidiary of Capstar or (ii) the redesignation of unrestricted subsidiaries (as defined in the Indenture) as subsidiaries, plus (e) the aggregate net cash proceeds received by a person in consideration for the issuance of such person's capital stock, other than disqualified capital stock (as such terms are defined in the Indenture), that are held by such person at the time such person is merged with and into the Company. Other Restrictive Covenants. The Indenture contains certain other restrictive covenants that, among other things, impose limitations (subject to certain exceptions) on the Company with respect to (i) sales of assets by the Company and its subsidiaries, (ii) asset swaps and (iii) the merger or sale of all or substantially all the assets of the Company. Events of Default. The following events are defined in the Indenture as "Events of Default": (i) the failure to pay interest on the Notes when the same becomes due and payable and the default continues for a period of 30 days; (ii) the failure to pay the accreted value of or premium, if any, on any Notes when such accreted value or premium, if any, becomes due and payable, at maturity, upon redemption or otherwise; (iii) a default in the observance or 89 93 performance of any other covenant or agreement contained in the Notes or the Indenture, which default continues for a period of 30 days after Capstar receives written notice thereof specifying the default from the Trustee or holders of at least 25% in aggregate principal amount at maturity of outstanding Notes; (iv) the failure to pay at the final stated maturity (giving effect to any extensions thereof) the principal amount of any indebtedness of Capstar or any subsidiary of Capstar, or the acceleration of the final stated maturity of any such indebtedness, if the aggregate principal amount of such indebtedness, together with the aggregate principal amount of any other such indebtedness in default for failure to pay principal at the final stated maturity (giving effect to any extensions thereof) or which has been accelerated, aggregates $5,000,000 or more at any time in each case after a 10-day period during which such default shall not have been cured or such acceleration rescinded; (v) one or more judgments in an aggregate amount in excess of $5,000,000 (which are not covered by insurance as to which the insurer has not disclaimed coverage) being rendered against Capstar or any of its significant subsidiaries (as defined in the Indenture) and such judgment or judgments remain undischarged or unstayed for a period of 60 days after such judgment or judgments become final and nonappealable; and (vi) certain events of bankruptcy, insolvency or reorganization affecting Capstar or any of its significant subsidiaries. Upon the happening of any Event of Default specified in the Indenture, the Trustee may, and the Trustee upon the request of holders of 25% in principal amount at maturity of the outstanding Notes shall, or the holders of at least 25% in principal amount at maturity of outstanding Notes may, declare the accreted value of all the Notes, together with all accrued and unpaid interest and premium, if any, to be due and payable by notice in writing to Capstar and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the New Credit Facility, will become due and payable upon the first to occur of an acceleration under the New Credit Facility or five business days after receipt by the Company and the agent under the New Credit Facility of such Acceleration Notice (unless all Events of Default specified in such Acceleration Notice have been cured or waived). For purposes of the immediately preceding sentence, "New Credit Facility" includes the New Credit Facility, as it may be amended, supplemented or otherwise modified from time to time and any renewal, extension, refunding, restructuring, replacement or refinancing thereof (whether with the original agent and lenders or another agent or agents or other lenders and whether provided under the original New Credit Facility or any other credit agreement. If an Event of Default with respect to bankruptcy proceedings relating to the Company occurs and is continuing, then such amount will ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holder of the Notes. COMMODORE NOTES The following summary of certain terms of the Commodore Notes and the Commodore Indenture does not purport to be complete and is qualified in its entirety by reference to the Trust Indenture Act of 1939, as amended, and to the full text of the Commodore Indenture, which is filed as an exhibit to the registration statement to which this Prospectus is a part. The Commodore Notes were issued pursuant to the Commodore Indenture among Commodore, the guarantors named therein and IBJ Schroder Bank & Trust Company, as Trustee. The Commodore Notes mature on May 1, 2003, are limited in aggregate principal amount to $76,808,000 and bear cash interest at a rate of 7 1/2% per annum from the date of original issuance until May 1, 1998, and at a rate of 13 1/4% per annum from and including May 1, 1998 until maturity. Interest is payable semi-annually in arrears on May 1 and November 1. The Commodore Notes are general unsecured obligations of Commodore subordinated in right of payment to all senior indebtedness (as defined in the Commodore Indenture) and senior in rights of payment to any current or future indebtedness of Communications which, by its terms, is subordinated to the Commodore Notes. The Commodore Notes are unconditionally guaranteed, on a senior subordinated basis, as to payment of principal, premium, if any, and interest, jointly and severally, by the guarantors named in the Commodore Indenture. The Commodore Notes are redeemable at the option of Commodore, in whole or in part, at any time on or after (i) May 1, 1999 at 107.5% of their principal amount, (ii) May 1, 2000, at 105.0% of their principal amount, (iii) May 1, 2001, at 102.5% of their principal amount and (iv) May 1, 2002 and thereafter, at 100.0% of their principal amount, together, in each case, with accrued and unpaid interest to the redemption date. Notwithstanding the foregoing, Commodore may redeem in the aggregate up to one-third of the original principal amount of the Commodore Notes at 90 94 any time and from time to time prior to May 1, 1998 at a redemption price equal to 108% of the Accreted Value of the Commodore Notes thereof plus accrued interest to the redemption date out of the net proceeds of one or more public equity offerings (as defined in the Commodore Indenture), provided, that at least $50 million in aggregate principal amount of Commodore Notes remains outstanding immediately after the occurrence of any such redemption and that any such redemption occurs within 120 days following the closing of any such public equity offering. Limitation on Additional Indebtedness. Under the Commodore Indenture, Commodore will not, and will not permit any restricted subsidiary of Commodore to, directly or indirectly, incur any indebtedness (including acquired indebtedness as such term is defined in the Commodore Indenture) unless (i) after giving effect to the incurrence of such indebtedness and the receipt and application of the proceeds thereof, the ratio of Commodore's total indebtedness to Commodore's EBITDA (determined on a pro forma basis for the last four fiscal quarters of Commodore for which financial statements are available at the date of determination) is less than 6.75 to 1 if the indebtedness is incurred prior to May 1, 1998 and 6.25 to 1 if the indebtedness is incurred thereafter and (ii) no default or event of default (as such terms are defined in the Commodore Indenture) shall have occurred and be continuing at the time or immediately after giving effect to the incurrence of such indebtedness. Limitation on Restricted Payments. Subject to certain exceptions set forth in the Commodore Indenture, Commodore will not make, and will not permit any of its restricted subsidiaries to, directly or indirectly, make, any restricted payment (as defined in the Commodore Indenture), unless: (i) no default or event of default shall have occurred and be continuing at the time of or immediately after giving effect to such restricted payment; (ii) immediately after giving pro forma effect to such restricted payment, Commodore could incur $1.00 of additional indebtedness (other than permitted indebtedness) in compliance with the covenant described above under "Limitation on Additional Indebtedness"; and (iii) immediately after giving effect to such restricted payment, the aggregate of all restricted payments declared or made after the issue date of the Commodore Notes does not exceed the sum of (a) 50% of Commodore's cumulative consolidated net income (or in the event such consolidated net income shall be a deficit, minus 100% of such deficit) after the issue date, plus (b) 100% of the aggregate net proceeds and the fair market value of securities or other property received by Commodore from the issue or sale, after the issue date, of capital stock of Commodore (other than disqualified capital stock as such term is defined in the Commodore Indenture or capital stock of Commodore issued to any subsidiary of Commodore) or any indebtedness or other securities of Commodore convertible into or exercisable or exchangeable for capital stock (other than disqualified capital stock) of Commodore which has been so converted or exercised or exchanged, as the case may be. Change of Control. Under the Commodore Indenture, in the event of a Change of Control (as defined therein) of Commodore, Commodore will be required to make an offer to purchase the outstanding Commodore Notes at a purchase price equal to 101% of their accreted value (as defined in the Commodore Indenture), plus any accrued and unpaid interest, if any, to the date of repurchase. Other Restrictive Covenants. The Commodore Indenture contains certain other restrictive covenants that, among other things, impose limitations (subject to certain exceptions) on Commodore with respect to (i) the issuance of preferred stock by any of Commodore's subsidiaries, (ii) the sale, pledge, hypothecation or other transfer of any capital stock of a subsidiary of Commodore, (iii) the issuance of any capital stock of Commodore's subsidiaries other than to Commodore or a wholly-owned subsidiary, (iv) sales of assets by the Company and its subsidiaries, (v) transactions with stockholders and affiliates, (vi) the existence of liens on the assets of the Company or its subsidiaries, (vii) investments by the Company and its subsidiaries, (viii) the creation or acquisition of subsidiaries, (ix) the incurrence of indebtedness senior to the Commodore Notes and subordinate to other indebtedness of the Company, (x) the guarantee of indebtedness, (xi) the merger or sale of all or substantially all the assets of Commodore and (xii) limitations on assets swaps. Events of Default. Under the Commodore Indenture, each of the following events constitutes an "Event of Default": (i) a default in the payment of any principal of, or premium, if any, on the Commodore Notes when the same becomes due and payable; (ii) a default in the payment of any interest on any Commodore Note when the same becomes due and payable and the default continues for a period of 30 days; (iii) Commodore or any guarantor defaults in the observance or performance of any covenant in the Commodore Notes or Commodore Indenture for 60 days after written notice from the trustee or the holders of not less than 25% in the aggregate principal amount of the Commodore Notes then outstanding; (iv) Commodore or any guarantor fails to pay when due principal, interest or premium aggregating 91 95 $1,000,000 or more with respect to any indebtedness of Commodore or any restricted subsidiary thereof, or the acceleration of any such indebtedness aggregating $1,000,000 or more which default is not cured, waived or postponed pursuant to an agreement with the holders of such indebtedness within 60 days after written notice; (v) a court of competent jurisdiction enters a final and unappealable judgment or judgments for the payment of money in excess of $1,000,000 against Commodore or any restricted subsidiary thereof and such judgment remains undischarged and unbonded, for a period of 60 consecutive days during which a stay of enforcement of such judgment is not in effect by reason of appeal or otherwise; and (vi) certain events of bankruptcy, insolvency, or reorganization affecting Commodore or any of its restricted subsidiaries. Upon the happening of any Event of Default specified in the Commodore Indenture, the trustee may, and upon the request of holders of at least 25% in principal amount of the Commodore Notes, shall, or the holders of at least 25% in principal amount of outstanding Commodore Notes may, declare the principal of and accrued but unpaid interest, if any, on all of such Commodore Notes to be due and payable. NEW CREDIT FACILITY Commodore will enter into a Credit Facility (the "New Credit Facility") with Bankers Trust Company, an affiliate of BT Securities Corporation, as administrative agent (the "Agent"), and the other institutions party thereto (the "Banks"), in connection with the Benchmark Acquisition. The New Credit Facility will consist of [to be completed]. The following description of certain provisions of the New Credit Facility does not purport to be complete and is qualified in its entirety by reference to the full text of the New Credit Facility, which is filed as an exhibit to the registration statement to which this Prospectus forms a part. [Explanatory Note: The terms of the New Credit Facility will be provided by amendment to this Form S-1 Registration Statement.] LETTERS OF CREDIT The acquisition agreement for each Pending Acquisition may be terminated prior to consummation of the Pending Acquisition under various circumstances, including, generally, a breach (a material breach in the case of certain Pending Acquisitions) of any representation or warranty, or any material breach of any covenant or agreement, by the Company. If the acquisition agreement for any of the Community Pacific Acquisition, the Madison Acquisition, the Commonwealth Acquisition, the Cavalier Acquisition, the COMCO Acquisition or the WRIS Acquisition is terminated due to any such breach by the Company, the seller will be entitled to liquidated damages as such seller's exclusive remedy. The Company has secured its obligation to consummate each such Pending Acquisition by placing into escrow a letter of credit. The letters of credit (the "Letters of Credit") for all Pending Acquisitions total approximately $7.4 million. If the Pending Acquisition is not consummated due to any such breach by the Company, the escrow agent will, upon joint written instruction by the Company and the seller, release the letter of credit in connection therewith to the seller. If the Pending Acquisition is not consummated for any other reason, or upon consummation of such Pending Acquisition, the escrow agent will, upon joint written instruction by the Company and the seller, release the letter of credit to the Company. See "The Pending Acquisitions" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 92 96 UNDERWRITING Under the terms and subject to the conditions contained in an Underwriting Agreement dated (the "Underwriting Agreement"), the Underwriters named below (the "Underwriters"), for whom Credit Suisse First Boston Corporation, Alex. Brown & Sons Incorporated, BT Securities Corporation and Donaldson, Lufkin & Jenrette Securities Corporation are acting as representatives (the "Representatives"), have severally but not jointly agreed to purchase from Capstar the following respective numbers of shares of Class A Common Stock:
NUMBER OF UNDERWRITERS SHARES ------------ ---------------- Credit Suisse First Boston Corporation . . . . . . . . . . . . . . . . . . . . Alex. Brown & Sons Incorporated . . . . . . . . . . . . . . . . . . . . . . . BT Securities Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . Donaldson, Lufkin & Jenrette Securities Corporation . . . . . . . . . . . . . ---------------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ================
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will be obligated to purchase all of the shares of Class A Common Stock offered hereby (other than those shares covered by the over-allotment option described below) if any are purchased. The Underwriting Agreement provides that, in the event of a default by an Underwriter, in certain circumstances the purchase commitments of nondefaulting Underwriters may be increased or the Underwriting Agreement may be terminated. The Company has granted to the Underwriters an option, expiring at the close of business on the 30th day after the date of this Prospectus, to purchase up to additional shares of Class A Common Stock at the initial public offering price less the underwriting discounts and commissions, all as set forth on the cover page of this Prospectus. Such option may be exercised only to cover over-allotments, if any, in the sale of the shares of Class A Common Stock. To the extent such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares of Class A Common Stock as it was obligated to purchase pursuant to the Underwriting Agreement. The Company has been advised by the Representatives that the Underwriters propose to offer the shares of Class A Common Stock to the public initially at the public offering price set forth on the cover page of this Prospectus and, through the Representatives, to certain dealers at such price less a concession of $ per share. The Underwriters and such dealers may allow a discount of $ per share on sales to certain other dealers. After the initial public offering, the public offering price and concession and discount to dealers may be changed by the Representatives. The Representatives have informed the Company that they do not expect discretionary sales by the Underwriters to exceed five percent of the shares of Class A Common Stock being offered hereby. The Company has agreed to indemnify the Underwriters against certain liabilities, including civil liabilities under the Securities Act, or contribute to payments which the Underwriters may be required to make in respect thereof. 93 97 The Company, its officers and directors, and Hicks Muse and its affiliates and all other stockholders of the Company have agreed that they will not offer, sell, contract to sell, announce their intention to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Commission a registration statement under the Securities Act relating to any shares of Common Stock, or any securities that are convertible into, or exercisable or exchangeable for shares of Common Stock, for a period of 180 days after the date of this Prospectus without the prior written consent of Credit Suisse First Boston Corporation, except (i) in the case of Capstar, pursuant to employee stock option plans or in connection with other employee or non-employee director compensation arrangements or agreements, in each case, in effect on the date of this Prospectus and (ii) in connection with the acquisition by the Company of all or substantially all of the assets or all of the capital stock (including by way of merger) of any entity engaged solely in the ownership and operation of broadcast businesses or businesses reasonably related thereto, the voting capital stock of which is traded on a national securities exchange or The Nasdaq National Market. BT Securities Corporation, an NASD member, owns approximately 13% of the equity of the Company and is serving as a Representative of the Underwriters of the Offering. The Offering, therefore, is being conducted in accordance with the applicable provisions of Rule 2720 (previously Schedule E to the By-laws of the NASD) of the Conduct Rules of the NASD. Rule 2720 requires that the initial public offering price of the Class A Common Stock not be higher than that recommended by a "qualified independent underwriter" meeting certain standards. Accordingly, Credit Suisse First Boston Corporation is assuming the responsibilities of acting as the qualified independent underwriter and conducting due diligence. The initial public offering price of the Class A Common Stock set forth on the cover page of this Prospectus will be no higher than the price recommended by Credit Suisse First Boston Corporation. Prior to the Offering, there has been no public market for the Class A Common Stock. The initial public offering price for the shares of Class A Common Stock will be determined by negotiations between the Company and the Representatives. Among the factors to be considered in determining the initial public offering price will be prevailing market conditions, the results of operations of the Company in recent periods, the market capitalizations and stages of development of other companies that the Company and the Representatives believe to be comparable to the Company, estimates of the business potential of the Company, the present state of the Company's development, and other factors deemed relevant. The Company has applied to list the shares of Class A Common Stock on the . In connection with the listing of the Class A Common Stock on the , the Underwriters will undertake to sell round lots of 100 or more shares of Class A Common Stock to a minimum of beneficial owners. Bankers Trust Company, an affiliate of BT Securities Corporation, is the administrative agent and a lender under the New Credit Facility. The net proceeds of the Offering will be used to repay in part outstanding indebtedness owed to Bankers Trust Company under the New Credit Facility. Bankers Trust Company has from time to time issued letters of credit for the account of the Company or an affiliate thereof. See "Description of Indebtedness." BT Investment Partners, Inc., an affiliate of BT Securities Corporation, is the limited partner of Capstar BT Partners, L.P. which purchased 1,818,181 shares of Class B Common Stock. See "Certain Transactions -- Management and Affiliate Equity Investments." In addition, each of Bankers Trust Company and BT Securities Corporation, or affiliates thereof, have from time to time performed, and may, from time to time, perform certain advisory and banking services for Hicks Muse, the Company and their respective affiliates for which each has, and may in the future, receive customary fees and expenses. BT Investment Partners, Inc. is a limited partner of Hicks, Muse, Tate & Furst Fund II, L.P. and is a limited partner of HM Fund III. See "Use of Proceeds." The Representatives, on behalf of the Underwriters, may engage in over-allotment, stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act. Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. Syndicate covering transactions involve purchases of securities in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the Representatives to reclaim a selling concession from a syndicate member when the securities originally sold by such syndicate member are purchased in a syndicate covering transaction to cover syndicate short positions. Such stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the securities to be higher than it would otherwise be in the absence of such transaction. 94 98 NOTICE TO CANADIAN RESIDENTS RESALE RESTRICTIONS The distribution of the shares of Class A Common Stock in Canada is being made only on a private placement basis exempt from the requirement that the Company prepare and file a prospectus with the securities regulatory authorities in each province where trades of shares of Class A Common Stock are effected. Accordingly, any resale of the shares of Class A Common Stock in Canada must be made in accordance with applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with available statutory exemptions or pursuant to a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the shares of Class A Common Stock. REPRESENTATIONS OF PURCHASERS Each purchaser of shares of Class A Common Stock in Canada who receives a purchase confirmation will be deemed to represent to the Company and the dealer from whom such purchase confirmation is received that (i) such purchaser is entitled under applicable provincial securities laws to purchase such shares of Class A Common Stock without the benefit of a prospectus qualified under such securities laws, (ii) where required by law, that such purchaser is purchasing as principal and not as agent, and (iii) such purchaser has reviewed the text above under "Resale Restrictions." RIGHTS OF ACTION (ONTARIO PURCHASERS) The securities being offered are those of a foreign issuer and Ontario purchasers will not receive the contractual right of action prescribed by section 32 of the Regulation under the Securities (Ontario). As a result, Ontario purchasers must rely on other remedies that may be available, including common law rights of action for damages or rescission or rights of action under the civil liability provisions of the U.S. federal securities laws. ENFORCEMENT OF LEGAL RIGHTS All of the issuer's directors and officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon the issuer or such persons. All or a substantial portion of the assets of the issuer and such persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against the issuer or such persons in Canada or to enforce a judgment obtained in Canadian courts against such issuer or persons outside of Canada. NOTICE TO BRITISH COLUMBIA RESIDENTS A purchaser of shares of Class A Common Stock to whom the Securities Act (British Columbia) applies is advised that such purchaser is required to file with the British Columbia Securities Commission a report within ten days of the sale of any shares of Class A Common Stock acquired by such purchaser pursuant to this offering. Such report must in the form attached to British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained from the Company. Only one such report must be filed in respect of shares of Class A Common Stock acquired on the same date and under the same prospectus exemption. TAXATION AND ELIGIBILITY FOR INVESTMENT Canadian purchasers of shares of Class A Common Stock should consult their own legal and tax advisers with respect to the tax consequences of an investment in the shares of Class A Common Stock in their particular circumstances and with respect to the eligibility of the shares of Class A Common Stock for investment by the purchaser under relevant Canadian legislation. 95 99 LEGAL MATTERS The validity of the shares of Class A Common Stock offered hereby will be passed upon for the Company by Vinson & Elkins L.L.P., Dallas, Texas. Certain legal matters in connection with the Offering will be passed upon for the Underwriters by Cahill Gordon & Reindel (a partnership including a professional corporations, New York, New York). EXPERTS The consolidated balance sheet of Capstar Broadcasting Partners, Inc. and Subsidiaries as of December 31, 1996 and the consolidated statements of operations, stockholders' equity and cash flows for the period from October 11, 1996 ("inception") to December 31, 1996 included in this Prospectus, have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. The consolidated balance sheet of Commodore Media, Inc. and Subsidiaries, the Predecessor Company of Capstar Broadcasting Partners, Inc., as of December 31, 1995, and for the period from January 1, 1996 to October 16, 1996 and for the years ended December 31, 1995 and 1994, appearing in this Prospectus, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report appearing herein given upon such firm as experts in accounting and auditing. The consolidated balance sheets of Osborn Communications Corporation as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, appearing in this Prospectus, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report appearing herein, given upon such firm as experts in accounting and auditing. The combined balance sheets of Benchmark Communications Radio Limited Partnership as of December 31, 1996 and 1995 and the combined statements of operations, changes in partners' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1996 included in this Prospectus, have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. The balance sheet of Midcontinent Broadcasting Co. of Wisconsin, Inc. as of December 31, 1996 and the statements of income and retained earnings and cash flows for the year ended December 31, 1996 included in this Prospectus, have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. The balance sheet of Point Communications Limited Partnership as of December 31, 1996 and the statements of operations, partners' equity and cash flows for the year ended December 31, 1996 included in this Prospectus, have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. The balance sheet of Community Pacific Broadcasting Company L.P. as of December 31,1996 and the statements of operations, changes in partners' equity and cash flows for the year ended December 31, 1996 included in this Prospectus, have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. The statements of operations and deficit and cash flows of Q Broadcasting, Inc. for each of the three years in the period ended September 30, 1995 included in this Prospectus, have been included herein in reliance on the report of Holtz Rubenstein & Co., L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. The statements of operations and accumulated deficit and cash flows of Danbury Broadcasting, Inc. for the year ended June 30, 1995 included in this prospectus, have been included herein in reliance on the report of Paneth, Haber & Zimmerman L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. 96 100 The balance sheet of Adventure Communications-Huntington (Division of Adventure Communications, Inc.) as of December 31, 1995 and the statements of operations, division's deficit and cash flows for the year ended December 31, 1995 included in this Prospectus, have been included herein in reliance on the report of Brown, Edwards & Co., LLP, independent accountants, given on the authority of that firm as experts in accounting and auditing. AVAILABLE INFORMATION Capstar has filed with the Commission a registration statement on Form S-1 (together with all amendments and exhibits, the "Registration Statement") under the Securities Act. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules to the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the Class A Common Stock offered hereby, reference is made to the Registration Statement and to its exhibits and schedules. Statements in this Prospectus about the contents of any contract or other document are not necessarily complete; reference is made in each instance to the copy of the contract or other document filed as an exhibit to the Registration Statement. Each such statement is qualified in all respects by this reference to the exhibit. The Registration Statement, including exhibits, may be inspected without charge at the SEC's principal office located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and at Seven World Trade Center, Suite 1300, New York, New York 10048, and copies of all or any part thereof may be obtained from those offices after payment of prescribed fees. GLOSSARY OF CERTAIN TERMS AND MARKET AND INDUSTRY DATA "advertising inventory" refers to the amount of advertising air time a radio station has available to sell to advertisers. "broadcast cash flow" consists of operating income before depreciation, amortization, corporate and other compensation expenses. Although broadcast cash flow is not a measure of performance calculated in accordance with generally accepted accounting principles ("GAAP"), management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcast industry to evaluate a radio company's operating performance. However, broadcast cash flow should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP as a measure of liquidity or profitability. "Benchmark Acquisition" means the pending acquisitions of, and mergers of directly and indirectly wholly-owned subsidiaries of HM Fund III with, Benchmark Communications Radio Limited Partnership, L.P. and certain of its subsidiary partnerships (collectively, "Benchmark"). "Benchmark Combination" means the Benchmark Acquisition and all acquisitions or dispositions completed by Benchmark since January 1, 1996 through the date of the Benchmark Acquisition. "broadcast cash flow margin" represents the percentage of net revenue which is attributable to broadcast cash flow. "BT Equity Investment" means BT Investment Partners, Inc.'s $20.0 million investment in Capstar BT Partners, L.P., a limited partnership controlled by Hicks Muse, which used such investment to acquire $20.0 million of the nonvoting Class B Common Stock of Capstar. "Capstar" and the "Company" each means, unless the context otherwise requires, Capstar Broadcasting Partners, Inc. and its subsidiaries after consummation of the Pending Acquisitions. 97 101 "Cavalier Acquisition" means the Company's pending acquisition of substantially all of the assets of Cavalier Communications, L.P. ("Cavalier"). "COMCO Acquisition" means the Company's pending acquisition of substantially all of the assets of COMCO Broadcasting, Inc. ("COMCO"). "Commodore Acquisition" means the Company's completed acquisition of Commodore Media, Inc. ("Commodore"). "Commodore Combination" means the Commodore Acquisition and all acquisitions or dispositions completed by Commodore since January 1, 1996 through the date of the Commodore Acquisition. "Commodore Notes" refers to Commodore's 13 1/4% Senior Subordinated Notes due 2003. "Commonwealth Acquisition" means the Company's pending acquisition of substantially all of the assets of Commonwealth Broadcasting of Arizona, L.L.C. ("Commonwealth"). "Communications Act" means the Communications Act of 1934, as amended. "Community Pacific Acquisition" means the Company's pending acquisition of substantially all of the assets of Community Pacific Broadcasting Company L.P. ("Community Pacific"). "EBITDA" consists of operating income before depreciation, amortization and other expenses. Although EBITDA is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcast industry to evaluate a radio company's operating performance. However, EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP as a measure of liquidity or profitability. "Emerald City Acquisition" means the Company's pending acquisition of substantially all of the assets of Emerald City Radio Partners, L.P. ("Emerald City") used or held for use in connection with station WNOK-FM in the Columbia, South Carolina market. "Equity Investment" collectively refers to the Hicks Muse Equity Investment and the BT Equity Investment. "Gadsden Acquisition" means Osborn's completed acquisition of substantially all the assets of WAAX-AM/WQEN-FM, Gadsden, Alabama. "Hicks Muse Equity Investment" means the purchase by an affiliate of Hicks Muse of certain shares of Class A Common Stock for $34.8 million in cash concurrently with the consummation of the Osborn Acquisition. "Huntington Acquisition" collectively refers to certain defined assets of radio stations WKEE-FM and WKEE-AM in Huntington, West Virginia; WZZW-AM and WFXN-FM in Milton, West Virginia; WBVB-FM in Coal Grove, Ohio; and WIRO-AM and WMLV-FM in Ironton, Ohio, acquired by Commodore. "JSA" refers to a joint sales agreement, whereby a station licensee obtains, for a fee, the right to sell substantially all of the commercial advertising on a separately-owned and licensed station. JSAs take varying forms. A JSA, unlike an LMA, normally does not involve programming. "LMA" refers to a local marketing agreement, whereby a radio station outsources the management of certain limited functions of its operations. LMAs take varying forms; however, the FCC requires that, in all cases, the licensee maintain independent control over the programming and operations of the station. 98 102 "Madison Acquisition" means the Company's pending acquisition of substantially all of the assets of the Madison Radio Group ("Madison") which is comprised of the stations formerly owned by Midcontinent Broadcasting Co. of Wisconsin, Inc. and Point Communication Limited Partnership. "Management Equity Investment" means the $600,000 investment in Common Stock by certain members of the Company's management in January 1997. "Notes" means Capstar's 12 3/4% Senior Discount Notes due 2009. "Osborn Acquisition" means the Company's completed acquisition of Osborn Communications Corporation ("Osborn"). "Osborn Add-on Acquisitions" means the Company's completed acquisitions of (i) all of the issued and outstanding capital stock of Dixie Broadcasting, Inc. and Radio WBHP, Inc. and (ii) substantially all of the assets of Taylor Communications Corporation ("Taylor") utilized in the operations of Taylor's stations in the Tuscaloosa, Alabama market. "Osborn Combination" means the Osborn Transactions and all acquisitions or dispositions completed by Osborn since January 1, 1996 through the date of the Osborn Acquisition. "Osborn Contribution" means the contribution by Frank D. Osborn, the President and Chief Executive Officer of Osborn, of certain shares of common stock of Osborn to the Company in exchange for shares of Class A Common Stock having a deemed value of $1.8 million. "Osborn Ft. Myers Disposition" means Osborn's completed disposition of substantially all of the assets used or held for use in connection with the business and operations of Osborn's stations in the Port Charlotte and Ft. Myers, Florida markets. "Osborn Transactions" collectively refers to the Osborn Acquisition, the Osborn Add-on Acquisitions and the Osborn Ft. Myers Disposition. "Other Acquisitions" collectively refers to the Madison Acquisition and the Community Pacific Acquisition. "Pending Acquisitions" collectively refers to the Madison Acquisition, the Community Pacific Acquisition, the Commonwealth Acquisition, the COMCO Acquisition, the Cavalier Acquisition, the WRIS Acquisition and the Emerald City Acquisition. "WRIS Acquisition" means the Company's pending acquisition of substantially all of the assets of WRIS, Inc. ("WRIS"). Unless otherwise indicated herein, (i) MSA rankings by population were obtained from the Summer 1996 Radio Market Survey Schedule (copyright 1996), as provided by The Arbitron Company ("Arbitron"), (ii) all audience share rankings, except for the Yuma, Arizona market and where specifically stated to the contrary, have been derived from surveys of persons, ages 25 to 54, listening Monday through Sunday, 6 a.m. to 12 midnight, and are based on either the Spring, Summer or Fall 1996 survey period, as reported in Radio Market Reports, Metro Audience Trends (copyright 1996), a publication of Arbitron, (iii) audience share rankings in Yuma, Arizona, are based on the Spring 1996 survey period, as reported in AccuRatings(TM) (Copyright 1996), a publication of Strategic Radio Research, Inc. ("AccuRatings(TM)") and (iv) all revenue share rankings are based on data compiled as of February 27, 1997, as reported in BIA Publications Radio Analyzer -- BIA's Master Access, Version 1.7 (copyright 1996), a computer database by BIA Publications Inc. ("BIA"). 99 103 INDEX TO FINANCIAL STATEMENTS CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3 Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4 Consolidated Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . F-5 Consolidated Statements of Operations for the period ended December 31, 1996, for the period ended October 16, 1996, and for the years ended December 31, 1995 and 1994 . . . . . . . . . F-6 Consolidated Statements of Stockholders' Equity (Deficit) for the period ended December 31, 1996, for the period ended October 16, 1996, and for the years ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7 Consolidated Statements of Cash Flows for the period ended December 31, 1996, for the period ended October 16, 1996, and for the years ended December 31, 1995 and 1994 . . . . . . . . . F-8 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . F-9 OSBORN COMMUNICATIONS CORPORATION Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-32 Consolidated Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . F-33 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994 . . F-34 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-35 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-36 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . F-37 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-47 Combined Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . F-48 Combined Statements of Operations for the years ended December 31, 1996, 1995 and 1994 . . . . F-49 Combined Statements of Changes in Partners' Equity (Deficit) for the years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-50 Combined Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 . . . . F-51 Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-52 MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC. Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-61 Balance Sheet as of December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-62 Statement of Income and Retained Earnings for the year ended December 31, 1996 . . . . . . . . F-63 Statement of Cash Flows for the year ended December 31, 1996 . . . . . . . . . . . . . . . . . F-64 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-65 POINT COMMUNICATIONS LIMITED PARTNERSHIP Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-68 Balance Sheet as of December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-69 Statement of Operations for the year ended December 31, 1996 . . . . . . . . . . . . . . . . . F-70 Statement of Partners' Equity for the year ended December 31, 1996 . . . . . . . . . . . . . . F-71 Statement of Cash Flows for the year ended December 31, 1996 . . . . . . . . . . . . . . . . . F-72 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-73 COMMUNITY PACIFIC BROADCASTING COMPANY L.P. Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-77 Balance Sheet as of December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-78 Statement of Operations for the year ended December 31, 1996 . . . . . . . . . . . . . . . . . F-79 Statement of Changes in Partners' Equity for the year ended December 31, 1996 . . . . . . . . . F-80
F-1 104 Statement of Cash Flows for the year ended December 31, 1996 . . . . . . . . . . . . . . . . . F-81 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-82 Q BROADCASTING, INC. Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-87 Statements of Operations and Deficit for the years ended September 30, 1995, 1994 and 1993 . . F-88 Statements of Cash Flows for the years ended September 30, 1995, 1994 and 1993 . . . . . . . . F-89 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-90 DANBURY BROADCASTING, INC. Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-93 Statement of Operations and Accumulated Deficit for the year ended June 30, 1995 . . . . . . . F-94 Statement of Cash Flows for the year ended June 30, 1995 . . . . . . . . . . . . . . . . . . . F-95 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-96 ADVENTURE COMMUNICATIONS -- HUNTINGTON (DIVISION OF ADVENTURE COMMUNICATIONS, INC.) Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-99 Balance Sheet as of December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-100 Statement of Operations for the year ended December 31, 1995 . . . . . . . . . . . . . . . . . F-101 Statement of Division's Deficit for the year ended December 31, 1995 . . . . . . . . . . . . . F-102 Statement of Cash Flows for the year ended December 31, 1995 . . . . . . . . . . . . . . . . . F-103 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-104
F-2 105 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Capstar Broadcasting Partners, Inc.: We have audited the accompanying consolidated balance sheet of Capstar Broadcasting Partners, Inc. and Subsidiaries as of December 31, 1996 and the related consolidated statements of operations, stockholders' equity and cash flows for the period from October 11, 1996 ("inception") to December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Capstar Broadcasting Partners, Inc. and Subsidiaries as of December 31, 1996 and the consolidated results of their operations and their cash flows for the period from inception to December 31, 1996, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Austin, Texas February 14, 1997 F-3 106 REPORT OF INDEPENDENT AUDITORS To the Board of Directors Capstar Broadcasting Partners, Inc. We have audited the accompanying consolidated balance sheet of Commodore Media, Inc. and Subsidiaries ("Commodore"), the Predecessor Company of Capstar Broadcasting Partners, Inc., as of December 31, 1995. We have also audited the consolidated statements of operations, stockholders' deficit and cash flows for the period from January 1, 1996 to October 16, 1996 and for the years ended December 31, 1995 and 1994. These financial statements are the responsibility of Commodore's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Commodore as of December 31, 1995, and the consolidated results of its operations and its cash flows for the period from January 1, 1996 to October 16, 1996 and for the years ended December 31, 1995 and 1994, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP New York, New York February 10, 1997 F-4 107 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR CONSOLIDATED BALANCE SHEETS
ASSETS PREDECESSOR ----------- DECEMBER 31, ----------------------------- 1996 | | 1995 ------------ | | ----------- | | Current assets: | | Cash and short-term cash investments . . . . . . . . . . . . . . . . . . . $ 5,028,014 | | $10,891,489 | | Accounts receivable, less allowance of $838,081 | | in 1996 and $700,336 in 1995 . . . . . . . . . . . . . . . . . . . . . 8,913,390 | | 6,131,447 Prepaid expenses and other current assets . . . . . . . . . . . . . . . . 443,900 | | 285,412 ------------ | | ----------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 14,385,304 | | 17,308,348 Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . 15,628,361 | | 8,080,043 FCC licenses and goodwill, net of accumulated amortization of | | $1,047,768 in 1996 and $3,912,167 in 1995 . . . . . . . . . . . . . . . . 202,644,356 | | 20,767,625 Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . 3,178,469 | | 1,761,306 Deferred charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800,234 | | 3,910,582 Deposits and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 931,340 | | 982,876 ------------ | | ----------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $238,568,064 | | $52,810,780 ============ | | =========== | | LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | | | Current liabilities: | | Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . $3,046,883 | | $ 1,774,256 Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 422,062 | | 815,162 Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,810,292 | | 960,368 Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . -- | | 16,840 Current maturities of capital lease obligations . . . . . . . . . . . . . 16,056 | | 11,977 Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . 3,750,000 | | -- Due to affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 536,738 | | -- ------------ | | ----------- Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 9,582,031 | | 3,578,603 Long-term capital lease obligation . . . . . . . . . . . . . . . . . . . . . 49,629 | | 43,130 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,762,277 | | 66,261,339 Noncurrent compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . -- | | 1,482,275 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,031,580 | | -- ------------ | | ----------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $147,425,517 | | $71,365,347 ------------ | | ----------- Stockholders' equity (deficit): | | CAPSTAR: | | Preferred Stock, $.01 par value, 10,000,000 | | shares authorized, none issued and outstanding . . . . . . . . . . . . . -- | | -- Class A Common Stock, $.01 par value; 200,000,000 | | shares authorized, 94,155,000 shares issued and outstanding . . . . . . 941,550 | | Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 93,957,450 | | Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,756,453) | | COMMODORE: | | Class A Common Stock, $0.01 par value; 3,000,000 | | shares authorized and issued: 146,526 shares in 1995 . . . . . . . . . . -- | | 1,465 Class B Common Stock, convertible into Class A Common Stock, | | $0.01 par value; 486,373 shares authorized and issued in 1995 . . . . . -- | | 4,864 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . -- | | 23,580,184 Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . -- | | (42,115,080) ------------ | | ----------- | | (18,528,567) Less treasury stock, at cost, 85,524 shares in 1995 . . . . . . . . . . . -- | | 26,000 ------------ | | ----------- Total stockholders' equity (deficit) . . . . . . . . . . . . . . . . . . 91,142,547 | | (18,554,567) ------------ | | ----------- Total liabilities and stockholders' equity (deficit) . . . . . . . . . . . $238,568,064 | | $52,810,780 ============ | | ===========
See accompanying notes. F-5 108 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR CONSOLIDATED STATEMENTS OF OPERATIONS
PREDECESSOR ------------------------------------------ PERIOD ENDED ----------------------------- YEAR ENDED DECEMBER 31, DECEMBER 31, | | OCTOBER 16, -------------------------- 1996 | | 1996 1995 1994 ------------ | |----------- ----------- ----------- | | Total revenue . . . . . . . . . . . . . . . . $ 11,133,586 | |$34,826,060 $33,652,677 $28,686,381 Less agency commissions . . . . . . . . . . . (830,271)| | (2,869,014) (2,857,912) (2,461,478) ------------ | |----------- ----------- ----------- Net revenue . . . . . . . . . . . . . . . . . 10,303,315 | | 31,957,046 30,794,765 26,224,903 Operating expenses: | | Programming, technical and news . . . . 1,836,667 | | 5,906,967 5,365,686 4,601,374 Sales and promotion . . . . . . . . . . 2,935,890 | | 9,303,914 8,796,481 7,325,549 General and administrative . . . . . . . 1,511,143 | | 6,081,262 4,870,463 4,556,515 Corporate expenses . . . . . . . . . . . . . 600,532 | | 1,756,797 2,051,181 2,109,741 Depreciation and amortization . . . . . . . . 1,331,386 | | 2,157,750 1,926,250 2,145,201 Other expense . . . . . . . . . . . . . . . . 744,000 | | 13,833,728 2,006,550 2,180,000 ------------ | |----------- ----------- ----------- Operating income (loss) . . . . . . . . . . . 1,343,697 | | (7,083,372) 5,778,154 3,306,523 Interest expense . . . . . . . . . . . . . . 5,035,142 | | 8,860,958 7,805,525 3,152,352 Interest income . . . . . . . . . . . . . . . 34,063 | | 221,806 420,659 266 Other expenses, net . . . . . . . . . . . . . 99,071 | | 1,980,908 48,796 381,550 ------------ | |----------- ----------- ----------- Loss before provision for income | | taxes and extraordinary loss . . . . . (3,756,453)| |(17,703,432) (1,655,508) (227,113) Provision for income taxes . . . . . . . . . -- | | 133,000 140,634 300,000 ------------ | |----------- ----------- ----------- Loss before extraordinary loss . . . . . . . (3,756,453)| |(17,836,432) (1,796,142) (527,113) Extraordinary loss on extinguishment of debt -- | | -- (443,521) -- ------------ | |----------- ----------- ----------- Net loss . . . . . . . . . . . . . . . . . . $ (3,756,453)| |(17,836,432) $(2,239,663) $ (527,113) ============ | |=========== =========== =========== Loss per common share: Loss before extraordinary loss . . . . . $ (.04) ============ Extraordinary loss . . . . . . . . . . . $ -- ============ Net loss . . . . . . . . . . . . . . . . $ (.04) ============ Weighted average number of shares outstanding 93,691,842
See accompanying notes. F-6 109 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK PAR VALUE ADDITIONAL ----------------------- PAID-IN ACCUMULATED CLASS A CLASS B CAPITAL DEFICIT --------- ------- ----------- ------------- PREDECESSOR: Balance at January 1, 1994 . . . . . . . . . . . . . . . . . . $ 1,192 $ 4,864 $22,523,192 $ (38,348,304) Cumulative dividends on redeemable preferred stock . . . . . . -- -- (690,660) -- Adjustment to carrying value of redeemable warrant . . . . . -- -- -- (1,000,000) Loss for the year . . . . . . . . . . . . . . . . . . . . . . . -- -- -- (527,113) --------- ------- ----------- ------------- Balance at December 31, 1994 . . . . . . . . . . . . . . . . . 1,192 4,864 21,832,532 (39,875,417) Cumulative dividends on redeemable preferred stock . . . . . . -- -- (252,175) -- Allocation of net proceeds of debt offering to warrants . . . . -- -- 2,000,000 -- Repurchase of common stock . . . . . . . . . . . . . . . . . . -- -- -- -- Exercise of warrants . . . . . . . . . . . . . . . . . . . . . 273 -- (173) -- Loss for the year . . . . . . . . . . . . . . . . . . . . . . . -- -- -- (2,239,663) --------- ------- ----------- ------------- Balance at December 31, 1995 . . . . . . . . . . . . . . . . . 1,465 4,864 23,580,184 (42,115,080) Warrants issued with preferred stock facility . . . . . . . . -- -- 981,500 -- Dividends on senior exchangeable redeemable preferred stock . . -- -- (359,957) -- EFFECTS OF THE COMMODORE ACQUISITION (NOTE 1): Recapitalization and acquisition of common shares by Capstar. . (1,455) (4,864) 32,092,400 -- Redemption of preferred stock . . . . . . . . . . . . . . . . . -- -- (1,101,235) -- Net loss for the period . . . . . . . . . . . . . . . . . . . . -- -- -- (17,836,432) --------- ------- ----------- ------------- Balance at October 16, 1996 . . . . . . . . . . . . . . . . . . $ 10 $ -- $55,192,892 $ (59,951,512) ========= ======= =========== ============= CAPSTAR: Balance at inception (October 11, 1996) . . . . . . . . . . . . $ -- $ -- $ -- --------- ----------- ------------- Issuance of common stock in connection with the Commodore Acquisition (Note 1) . . . . . . . . . . . . . . . . . . . 932,750 92,342,250 -- Issuance of warrants . . . . . . . . . . . . . . . . . . . . . -- 744,000 -- Issuance of common stock (November 26, 1996) . . . . . . . . . 8,800 871,200 -- Net loss for the period . . . . . . . . . . . . . . . . . . . . -- -- (3,756,453) --------- ----------- ------------- Balance at December 31, 1996 . . . . . . . . . . . . . . . . . $ 941,550 $93,957,450 $ (3,756,453) ========= =========== ============= TOTAL STOCKHOLDERS' TREASURY EQUITY STOCK (DEFICIT) ---------- ------------- PREDECESSOR: Balance at January 1, 1994 . . . . . . . . . . . . . . . . . . $ (1,000) $ (15,820,056) Cumulative dividends on redeemable preferred stock . . . . . . -- (690,660) Adjustment to carrying value of redeemable warrant . . . . . -- (1,000,000) Loss for the year . . . . . . . . . . . . . . . . . . . . . . . -- (527,113) ---------- ------------- Balance at December 31, 1994 . . . . . . . . . . . . . . . . . (1,000) (18,037,829) Cumulative dividends on redeemable preferred stock . . . . . . -- (252,175) Allocation of net proceeds of debt offering to warrants . . . . -- 2,000,000 Repurchase of common stock . . . . . . . . . . . . . . . . . . (25,000) (25,000) Exercise of warrants . . . . . . . . . . . . . . . . . . . . . -- 100 Loss for the year . . . . . . . . . . . . . . . . . . . . . . . -- (2,239,663) ---------- ------------- Balance at December 31, 1995 . . . . . . . . . . . . . . . . . (26,000) (18,554,567) Warrants issued with preferred stock facility . . . . . . . . -- 981,500 Dividends on senior exchangeable redeemable preferred stock . . -- (359,957) EFFECTS OF THE COMMODORE ACQUISITION (NOTE 1): Recapitalization and acquisition of common shares by Capstar. . 26,000 32,112,081 Redemption of preferred stock . . . . . . . . . . . . . . . . . -- (1,101,235) Net loss for the period . . . . . . . . . . . . . . . . . . . . -- (17,836,432) ---------- ------------- Balance at October 16, 1996 . . . . . . . . . . . . . . . . . . $ -- $ (4,758,610) ========== ============= CAPSTAR: Balance at inception (October 11, 1996) . . . . . . . . . . . . $ -- ------------- Issuance of common stock in connection with the Commodore Acquisition (Note 1) . . . . . . . . . . . . . . . . . . . 93,275,000 Issuance of warrants . . . . . . . . . . . . . . . . . . . . . 744,000 Issuance of common stock (November 26, 1996) . . . . . . . . . 880,000 Net loss for the period . . . . . . . . . . . . . . . . . . . . (3,756,453) ------------- Balance at December 31, 1996 . . . . . . . . . . . . . . . . . $ 91,142,547 =============
See accompanying notes. F-7 110 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR CONSOLIDATED STATEMENTS OF CASH FLOWS
PREDECESSOR ---------------------------------------- PERIOD ENDED ------------------------------ YEAR ENDED DECEMBER 31, DECEMBER 31, | | OCTOBER 16, ------------------------- 1996 | | 1996 1995 1994 ------------ | | ----------- ----------- ----------- | | CASH FLOWS FROM OPERATING ACTIVITIES | | Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,756,453) | | $(17,836,432) $(2,239,663) $ (527,113) | | Adjustments to reconcile net loss to net cash provided by | | operating activities: | | Loss on extinguishment of debt . . . . . . . . . . . . . . . -- | | -- 443,521 -- Depreciation and amortization . . . . . . . . . . . . . . . . 1,331,386 | | 2,157,750 2,311,162 2,365,111 Noncash interest . . . . . . . . . . . . . . . . . . . . . . 2,407,739 | | 3,315,669 2,288,917 -- Long-term incentive compensation . . . . . . . . . . . . . . -- | | 1,066,893 79,000 2,180,000 Non-cash compensation . . . . . . . . . . . . . . . . . . . . 744,000 | | 12,731,587 -- -- Provision for uncollectible accounts and notes receivable . . 104,838 | | 488,320 556,137 468,155 Loss on disposition of assets . . . . . . . . . . . . . . . . | | -- 9,819 335,736 Net barter income . . . . . . . . . . . . . . . . . . . . . . | | (222,645) (184,300) (122,163) Initial public offering and pending merger expenses . . . . . | | 1,909,648 -- -- Changes in assets and liabilities, net of amounts acquired: | | Increase in accounts receivable . . . . . . . . . . . . . (1,057,861) | | (2,315,753) (1,847,015) (1,509,195) (Increase) decrease in prepaid expenses and other | | current assets . . . . . . . . . . . . . . . . . . . . . 91,280 | | (208,462) (88,787) (267,196) Increase (decrease) in accounts payable and accrued | | expenses . . . . . . . . . . . . . . . . . . . . . . . . 341,308 | | (337,896) (158,855) 326,251 (Decrease) increase in accrued compensation . . . . . . . 110,127 | | (496,177) (230,645) 197,881 (Decrease) increase in accrued interest . . . . . . . . . (902,248) | | 1,752,172 582,525 351,639 (Decrease) increase in accrued income taxes . . . . . . . -- | | 20,952 (277,135) 261,541 Increase in due to affiliate . . . . . . . . . . . . . . 536,738 | | -- -- -- ------------ | | ------------ ----------- ----------- Total adjustments . . . . . . . . . . . . . . . . . . 3,707,307 | | 19,862,058 3,484,344 4,587,760 ------------ | | ------------ ----------- ----------- Net cash provided by operating activities . . . . . . . . . . (49,146) | | 1,989,626 1,244,681 4,060,647 CASH FLOWS FROM INVESTING ACTIVITIES | | Proceeds from redemption of note . . . . . . . . . . . . . . . -- | | -- -- 405,000 Proceeds from sale of property, plant and equipment . . . . . . -- | | -- -- 398,018 Repayment of loan by stockholder . . . . . . . . . . . . . . . -- | | 250,375 182,988 -- Purchase of property, plant and equipment . . . . . . . . . . . (807,532) | | (448,677) (320,980) (623,414) Acquisition of Commodore . . . . . . . . . . . . . . . . . . . (125,494,171) | | -- -- -- Payments for acquisitions . . . . . . . . . . . . . . . . . . . | | (31,900,000) (3,100,000) -- Deferred acquisition costs incurred . . . . . . . . . . . . . . (1,070,262) | | (1,326,673) (417,020) (172,558) Deposits on pending acquisitions . . . . . . . . . . . . . . . -- | | (745,000) (525,000) -- Loans to employees . . . . . . . . . . . . . . . . . . . . . . -- | | -- (315,863) (57,500) Other investing activities, net . . . . . . . . . . . . . . . . -- | | (187,528) 87,528 -- ------------ | | ------------ ----------- ----------- Net cash used in investing activities . . . . . . . . . . . . . (127,371,965) | | (34,357,503) (4,408,347) (50,454) CASH FLOWS FROM FINANCING ACTIVITIES | | Proceeds from issuance of Commodore | | Notes and warrants . . . . . . . . . . . . . . . . . . . . . -- | | -- 64,956,422 -- Proceeds from Existing Credit Facility . . . . . . . . . . . . 6,000,000 | | 18,700,000 -- -- Proceeds from Existing Term Loan Facility . . . . . . . . . . . 35,000,000 | | -- -- -- Net proceeds from issuance of preferred stock . . . . . . . . . -- | | 9,822,520 -- -- Proceeds from issuance of common stock . . . . . . . . . . . . 94,155,000 | | -- 100 -- Payment of initial public offering and merger expenses . . . . -- | | (1,007,297) -- -- Repayment of amounts borrowed . . . . . . . . . . . . . . . . . -- | | -- (39,014,833) (2,738,166) Payment of financing related costs . . . . . . . . . . . . . . (2,705,875) | | (781,170) (4,226,762) (104,245) Redemption of preferred stock . . . . . . . . . . . . . . . . . -- | | -- (8,665,835) -- Purchase of redeemable warrant . . . . . . . . . . . . . . . . -- | | -- (1,000,000) -- Repurchase of common stock . . . . . . . . . . . . . . . . . . -- | | -- (25,000) -- Principal payments on capital leases . . . . . . . . . . . . . -- | | (9,812) (11,186) (12,389) ------------ | | ------------ ----------- ----------- Net cash provided by (used in) financing activities . . . . . . 132,449,125 | | 26,724,241 12,012,906 (2,854,800) ------------ | | ------------ ----------- ----------- Net (decrease) increase in cash and short-term cash | | investments . . . . . . . . . . . . . . . . . . . . . . . . . | | (5,643,636) 8,849,240 1,155,393 Cash and short-term cash investments at beginning of period . . -- | | 10,891,489 2,042,249 886,856 ------------ | | ------------ ----------- ----------- Cash and short-term cash investments at end of period . . . . . $ 5,028,014 | | $ 5,247,853 $10,891,489 $ 2,042,249 ============ | | ============ =========== =========== SUPPLEMENTARY CASH FLOW INFORMATION | | Cash paid for interest . . . . . . . . . . . . . . . . . . . . $ 3,529,651 | | $ 3,793,117 $ 4,474,789 $ 2,580,522 Cash paid for income taxes . . . . . . . . . . . . . . . . . . -- | | 112,049 417,769 38,209 SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES | | ASSET ACQUISITIONS RECORDED IN CONNECTION WITH BARTER | | TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . -- | | $ 189,982 $ 112,636 $ 144,500
See accompanying notes. F-8 111 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, COMMODORE ACQUISITION AND BASIS OF PRESENTATION Organization and Nature of Business Capstar Broadcasting Partners, Inc. (the "Company") was incorporated under the laws of the State of Delaware on October 11, 1996. The Company's wholly-owned subsidiary, Commodore Media, Inc. and Subsidiaries, the Company's predecessor, ("Commodore") is comprised of radio stations that derive their revenue from local, regional and national advertisers. The radio stations are located in the following markets: Wilmington, Delaware; Hartsdale, Brewster, Patterson, Mt. Kisco, New York; Huntington, West Virginia -- Ashland, Kentucky; Allentown -- Bethlehem, Pennsylvania; Fort Pierce -- Stuart -- Vero Beach, Florida; and Fairfield County, Connecticut. Commodore extends credit to its customers in the normal course of business. Basis of Presentation The consolidated financial statements as of December 31, 1996 and for the period from October 11, 1996 through December 31, 1996 include the accounts of Capstar and its wholly-owned subsidiary, Commodore, since October 16, 1996, the date of the Commodore Acquisition. The Company had no substantive operations until its acquisition of Commodore and Commodore is considered the Company's predecessor for financial reporting purposes. The accompanying consolidated financial statements include the results of operations of Commodore and its Subsidiaries for the period ended October 16, 1996, and as of and for the year ended December 31, 1995 and the results of its operations for the year ended December 31, 1994. The financial position and results of operations of Commodore prior to the acquisition by the Company have not been adjusted to give effect to the Commodore Acquisition. All intercompany accounts and transactions have been eliminated in consolidation. Commodore Acquisition On October 16, 1996, the Company acquired Commodore pursuant to a merger agreement dated June 21, 1996 (the "Commodore Acquisition"). The purchase price was approximately $229.2 million including acquisition costs and assumed liabilities of approximately $108.5 million. The purchase price was funded through borrowings under the Former Term Loan Facility of approximately $35.0 million, the assumption of liabilities referred to above and the investment of common stock of the Company of approximately $93.3 million by an affiliate of Hicks, Muse, Tate & Furst, Incorporated (Hicks Muse) and members of management of the Company. The Commodore Acquisition has been accounted for under the purchase method of accounting. Accordingly, the purchase price has been allocated to the assets and liabilities based upon their fair values at the date of acquisition as described below. The acquisition is summarized as follows: Cash . . . . . . . . . . . . . . . . . . . . . . $ 6,074,954 Accounts receivable, net . . . . . . . . . . . . . . . . . 7,960,367 Prepaid expenses and other . . . . . . . . . . . . . . . . 535,180 Property and equipment . . . . . . . . . . . . . . . . . . 15,343,939 FCC licenses, goodwill and other intangible assets . . . . 202,304,691 Other assets . . . . . . . . . . . . . . . . . . . . . . 4,823,414 Accounts payable and accrued expenses . . . . . . . . . . . (5,701,978) Other long-term liabilities . . . . . . . . . . . . . . . . (93,757) Deferred tax liability . . . . . . . . . . . . . . . . . . (2,031,580) -------------- Total purchase price . . . . . . . . . . . . $ 229,215,230 ==============
F-9 112 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At the time of the merger, the holders of Commodore Class A Common Stock and Class B Common Stock (collectively, the "Commodore Common Stock"), received $140 per share as consideration for their interest. Each of the option and warrant holders received the difference between $140 per share and the exercise price per share in consideration for their interest. In addition, the senior exchangeable redeemable preferred stock, Series A, $.01 par value per share, was redeemed, including all accrued and unpaid dividends. Commodore recognized as other expense approximately $12.7 million in stock option compensation expense, and approximately $1.4 million of merger related fees and expenses during the period ended October 16, 1996 in connection with the Commodore Acquisition. As a result of the Commodore Acquisition and the change of control effected thereby, Commodore was obligated to satisfy the existing deferred compensation and employment agreements with its then President and Chief Executive Officer and its deferred compensation agreement with its then Chief Operating Officer resulting in a charge to other expense of approximately $1.1 million during the period ended October 16, 1996. Furthermore, Commodore was required to make an offer to purchase the outstanding 13 1/4% Senior Subordinated Notes due 2003 ("Commodore Notes") at a purchase price equal to 101% of their accreted value, plus any accrued and unpaid interest. No requests for repurchase were made by the note holders. As a result of the merger, Commodore did not proceed with its previously announced intention to undertake an initial public equity offering and has, therefore, withdrew its registration statement filed on Form S-1 on May 17, 1996 with the Securities and Exchange Commission. Included in other expenses during the period ended October 16, 1996 are approximately $525,000 in various fees and expenses incurred in connection with this filing. Short-Term Cash Investments The Company and Commodore consider investments which have a remaining maturity of three months or less at the time of purchase to be short-term cash investments. The Company and Commodore invest their excess cash in U.S. Treasury Bills. Income Taxes The Company and Commodore account for income taxes in accordance with FASB Statement No. 109, "Accounting for Income Taxes." Under this method, deferred income taxes are provided for differences between the book and tax bases of assets and liabilities. The Company and its subsidiaries plan to file a consolidated federal income tax return. Risks and Uncertainties -- 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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Risks and Uncertainties -- Regulatory Environment The consummation of radio broadcasting acquisitions requires prior approval of the Federal Communications Commission (the "FCC") with respect to the transfer of control or assignment of the broadcast licenses of the acquired stations. Certain of the pending acquisitions referred to in Note 7b have not yet received FCC approval. There can be no assurance that the FCC will approve future acquisitions by the Company, including the pending acquisitions. F-10 113 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On February 8, 1996, the President signed into law the Telecommunications Act of 1996. Among other things, this legislation requires the FCC, to relax its numerical restrictions on local ownership and affords renewal applicants significant new protections from competing applications for their broadcast licenses. The new legislation will enable the Company to retain all of its current radio stations and to acquire more properties. At the same time, this legislation will also allow other broadcast entities to increase their ownership in markets where the Company currently operates stations. The Company's management is unable to determine the ultimate effect of this legislation on its competitive environment. The consummation of certain acquisitions, including certain of the pending acquisitions, is also subject to applicable waiting periods and possible review by the U.S. Department of Justice (the "DOJ") or the Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). The Company understands that since the passage of the Telecom Act several radio broadcasting acquisitions have been the subject of "second requests" for additional information by federal authorities under the HSR Act. The Company also understands that the DOJ is currently reviewing its internal guidelines for antitrust review of radio broadcasting acquisitions. As part of its increased scrutiny of radio station acquisitions, the DOJ has stated publicly that it believes that local marketing agreements ("LMAs") and other similar agreements customarily entered into in connection with radio station transfers prior to the expiration of the waiting period under the HSR Act could violate the HSR Act. Risks and Uncertainties -- Concentration of Credit Financial instruments which potentially subject the Company and Commodore to concentration of credit risk consist primarily of trade receivables. The Company's and Commodore's revenue is principally derived from local broadcast advertisers who are impacted by the local economy. The Company and Commodore routinely assess the financial strength of its customers and do not require collateral or other security to support customer receivables. Credit losses are provided for in the consolidated financial statements in the form of an allowance for doubtful accounts. Accounting Periods Commodore maintained its interim consolidated financial statements based upon the broadcast month end which always ends on the last Sunday of the calendar month or quarter. The Company's fiscal year end and fourth quarter end on December 31. Fair Value of Financial Instruments In 1995, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosure about Fair Value of Financial Instruments," which requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet. The carrying amount reported in the balance sheets for cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the immediate or short-term maturity of such instruments. The carrying amounts reported for the Existing Credit Facility and Existing Term Loan Facility approximate fair value due to the debt being priced at floating rates. The carrying amount reported for the Commodore Notes at December 31, 1996 approximates fair value based on the published market prices for the publicly traded indebtedness at the date of acquisition (October 16, 1996). The fair value of the Commodore Notes and associated warrants at December 31, 1996 were $930 per unit and $105 per warrant, respectively based on published market prices. F-11 114 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is provided on the straight-line method based on the following estimated useful lives:
ESTIMATED LIFE CLASSIFICATION (YEARS) -------------- -------------- Land improvements .......................................... 20 Buildings .................................................. 20 Furniture, fixtures and equipment .......................... 7-10 Broadcasting and technical equipment ....................... 7-10 Towers and antennas ........................................ 20 Music library .............................................. 7 Leasehold improvements ..................................... 10-20 Vehicles ................................................... 3
Expenditures for maintenance and repairs are charged to operations as incurred. Expenditures for betterments and major renewals are capitalized and, therefore, are included in property, plant and equipment. Property Held Under Capital Leases The Company and Commodore are the lessees of office equipment under capital leases expiring in various years through 2004. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. The assets are depreciated over their estimated productive lives of seven to ten years. Revenue Recognition The Company and Commodore recognize revenue upon the airing of advertisements. Intangible Assets Intangible assets are being amortized by the straight-line method over the following estimated useful lives:
ESTIMATED LIFE CLASSIFICATION (YEARS) -------------- -------------- FCC licenses and goodwill .................................. 40 Organization expenses ...................................... 5 Network affiliation agreement .............................. 5 Covenant not to compete .................................... 5 Tower site lease ........................................... 3 Contract rights ............................................ 3 Software ................................................... 3 Pre-sold advertising contracts ............................. 1
Goodwill represents the excess of cost over the fair values of identifiable tangible and other intangible net assets acquired. Management continually reviews the appropriateness of the carrying value of goodwill of its subsidiaries and the related amortization period based on their anticipated undiscounted cash flows. The Company and F-12 115 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Commodore consider operating results, trends and prospects of the Company's and Commodore's stations, as well as competitive comparisons. The Company and Commodore also take into consideration recent acquisition patterns within the broadcast industry, the impact of recently, enacted or potential FCC rules and regulations and any other events or circumstances which might indicate potential impairment. Deferred Charges Legal fees, bank loan closing costs and other expenses associated with debt financing are being amortized using the effective interest rate method. Amortization of debt expense charged to operations and included in interest expense amounted to $1,691,172 for the period ended December 31, 1996 for the Company, and $449,905 for the period ended October 16, 1996 and $384,908 and $219,893 for the years ended December 31, 1995 and 1994, respectively, for Commodore. Advertising Costs The Company and Commodore expense advertising costs related to their radio station operations as incurred. Advertising expense amounted to $281,085 for the period ended December 31, 1996 for the Company, and $557,155 for the period ended October 16, 1996 and $754,489 and $560,818 for the years ended December 31, 1995 and 1994, respectively, for Commodore. Barter Transactions The fair value of barter and trade-out transactions is included in broadcast revenue and sales and promotion expense. Barter revenue is recorded when advertisements are broadcast and barter expense is recorded when merchandise or services are received. Barter transactions charged to operations were as follows:
PREDECESSOR ---------------------------------------------- YEAR ENDED DECEMBER 31, PERIOD ENDED PERIOD ENDED -------------------------- DECEMBER 31, 1996 OCTOBER 16, 1996 1995 1994 ----------------- ---------------- ----------- ----------- | | Trade sales ............... $ 1,049,739 | | $ 3,204,468 $ 3,238,111 $ 2,473,002 Trade expense ............. (1,003,987) | | (2,981,823) (3,053,811) (2,350,839) ----------- | | ----------- ----------- ----------- Net barter transactions ... $ 45,752 | | $ 222,645 $ 184,300 $ 122,163 =========== | | =========== =========== ===========
Loss Per Share Net loss per share is based on the weighted average number of shares of common stock and common stock equivalents outstanding during each respective period. Proceeds from the exercise of the dilutive stock options are assumed to be used to repurchase outstanding shares of the Company's common stock at the average fair market value during the period. Recent Pronouncements In February 1997, the FASB issued FASB Statement No. 128 "Earnings Per Share ("SFAS No. 128")" which establishes standards for computing and presenting earnings per share. SFAS No. 128 is effective for fiscal years beginning after December 15, 1997. Management does not believe the implementation of SFAS No. 128 will have a material effect on its financial statements. In February 1997, the FASB issued FASB Statement No. 129 "Disclosure of Information About Capital Structure ("SFAS No. 129")" which establishes disclosure requirements for an entity's capital structure. SFAS No. 129 F-13 116 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) is effective for fiscal years beginning after December 15, 1997. Management does not believe the implementation of SFAS No. 129 will have a material effect on its financial statements. Financial Statement Presentation Certain prior year financial statement items of Commodore have been reclassified to conform to the current year presentation. 2. THE RECAPITALIZATION TRANSACTION On April 21, 1995, Commodore completed the offering of the Commodore Notes. The net proceeds of approximately $65.0 million were used to retire existing senior indebtedness of approximately $36.2 million, fund the purchase of assets (excluding cash and accounts receivable) and broadcasting license of radio broadcast station WQOL-FM in Vero Beach, Florida (the "Treasure Coast Acquisition") for $3.1 million, and repay the Note payable to Michael Hansen ("Hansen Note") and the Note payable to Radio Financial Partners, Inc. ("RFP Note") for an aggregate amount of $2.4 million. In addition, Commodore used $8.7 million to redeem its preferred stock, paid $1.9 million in connection with the long-term incentive compensation of its then President and its then Chief Operating Officer (see Note 1), paid approximately $4.2 million in related deferred fees of the offering, and used the balance of $8.5 million for general corporate purposes. Commodore converted all of its existing common stock for 486,373 shares of its Class B Common Stock ("Class B") and 119,212 shares (including 85,524 treasury shares) of its Class A Common Stock ("Class A"). At the time of conversion, Commodore's then President and its then Chief Operating Officer purchased 27,369 shares and 6,319 shares, respectively, of Class A from the Chairman. In addition, William A. M. Burden and Company, an affiliated entity, exercised its option to acquire 27,314 shares of Class A from the Company. Each share of Class B is entitled to eight votes and each share of Class A is entitled to one vote. The consolidated financial statements of Commodore have been retroactively adjusted for this conversion. 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, at cost, consisted of the following:
PREDECESSOR ------------ DECEMBER 31, ---------------------------- 1996 | | 1995 ------------ | |------------ | | Land and land improvements ................... $ 2,274,510 | |$ 2,813,139 Buildings .................................... 2,404,538 | | 2,499,399 Furniture, fixtures and equipment ............ 1,846,692 | | 2,188,502 Broadcasting and technical equipment ......... 5,548,233 | | 5,907,905 Towers and antennas .......................... 3,046,783 | | 3,401,300 Music library ................................ 235,237 | | 250,456 Leasehold improvements ....................... 278,614 | | 365,825 Vehicles ..................................... 125,693 | | 147,567 Property held under capital leases ........... 41,399 | | 81,497 ------------ | |------------ 15,801,699 | | 17,655,590 Less accumulated depreciation | | and amortization .......................... (173,338)| | (9,575,547) ------------ | |------------ Property, plant and equipment, net ........... $ 15,628,361 | |$ 8,080,043 ============ | |============
Accumulated amortization of property acquired under capital leases was $21,663 as of December 31, 1996 for the Company and $12,728 as of December 31, 1995 for Commodore. Depreciation as a charge to income amounted to $173,338 for the period ended December 31, 1996 for the Company, and $779,903 for the period ended October 16, 1996, $831,656 in 1995 and $768,826 in 1994 for Commodore. F-14 117 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 4. OTHER INTANGIBLE ASSETS Other intangible assets, at cost, consisted of the following:
PREDECESSOR ------------- DECEMBER 31, ---------------------------- 1996 | | 1995 ------------ | |------------ | | Covenant not to compete ................ $ 1,021,788 | |$ 1,325,000 Deferred acquisition expens ............ 1,569,767 | | 953,441 Pre-sold advertising contrats .......... 311,056 | | 103,642 Network affiliation agreeme ............ 232,738 | | 260,000 Other .................................. 153,400 | | 14,516 ------------ | |------------ 3,288,749 | | 2,656,599 Less accumulated amortization .......... (110,280)| | (895,293) ------------ | |------------ Other intangible assets, net ........... $ 3,178,469 | |$ 1,761,306 ============ | |============
Amortization of the aforementioned intangible assets included as a charge to income amounted to $130,569 for the period ended December 31, 1996 for the Company, and $592,348 for the period ended October 16, 1996, $506,447 for 1995 and $817,087 for 1994 for Commodore. Amortization of FCC licenses and goodwill amounted to $1,047,768 for the period ended December 31, 1996 for the Company, and $501,482 for the period ended October 16, 1996, $588,149 for 1995 and $559,304 for 1994 for Commodore. 5. LONG-TERM DEBT Long-term debt consisted of the following:
PREDECESSOR ------------- DECEMBER 31, ------------------------------ 1996 | | 1995 ------------- | |------------- | | Former Credit Facility collateralized by capital | | stock of all subsidiaries, interest at 3.5% over | | LIBOR, due December 31, 2002 ...................... $ 24,700,000 | |$ -- | | Commodore Notes, $76,808,000 principal, | | including unamortized premium of $3,004,277 | | at December 31, 1996 and unamortized discount | | of $10,546,661 at December 31, 1995, due 2003 ..... 79,812,277 | | 66,261,339 | | Former Term Loan Facility ........................... 35,000,000 | | -- ------------- | |------------- Total debt .......................................... 139,512,277 | | 66,261,339 | | Less current maturities ............................. (3,750,000)| | -- ------------- | |------------- Long-term debt ...................................... $ 135,762,277 | |$ 66,261,339 ============= | |=============
Former Credit Facility On March 13, 1996, Commodore entered into a Senior Credit Facility with AT&T Commercial Finance Corporation ("AT&T") pursuant to which AT&T will make available to Commodore senior secured (i) revolving loans in an amount up to $30.0 million and (ii) accounts receivable loans in an amount which shall be the lesser of (a) $5.0 million or (b) 85% of the net book value of the accounts receivable of Commodore (the "AT&T Senior Credit Facility"). The indebtedness to AT&T is collateralized by the tangible and intangible assets and the capital stock of all Commodore's subsidiaries. Interest is payable monthly at a rate of 3.5% over LIBOR (8.9% at September 29, 1996) and principal amortization of the revolving loans and accounts receivable loans begins June 1, 1998 and November 30, 1997, respectively. At December 31, 1996, Commodore had additional available borrowings under the revolving and F-15 118 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) accounts receivable loans of approximately $9,000,000 and $1,300,000, respectively. Commodore pays a commitment fee of .25% every six months on the unused commitment. Commodore Notes The Commodore Notes bear cash interest at a rate of 7 1/2% per annum on the principal amount until May 1, 1998 then at a rate of 13 1/4% per annum until maturity, with interest payment dates on May 1 and November 1. The Commodore Notes may be redeemed at the option of Commodore at any time on or after May 1, 1999 at redemption prices specified in the indenture. The terms of the Commodore Notes contain various covenants for the benefit of the holders that, among other things, restrict the ability of Commodore to incur additional indebtedness, pay dividends and make certain investments. Specified events such as a failure to make principal or interest payments when due or failure to observe or perform any covenant creates an event of default (as defined) under the Commodore Notes. Upon an event of default, the trustee may or upon the request of 25% of the holders declare the principal and unpaid interest due and payable. The Commodore Notes, excluding the notes that were held for the benefit of the former President of Commodore, were issued with detachable warrants to purchase 75,500 shares of Class A Common Stock at an exercise price of $.01 per warrant less the exercise price. The warrant holders at the time of the merger received $140 in cash for each warrant. Commodore estimated the fair market value of the warrants to be $2,000,000 as of the date of issuance and allocated this amount out of the net proceeds of the debt offering to paid-in capital. Former Term Loan Facility The Former Term Loan Facility of the Company consists of a term loan facility in the amount of $30.0 million and a second term loan facility in the amount of $5.0 million. The Term Loans matured upon consummation of the Osborn Acquisition (Note 7b). As more fully described in Note 7b, the Company used a portion of the proceeds of a private placement offering of 12 3/4% Senior Discount Notes (the "Notes") to repay the balances owed under these term loans (unaudited). Accordingly, amounts outstanding under the Former Term Loan Facility at December 31, 1996 have been classified as "long-term" in the accompanying financial statements. The weighted average effective interest rate at December 31, 1996 was 11.7%. Aggregate maturities of long-term debt due within the next five years ending December 31 are as follows: 1997 ................................... $ 3,750,000 1998 ................................... -- 1999 ................................... -- 2000 ................................... -- Thereafter ............................. 134,156,274 ------------ $137,906,274 ============
In connection with the debt restructuring of The Bank of New York loan on December 28, 1993, Commodore issued the bank a warrant to purchase 4.99% of the common stock of Commodore, on a fully diluted basis, for $100. The warrant was exercisable at any time prior to its expiration on December 28, 2003 and contained a put option under which the bank could require Commodore to purchase the warrant at any time after January 1, 1997 up until expiration or upon an initial public offering or a sale of Commodore at a price based upon (1) the actual proceeds received by Commodore in an initial public offering or sale, (2) negotiations between the parties, or (3) an independent appraisal. No value was ascribed to the warrant at the time of issuance. The increase in the fair value of the warrant in 1994 of $1,000,000 was recorded as a reduction to retained earnings. Commodore repurchased the warrant in March 1995 for a negotiated price of $1,000,000. F-16 119 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In 1995, Commodore wrote off the balance of the unamortized deferred financing costs on its retired debt of $443,521. Inasmuch as Commodore had no current federal taxable income and had fully reserved for its net deferred tax assets, there was no tax effect attributable to this extraordinary item. The Former Credit Facility, the Commodore Notes and the Former Term Loan Facility indentures contain certain restrictive financial covenants, including, among others, the maintenance of certain financial ratios. 6. PREFERRED STOCK Capstar Preferred Stock The board of directors is authorized, without further action by the Company's stockholders to issue up to 10,000,000 shares of $.01 par value per share preferred stock in one or more series and to fix, as to such series, the voting rights, if any, applicable to such series and other such designations, preferences and special rights as the board of directors may determine, including dividend, conversion, redemption, and liquidation rights and preferences. There are no shares of preferred stock outstanding. Senior Exchangeable Redeemable Preferred Stock On May 1, 1996, Commodore entered into a Securities Purchase Agreement with CIBC WG Argosy Merchant Fund 2, LLC ("CIBC Merchant Fund"), pursuant to which the CIBC Merchant Fund agreed to purchase from Commodore, if and when requested by Commodore, up to an aggregate liquidation value of $12,500,000 of Senior Exchangeable Redeemable Preferred Stock, Series A, $.01 par value per share, of Commodore in such amounts as Commodore requested (the "Preferred Stock Facility"). In connection with the Stamford Acquisition on May 30, 1996 and the Florida Acquisition on May 31, 1996 (see Note 7a), Commodore issued 5,700 shares and 4,300 shares, respectively, of Preferred Stock for an aggregate purchase price of $10,000,000. The Preferred Stock accrued cash dividends at the rate of 8.0% per annum and was redeemed, including accrued dividends, in connection with the merger on October 16, 1996. In connection with the Preferred Stock Facility, Commodore issued to the CIBC Merchant Fund a warrant to purchase 7,550 shares of Commodore's Class A Common Stock, at an exercise price of $.01 per warrant, which were valued in the aggregate at the date of issue at $981,500. This warrant was redeemed in connection with the merger for $140 per share less the exercise price. 8.87% Cumulative Redeemable Preferred Stock On December 28, 1993, Radio Financial Partners, Inc., formerly a related entity of Commodore, converted $7.7 million of outstanding debt and accrued interest into 10,000 shares of Commodore's newly issued 8.87% cumulative redeemable preferred stock. Commodore redeemed all outstanding shares of the preferred stock on April 21, 1995; the total liquidation value as of the date of redemption was $8.7 million which included $942,835 in accumulated dividends. 7(a) CONSUMMATED ACQUISITIONS On October 16, 1996, Commodore purchased certain defined assets of radio stations WKEE-FM and WKEE-AM in Huntington, West Virginia, WZZW-AM in Milton, West Virginia, WBVB-FM in Coal Grove, Ohio and WIRO-AM in Ironton, Ohio from Adventure Communications, Inc. for $7.7 million and certain defined assets of WFXN-FM in Milton, West Virginia and WMLV-FM in Ironton, Ohio for $4.3 million (collectively, the "Huntington Acquisition"). The transactions were funded with borrowings from the AT&T Senior Credit Facility and with funds provided from the Company. Commodore provided programming to these stations under an LMA effective April 1996 until the purchase date. In addition, Commodore has an option to purchase WHRD-AM in Huntington, West Virginia and provides programming services to the station under an LMA arrangement. F-17 120 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) On May 31, 1996, Commodore purchased certain defined assets of radio stations WBBE-FM (formerly WKQS-FM), WAVW-FM and WAXE-AM in the Fort Pierce-Stuart-Vero Beach, Florida market from Media VI for $8.0 million (the "Florida Acquisition"). The transaction was funded with borrowings from the AT&T Senior Credit Facility and funds from the Preferred Stock Facility. Commodore sold advertising time on these stations under a JSA from February 1996 until the purchase date. On May 30, 1996, Commodore purchased certain defined assets of radio stations WKHL-FM and WSTC-AM in Stamford, Connecticut from Q Broadcasting, Inc. for $9.5 million. The transaction was financed with borrowings from the AT&T Senior Credit Facility and funds from the Preferred Stock Facility. On March 27, 1996, Commodore purchased (i) certain defined assets of radio stations WZZN-FM in Mount Kisco, New York, WAXB-FM in Patterson, New York and WPUT-AM in Brewster, New York from Hudson Valley Growth, L.P. for $5.5 million and (ii) all of the issued and outstanding common stock of Danbury Broadcasting, Inc., owner of WRKI-FM, and WINE-AM in Brookfield, Connecticut, plus certain real property for $10.0 million. The transaction was financed with Commodore's existing cash and borrowings under the AT&T Senior Credit Facility. Commodore provided programming to these stations under LMAs from October 1995 until the purchase date. On June 27, 1995, Commodore purchased the assets (excluding cash and accounts receivable) and broadcasting license of radio broadcast station WQOL-FM in Vero Beach, Florida (the "Treasure Coast" Acquisition) for a total purchase price of $3.0 million. All of the transactions described above were accounted for under the purchase method of accounting. The total purchase price of the transactions described above of approximately $57.5 million has been preliminary allocated as follows: (1) approximately $6.4 million to property, plant and equipment, (2) approximately $52.8 million to FCC licenses and goodwill and other intangible assets and (3) approximately $1.7 million to deferred income taxes. Unaudited pro forma results of operations for the Company as if the aforementioned acquisitions and the Commodore Acquisition had been consummated on January 1, 1995 are as follows (in thousands):
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ----------------- ----------------- Net revenue ...................................... $ 44,615 $ 42,467 Net loss before extraordinary loss ............... (13,633) (14,366) Net loss ......................................... (13,633) (14,810) Net loss before extraordinary loss per share ..... (0.15) (0.15) Net loss per share ............................... (0.15) (0.16)
7(b) ACQUISITIONS CONSUMMATED SUBSEQUENT TO DECEMBER 31, 1996 (UNAUDITED) Space Coast Acquisitions On April 8, 1997, the Company acquired substantially all of the assets of City Broadcasting Co. ("City"), EZY Com, Inc. ("EZY") and Roper Broadcasting, Inc. ("Roper"), (collectively, the "Space Coast Acquisitions"). The purchase price of the City acquisition was approximately $3.0 million. City owned and operated two radio stations (one FM and one AM) in the Melbourne, Florida market. The purchase price of the EZY acquisition was approximately $5.0 million. EZY owned and operated two radio stations (one FM and one AM) in the Cocoa, Florida market. The purchase price of the Roper acquisition was approximately $4.0 million. Roper owned and operated one FM radio station in the Rockledge, Florida market. F-18 121 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Osborn Acquisition On February 20, 1997, the Company acquired Osborn Communications Corporation ("Osborn"). The purchase price of the Osborn Acquisition was approximately $145.1 million (including $17.4 million in transaction fees and expenses) payable in cash and common stock. The purchase price includes $113.0 million for the 18 stations which are owned and operated or to which services have been provided by the Company since consummation of the transaction and $25.7 million for the five stations in the Huntsville and Tuscaloosa, Alabama markets which were pending acquisitions of Osborn and excludes $11.0 million to be received by the Company upon the disposition of three stations in the Ft. Myers, Florida market currently under sale agreements by Osborn. The acquisitions of the five stations in Huntsville and Tuscaloosa, Alabama are expected to be completed in March and April 1997 and the Ft. Myers, Florida dispositions are expected to be completed in May 1997. On February 20, 1997, the Company completed a private placement of $277.0 million 12 3/4% Senior Discount Notes which mature in 2009. The proceeds of the offering of $145.0 million, net of $5.3 million of fees and expenses, and proceeds from a sale of the Company's common stock of approximately $54.8 million to an affiliate of Hicks Muse, and additional sales of equity to management were used to finance the Osborn purchase price and certain other acquisitions and repay certain existing indebtedness of Osborn, Commodore and the Company. Also in February 1997 and in connection with the Osborn Acquisition, the Company obtained a $50.0 million credit facility which was not utilized at the time of the acquisition and which the Company intends to refinance in connection with the Benchmark Acquisition. 7(c) PENDING ACQUISITIONS Benchmark Acquisition On December 9, 1996, the Company agreed to acquire directly or indirectly all of the outstanding partnership interests of the Benchmark Partnerships (the "Benchmark Acquisition"). The purchase price of the Benchmark Acquisition is estimated to be approximately $186.4 million (excluding $13.0 million in transaction fees and expenses). Benchmark owns and operates 26 radio stations (16 FM and 10 AM), has agreed to acquire two radio stations in the Montgomery, Alabama market (the "Benchmark Montgomery Acquisition") and has agreed to acquire substantially all of the assets of WSCQ-FM in the Columbia, South Carolina market (the "Benchmark Columbia Acquisition"). Those stations are located in ten markets in the Southeastern United States, including the Dover, Delaware, Salisbury-Ocean City, Maryland, Montgomery, Alabama, Shreveport, Louisiana, Jackson, Mississippi, Statesville, North Carolina, Columbia, South Carolina, Greenville, South Carolina, Roanoke-Lynchburg, Virginia and Winchester, Virginia markets. The Company anticipates that the Benchmark Acquisition will be consummated in June 1997. Under the terms of several acquisition agreements, each dated as of December 9, 1996 (collectively, the "Benchmark Acquisition Agreements"), entered into by Benchmark, the Company, certain affiliates of Hicks Muse and other signatories thereto, Benchmark will become an indirect wholly-owned subsidiary of the Company through a series of mergers and stock purchases with acquisition subsidiaries, (each a "Fund III Acquisition Sub"). A Fund III Acquisition Sub has arranged to borrow up to approximately $62.0 million the proceeds of which may be loaned to Benchmark to provide funds to close the Benchmark Montgomery Acquisition and the Benchmark Columbia Acquisition, and to provide additional working capital to cover other corporate expenses. The Company has unconditionally guaranteed all of the Fund III Acquisition Subs' indebtedness under the senior credit agreement. As of December 31, 1996, $12.6 million had been loaned to Benchmark by Fund III Acquisition Subs for acquisitions, and during January, 1997, $26.1 million was loaned to Benchmark for acquisitions. Through January 1997, a Fund III F-19 122 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Acquisition Sub has borrowed $40.5 million under the senior credit agreement. (Approximately $60.0 million through April 1997 (unaudited).) The Benchmark Acquisition Agreements may be terminated by Benchmark prior to consummation of the Benchmark Acquisition under various circumstances, including a breach of one or more representations, warranties, covenants or agreements by a Fund III Acquisition Sub, which is in the aggregate has, or would reasonably be expected to have, a material adverse effect on Benchmark and its subsidiaries, taken as a whole. If the Benchmark Acquisition is not consummated due to a breach of one or more representations, warranties, covenants or agreements in the Benchmark Acquisition Agreements by a Fund III Acquisition Sub, which in the aggregate has, or would reasonably be expected to have, a material adverse effect on Benchmark and its subsidiaries, taken as a whole, then Benchmark will be entitled to liquidated damages in the amount of $8.2 million as Benchmark's exclusive remedy. The Fund III Acquisition Subs have secured their obligations to consummate the Benchmark Acquisition by placing into escrow $410,000 in cash and a letter of credit in the amount of $6.7 million. An additional $1.0 million in letters of credit may also be placed in escrow under the terms of the Benchmark Acquisition Agreements. Benchmark Montgomery Acquisition On November 4, 1996, Benchmark agreed to acquire substantially all of the assets of Capital Communications utilized in the operations of Capital Communications' radio stations in the Montgomery, Alabama market. The purchase price of the Benchmark Montgomery Acquisition is estimated to be approximately $18.0 million payable in cash by Benchmark. Capital Communications owns and operates three FM radio stations in the Montgomery, Alabama market. In January 1997, Benchmark and the Company filed an application with the FCC for approval of the transfer of control of two of Capital Communications' stations to the Company. The Company anticipates that the Benchmark Montgomery Acquisition will be consummated in June 1997. Benchmark has placed $1.0 million in cash in escrow as security for its obligations under the asset purchase agreement. Benchmark Columbia Acquisition On September 20, 1996, Benchmark agreed to acquire all of the issued and outstanding capital stock of Congaree Broadcasters, Inc. ("Congaree"). The purchase price is estimated to be approximately $4.1 million, and is payable in cash by Benchmark. Congaree owns and operates WSCQ-FM in the Columbia, South Carolina market. The Company anticipates that the Benchmark Columbia Acquisition will be consummated prior to June of 1997. Benchmark has placed $100,000 in cash in escrow as security for its obligations under the stock purchase agreement. Community Pacific Acquisition On December 26, 1996, the Company agreed to acquire substantially all of the assets of Community Pacific (the "Community Pacific Acquisition"). The purchase price of the Community Pacific Acquisition will equal approximately $35.0 million. Community Pacific owns and operates 12 radio stations (six FM and six AM) in four markets located in the Western United States and Iowa, including Anchorage, Alaska, Modesto and Stockton, California and Des Moines, Iowa. The Company and Community Pacific entered into an LMA in connection with Community Pacific's radio stations pursuant to which the Company will provide certain sales, programming and marketing services for Community Pacific's stations (unaudited). The Company anticipates that the Community Pacific Acquisition will be consummated in November 1997. Under the terms of the acquisition agreement, which was entered into by Community Acquisition Company, Inc., the acquisition agreement may be terminated by Community Pacific prior to consummation of the asset purchase under various circumstances, including a breach of any representation or warranty, or any other material breach of any covenant or agreement, by Community Acquisition Company, Inc. If the acquisition agreement is terminated due to a F-20 123 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) breach of any representation or warranty, or any material breach of any covenant or agreement, by Community Acquisition Company, Inc., then Community Pacific will be entitled to liquidated damages in the amount of $2.6 million as Community Pacific's exclusive remedy. Community Acquisition Company, Inc. has secured its obligation to consummate the asset purchase by placing into escrow a letter of credit in the amount of $2.6 million. COMCO Acquisition On February 3, 1997, the Company agreed to acquire substantially all of the assets of COMCO (the "COMCO Acquisition"). The purchase price of the COMCO Acquisition will equal approximately $6.7 million. COMCO owns and operates six radio stations (two AM and four FM) in the Anchorage and Fairbanks, Alaska markets. The Company anticipates that the COMCO Acquisition will be consummated in October 1997. COMCO Acquisition Co. has secured its obligation to consummate the asset purchase by placing into escrow a letter of credit in the amount of $335,000. Upon consummation of the Community Pacific Acquisition and the COMCO Acquisition, the Company will own and operate six radio stations (four FM and two AM) in the Anchorage, Alaska market, which number exceeds the ownership limitations under the Telecom Act. Accordingly, the Company intends to obtain permission from the FCC to consummate both the Community Pacific Acquisition and the COMCO Acquisition provided that the Company sell radio station KASH-AM in Anchorage, Alaska within nine months of the date on which the Community Pacific Acquisition is consummated. The Company will comply with the ownership limitations of the Telecom Act in the Anchorage, Alaska market once it disposes of KASH- AM. No assurances can be given that the Company will be able to sell KASH-AM or that if the Company is able to sell KASH-AM, the Company will not recognize a loss on the sale. Madison Acquisition On February 4, 1997, the Company agreed to acquire substantially all of the assets of Madison (the "Madison Acquisition"). The purchase price of the Madison Acquisition will be approximately $38.8 million. Madison owns and operates six radio stations (four FM and two AM) in Madison, Wisconsin. The Company anticipates that the Madison Acquisition will be consummated in October 1997. Under the terms of the acquisition agreement, which was entered into by Point Madison Acquisition Company, Inc., a subsidiary of the Company ("Madison Acquisition Co."), the acquisition agreement may be terminated by Madison prior to consummation of the asset purchase under various circumstances, including a breach of any representation or warranty, or any material breach of any covenant or agreement, by Madison Acquisition Co. If the acquisition agreement is terminated due to a breach of any representation or warranty, or any material breach of any covenant or agreement, by Madison Acquisition Co., then Madison will be entitled to liquidated damages in the amount of $3.2 million as Madison's exclusive remedy. Madison Acquisition Co. has secured its obligation to consummate the asset purchase by placing into escrow a letter of credit in the amount of $3.2 million. Commonwealth Acquisition In January 1997, the Company agreed to acquire substantially all of the assets of Commonwealth (the "Commonwealth Acquisition"). The purchase price of the Commonwealth Acquisition will equal approximately $5.3 million. Commonwealth owns and operates three radio stations (two FM and one AM) in Yuma, Arizona. The Company anticipates that the Commonwealth Acquisition will be consummated in October 1997. Under the terms of the acquisition agreement, which was entered into by Pacific Star, the acquisition agreement may be terminated by Commonwealth prior to consummation of the asset purchase under various circumstances, including a breach of any representation or warranty, or any material breach of any covenant or agreement, by Pacific Star. If the acquisition agreement is terminated due to a breach of any representation or warranty, or any material breach F-21 124 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) of any covenant or agreement, by Pacific Star, then Commonwealth will be entitled to liquidated damages in the amount of $262,500 as Commonwealth's exclusive remedy. Pacific Star has secured its obligation to consummate the asset purchase by placing into escrow a letter of credit in the amount of $262,500. Cavalier Acquisition In January 1997, the Company agreed to acquire substantially all of the assets of Cavalier (the "Cavalier Acquisition"). The enterprise value of the Cavalier Acquisition will equal approximately $8.3 million. Cavalier owns and operates five radio stations (four FM and one AM) in the Roanoke/Lynchburg, Virginia market. The Company anticipates that the Cavalier Acquisition will be consummated in October 1997. Under the terms of the acquisition agreement, which was entered into by Madison Acquisition Co., the acquisition agreement may be terminated by Cavalier prior to consummation of the asset purchase under various circumstances, including a breach of any representation or warranty, or any material breach of any covenant or agreement, by Cavalier Acquisition Co. If the acquisition agreement is terminated due to a breach of any representation or warranty, or any material breach of any covenant or agreement, by Cavalier Acquisition Co., then Cavalier will be entitled to liquidated damages in the amount of $900,000 as Cavalier's exclusive remedy. Cavalier Acquisition Co. has secured its obligation to consummate the asset purchase by placing into escrow a letter of credit in the amount of $900,000. Emerald City Acquisition On March 10, 1997, the Company entered into an Asset Purchase Agreement with Emerald City Radio Partners, L.P. (the "Emerald City Acquisition") to purchase substantially all of the assets of radio stations WNOK-FM, WMFX-FM and WOIC-AM located in Columbia, South Carolina. Because of certain multiple station ownership limitations under the Telecommunications Act of 1996, the Company has agreed to assign the right to acquire WMFX-FM and WOIC-AM on or before the date on which the Company acquires WNOK-FM. The purchase price will equal approximately $14.9 million in cash, of which approximately $9.5 million has been allocated to WNOK-FM and will be payable by the Company. The Company anticipates that the Emerald City Acquisition will be consummated in July 1997. Under the terms of the agreement, which was entered into by WNOK Acquisition Company, Inc., a subsidiary of the Company ("WNOK Acquisition Co."), the acquisition agreement may be terminated by Emerald City prior to consummation of the asset purchase under various circumstances, including a material breach of any representation, warranty, covenant or agreement by WNOK Acquisition Co. If the acquisition agreement is terminated due to a material breach of any representation, warranty, covenant or agreement by WNOK Acquisition Co., then Emerald City will be entitled to liquidated damages in the amount of $500,000 as Emerald City's exclusive remedy. WNOK Acquisition Co. has secured its obligation to consummate the asset purchase by placing into escrow cash in the amount of $75,000 and has agreed that $425,000 of the loan described below will be forgiven if Emerald City becomes entitled to liquidated damages. In connection with the Emerald City Acquisition, the Company has loaned Emerald City approximately $13.5 million, the proceeds of which were used by Emerald City (i) to pay matured indebtedness of Emerald City to Clear Channel Radio, Inc. in the amount of approximately $13.3 million, including principal and interest, and (ii) for other business purposes in the amount of approximately $200,000. The loan matures on the earlier to occur of (i) October 31, 1997, (ii) the closing of the Emerald City Acquisition or (iii) within 75 days after the termination of the acquisition agreement with WNOK Acquisition Co. F-22 125 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) WRIS Acquisition On April 11, 1997, the Company agreed to acquire substantially all of the assets of WRIS used or held for use in the operation of station WJLM-FM in Salem, Virginia (the "WRIS Acquisition"). The purchase price of the WRIS Acquisition will equal approximately $3.1 million payable in cash. In April 1997, the Company and WRIS will file an application with the FCC for approval to transfer control of such radio station to the Company. No filing under the HSR Act is required. The Company anticipates that the WRIS Acquisition will be consummated in August 1997. Under the terms of the acquisition agreement, which was entered into by Capstar Acquisition Company, Inc., a subsidiary of the Company ("Capstar Acquisition Co."), the acquisition agreement may be terminated by WRIS prior to consummation of the asset purchase under various circumstances, including a material breach of any representation, warranty, covenant or agreement by Capstar Acquisition Co. If the acquisition agreement is terminated due to a material breach of any representation, warranty, covenant or agreement by Capstar Acquisition Co., then WRIS will be entitled to liquidated damages in the amount of $150,000 as WRIS's exclusive remedy. Capstar Acquisition Co. has secured its obligation to consummate the asset purchase by placing into escrow a letter of credit in the amount of $150,000. 7(c) LOCAL MARKETING AND JOINT SALES AGREEMENTS The Company and Commodore have entered into various LMAs and JSAs. While each agreement is unique in its terms and conditions, generally under an LMA or JSA the brokering station purchases substantially all of the commercial time available on the brokered station and provides promotional and sales related services. Under an LMA, the brokering station may also provide programming; a JSA does not involve programming. The brokering station pays a fee to the brokered station for the services provided based upon a flat monthly amount, and/or an amount contingent on the net revenue or profit as calculated in the agreement. As the brokering station, Commodore currently has LMAs or JSAs with WKAP-AM, Allentown, PA, WPAW-FM, Vero Beach, FL and WHRD-AM in Huntington, WV. Commodore provided programming to and sold advertising time on various stations that were under contract to purchase under LMAs or JSAs. 8. INCOME TAXES The Company and Commodore have recorded a provision for income taxes as follows:
PREDECESSOR ---------------------------------------- YEAR ENDED DECEMBER 31, PERIOD ENDED PERIOD ENDED ----------------------- DECEMBER 31, 1996 OCTOBER 16, 1996 1995 1994 ----------------- ----------------- -------- -------- | | Current: | | Federal ........... $ -- | | $ -- $ -- $ 70,400 State and local ... -- | | 133,000 140,634 229,600 Deferred: | | Federal ........... -- | | -- -- -- State and local ... -- | | -- -- -- -------- | | -------- -------- -------- Total ............... $ -- | | $133,000 $140,634 $300,000 ======== | | ======== ======== ========
The Company did not record a federal tax benefit on the taxable loss for the period ended December 31, 1996, nor did Commodore record a federal tax benefit on the taxable loss for the period ended October 16, 1996 or for the year ended December 31, 1995 since it was not assured that they could realize a benefit for such losses in the future. During 1994, Commodore utilized approximately $2.5 million of Federal net operating losses to offset current taxable income. Since the valuation allowance remained at 100% at the end of 1994, there was no deferred tax effect on 1994 earnings. Commodore recorded a provision for federal alternative minimum tax in 1994 because net operating loss carryforwards may be used to offset only 90% of a corporation's alternative minimum taxable income. F-23 126 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Commodore received Internal Revenue Service approval and changed its tax method of accounting for Federal Communications Commission ("the FCC") licenses for the tax year ended December 31, 1995. The aggregate amount of cumulative amortization that will be deductible ratably over six taxable years for the Company and Commodore for tax purposes is approximately $12.1 million. The reconciliation of income tax computed at the U.S. federal statutory rates to effective income tax expense is as follows:
PREDECESSOR ----------------------------------------------- YEAR ENDED DECEMBER 31, PERIOD ENDED PERIOD ENDED -------------------------- DECEMBER 31, 1996 OCTOBER 16, 1996 1995 1994 ----------------- ---------------- ----------- ----------- | | Provision at statutory rate ..... $(1,277,194) | | $(1,184,000) $ (734,695) $ (79,400) State and local taxes ........... -- | | 133,000 140,634 229,600 Nondeductible expense ........... 8,888 | | 33,800 8,286 36,575 Increase in valuation allowance, | | net of rate changes ........... 1,268,306 | | 1,150,200 726,409 42,825 Alternative minimum tax ......... -- | | -- -- 70,400 ----------- | | ----------- ----------- ----------- Total ........................... $ -- | | $ 133,000 $ 140,634 $ 300,000 =========== | | =========== =========== ===========
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The approximate effect of temporary differences were as follows:
PREDECESSOR ------------ DECEMBER 31, ------------------------------- 1996 | | 1995 ------------ | | ------------ | | Deferred tax assets: | | Allowance for bad debts ...................... $ 370,800 | | $ 312,100 Deferred compensation ........................ 126,400 | | 1,244,100 Unamortized discount on Commodore Notes ...... -- | | 959,200 Intangibles .................................. -- | | 290,300 Depreciation ................................. -- | | 76,460 Non-cash stock option compensation ........... 297,600 | | -- Other ........................................ 78,200 | | -- Net operating loss carryforwards .......... 22,789,543 | | 12,405,800 ------------ | | ------------ Total deferred tax assets .................... 23,662,543 | | 15,287,960 Deferred tax liabilities: | | Intangibles .................................. (4,920,900) | | -- Depreciation ................................. (848,080) | | (537,260) Unamortized premium on Commodore Notes ....... (1,201,711) | | -- Other ........................................ -- | | (4,800) ------------ | | ------------ Total deferred tax liabilities ............ (6,970,691) | | (542,060) ------------ | | ------------ Net deferred tax asset ......................... 16,691,852 | | 14,745,900 Less valuation allowance ....................... (18,723,432) | | (14,745,900) ------------ | | ------------ Net deferred tax liability, net of allowance ... $ (2,031,580) | | $ -- ============ | | ============
The Company and Commodore have provided valuation allowances equivalent to their net deferred tax assets in 1995, 1994 and 1993 as the historical results of the Company and Commodore make the realization of taxable income in the future years uncertain. During 1996, the Company and Commodore have provided valuation allowances in excess of the net deferred tax asset as certain temporary differences will not reverse in the net operating loss carryforward F-24 127 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) period. As of December 31, 1996, the Company had net operating loss carryforwards of approximately $54.9 million for federal purposes that expire in the years 1999 through 2011. Due to the change in control which occurred at the time the Company acquired Commodore, the utilization of net operating losses of Commodore incurred through the date of acquisition, approximately $49.2 million, are limited under Section 382 of the Internal Revenue Code. Commodore also has available as of December 31, 1996, $36.2 million for state purposes that expire in the years 1996 to 2011 and $6.1 million of carryforward deductions related to the change in accounting for FCC licenses that will be deductible in the tax years 1996 to 2000. 9. COMMITMENTS Lease Commitments The principal types of property leased by the Company and its subsidiaries and Commodore are office space, towers, real estate related to tower sites, office equipment and transmitting equipment. Total rent expense was approximately $188,000 for the period ended December 31, 1996 for the Company, and $383,000 for the period ended October 16, 1996 and $332,000 and $306,400 for the years ended December 31, 1995 and 1994, respectively for Commodore. The minimum rental commitments of the Company, under all noncancellable operating leases, are set forth below:
AMOUNT ---------- Year ended December 31,: 1997 ................................................... $ 656,044 1998 ................................................... 630,478 1999 ................................................... 556,492 2000 ................................................... 364,302 Thereafter ................................................. 1,003,780 ---------- Total minimum lease payments ........................ $3,211,096 ==========
Other Commitments Commodore entered into a separation agreement with its former President effective December 31, 1993, under which Commodore agreed to pay him an aggregate amount of $1.7 million; a portion was paid in cash, and the remainder of $1.0 million became payable in semi-monthly installments through December 31, 1997. A present value discount of $154,000 was recorded against the total installment liability of $1.0 million as of December 31, 1993. At December 31, 1995, the current portion under this obligation of $219,816 is included in accounts payable and accrued expenses and the remainder of $239,275 is reflected in noncurrent compensation. 10. EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with several executives of the Company including its President and Chief Executive Officer, its Executive Vice President and Chief Financial Officer, its Executive Vice President and General Counsel and the current President of Commodore. The agreements generally provide for terms of employment, annual salaries, bonuses, eligibility for option awards and severance benefits. F-25 128 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Effective January 1, 1994, Commodore entered into an agreement with its then President and Chief Executive Officer under which he would be employed in that capacity through 1996 and provided for annual salary requirements and bonuses, and a Long-Term Incentive Payment ("LTIP"). A fair value amount of $1.8 million was charged to income as long-term incentive compensation in 1994 relating to the LTIP. On April 21, 1995, the then President's employment agreement was amended and restated. In lieu of the LTIP, Commodore paid the then President $1.5 million in cash, issued $1.3 million principal ($1.1 million net of discount) of Commodore's Commodore Notes to a trust for his benefit and agreed to provide $1.5 million in deferred compensation which accrues interest at a rate of 7% and is payable in 2003. Commodore recorded the deferred compensation on April 21, 1995 at its calculated net present value of $921,000. The aggregate effect of the employment agreement restructuring was to charge $1.8 million to long-term incentive compensation expense during 1995. In addition, the then President's amended employment agreement extended his date of employment through April 30, 1998, granted stock options to him to acquire 28,313 shares of Class A Common Stock at an exercise price of $45 per share and provided for annual bonuses based upon specific operating results of the Company. Commodore also amended its then existing employment agreement with its then Chief Operating Officer on April 21, 1995. The prior employment agreement provided for a long-term incentive based upon the increase in certain station values. As of December 31, 1994, $430,000 had been accrued as long-term incentive compensation. The amended employment agreement provided for a cash payment of $400,000 on April 21, 1995 and deferred compensation of $346,000 which accrues interest at a rate of 7% and is payable in 2003. Commodore recorded the deferred compensation on April 21, 1995 at its calculated net present value of $213,000. The aggregate effect of the employment agreement restructuring was to charge $188,800 to long-term incentive compensation expense during 1995. In addition, the amended employment agreement extended his date of employment through April 30, 1999, granted stock options to acquire 28,313 shares of Class A Common Stock at an exercise price of $45 per share and provides for annual bonuses based upon specific operating results of Commodore. As a result of the merger and the change of control effected thereby, Commodore was obligated to satisfy the existing deferred compensation and employment agreements with its then President and Chief Executive Officer and its deferred compensation agreement with its then Chief Operating Officer, resulting in an additional charge to operations of approximately $1.1 million which was recorded in the period ended October 16, 1996. Furthermore, all stock options for the aforementioned officers, as well as for all holders, were redeemed at $140 per share, less the exercise price of $45 per share at the time of the merger. Commodore's then President and Chief Executive Officer resigned his position effective October 16, 1996 as required by the Merger Agreement. 11. RELATED PARTY TRANSACTIONS Monitoring and Oversight Agreement The Company has entered into a monitoring and oversight agreement (the "Monitoring and Oversight Agreement") with Hicks, Muse & Co. Partners, L.P. ("Hicks Muse Partners"). Pursuant thereto, the Company has agreed to pay to Hicks Muse Partners an annual fee of $100,000 for ongoing financial oversight and monitoring services. The annual fee is adjustable upward or downward at the end of each fiscal year to an amount equal to 0.2% of the budgeted consolidated annual net sales of the Company for the then-current fiscal year; provided, that such fee shall at no time be less than $100,000 per year. The Monitoring and Oversight Agreement makes available on an ongoing basis the resources of Hicks Muse Partners concerning a variety of financial matters. The services that have been and will continue to be provided by Hicks Muse Partners could not otherwise be obtained by the Company without the addition of personnel or the engagement of outside professional advisors. F-26 129 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Financial Advisory Agreement The Company is a party to a financial advisory agreement (the "Financial Advisory Agreement") with Hicks Muse Partners. Pursuant to the Financial Advisory Agreement, Hicks Muse Partners is entitled to receive a fee equal to 1.5% of the transaction value (as defined in the Financial Advisory Agreement) for each add-on transaction (as defined) in which the Company or any of its subsidiaries is involved. Pursuant to the Financial Advisory Agreement, Hicks Muse Partners provides investment banking, financial advisory and other similar services with respect to the add-on transactions in which the Company is involved. Such transactions require additional attention beyond that required to monitor and advise the Company on an ongoing basis and accordingly the Company pays separate financial advisory fees with respect to such matters in addition to those paid in connection with the Monitoring and Oversight Agreement. The services that have been and will continue to be provided by Hicks Muse Partners could not otherwise be obtained by the Company without the addition of personnel or the engagement of outside professional advisors. The Company paid Hicks Muse Partners a financial advisory fee in the amount of approximately $3.4 million upon consummation of the Commodore Acquisition. Registration Rights Agreement (Unaudited) Frank D. Osborn entered into a registration rights agreement with the Company upon consummation of the Osborn Acquisition which provides, among other things, that Mr. Osborn may require the Company to effect a demand registration of his Common Stock under the Securities Act at any time within 30 days after the tenth anniversary of the date of the registration rights agreement. Mr. Osborn's right to demand a registration will terminate upon the first to occur of a Qualified IPO or a change in control (both as defined in the registration rights agreement). Accordingly, Mr. Osborn's right to demand a registration will terminate upon completion of the Offering. If the Offering is not completed, then after receipt of a demand for registration of Common Stock pursuant to the registration rights agreement, the Company would have the option to purchase all of the shares of Common Stock, then held by Mr. Osborn for a 30-day period, at appraised value (as defined in the registration rights agreement). Stockholders Agreements Affiliate Stockholders Agreement. R. Steven Hicks, five of his children and Capstar L.P. (the "Affiliate Stockholders") have entered into a Stockholders Agreement (the "Affiliate Stockholders Agreement") with the Company and Hicks Muse that provides, among other things, that the Affiliate Stockholders may require the Company, subject to certain registration volume limitations, to effect up to three demand registrations of their Common Stock under the Securities Act at any time after consummation of a Qualified IPO (as defined in the Affiliate Stockholders Agreement). The Affiliate Stockholders Agreement also provides that in the event the Company proposes to register any shares of its Common Stock under the Securities Act, whether or not for its own account, the Affiliate Stockholders will be entitled, with certain exceptions, to include their shares of Common Stock in such registration. The Affiliate Stockholders Agreement also requires the Affiliate Stockholders, subject to certain conditions, to vote their shares (i) in favor of the election to the Company's Board of Directors of such individuals as may be designated by Hicks Muse and its affiliates (including Capstar L.P.) and (ii) on other matters as the holders of a majority of the voting power of the outstanding shares of Common Stock vote on such matters. If certain conditions are met, including Mr. Hicks serving as the President and Chief Executive Officer of the Company or holding not less than 3.0% of the fully-diluted Common Stock of the Company, the Affiliate Stockholders Agreement provides that Mr. Hicks shall be one of such designees to serve on the Company's Board of Directors. The Affiliate Stockholders Agreement provides that, in connection with any transfer of the Company's securities held by Hicks Muse and its affiliates (which would constitute a "sale" thereof within the meaning of the F-27 130 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Securities Act) representing more than 50.0% of the shares of Common Stock then held by Hicks Muse and its affiliates, Hicks Muse and its affiliates have the right to require the Affiliate Stockholders to also transfer a portion of their shares of Common Stock. If Hicks Muse and its affiliates desire to effect a sale of more than 50.0% of the shares of Common Stock then held by Hicks Muse and its affiliates, such stockholders may "tag along" and sell a portion of their shares of Common Stock on the same terms. Prior to the transfer of any securities subject to the Affiliate Stockholders Agreement by any stockholder other than an affiliate of Hicks Muse, Hicks Muse has the right to acquire such securities on the same terms and conditions as the proposed transfer. If R. Steven Hicks is no longer an officer, director or employee of the Company or any of its subsidiaries or a change of control (as defined in the Affiliate Stockholders Agreement) occurs, the Company has the option to purchase all or any portion of the Company's securities held by Mr. Hicks and his children. The Affiliate Stockholders Agreement provides that (i) R. Steven Hicks shall retain the voting rights of any securities (subject to such agreement) which he transfers, conveys, assigns or hypothecates to an affiliate or any of his family members and (ii) Mr. Hicks may not transfer, convey, assign or hypothecate any of his securities (subject to the Affiliate Stockholders Agreement) to an affiliate or any family member of Mr. Hicks unless such affiliate or family member joins in the Affiliate Stockholders Agreement. Subject to certain exceptions, if the Company proposes to issue or sell any shares of Common Stock to Hicks Muse or any of its affiliates, Mr. Hicks has the right to purchase a pro rata share of such shares of Common Stock. Mr. Hicks has waived his preemptive right to acquire additional shares of Common Stock in connection with the Hicks Muse Equity Investment. Mr. Hicks is entitled to receive, for no additional consideration, a warrant to acquire additional shares of Common Stock (determined as provided in the Affiliate Stockholders Agreement) if Hicks Muse or any of its affiliates otherwise acquires additional shares of Common Stock. Management Stockholders Agreement. Certain employees of the Company and its subsidiaries have entered into a Stockholders Agreement (the "Management Stockholders Agreement") with the Company and Hicks Muse that provides, among other things, that in the event the Company proposes to register any shares of its Common Stock under the Securities Act, whether or not for its own account, the stockholders that are parties to the Management Stockholders Agreement will be entitled, with certain exceptions, to include their shares of Common Stock in such registration. The Management Stockholders Agreement also requires the parties thereto to vote their shares in favor of the election to the Company's Board of Directors of such individuals as may be designated by Hicks Muse and its affiliates. The Management Stockholders Agreement provides that, in connection with any transfer of the Company's securities held by Hicks Muse and its affiliates (which would constitute a "sale" thereof within the meaning of the Securities Act) representing more than 50.0% of the shares of Common Stock then held by Hicks Muse and its affiliates, Hicks Muse and its affiliates have the right to require the stockholders subject to the Management Stockholders Agreement also to transfer a portion of their shares of Common Stock. If Hicks Muse and its affiliates desire to effect a sale of more than 50.0% of the shares of Common Stock then held by Hicks Muse and its affiliates, such stockholders may "tag along" and sell a portion of their shares of Common Stock on the same terms. Prior to the transfer of any securities subject to the Management Stockholders Agreement by any stockholder other than an affiliate of Hicks Muse, Hicks Muse has the right to acquire such securities on the same terms and conditions as the proposed transfer. If at any time a stockholder subject to the Management Stockholders Agreement is no longer an officer, director or employee of the Company or any of its subsidiaries or a change of control (as defined in the Management Stockholders Agreement) of the Company occurs, the Company has the option to purchase all or any portion of the Company's securities held by such stockholder. During the period ended October 16, 1996 and the year ended December 31, 1995, Commodore paid the majority stockholder a salary of approximately $185,000 and $175,000, respectively. In addition, the majority F-28 131 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) stockholder repaid an outstanding loan of $182,988, of which $65,488 was advanced in the year ended December 31, 1995; the majority stockholder owed Commodore $117,500 as of December 31, 1994, which was reflected in other current assets. On April 10, 1992, Commodore obtained $9.3 million from Radio Financial Partners ("RFP") in exchange for a subordinated note bearing interest at 7% and maturing in 1997. On December 28, 1993, RFP agreed to convert a total of $7,247,000 of the unpaid principal on the subordinated note and $476,000 of accrued interest into 10,000 shares of Redeemable Preferred Stock (see Note 6). The remaining principal balance of $2.1 million was converted into a noninterest-bearing subordinated note with a final maturity of April 10, 1997. Commodore repaid the outstanding balance of the note and redeemed the preferred stock on April 21, 1995. During May 1995, Commodore loaned approximately $250,000 to certain executive officers as evidenced by 7% promissory notes that mature in 2001, with all accrued interest and principal due on the maturity date. The total amount owed Commodore at December 31, 1995 was $261,329, which was included in noncurrent assets. These loans were repaid in October 1996. In connection with the debt restructuring described above, on December 28, 1993, Commodore granted a warrant to an affiliate to purchase 4.99% of its common stock at an exercise price of $100, on a fully diluted basis. The warrant was exercised during 1995. The Company is involved in certain transactions in the normal course of operations with GulfStar Communications, Inc., an affiliated entity. At December 31, 1996, the Company owed GulfStar Communications, Inc. approximately $277,000 and owed Hicks Muse approximately $260,000 for certain costs paid on behalf of the Company. 12. STOCK OPTION AND WARRANT AGREEMENTS The Company's 1996 Stock Option Plan (the "Stock Option Plan") gives certain individuals and key employees of the Company and any parent corporation or subsidiary corporation thereof (such parent and subsidiary corporations are referred to as "Related Entities") who are responsible for the continued growth of the Company an opportunity to acquire a proprietary interest in the Company, and thus to create in such persons an increased interest in and a greater concern for the welfare of the Company and any Related Entities. The Board of Directors has authorized issuance of options to acquire up to 9,000,000 shares of common stock, and 9,000,000 shares of common stock have been reserved for issuance. Through December 31, 1996, the Board of Directors had authorized grants of stock options with respect to 4,100,000 shares of common stock under the Stock Option Plan, and had reserved 4,100,000 shares of common stock for issuance under the Plan. In connection with employment agreements executed with current key employees and to be executed with certain future key employees upon the consummation of certain pending acquisitions (see Note 10), the Company has committed to grant stock options for the purchase of 4,127,400 common shares at $1.10 per share. These stock options generally will vest with respect to 20% of the shares of the first anniversary of the grant, and 1/60th of the shares monthly thereafter. The maximum term of options granted is ten years. Subsequent to December 31, 1996, grants of stock options for 795,880 shares of common stock have terminated. On April 21, 1995, Commodore adopted a stock option plan (the "Plan") which provided for the granting of incentive stock options and nonqualified stock options to executives and key employees. On October 16, 1996, all outstanding options were redeemed at $140 per share less their exercise price of $45 per option. F-29 132 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table summarizes the transactions of the Stock Option Plan and the Plan for the periods ended December 31, 1996 and October 16, 1996, and the year ended December 31, 1995:
PREDECESSOR ---------------------------- DECEMBER 31, OCTOBER 16, DECEMBER 31, 1996 1996 1995 ------------ ------------ ------------ | | Outstanding options, beginning of period ...... -- | | 96,670 -- Granted ....................................... 3,737,430 | | -- 96,670 Canceled or expired ........................... -- | | -- -- Exercised ..................................... -- | | (96,670) -- ------------ | | ------------ ------------ Outstanding options, end of year .............. 3,737,430 | | -- 96,670 ============ | | ============ ============ Average price of options exercised ............ $ -- | | $ 45 $ -- Weighted average exercise price, end of period | | and weighted average fair market value at | | date of grant ............................... 1.00 | | -- 45 Options exercisable, end of period ............ -- | | -- 96,670 Options available for future grant ............ 362,570 | | -- 35,455 Weighted average remaining contractual life ... ten years | | Range of exercise prices ...................... $1.00-$1.00 | |
The Company and Commodore apply Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees , and related interpretations, in accounting for their stock option plans. As options are generally issued at an exercise price which approximates the fair market value of the Company's common stock at the date of grant, no compensation expense has been recognized for the plans. Had compensation cost for the plans been determined based upon the fair value at the grant date for awards under the plans consistent with the methodology prescribed under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, Commodore's net loss would have decreased by approximately $11.5 million and increased by approximately $176,225, for the period ended October 16, 1996 and for the year ended December 31, 1995, respectively, using the minimum valuation method option-pricing model with the following assumptions: dividend yield of 0.0%, risk-free interest rate of 6.93% and an expected life of four years. The Company's net loss would have decreased by approximately $600,000 for the period from October 16, 1996 through December 31, 1996 using the minimum valuation method option-pricing model with the following assumptions: dividend yield of 0.0%, risk free interest rate of 6.0%, expected volatility of 0.0% and an expected life of ten years. Accordingly, on a pro forma basis, the Company's net loss and net loss per share would have been $3.2 million and $0.03, respectively, for the period ended December 31, 1996. The Company's 1996 Stock Purchase Plan (the "Stock Purchase Plan") gives certain key employees of the Company who are expected to contribute materially to the success of the Company an opportunity to acquire a proprietary interest in the Company, and thus to retain such persons and create in such persons an increased interest in and a greater concern for the welfare of the Company. The Company has reserved for issuance 3,155,000 shares of common stock under the Stock Purchase Plan. To date, grants of stock purchase rights with respect to 1,155,000 shares of common stock have been made under the Stock Purchase Plan, all of which have been exercised. On October 16, 1996, the Company issued a warrant (the "Warrant") to R. Steven Hicks. Pursuant to the terms of the Warrant, Mr. Hicks is entitled to purchase 7,440,000 shares of common stock of the Company at any time or from time to time and, upon the fulfillment of a certain triggering event, may purchase an additional 1,860,000 shares of Common Stock. The exercise price of the Warrant is equal to a per share price of $1.00, representing the fair market value of the date of grant, as increased by an annual rate of interest equal to 8.0% per year commencing as of October 16, 1996. The term "triggering event" means the date upon which distributions equal to an internal rate of return of at least 30.0%, calculated in accordance with generally accepted financial practice, on the initial investment of Capstar F-30 133 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) L.P. of $90.0 million in the Company (which investment was made on October 16, 1996) have been made to Hicks Muse and its affiliates and its and their respective officers, directors and employees (and members of their respective families (other than Mr. Hicks) and trusts for the primary benefit of those family members). The Warrant will terminate on October 16, 2006. The Warrant and the Common Stock issuable thereunder are subject to the Affiliate Stockholders Agreement. The Company recorded non-cash compensation expense of approximately $744,000 in the period ended December 31, 1996 in connection with the estimated increase in value of the underlying common stock since the issuance date of the warrant. Under the terms of the Affiliate Stockholders Agreement, the Company will issue a new warrant (the "New Warrant") to Mr. Hicks upon completion of the Hicks Muse Equity Investment. Pursuant to the terms of the New Warrant, Mr. Hicks will be entitled to purchase 2,042,550 shares of Common Stock at any time or from time to time and, upon the fulfillment of the triggering event, may purchase an additional 510,630 shares of Common Stock. If an affiliate of the underwriter of the private placement of 12 3/4% Senior Discount Notes purchases shares of common stock that would otherwise be purchased by HM Fund III and its affiliates, a proportionately lesser number of shares of Common Stock will be purchasable under the New Warrant. The exercise price of the New Warrant will be equal to a per share price of $1.10 per share as increased by an annual rate of interest equal to 8.0% per year. The New Warrant will terminate ten years from the date of grant. 13. DEFINED CONTRIBUTION PLAN During 1995, Commodore established a 401(K) Plan for the benefit of all eligible employees. Eligible participants under this plan are defined as all full-time employees with one year of service. All eligible participants may elect to contribute a portion of their compensation to the plan subject to Internal Revenue Service limitations. Commodore may make discretionary matching contributions to the plan, subject to board approval; no contributions were made during the period ended October 16, 1996 and for the period ended December 31, 1996. 14. LEGAL PROCEEDINGS Commodore is involved in various legal proceedings from time to time in the normal course of business. In management's opinion, the litigation in which Commodore is currently involved, individually and in the aggregate, is not material to Commodore's financial condition or results of operations. 15. SUBSEQUENT EVENT (UNAUDITED) The Company plans to file a registration statement under the Securities Act of 1933 and intends to initiate a public offering of its common stock (the "Offering") which is expected to generate gross proceeds of $100.0 million. The consummation of the Offering is not conditioned on the consummation of any or all of the pending acquisitions of the Company. F-31 134 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Osborn Communications Corporation We have audited the accompanying consolidated balance sheets of Osborn Communications Corporation as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Osborn Communications Corporation at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP New York, New York February 3, 1997 F-32 135 OSBORN COMMUNICATIONS CORPORATION CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, ---------------------------- 1996 1995 ------------ ------------ Current assets: Cash and cash equivalents ............................ $ 2,944,205 $ 12,994,779 Accounts receivable, less allowance for doubtful accounts of $499,800 in 1996 and $518,157 in 1995 ............................... 5,505,351 5,759,562 Inventory ............................................ 1,095,157 889,942 Prepaid expenses and other current assets ............ 1,018,701 1,525,308 ------------ ------------ Total current assets ................................... 10,563,414 21,169,591 Investment in affiliated companies ..................... 512,088 524,084 Property, plant and equipment, at cost, less accumulated depreciation of $16,162,605 in 1996 and $18,624,021 in 1995 ................................. 13,711,683 15,358,070 Intangible assets, net of accumulated amortization of $15,743,477 in 1996 and $15,238,193 in 1995 ...... 31,743,083 40,463,595 Other noncurrent assets ................................ 925,000 118,753 ------------ ------------ Total assets ........................................... $ 57,455,268 $ 77,634,093 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses ................ $ 4,809,264 $ 4,509,292 Accrued wages and sales commissions .................. 434,986 434,309 Accrued interest payable ............................. 46,173 459,114 Accrued income taxes ................................. 1,492,114 825,712 Current portion of long-term debt .................... 320,000 2,718,000 ------------ ------------ Total current liabilities .............................. 7,102,537 8,946,427 Long-term debt ......................................... 13,880,000 44,482,000 Deferred income taxes .................................. 3,061,298 2,275,711 Other noncurrent liabilities ........................... 1,501,279 432,916 Commitments and contingencies Stockholders' equity: Preferred stock, par value $.01 per share; authorized 5,000,000 shares, none issued and outstanding ..... -- -- Common stock, par value $.01 per share; authorized 7,425,000 shares, issued and outstanding shares: 5,547,497 and 5,537,497, respectively, in 1996; 5,286,347 and 5,276,347, respectively, in 1995 ... 55,376 52,764 Non-voting common stock, par value $.01 per share; authorized 75,000 shares, none issued and outstanding .................................. -- -- Additional paid-in capital ............................. 40,869,408 39,694,601 Accumulated deficit .................................... (9,014,630) (18,250,326) ------------ ------------ Total stockholders' equity ............................. 31,910,154 21,497,039 ------------ ------------ Total liabilities and stockholders' equity ............. $ 57,455,268 $ 77,634,093 ============ ============
See accompanying notes. F-33 136 OSBORN COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, -------------------------------------------- 1996 1995 1994 ------------ ------------ ------------ Net revenues ................................... $ 37,215,048 $ 39,505,193 $ 34,982,110 Operating expenses: Selling, technical and program ................ 9,656,347 11,785,471 9,487,815 Direct programmed music and entertainment ..... 12,426,740 10,489,513 9,807,495 General and administrative .................... 6,740,352 7,526,897 6,611,035 Depreciation and amortization ................. 4,756,325 5,782,404 5,285,280 Corporate expenses ............................ 1,849,820 1,705,850 2,475,675 Total operating expenses ................... 35,429,584 37,290,135 33,667,300 ------------ ------------ ------------ Operating income ............................... 1,785,464 2,215,058 1,314,810 Other income (expense) ......................... (291,163) 2,314,508 2,246,450 Interest expense ............................... 2,201,616 5,212,999 4,385,827 Equity in results of affiliated company ........ -- (11,829) -- Other gains, including gains on sales of stations ......................... 12,321,760 8,094,993 -- ------------ ------------ ------------ Income (loss) before income taxes and extraordinary item ....................... 11,614,445 7,399,731 (824,567) Provision for income taxes ..................... 2,378,749 775,982 289,220 ------------ ------------ ------------ Income (loss) before extraordinary item ........ 9,235,696 6,623,749 (1,113,787) Extraordinary item: Loss on debt extinguishment ................... -- (3,921,061) (436,329) ------------ ------------ ------------ Net income (loss) .............................. $ 9,235,696 $ 2,702,688 $ (1,550,116) ============ ============ ============ Primary earnings per common share: Income (loss) before extraordinary item ....... $ 1.65 $ 1.23 $ (0.21) Loss on extinguishment of debt ................ -- (0.73) (0.08) ------------ ------------ ------------ Net income (loss) per common share ............. $ 1.65 $ 0.50 $ (0.29) ============ ============ ============ Fully diluted earnings per common share: Income (loss) before extraordinary item ....... $ 1.62 $ 1 .22 $ (0.21) Loss on extinguishment of debt ................ -- (0.72) (0.08) ============ ============ ============ Net income (loss) per common share ............. $ 1.62 $ 0.50 $ (0.29) ------------ ------------ ------------ Weighted average common shares outstanding: Primary shares ................................ 5,598,237 5,388,001 5,376,715 ============ ============ ============ Fully diluted shares .......................... 5,687,927 5,459,353 5,376,715 ============ ============ ============
See accompanying notes. F-34 137 OSBORN COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
VOTING NON-VOTING ADDITIONAL ------------------------ ------------------- ----------- PAR PAR PAID-IN ACCUMULATED SHARES VALUE SHARES VALUE CAPITAL DEFICIT ---------- ---------- -------- -------- ------------ ------------ Balance at December 31, 1993 .... 10,752,181 107,523 -- -- $ 38,453,555 $(19,402,898) Exercise of stock options ..... 1,500 15 -- -- 5,984 -- Issuance of stock warrant ..... -- -- -- -- 1,774,837 -- Effect of 1-for-2 reverse stock split ................. (5,376,091) (53,762) -- -- 53,762 -- Purchase and retirement of treasury stock .............. (17,843) (178) -- -- (106,880) -- Net loss ...................... -- -- -- -- -- (1,550,116) ---------- ---------- -------- -------- ------------ ------------ Balance at December 31, 1994 ... 5,359,747 53,598 -- -- 40,181,258 (20,953,014) Purchase and retirement of treasury stock .............. (107,059) (1,071) -- -- (641,283) -- Exercise of stock options ..... 23,659 237 -- -- 154,626 -- Net income .................... -- -- -- -- -- 2,702,688 ---------- ---------- -------- -------- ------------ ------------ Balance at December 31, 1995 .... 5,276,347 52,764 -- -- 39,694,601 (18,250,326) Exercise of stock options ..... 173,667 1,737 -- -- 732,182 -- Issuance of common stock ...... 132,500 1,325 -- -- 1,106,175 -- Acquisition and retirement of treasury stock ........... (45,017) (450) -- -- (663,550) -- Net income .................... -- -- -- -- -- 9,235,696 ---------- ---------- -------- -------- ------------ ------------ Balance at December 31, 1996 .... 5,537,497 $ 55,376 -- -- $ 40,869,408 $ (9,014,630) ========== ========== ======== ======== ============ ============
See accompanying notes. F-35 138 OSBORN COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, -------------------------------------------- 1996 1995 1994 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) ............................................. $ 9,235,696 $ 2,702,688 (1,550,116) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ............................... 4,756,325 5,782,404 5,285,280 Other gains (losses), including gains on sales of stations .. (12,321,760) (8,094,993) -- Deferred income taxes ....................................... 785,587 240,664 175,000 Transaction costs for proposed merger ....................... 479,754 -- -- Loss on extinguishment of debt .............................. -- 3,921,061 436,329 Write-off of registration statement costs ................... -- -- 397,583 Non-cash interest expense ................................... 244,363 332,284 210,421 Equity in results of affiliated company ..................... -- 11,829 -- Distributions from affiliated companies ..................... (62,500) (1,942,731) -- Changes in current assets and current liabilities: Decrease (increase) in accounts receivable ................ 254,211 (323,770) (2,165,123) (Increase) decrease in inventory .......................... (205,215) 190,705 (214,241) Decrease (increase) in prepaid expenses and other current assets .......................................... 506,607 (742,764) (177,499) Acquisition deposit held in escrow ........................ -- 180,000 -- Increase in distribution receivable ....................... -- -- (2,264,552) Increase in accounts payable and accrued expenses ......... 299,972 721,764 1,069,534 (Decrease) increase in accrued wages and sales commissions ...................................... 677 129,528 (96,287) Increase (decrease) in accrued interest payable ........... (412,941) (1,485,673) 1,632,742 Increase in accrued income taxes .......................... 666,402 290,223 15,009 ------------ ------------ ------------ Total adjustments ............................................. (5,008,518) (789,469) 4,304,196 ------------ ------------ ------------ Net cash provided by operating activities ..................... 4,227,178 1,913,219 2,754,080 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Distributions from affiliated companies ....................... 62,500 4,207,283 -- Payments for business acquisitions ............................ (13,605,591) -- (21,825,094) Net proceeds from sale of stations ............................ 34,687,928 10,000,000 -- Accrued transaction costs ..................................... (479,754) (1,411,981) -- Net proceeds from sale of other assets ........................ 580,653 -- -- Proceeds from note receivable ................................. -- 1,620,455 329,545 Capital expenditures .......................................... (1,707,351) (1,326,492) (942,771) Acquisition deposit held in escrow ............................ (925,000) (180,000) -- Reclassification of other noncurrent assets ................... 118,753 -- -- Expenditures for intangible assets ............................ -- (524,863) -- ------------ ------------ ------------ Net cash provided by (used in) investing activities .......... 18,732,138 12,384,402 (22,438,320) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt ...................... -- 44,500,000 48,460,982 Proceeds from issuance of stock warrant ....................... -- -- 1,774,837 Debt issuance costs ........................................... (79,807) (1,183,824) (1,887,965) Registration statement costs .................................. -- -- (228,587) Proceeds from exercise of stock options ....................... 69,917 154,863 6,000 Purchase and retirement of treasury stock ..................... -- (642,354) (107,058) Prepayment penalty on debt retirement ......................... -- (500,000) -- Principal payments on long-term debt and notes payable ........ (33,000,000) (50,000,000) (23,286,671) ------------ ------------ ------------ Net cash (used in) provided by financing activities .......... (33,009,890) (7,671,315) 24,731,538 ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents .......... (10,050,574) 6,626,306 5,047,298 Cash and cash equivalents at beginning of period ............. 12,994,779 6,368,473 1,321,175 ------------ ------------ ------------ Cash and cash equivalents at end of period .................... $ 2,944,205 $ 12,994,779 $ 6,368,473 ============ ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest ........................................ $ 2,370,194 $ 6,366,388 $ 2,542,664 ============ ============ ============ Cash paid for income taxes .................................... $ 926,760 $ 245,095 $ 99,211 ============ ============ ============
See accompanying notes. F-36 139 OSBORN COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 1. NATURE OF BUSINESS AND ORGANIZATION Osborn Communications Corporation ("Osborn") is engaged in the operation of radio stations, programmed music, cable television and other communications properties throughout the United States. 2. PLAN OF MERGER On July 23, 1996, Osborn entered into an agreement and plan of merger with a subsidiary of Capstar Broadcasting Partners, Inc. ("the Company") whereby the Company will acquire all of Osborn's common stock for $15.375 per share. A majority of the holders of the Osborn's common stock voted to approve the merger in December 1996 and the Federal Communications Commission ("FCC") approved the transfer of Osborn's broadcast licenses to the Company in January 1997. The merger is expected to be completed in February 1997. Concurrently with the execution of the merger agreement and as security for liquidated damages that may be payable by the Company to Osborn for the Company's failure to consummate the merger, the Company has deposited in an escrow account an irrevocable letter of credit in favor of Osborn for the sum of $5.0 million. If Osborn terminates the merger agreement by reason of receiving an alternative proposal which is deemed more favorable to Osborn's stockholders, Osborn must pay a termination fee of $3,750,000 to the Company. 3. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements include the accounts of Osborn and its subsidiaries. All material intercompany items and transactions have been eliminated. Investments in affiliated companies are accounted for using the equity method. Certain prior years' amounts have been reclassified to conform with the current year's presentation. Depreciation Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets, as follows: Buildings ....................................... 10-39 years Furniture and fixtures .......................... 5-7 years Broadcasting equipment .......................... 3-19 years Transportation equipment ........................ 2-5 years
Expenditures for maintenance and repairs are charged to operations as incurred. Intangible Assets Intangible assets include $2.6 million and $2.5 million in 1996 and 1995, respectively, for agreements not to compete relating to certain transactions described in Note 4, and $3.4 million in 1996 and 1995 assigned to Muzak customer contracts acquired in 1990 and 1986, which are being amortized over their estimated useful lives. Deferred financing costs of $1.3 million and $1.2 million in 1996 and 1995, respectively, are being amortized over the term of the related debt on a straight-line basis, which approximates the interest method. The remainder in the amount of $40.2 million and $48.6 million in 1996 and 1995, respectively, represents the excess of acquisition cost over the amounts assigned to other assets acquired in Osborn's acquisitions, and is being amortized on a straight-line basis principally over a 40-year period. F-37 140 OSBORN COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) It is Osborn's policy to account for goodwill and all other intangible assets at the lower of amortized cost or estimated realizable value. As part of an ongoing review of the valuation and amortization of intangible assets of Osborn and its subsidiaries, management assesses the carrying value of the intangible assets, if facts and circumstances suggest that there may be impairment. If this review indicates that the intangibles will not be recoverable as determined by a non-discounted cash flow analysis of the operating assets over the remaining amortization period, the carrying value of the intangible assets would be reduced to estimated realizable value. During 1996, Osborn adopted SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which established standards for the recognition and measurement of impairment losses on long-lived assets, certain identifiable intangible assets, and goodwill (see Note 5). Barter Transactions Revenue from barter transactions (advertising provided in exchange for goods and services) is recognized as income when advertisements are broadcast, and merchandise or services received are charged to expense (or capitalized as appropriate) when received or used. Revenue Broadcast revenue is presented net of advertising commissions of approximately $1.3 million, $2.1 million and $1.7 million for the years ended December 31, 1996, 1995 and 1994, respectively. Per Share Data Primary earnings per common share for 1996 and 1995 is based on the net income for the year divided by the weighted average number of common and common equivalent shares. Common stock equivalents consist of stock options and warrants (see Notes 12 and 13). Shares issuable upon the exercise of all common stock equivalents and other potentially dilutive securities are not included in the computations for 1994 since their effect is not dilutive. Cash Equivalents Cash equivalents consist of short-term, highly liquid investments which are readily convertible into cash and have an original maturity of three months or less when purchased. Inventory Inventories, consisting of merchandise for Osborn's entertainment properties, sound equipment held for resale by Osborn's Muzak franchises and equipment held for resale by Osborn's healthcare cable business, are valued at the lower of cost or market using the first-in, first-out method. Risks and Uncertainties The preparation of financial statements in conformity with generally accepted accounting principles requires Osborn 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 revenue and expenses during the reported period. Actual results may differ from those estimates. 4. ACQUISITIONS/DISPOSITIONS/PENDING TRANSACTIONS At December 31, 1996, Osborn owned and operated ten FM and six AM radio stations, four programmed music and sound equipment distributorships, a hospital cable television company and certain entertainment properties. F-38 141 OSBORN COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. ACQUISITIONS/DISPOSITIONS/PENDING TRANSACTIONS -- (CONTINUED) 1996 In March 1996, Osborn acquired substantially all the assets of radio station WRIR-FM (formerly WHLX-FM), Wheeling, West Virginia, for $0.8 million plus transaction costs. In June 1996, Osborn acquired substantially all the assets of radio stations WBBD-AM/WKWK-FM (formerly WKWK-AM/FM), Wheeling, West Virginia, for $2.7 million plus transaction costs. Osborn programmed WBBD-AM/WKWK-FM pursuant to a local marketing agreement ("LMA") from March 1996 through the closing of the acquisition. In October 1996, Osborn acquired substantially all the assets of radio station WEGW-FM, Wheeling, West Virginia, for $0.8 million. Osborn already owned radio stations WWVA-AM/WOVK-FM in Wheeling, West Virginia. In April 1996, Osborn acquired substantially all the assets of radio stations WKII-AM/WFSN-FM (formerly WKII-AM/WEEJ-FM). Port Charlotte, Florida, for $2.85 million plus transaction costs. Upon completion of the relocation of WFSN-FM's broadcast antenna to Osborn's Pine Island, Florida tower in order to better serve the Port Charlotte/Ft. Myers market, additional consideration of $750,000 will be paid. The additional consideration is included in other noncurrent liabilities in the consolidated balance sheet at December 31, 1996. The additional consideration was paid in January 1997. Pending the closing of the acquisition, the stations were programmed by Osborn pursuant to an LMA since September 1995. Osborn already owns radio station WOLZ-FM, Ft. Myers, and has a 50% non-voting ownership interest in radio station WDRR-FM, San Carlos Park/Ft. Myers. Osborn plans to dispose of radio stations WOLZ-FM/WFSN-FM/ WKII-AM in 1997 (see Pending Transactions below). In May 1996, Osborn acquired substantially all the assets of radio stations KNAX-FM/KRBT-FM, Fresno, California. Consideration for the acquisition consisted of $6.0 million plus 120,000 shares of Osborn's common stock. Pending the closing of the acquisition, the stations were programmed by Osborn since January 1996 pursuant to an LMA. In December 1996, the Company sold substantially all the assets of radio stations KNAX-FM/ KRBT-FM for $11.0 million, resulting in a pre-tax gain of approximately $3.5 million. Pending the closing of the transaction, the purchaser managed the stations pursuant to an LMA since August 1, 1996. In January 1996, Osborn sold substantially all the assets of radio station WWRD-FM, Jacksonville, Florida/Brunswick, Georgia, for $2.5 million, resulting in a pre-tax gain of approximately $0.8 million. Pending the closing of the disposition, the station was programmed by the purchaser pursuant to an LMA. In February 1996, Osborn sold substantially all the assets of radio stations WNDR-AM/WNTQ-FM, Syracuse, New York, for $12.5 million, resulting in a pre-tax gain of approximately $6.0 million. Pending the closing of the disposition, the stations were programmed by the purchaser pursuant to an LMA. In June 1996, Osborn sold substantially all the assets of radio station WFXK-FM, Raleigh/Tarboro, North Carolina, for $5.9 million, resulting in a pre-tax gain of approximately $2.2 million. Pending the closing of the transaction, the purchaser programmed the station pursuant to an LMA. In June 1996, Osborn sold substantially all the assets of radio station WAYV-FM, Atlantic City, New Jersey, for $3.1 million, resulting in a pre-tax gain of approximately $0.2 million. Pending the closing of the transaction, the purchaser programmed the station pursuant to an LMA since March 1996. In June 1996, Osborn sold substantially all the assets of radio station WFKS-FM, Daytona Beach/Palatka, Florida, for $4.0 million, resulting in a pre-tax gain of approximately $0.8 million. Pending the closing of the transaction, the purchaser programmed the station pursuant to an LMA. The net cash proceeds from each of the dispositions were used principally to repay long-term debt and fund transaction costs. F-39 142 OSBORN COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. ACQUISITIONS/DISPOSITIONS/PENDING TRANSACTIONS -- (CONTINUED) All of the acquisitions have been accounted for using the purchase method of accounting. Accordingly, the purchase price of each acquisition has been allocated to the assets based upon their fair values at the date of acquisition. The results of operations of the properties acquired are included in Osborn's consolidated results of operations from the respective dates of acquisition and until the date of disposition for properties disposed. 1995 In December 1995, Osborn entered into an option agreement with Allbritton Communications Company for the sale of television station WJSU-TV, Anniston, Alabama, and an associated 10-year LMA. In consideration for the option, Osborn received a nonrefundable cash payment of $10.0 million. Because the cash proceeds from the option are nonrefundable, Osborn accounted for the economic substance of the transaction as if a sale of substantially all the assets of the station had occurred. Accordingly, a gain of approximately $8.1 million was recorded. In addition, upon the exercise of the option and the necessary FCC consent, Osborn will receive an additional cash payment of $2.0 million. Upon the grant of the necessary regulatory approvals to relocate the station's broadcast transmitter to maximize broadcast coverage of the facility, Osborn could have received additional cash payments of up to $7.0 million. In January 1997, the regulatory approvals were granted for the relocation of the station's broadcast transmitter, and a cash payment of approximately $5.3 million was paid to Osborn. An additional payment relating to the transmitter relocation of approximately $1.4 million will be payable upon exercise of the option. 1994 In June 1994, Osborn acquired substantially all the assets of three FM radio stations and one AM radio station for $20.0 million plus transaction costs. The acquisition included radio stations WWNC-AM/WKSF-FM, Asheville, North Carolina; WOLZ-FM, Ft. Myers, Florida; and WFKS-FM, Daytona Beach, Florida. In August 1994, Osborn acquired substantially all the assets of radio stations WAAX-AM/WQEN-FM, Gadsden, Alabama, (the "Gadsden Acquisition") for $1.75 million plus transaction costs. Prior to the grant of the waiver of the FCC's cross-ownership regulations, the Gadsden acquisition was accounted for using the equity method of accounting. Accordingly, prior year financial statements have been reclassified to reflect the consolidation of the Gadsden radio stations. In March 1994, Osborn, through a wholly-owned subsidiary, acquired radio station WAYV-FM, Atlantic City, New Jersey, for consideration of approximately $2.5 million. Pending Transactions In January 1997, Osborn acquired substantially all the assets of radio station WYNU-FM, Jackson/Milan, Tennessee for $3.6 million plus transaction costs. Osborn already owns one FM and one AM radio station in the market. In November 1996, Osborn agreed to acquire substantially all the assets of radio station WTXT-FM, Tuscaloosa/Fayette, Alabama from Tuscaloosa Broadcasting Company, Inc. for approximately $5.8 million, subject to FCC approval. The transaction is expected to close in February 1997. In December 1996, Osborn agreed to acquire substantially all the assets of radio stations WACT-AM/FM, Tuscaloosa, Alabama from Taylor Communications Corporation for $1.0 million, subject to FCC approval. Pending the closing of the transaction, which is expected in the first quarter of 1997, Osborn is managing the stations pursuant to an LMA. In November 1996, Osborn agreed to acquire the stock of Dixie Broadcasting, Inc. and Radio WBHP, Inc., the owners of radio stations WDRM-FM/WHOS-AM/WBHP-AM, Huntsville, Alabama. Consideration for the acquisition consists of (i) $23.0 million; (ii) a three year consulting agreement valued at $2.5 million; and (iii) a $1.5 million earn-out based on future operating results. The transaction, which is subject to FCC approval, is expected to close in 1997. F-40 143 OSBORN COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. ACQUISITIONS/DISPOSITIONS/PENDING TRANSACTIONS -- (CONTINUED) In December 1996, Osborn agreed to sell substantially all the assets of WOLZ-FM, WFSN-FM and WKII-AM, Fort Myers/Port Charlotte, Florida for approximately $11.0 million to Clear Channel Radio, Inc., subject to FCC approval. Pending the closing of the transaction, which is expected in 1997, the stations are being managed by the Purchaser pursuant to a LMA starting in January 1997. Other Investments In 1989, Osborn acquired, $620,000, a 50% non-voting ownership interest (without control) in a corporation that owns and operates radio station WDRR-FM, San Carlos Park, Florida. The station became operational in September 1995. Osborn's net investment is included in investment in affiliated companies on the consolidated balance sheet. In 1989, Osborn acquired a 32% ownership interest in Northstar Television Group, Inc. ("Northstar") for $329,000. From Northstar's inception through May 1994, Osborn managed Northstar's four television stations for an annual fee of up to $250,000, plus reimbursement of out-of-pocket expenses and allocated overhead costs. In 1994, as a result of a proposed restructuring of Northstar, Osborn agreed, as payment for prior services rendered, to receive an immediate payment of $250,000, another payment of $250,000 within two years, and the retention of an economic interest. Osborn's management agreement terminated following the restructuring. In 1995, three of Northstar's four television stations were sold and Osborn received a distribution of $1.6 million, classified as other income in the consolidated statement of operations, plus accrued management fees of $250,000. In 1987, Osborn acquired 25% of the stock of Fairmont Communications Corporation ("Fairmont") for $500,000. Fairmont owned seven radio stations in four large and medium sized markets. In August 1992, Fairmont filed for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code. In September 1993, Fairmont emerged from Chapter 11 upon approval by the bankruptcy court of a plan of reorganization (the "Plan"). The Plan provided for the sale of Fairmont's assets, distribution of the proceeds in accordance with the Plan, and subsequent liquidation of Fairmont. All of Fairmont's stations were sold by the second quarter of 1994. Osborn will continue to manage Fairmont pursuant to a management agreement which expires upon the liquidation of Fairmont, which is expected in 1997. For managing Fairmont, Osborn receives an annual fee of $125,000, plus reimbursement of out-of-pocket expenses and allocated overhead costs. In 1994, Osborn received additional management fees of $728,000 related to the sale of Fairmont's stations. Osborn also earned distributions of $400,000 and $2.3 million in 1995 and 1994, respectively, classified as other income and distribution receivable in the consolidated financial statements, determined by the amount realized by Fairmont from sales of its assets. 5. OSBORN HEALTHCARE Osborn Healthcare, a division of Osborn Entertainment Enterprises Corporation, continued to experience operating losses through the second quarter of 1996. Consistent with Osborn's previously stated intention to evaluate options to increase shareholder value, management has reviewed the strategic direction and long-term prospects of the Osborn Healthcare operations and has restructured the operations. Osborn plans to focus resources on only the more profitable product lines. In conjunction with these plans, Osborn has combined the Osborn Healthcare operations and Osborn's programmed music operations, terminating certain employees of the Osborn Healthcare operations, and consolidating certain overhead. In the second quarter of 1996, Osborn accrued costs of approximately $300,000, principally severance costs, in connection with the consolidation of operations. In addition, Osborn has reduced goodwill by approximately $900,000 to reflect the anticipated discounted cash flow from the remaining healthcare operations. The charges, totaling $1.2 million, are included in other gains (losses), including gains on sales of stations in the consolidated statement of operations. F-41 144 OSBORN COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
YEAR ENDED DECEMBER 31, --------------------------- 1996 1995 ------------ ------------ Net revenues ....................................... $ 36,131,000 $ 32,667,000 Income (loss) before extraordinary item ............ 633,000 (808,000) Net income (loss) .................................. 633,000 (4,729,000) Net income (loss) per share ........................ $ 0.11 $ (0.87)
The unaudited pro forma information for the years ended December 31, 1996 and 1995 assumes that the acquisitions and dispositions described in Note 4, excluding pending transactions, had occurred on January 1, 1995. The gains on sales of stations and the loss from Osborn Healthcare's restructuring in 1996 and the distributions from Northstar Television Group in 1995 are excluded from the pro forma information because of their nonrecurring nature. The pro forma information is not necessarily indicative either of the results of operations that would have occurred had these transactions been made on the date indicated, or of future results of operations. Net assets of properties to be disposed in Ft. Myers aggregated $7.5 million at December 31, 1996, consisting of current assets of $500,000, plant and equipment of $2.0 million, and net intangible assets of $5.0 million. 7. LONG-TERM DEBT A summary of long-term debt is as follows:
DECEMBER 31, --------------------------- 1996 1995 ------------ ------------ Note payable to KeyBank National Association, at the prime rate plus 0.5%; interest payable quarterly; quarterly commitment reductions from December 31, 1996 through December 31, 2001(a) ... $ 200,000 $ 14,500,000 Note payable to KeyBank National Association, at LIBOR plus 1.75%; principal due in quarterly installments from December 31, 1996 through December 31, 2001(a) .......................... 14,000,000 30,000,000 Term loan payable to National Westminster Bank, net of unamortized debt discount of $700,000; interest payable quarterly at LIBOR plus 2.5%; principal due in quarterly installments in varying amounts from June 1996 through March 2000(b) ................................. -- 2,700,000 ------------ ------------ 14,200,000 47,200,000 Less current portion .................................... 320,000 2,718,000 ------------ ------------ $ 13,880,000 $ 44,482,000 ============ ============
- -------------- (A) In August 1995, Osborn entered into a credit facility of $56.0 million with KeyBank National Association (the "Credit Facility"). The Credit Facility consists of a $46.0 million revolving credit facility and a $10.0 million facility which may be used for acquisitions. The initial drawdown of $44.5 million, along with Osborn's internally generated funds, was used to repay existing loans totaling $50.0 million and pay transaction costs. The Credit Facility contains covenants which require, among other things, that Osborn and its subsidiaries (excluding Atlantic City Broadcasting Corp.) maintain certain financial levels, principally with respect to EBITDA (earnings before interest, income tax, depreciation and amortization) and leverage ratios, and limit the amount of capital expenditures. The Credit Facility also restricts the payment of cash dividends. The Credit Facility is collateralized by pledges of the tangible and intangible assets of Osborn and its subsidiaries, as well as the stock of those subsidiaries. At December 31, 1996, Osborn has additional availability under the revolving credit facility of $14.1 million. Effective December 31, 1996 the outstanding balance under the acquisition facility will convert to a term loan. Under the current terms of the Credit Facility, no additional F-42 145 OSBORN COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. LONG-TERM DEBT -- (CONTINUED) amounts under the acquisition facility may be borrowed after December 31, 1996 unless the terms are modified. Osborn pays an annual commitment fee of 0.5% of the unused commitment. (B) The term loan contained covenants with respect to Osborn's wholly-owned subsidiary, Atlantic City Broadcasting Corp., which, among other things, restricted cash distributions to Osborn and limited the amount of annual capital expenditures. The loan was collateralized by pledges of the tangible and intangible assets and stock of Atlantic City Broadcasting Corp. ("Atlantic City"), and were otherwise nonrecourse to Osborn and its other assets. In June 1996, the Company sold substantially all the assets of Atlantic City. The net proceeds were used primarily to repay long-term debt and fund transaction costs. At December 31, 1996, the aggregate amounts of long-term debt due during the next five years are as follows:
AMOUNT ----------- Year: 1997 ................................................. $ 320,000 1998 ................................................. 640,000 1999 ................................................. 640,000 2000 ................................................. 800,000 2001 ................................................. 11,800,000
The fair value of the debt approximates net book value. 8. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:
DECEMBER 31, ---------------------------- 1996 1995 ------------ ------------ Land ........................................... $ 3,303,266 $ 4,256,414 Buildings ...................................... 4,304,159 4,168,839 Equipment ...................................... 22,266,863 25,556,838 ------------ ------------ 29,874,288 33,982,091 ------------ ------------ Less accumulated depreciation .................. (16,162,605) (18,624,021) ------------ $ 13,711,683 $ 15,358,070 ============ ============
At December 31, 1996, all property, plant and equipment is pledged as collateral for the debt disclosed in Note 7. 9. INCOME TAXES At December 31, 1996, Osborn has consolidated net operating loss carryforwards for income tax purposes of $20.6 million that expire in years 2006 through 2010. Of the total net operating loss carryforwards, $11.0 million may be used only to offset future income of Osborn's subsidiary, Osborn Entertainment Enterprises Corporation. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of Osborn's deferred tax assets and liabilities are as follows: F-43 146 OSBORN COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. INCOME TAXES -- (CONTINUED)
DECEMBER 31, ---------------------------- 1996 1995 ------------ ------------ Deferred tax assets: Net operating loss carryforwards ............. $ 8,237,540 $ 13,577,873 Other ........................................ 971,542 713,951 ------------ ------------ 9,209,082 14,291,824 Valuation allowance ............................ (5,940,696) (9,088,722) ------------ ------------ 3,268,386 5,203,102 Deferred tax liabilities: Depreciation and amortization ................ 2,865,184 4,014,313 Sale of station .............................. 3,289,500 3,289,500 Other ........................................ 175,000 175,000 ------------ ------------ 6,329,684 7,478,813 ------------ ------------ Net deferred tax liabilities ................... $ 3,061,298 $ 2,275,711 ============ ============
The provision for income taxes for 1996 consists of federal taxes of $269,000, state and local taxes of $1,324,000 and deferred federal, state and local taxes of $786,000. The provision for income taxes for 1995 and 1994 consists entirely of state and local taxes, of which $535,000 and $114,000, respectively, is current and $241,000 and $175,000, respectively, is deferred. The reconciliation of income tax computed at the U.S. federal statutory tax rate to income tax expense is as follows:
DECEMBER 31, -------------------------------------- 1996 1995 1994 ---------- ---------- ---------- Amount computed using statutory rate ............ $4,065,056 $1,217,532 $ (428,705) State and local taxes, net of federal benefit ... 860,748 504,388 190,885 Net operating losses (utilized) generated ....... (2,673,429) (1,228,507) 234,539 Nondeductible expenses .......................... 126,374 282,569 292,501 ---------- ---------- ---------- $2,378,749 $ 775,982 $ 289,220 ========== ========== ==========
10. COMMITMENTS Osborn leases office and broadcast tower space, vehicles and office equipment. Rental expense amounted to $1,113,000, $994,000 and $768,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The minimum aggregate annual rentals under noncancellable operating leases are payable as follows:
AMOUNT ----------- Year: 1997 ................................................... $ 1,038,000 1998 ................................................... 752,000 1999 ................................................... 532,000 2000 ................................................... 305,000 2001 ................................................... 244,000 Thereafter ............................................. 2,693,000 ----------- $ 5,564,000 ===========
F-44 147 OSBORN COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. EMPLOYEE BENEFIT PLANS Osborn sponsors a profit sharing plan which qualifies under Section 401(k) of the Internal Revenue Code (the "IRC"). The Plan is available to all full-time employees with at least one year of employment with Osborn. All eligible employees may elect to contribute a portion of their compensation to the profit sharing plan, subject to IRC limitations. Effective January 1, 1996, the Plan provides for employer contributions based upon an employee's salary. In December 1994, Osborn adopted a non-qualified deferred compensation plan available to certain management employees. 12. STOCK OPTION PLAN Osborn's Incentive Stock Option Plan (the "Plan") provides for the granting to officers and key employees of incentive and non-qualified stock options to purchase Osborn's voting common stock as defined under current tax laws. Incentive stock options are exercisable at a price equal to the fair market value, as defined, on the date of grant, for a maximum 10-year period from the date of grant. Non-qualified stock options may be granted at an exercise price equal to at least 85% of the fair market value on the date of grant, for a maximum 11-year period from the date of grant. The exercise prices of all options granted in 1994 through 1996 were at fair market value at the date of grant. The following table summarizes the Plan's transactions for the years ended December 31, 1996, 1995 and 1994:
DECEMBER 31, -------------------------------- 1996 1995 1994 -------- -------- -------- Outstanding options, beginning of year ........... 447,341 417,000 382,750 Granted .......................................... 52,000 66,500 108,250 Cancelled or expired ............................. (8,299) (12,500) (72,500) Exercised ........................................ (173,667) (23,659) (1,500) -------- -------- -------- Outstanding options, end of year ................. 317,375 447,341 417,000 ======== ======== ======== Weighted average price of options granted ........ $ 10.10 $ 6.76 $ 6.26 Weighted average price of options canceled or expired ..................................... $ 6.46 $ 7.00 $ 6.61 Weighted average price of options exercised ...... $ 4.23 $ 6.55 $ 4.00 Weighted average exercise price, end of year ..... $ 8.55 $ 6.66 $ 6.64 Options exercisable, end of year ................. 205,125 283,921 280,083 Options available for future grant ............... 35,299 79,000 133,000
At December 31, 1996, the range of exercise prices for outstanding options was $4.00 through $14.40 These outstanding options have a remaining contractual life of five years. Osborn applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its Plan. Had compensation cost for the Plan been determined based upon the fair value at the grant date for awards under the Plan consistent with the methodology prescribed under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, Osborn's net income and earnings per share would have been reduced by approximately $144,000, or $0.03 per share, and $46,000, or $0.01 per share for the years ended December 31, 1996 and 1995, respectively. The fair value of the options granted during the years ended December 31, 1996 and 1995 is estimated as $102,000 and $114,000, respectively, on the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 0.0%, volatility of 40.7%, risk-free interest rate of 6.5%, assumed forfeiture rate of 0.0%, and an expected life of 1 to 2 years. The assumptions used assume that the proposed merger as described in Note 2 is consummated in the first quarter of 1997. F-45 148 OSBORN COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. STOCKHOLDERS' EQUITY During 1996, approximately 174,000 shares of common stock were issued pursuant to the exercise of stock options. Approximately 45,000 existing shares were retired to fund the exercise of certain of these options. In January 1995, Osborn paid $642,000 to repurchase and subsequently retired 107,059 unregistered shares of its common stock which were held by an institution. In December 1994, Osborn paid $107,000 to repurchase and subsequently retired 17,843 shares of its common stock at $6.00 per share. In June 1994, Osborn entered into two credit agreements totaling $50.0 million with Citicorp Mezzanine Investment Fund ("CMIF"). As partial consideration for making the loans, CMIF received a warrant to purchase 1,014,193 shares (after giving effect to the reverse stock split described below) of Osborn's common stock at $7.00 per share. The warrant is exercisable for a 10-year period. Under the terms of the warrant agreement, in the event that the CMIF loans were repaid by December 31, 1995, purchase rights with respect to 676,162 warrant shares will be canceled. The loans were repaid in August 1995 and, accordingly, the purchase rights with respect to 676,162 warrant shares were canceled. In July 1994, Osborn effected a 1-for-2 reverse stock split for shareholders of record on that date. Cash was paid in lieu of fractional shares. All per share amounts in the consolidated statement of operations reflect the reverse stock split. 14. SUBSEQUENT EVENT (UNAUDITED) On February 20, 1997, Capstar Broadcasting Partners, Inc. acquired all of Osborn's common stock and Osborn was merged with a subsidiary of the Company. F-46 149 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Benchmark Communications Radio Limited Partnership: We have audited the accompanying combined balance sheets of Benchmark Communications Radio Limited Partnership (as identified in Note 1) (collectively "Benchmark") as of December 31, 1996 and 1995 and the related combined statements of operations, changes in partners' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of Benchmark's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Benchmark as of December 31, 1996 and 1995 and the combined results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Dallas, Texas February 8, 1997 F-47 150 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP COMBINED BALANCE SHEETS ASSETS
AS OF DECEMBER 31, --------------------------- 1996 1995 ------------ ------------ Current assets: Cash ................................................ $ 11,029,177 $ 825,403 Escrow deposit ...................................... 150,000 -- Accounts receivable, net of allowance for doubtful accounts of $324,719 and $280,366, respectively ............................ 4,731,405 4,016,421 Due from related entities ........................... 23,753 10,884 Deferred acquisition costs .......................... 375,882 -- Prepaid expenses and other current assets ........... 244,784 354,211 ------------ ------------ Total current assets .............................. 16,555,001 5,206,919 Property and equipment, net ........................... 13,721,546 14,156,177 Investment in limited partnership ..................... 66,331 82,721 Intangible assets, net ................................ 43,788,173 30,204,762 ------------ ------------ Total assets ...................................... $ 74,131,051 $ 49,650,579 ============ ============ LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable and accrued expenses ............... $ 2,900,204 $ 1,645,018 Due to related entities ............................. 2,865,164 65,345 Current portion of long-term debt ................... 14,219,155 12,846,733 Obligations under capital leases, current portion ... 78,984 114,451 ------------ ------------ Total current liabilities ......................... 20,063,507 14,671,547 Long-term debt ........................................ 29,841,341 14,127,693 Obligations under capital leases, net of current portion ................................ 78,820 220,058 ------------ ------------ Total liabilities ................................... 49,983,668 29,019,298 ------------ ------------ Commitments (Note 8) Partners' capital ..................................... 24,147,383 20,631,281 ------------ ------------ Total liabilities and partners' capital ............. $ 74,131,051 $ 49,650,579 ============ ============
The accompanying notes are an integral part of the combined financial statements. F-48 151 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, -------------------------------------------- 1996 1995 1994 ------------ ------------ ------------ Gross broadcast revenue ................................. $ 29,697,028 $ 25,198,304 $ 17,621,955 Less agency commissions ................................. 2,441,800 2,051,455 1,449,843 ------------ ------------ ------------ Net revenue ......................................... 27,255,228 23,146,849 16,172,112 ------------ ------------ ------------ Operating expenses: Programming, technical and news ..................... 6,760,363 5,210,641 3,804,695 Sales and promotion ................................. 9,233,843 8,245,763 5,787,235 General and administrative .......................... 5,257,968 4,823,394 3,383,768 Depreciation and amortization ....................... 5,320,258 5,005,245 4,149,542 Corporate expenses .................................. 1,513,438 1,271,455 569,480 ------------ ------------ ------------ 28,085,870 24,556,498 17,694,720 ------------ ------------ ------------ Loss from operations ........................... (830,642) (1,409,649) (1,522,608) Other income (expense): Interest expense .................................... (3,384,388) (2,519,578) (1,799,169) Gain on sale of broadcasting properties (Note 6b) ... 9,612,496 -- 1,437,817 Other, net .......................................... 678,636 (414,561) 96,920 ------------ ------------ ------------ Net income (loss) ................................... $ 6,076,102 $ (4,343,788) $ (1,787,040) ============ ============ ============
The accompanying notes are an integral part of the combined financial statements. F-49 152 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP COMBINED STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
GENERAL LIMITED PARTNER PARTNERS TOTAL ------------ ------------ ------------ Balance, January 1, 1994 ................. $ (1,879,470) $ 13,165,680 $ 11,286,210 Capital contributions from partners ... (48,191) 9,163,878 9,115,687 Capital distributions to partners ..... (255,000) -- (255,000) Net income (loss) ..................... 233,554 (2,020,594) (1,787,040) ------------ ------------ ------------ Balance, December 31, 1994 ............... (1,949,107) 20,308,964 18,359,857 Capital contributions from partners ... 961,516 6,253,441 7,214,957 Capital distributions to partners ..... (599,745) -- (599,745) Net income (loss) ..................... (300,171) (4,043,617) (4,343,788) ------------ ------------ ------------ Balance, December 31, 1995 ............... (1,887,507) 22,518,788 20,631,281 Capital contributions from partners ... 800,000 -- 800,000 Capital distributions to partners ..... (1,260,000) (2,100,000) (3,360,000) Net income (loss) ..................... 2,137,845 3,938,257 6,076,102 ------------ ------------ ------------ Balance, December 31, 1996 ............... $ (209,662) $ 24,357,045 $ 24,147,383 ============ ============ ============
The accompanying notes are an integral part of the combined financial statements. F-50 153 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, -------------------------------------------- 1996 1995 1994 ------------ ------------ ------------ Cash flows from operating activities: Net income (loss) ...................................... $ 6,076,102 $ (4,343,788) $ (1,787,040) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization .......................... 5,320,258 5,005,245 4,149,542 Provision for doubtful accounts ........................ 332,487 280,760 342,038 Loss from investment in limited partnership ............ 16,490 7,381 7,914 Gain on sale of broadcast properties and equipment ..... (9,612,496) (4,766) (1,437,817) Change in barter receivable/payable, net ............... (83,433) 197,335 35,795 Changes in assets and liabilities, net of the effects of acquired broadcasting properties: Accounts receivable .................................. (996,735) (1,528,818) (569,941) Due from/due to related entities, net ................ 2,786,950 (332,505) 167,622 Prepaid expenses and other current assets ............ (109,427) (277,703) 42,261 Accounts payable and accrued expenses ................ 1,375,292 635,184 (227,408) ------------ ------------ ------------ Net cash flows provided by (used in) operating activities ...................................... 5,105,488 (361,675) 722,966 ------------ ------------ ------------ Cash flows from investing activities: Purchases of property and equipment .................... (1,133,074) (1,140,417) (542,749) Purchases of broadcasting properties ................... (22,225,278) (16,535,198) (5,189,233) Net proceeds from sales of broadcasting properties ..... 14,123,152 -- 4,866,629 Capital contribution to limited partnerships ........... -- -- 3,900,000 ------------ ------------ ------------ Net cash flows provided by (used in) investing activities ...................................... (9,235,200) (17,675,615) 3,034,647 ------------ ------------ ------------ Cash flows from financing activities: Repayments of notes payable and capital leases ......... (6,903,389) (9,341,629) (5,363,989) Proceeds from borrowing under notes payable and promissory notes ..................................... 23,846,875 15,652,627 1,755,000 Distributions to partners .............................. (3,360,000) (599,745) (255,000) Capital contributions for acquisition of broadcasting properties ........................................... 800,000 7,393,804 5,700,000 Cash paid for syndication costs ........................ -- (178,847) (584,313) Borrowings under line of credit ........................ 647,075 215,535 -- Repayments under line of credit ........................ (697,075) -- -- Proceeds from sale leaseback transaction ............... -- -- 141,000 Proceeds from assumption of capital lease obligation ... -- -- 28,000 ------------ ------------ ------------ Net cash flows provided by financing activities .... 14,333,486 13,141,745 1,420,698 ------------ ------------ ------------ Net increase (decrease) in cash .......................... 10,203,774 (4,895,545) 5,178,311 Cash, at beginning of year ............................... 825,403 5,720,948 542,637 ------------ ------------ ------------ Cash, at end of year ..................................... $ 11,029,177 $ 825,403 $ 5,720,948 ============ ============ ============ Supplementary information: Cash paid for interest ................................. $ 3,459,331 $ 2,473,568 $ 1,363,052 Noncash activities: Asset additions under capital lease obligations ........ 15,882 16,936 211,371 Assumption of note payable in connection with fund merger ............................................... -- 500,000 --
The accompanying notes are an integral part of the combined financial statements. F-51 154 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP NOTES TO COMBINED FINANCIAL STATEMENTS (DECEMBER 31, 1996, 1995 AND 1994) 1. ORGANIZATION AND BASIS OF PRESENTATION: The accompanying financial statements include the combined radio station holdings of Benchmark Communications Radio Limited Partnership (BCRLP), and Benchmark Radio Acquisition Fund I Limited Partnership (BRAF I), Benchmark Radio Acquisition Fund IV Limited Partnership (BRAF IV), Benchmark Radio Acquisition Fund VII Limited Partnership (BRAF VII), and Benchmark Radio Acquisition Fund VIII Limited Partnership (BRAF VIII) (collectively, Benchmark). BCRLP is a Maryland limited partnership formed on June 1, 1991 to invest in and manage radio stations and serves as the general partner for the four funds listed above, as well as other funds not included in these combined financial statements. Benchmark serves certain radio markets in Delaware, Maryland, South Carolina, Virginia, Louisiana, Mississippi and Alabama. All significant intercompany accounts and transactions have been eliminated. Benchmark Radio Acquisition Fund I Limited Partnership BRAF I is a Maryland limited partnership formed on May 16, 1990, and operates radio stations WDOV-AM, WDSD-FM and WSRV-FM. Benchmark Radio Acquisition Fund IV Limited Partnership BRAF IV is a Maryland limited partnership formed on December 10, 1992, to operate radio stations and its 99.99999% owned subsidiary, Benchmark Radio Acquisition Fund V Limited Partnership (BRAF V) (together, the Fund IV Partnership). BRAF IV is the general partner in BRAF V and BCRLP is the limited partner. The Fund IV Partnership operates radio stations WOSC-FM, WWFG-FM, WCOS-AM/FM, WHKZ-FM, WVOC-AM, and KRMD-AM/FM. Benchmark Radio Acquisition Fund VII Limited Partnership BRAF VII is a Maryland limited partnership formed on June 20, 1994, and operates WESC-AM/FM, WFNQ-FM and WJMZ-FM. Benchmark Radio Acquisition Fund VIII Limited Partnership BRAF VIII is a Maryland limited partnership formed on November 15, 1994, and operates WUSQ-FM, WNTW-AM, WYYD-FM, WROV-AM/FM and WFQX-FM. On January 1, 1995, Benchmark Radio Acquisition Fund II Limited Partnership (BRAF II), which owned WUSQ-FM and WNTW-AM in Winchester, Virginia, and Benchmark Radio Acquisition Fund VI Limited Partnership (BRAF VI), which owned WFQX-FM in Front Royal, Virginia, were merged into BRAF VIII. The limited partners of BRAF II and BRAF VI collectively received approximately 33 units, of the total of 73 units, in BRAF VIII. The merger has been accounted for in a manner similar to a pooling of interests, whereby the net assets of the merged partnerships are recorded at their carrying amounts at the time of the merger. F-52 155 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: REVENUE RECOGNITION Broadcasting operations derive revenue primarily from the sale of program time and commercial announcements to local, regional and national advertisers. Revenue is recognized when the programs and commercial announcements are broadcast. BARTER TRANSACTIONS Barter transactions represent advertising time exchanged for promotional items, advertising, supplies, equipment, and services. Barter revenue is recorded at the fair value of the goods or services received and is recognized in income when the advertisements are broadcast. Goods or services are charged to expense when received or used. Advertising time owed and goods or services due Benchmark are included in accounts payable and accounts receivable, respectively. INVESTMENT IN LIMITED PARTNERSHIP Investment in limited partnership (representing BRAF Fund III which is not included in these combined financial statements) is accounted for using the equity method. PROPERTY AND EQUIPMENT Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using the straight-line method based upon the estimated useful lives of the assets as follows:
YEARS ----- Buildings ........................................... 39 Building improvements ............................... 13-39 Broadcast equipment ................................. 5-25 Furniture, fixtures and equipment ................... 5-10
Leasehold improvements are amortized over the shorter of their useful lives or the terms of the related leases. Costs of repairs and maintenance are charged to operations as incurred. INTANGIBLE ASSETS Intangible assets are stated at cost, less accumulated amortization. Amortization is determined using the straight-line method based upon the estimated useful lives of the assets as follows:
YEARS ----- Licenses and authorization costs ...... 25 Organization costs .................... 5 Deferred financing costs .............. Life of respective loan Noncompete agreements ................. 5 Goodwill .............................. 25 Other ................................. 1-5
Benchmark evaluates intangible assets for potential impairment by analyzing the operating results, trends and prospects of the business, as well as comparing them to their competitors. Benchmark also takes into consideration recent acquisition patterns within the broadcast industry as well as the impact of recently enacted or potential Federal F-53 156 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Communications Commission (the FCC) rules and regulations and any other events or circumstances which might indicate potential impairment. ADVERTISING COSTS Benchmark incurs various marketing and promotional costs to add and maintain listenership. These costs are expensed as incurred or deferred and amortized over the interim periods which they benefit and totaled approximately $1.6 million, $1.6 million and $1.2 million for the years ended December 31, 1996, 1995 and 1994, respectively. CONCENTRATION OF CREDIT RISK Benchmark's revenue and accounts receivable primarily relate to advertising of products and services within the radio stations' broadcast areas. Benchmark's management performs ongoing credit evaluations of the customers' financial condition and, generally, requires no collateral from their customers. Credit losses have been within management's expectations and adequate allowances for any uncollectible trade receivables are maintained. INCOME TAXES Benchmark is comprised of limited partnerships which are exempt from federal and state income taxes. Accordingly, no provision for income taxes has been made in the accompanying financial statements as all items of tax attributes pass through pro rata to each partner in accordance with the partnership agreements. 3. UNCERTAINTIES AND USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On February 8, 1996, the President signed into law the Telecommunications Act of 1996. Among other things, this legislation requires the FCC to relax its numerical restrictions on local ownership and affords renewal applicants significant new protections from competing applications for their broadcast licenses. The ultimate effect of this legislation on the competitive environment is currently undeterminable. 4. PROPERTY AND EQUIPMENT: Property and equipment at December 31, 1996 and 1995 consist of the following:
1996 1995 ------------ ------------ Land ........................................... $ 1,489,647 $ 1,532,116 Tower, building and improvements ............... 5,588,771 5,357,989 Broadcast equipment ............................ 9,936,338 10,087,239 Office furniture and fixtures .................. 1,137,222 1,245,332 Equipment under capital leases ................. 321,638 293,174 Vehicles ....................................... 281,305 310,742 Computer equipment ............................. 603,496 516,604 ------------ ------------ 19,358,417 19,343,196 Less accumulated depreciation .................. (5,636,871) (5,187,019) ------------ ------------ $ 13,721,546 $ 14,156,177 ============ ============
F-54 157 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Depreciation expense for the years ended December 31, 1996, 1995 and 1994 was $2,409,696, $2,227,478 and $1,680,039, respectively. 5. INTANGIBLE ASSETS: Intangible assets at December 31, 1996 and 1995 consist of the following:
1996 1995 ------------ ------------ Licenses and authorization costs ............... $ 42,423,027 $ 28,335,031 Organization costs ............................. 2,801,440 2,339,639 Deferred financing costs ....................... 688,971 460,610 Noncompete agreements .......................... 4,685,668 4,785,669 Goodwill ....................................... 2,430,590 2,258,490 Other .......................................... 1,254,282 1,536,518 ------------ ------------ 54,283,978 39,715,957 Less accumulated amortization .................. (10,495,805) (9,511,195) ------------ ------------ $ 43,788,173 $ 30,204,762 ============ ============
Amortization expense for the years ended December 31, 1996, 1995 and 1994 was $2,910,562, $2,777,767 and $2,469,503, respectively. 6a. ACQUISITIONS OF BROADCASTING PROPERTIES: On January 19, 1995, BRAF VIII purchased substantially all the assets of WYYD-FM for approximately $8.5 million, including acquisition costs and an agreement by the seller not to compete with the station. The acquisition has been accounted for as a purchase and, accordingly, the results of operations associated with the acquired assets have been included in the accompanying statements from the date of acquisition. The acquisition is summarized as follows (in thousands): Assets acquired: Property and equipment ..................................... $1,059 Goodwill and other intangibles ............................. 7,441 ------ Purchase price ............................................... $8,500 ======
On February 10, 1995, BRAF IV purchased substantially all of the assets of WVOC-AM for approximately $2.5 million including acquisition costs and an agreement by the seller not to compete with the station. The acquisition has been accounted for as a purchase and, accordingly, the results of operations associated with the acquired assets have been included in the accompanying statements from the date of acquisition. The acquisition is summarized as follows (in thousands): Assets acquired: Property and equipment ..................................... $1,006 Goodwill and other intangibles ............................. 1,494 ------ Purchase price ............................................... $2,500 ======
F-55 158 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) On March 1, 1995, BRAF VII purchased substantially all the assets of WESC-AM/FM for approximately $8.1 million, including acquisition costs and an agreement by the seller not to compete with the station. The acquisition has been accounted for as a purchase and, accordingly, the results of operations associated with the acquired assets have been included in the accompanying statements from the date of acquisition. The acquisition is summarized as follows (in thousands): Assets acquired: Property and equipment ..................................... $3,447 Goodwill and other intangibles ............................. 4,653 ------ Purchase price ............................................... $8,100 ======
On January 1, 1996, BRAF VIII purchased substantially all the assets of WROV-AM/FM for approximately $5.8 million, including acquisition costs and an agreement by the seller not to compete with the stations. The acquisition has been accounted for as a purchase and, accordingly, the results of operations associated with the acquired assets have been included in the accompanying statements from the date of acquisition. The acquisition is summarized as follows (in thousands): Assets acquired: Property and equipment ..................................... $1,388 Goodwill and other intangibles ............................. 4,412 ------ Purchase price ............................................... $5,800 ======
On November 27, 1996, BRAF IV purchased substantially all the assets of KRMD-AM/FM in Shreveport, Louisiana (Shreveport) for approximately $7.5 million, including acquisition costs and an agreement by the seller not to compete with the stations. The acquisition has been accounted for as a purchase and, accordingly, the results of operations associated with the acquired assets have been included in the accompanying statement from the date of the acquisition. The acquisition is summarized as follows (in thousands): Assets acquired: Property and equipment ..................................... $1,330 Goodwill and other intangibles ............................. 6,170 ------ Purchase price ............................................... $7,500 ======
On December 9, 1996, BRAF VII purchased substantially all the assets of WJMZ-FM in Greenville, South Carolina (Greenville) for approximately $7.5 million, including acquisition costs and an agreement by the seller not to compete with the station. The acquisition has been accounted for as a purchase and, accordingly, the results of operations associated with the acquired assets have been included in the accompanying statements from the date of the acquisition. The acquisition is summarized as follows (in thousands): Assets acquired: Property and equipment ..................................... $ 903 Goodwill and other intangibles ............................. 6,597 ------ Purchase price ............................................... $7,500 ======
F-56 159 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) The following summarizes the unaudited combined historical and pro forma data for the years ended December 31, 1996 and 1995, as though Benchmark's acquisitions of WYYD-FM, WVOC-AM, WESC-AM/FM, WROV-AM/FM, KRMD-AM/FM and WJMZ-FM, had occurred as of January 1, 1995 (in thousands):
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ----------------------- ----------------------- HISTORICAL PRO FORMA HISTORICAL PRO FORMA ---------- --------- ---------- --------- Net revenue ................ $ 27,255 $ 30,002 $ 23,147 $ 30,615 Net income (loss) .......... $ 6,076 $ 7,334 $ (4,344) $ (3,352)
6b. RADIO BROADCASTING DISPOSITIONS: During 1994, Benchmark sold substantially all of the assets of WZNY-FM and WXFQ-FM/WGUS-AM for $3,600,000 and $1,284,700, respectively, and had recorded gains of $1,316,741 and $121,076, respectively. In October 1996, BRAF IV sold substantially all of the assets of WLTY-FM, WTAR-AM and WKOC-FM for $14.1 million, net of closing costs of approximately $500,000. Benchmark received cash proceeds from the sale and, in November 1996, acquired the assets of KRMD-AM/FM valued at $7.5 million. BRAF IV recorded a gain of $9.6 million. 7. DEBT: Debt at December 31, 1996 and 1995 consists of the following:
1996 1995 ----------- ----------- BRAF I: Term note, maximum principal amount of $4,700,000; interest at bank's prime plus applicable margin ranging from 1/2% to 1 1/2% (9.75% at December 31, 1996 and 1995), due in full on December 31, 2002 ............. $ 4,249,986 $ 2,269,761 BRAF IV: Revolving line of credit, maximum principal amount of $13,500,000; interest at LIBOR plus 2% - 2 3/4% (8.2% at December 31, 1996 and 7.4% at December 31, 1995), due in full on June 30, 1997 .............................. 11,900,039 10,600,038 Subordinated promissory note, maximum principal amount of $500,000; interest at 10% per annum due quarterly; due in full on October 23, 1996 ....................... -- 437,500 Notes payable for vehicles ......................................... 12,361 30,594 Subordinated promissory note, maximum principal amount of $1,200,000; interest at 8.25% per annum due monthly; due in full in October 1996; personally guaranteed by the general partners of BCRLP .................................... -- 1,200,000 BRAF VII: Bank debt; interest at 8.4% per annum due monthly; due in full on June 1, 1999; paid in full on December 9, 1996 ........ -- 3,325,998 Line of credit agreement, maximum principal amount of $200,000; interest at bank's prime plus 2% (8.25% at December 31, 1995); due in full on January 1, 1997; paid in full on December 9, 1996 ...................................... -- 50,000 Note payable to Fund III Acquisition Sub. (See Note 12), maximum principal amount of $12,600,000, interest due monthly at prime plus 1% (9.25% at December 31, 1996) due in full on March 9, 1998 ..................................... 12,600,000 -- BRAF VIII: Revolving line of credit, maximum principal amount of $14,500,000; interest at bank's prime rate plus applicable margin ranging from 1/4% to 1/2% (8.63% at December 31, 1996 and 8.75% at December 31, 1995) per annum due monthly; due in full in December 2002 ..................................... 13,198,441 8,325,000 Subordinated promissory note, maximum principal amount of $500,000; interest at 8% per annum payable monthly; due in full on August 31, 1997 .......................................... 425,000 475,000 Subordinated promissory note, maximum principal amount of $1,500,000; interest at bank's prime plus 1% (8.9% at December 31, 1996 and 9.25% at December 31, 1995); due in full on January 1, 2001 .......................................... 1,500,000 -- Notes payable for vehicles ......................................... 14,134 -- BCRLP: Note payable, maximum principal amount of $75,000; interest at 7% per annum due monthly; due in full on demand; guaranteed jointly and severally by certain general and limited partners of BCRLP ........................................ 75,000 75,000 Note payable, maximum principal amount of $37,500 assumed from an affiliated entity; due in full on demand (See Note 10) ... 20,000 20,000 Revolving line of credit, maximum principal amount of $250,000; interest at bank's prime rate (8.25% at December 31, 1996 and 8.5% at December 31, 1995); due in full on demand ................................................ 65,535 165,535 ----------- ----------- 44,060,496 26,974,426 Less: Current portion ............................................ 14,219,155 12,846,733 ----------- ----------- $29,841,341 $14,127,693 =========== ===========
F-57 160 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Borrowings were primarily used to finance the acquisition of additional stations and are collateralized by substantially all of Benchmark's assets. The various agreements impose restrictive covenants on Benchmark with respect to, among other things, the maintenance of certain financial ratios and limits on capital expenditures, new indebtedness, investments and disposition of assets. Benchmark was in compliance with all such financial covenants or had obtained waivers for any items of noncompliance as of December 31, 1996. At December 31, 1996 the aggregate amounts of debt due during the next five years are as follows:
1997 ............................................. $14,219,155 1998 ............................................. 14,767,925 1999 ............................................. 2,766,704 2000 ............................................. 3,217,662 2001 ............................................. 5,421,900 2002 and thereafter .............................. 3,667,150 ----------- $44,060,496 ===========
8. LEASES AND OTHER COMMITMENTS: Effective May 22, 1992, BRAF I entered into a participation agreement with the General Manager of WDSD-FM, WDOV-AM and WSRV-FM which provides for the General Manager to receive a portion (based upon certain vesting criteria) of the "Net Sales Proceeds," as defined, in the event that the stations are sold or a percentage of adjusted cash flow (as defined in the agreement) in the event that the General Manager ceases to be employed by BRAF I. At December 31, 1996, Benchmark had recorded an expense of $140,000 related to this participation agreement due to the agreement dated December 9, 1996 to sell the stations. See Note 12. Benchmark leases certain transmitting tower facilities, vehicles, and office space under various operating leases. Future minimum lease payments (which reflect leases having noncancelable lease terms in excess of one year) are as follows for the year ended December 31:
CAPITAL OPERATING LEASES LEASES ---------- ---------- 1997 ....................................................... $ 100,821 $ 346,575 1998 ....................................................... 69,316 276,964 1999 ....................................................... 10,156 204,000 2000 ....................................................... 7,090 155,212 2001 ....................................................... -- 53,195 Thereafter ................................................. -- 97,171 ---------- ---------- Total ................................................. 187,383 $1,133,117 ========== Less amount representing interest .......................... (29,579) ---------- Present value of minimum lease payments .................... 157,804 Less current portion ....................................... (78,984) ---------- Obligations under capital leases, net of current portion ... $ 78,820 ==========
Rental expense under operating leases for the years ended December 31, 1996, 1995 and 1994 was approximately $365,000, $414,000 and $366,000, respectively. F-58 161 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 9. PROFIT SHARING PLAN: The employees of Benchmark are included in a 401(k) profit sharing plan (the "Plan"). All full-time employees of Benchmark who have attained the age of 21 years are eligible for participation in the Plan after one year and one thousand hours of service. The Plan allows the employees to defer up to 16% of their compensation through a salary reduction arrangement. Benchmark makes a matching contribution equal to 25% of the employees' salary reduction. In addition, Benchmark may make a discretionary contribution to the Plan. Participation in the Plan is subject to a five year vesting schedule. During the years ended December 31, 1996, 1995 and 1994, Benchmark's combined expense related to the Plan was approximately $85,900, $70,700 and $40,300, respectively. 10. RELATED PARTY TRANSACTIONS: The various entities defined in Note 1 are involved in certain transactions with each other related to sharing of services and purchasing. These transactions are settled on a current basis through adjustments to partners' equity accounts. In February 1996, BRAF VII borrowed $1,500,000 from a limited partner to finance the escrow deposit for the acquisition of WJMZ-FM (Greenville). The note was paid in full on December 9, 1996. In connection with such debt, interest expense of $287,436 was recorded for the year ended December 31, 1996. As of July 1, 1992, BCRLP assumed $37,500 of a note payable to limited partners in Benchmark made by an affiliated entity. Interest expense related to this note was immaterial for the years ended December 31, 1996, 1995 and 1994, respectively. 11. LITIGATION: Benchmark is the plaintiff or the defendant in several legal actions, the probable outcomes of which are not considered material, either individually or in the aggregate. 12. PENDING SALE OF BENCHMARK AND OTHER TRANSACTIONS (UNAUDITED): On December 9, 1996, Benchmark agreed to be acquired by Capstar Broadcasting Partners, Inc. (the Company), a Delaware corporation, through an acquisition affiliate, Fund III Acquisition Sub. The sale is subject to regulatory approval. The purchase price is estimated to be approximately $173.4 million and is subject to adjustment. No adjustments have been made to the combined financial statements to reflect the pending sale, except as described in Note 8 relating to the participation agreement. Benchmark and certain other related entities (BRAF IX, BRAF X and BRAF XI) under common control of the Benchmark General Partners also have agreed to acquire two radio stations in the Montgomery, Alabama market (the "Benchmark Montgomery Acquisition") for an aggregate cash price of approximately $17.0 to $18.0 million and Fund IV has agreed to acquire substantially all of the assets of WSCQ-FM in the Columbia, South Carolina market (the "Benchmark Columbia Acquisition") for an aggregate cash price of approximately $4.1 million. F-59 162 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) In May 1996, BRAF IX entered into an agreement to acquire substantially all the assets and certain liabilities of WFMX-FM and WSIC-AM in Statesville, North Carolina (Statesville) for an aggregate cash price of approximately $9.6 million. Liabilities assumed were limited to certain ongoing contractual rights and obligations. The acquisition was completed in January 1997. In September, 1996, BRAF X entered into an agreement to acquire substantially all the assets and certain liabilities of WJMI-FM, WKXI-AM/FM and WOAD-FM in Jackson, Mississippi (Jackson) for an aggregate cash price of approximately $15.0 million. Liabilities assumed were limited to certain ongoing contractual rights and obligations. The acquisition was completed in December 1996. As part of the acquisition of Benchmark by the Company and Fund III Acquisition Sub, BRAF VII, (along with certain other partnerships not included in these combined financial statements, specifically referred to as BRAF IX, BRAF X and BRAF XI) entered into separate senior credit agreements with Fund III Acquisition Sub. Under these agreements, BRAF VII, BRAF IX, BRAF X and BRAF XI can collectively borrow up to approximately $60.0 million. Approximately $60.0 million has been loaned to BRAF VII , BRAF IX and BRAF X, net of expenses, of which approximately $12.6 million as of December 31, 1996 has been loaned to BRAF VII, to consummate the acquisition of substantially all of the assets of WJMZ-FM (Greenville) and to refinance debt, and, during January 1997, the remainder has been borrowed by BRAF IX, BRAF X, and BRAF XI to consummate the acquisitions of Statesville, Jackson, and Montgomery and for working capital purposes. F-60 163 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Capstar Broadcasting Partners, Inc.: We have audited the accompanying balance sheet of Midcontinent Broadcasting Co. of Wisconsin, Inc. (the "Company") as of December 31, 1996, and the related statements of income and retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Midcontinent Broadcasting Co. of Wisconsin, Inc. as of December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Milwaukee, Wisconsin February 3, 1997 F-61 164 MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC. BALANCE SHEET DECEMBER 31, 1996 ASSETS Current assets: Cash ........................................................... $ 78,996 Accounts receivable, net of $34,143 allowance for doubtful accounts ........................................... 718,133 Prepaid expenses and other assets .............................. 17,088 ---------- Total current assets ........................................ 814,217 Property and equipment, net ....................................... 686,433 Intangible assets, net ............................................ 3,031,048 Other ............................................................. 101,085 ---------- Total assets ................................................ $4,632,783 ========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable ............................................... $ 25,226 Accounts payable, related party ................................ 7,083 Accrued expenses ............................................... 119,274 ---------- Total current liabilities ................................... 151,583 Due to Parent ..................................................... 1,369,004 Stockholder's equity: Common stock, no par value, 2,500 shares authorized, 2,000 shares issued and outstanding ......................... 200,000 Retained earnings .............................................. 2,912,196 ---------- Total stockholder's equity .................................. 3,112,196 ---------- Total liabilities and stockholder's equity .................. $4,632,783 ==========
The accompanying notes are an integral part of these financial statements. F-62 165 MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC. STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1996 Broadcasting revenue: Gross revenue .................................................. $3,876,324 Less agency commissions ........................................ 430,031 ---------- Net broadcasting revenue .................................... 3,446,293 Operating expenses: Programming, technical and news ................................ 988,406 Sales, advertising and promotion ............................... 1,221,541 General and administrative ..................................... 345,283 Depreciation and amortization .................................. 405,091 ---------- 2,960,321 ---------- Operating income ............................................ 485,972 Other income: Rental income .................................................. 47,207 Other .......................................................... 21,952 ---------- 69,159 ---------- Income before income taxes .................................. 555,131 Provision for income taxes ........................................ 188,745 ---------- Net income .................................................. 366,386 Retained earnings: Beginning of year .............................................. 2,545,810 ---------- End of year .................................................... $2,912,196 ==========
The accompanying notes are an integral part of these financial statements. F-63 166 MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996 Cash flows from operating activities: Net income ..................................................... $ 366,386 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................... 405,091 Changes in operating assets and liabilities: Accounts receivable ...................................... (240,785) Prepaid expenses and other assets ........................ 17,838 Accounts payable ......................................... (56,069) Accrued expenses ......................................... (72,929) --------- Net cash provided by operating activities .............. 419,532 --------- Cash flows from investing activities: Purchases of property and equipment ............................ (66,893) Madison Radio Group related costs .............................. (101,085) Other .......................................................... (15,182) --------- Net cash used in investing activities .................. (183,160) --------- Cash flows from financing activities: Due to Parent .................................................. (251,932) --------- Net cash used in financing activities .................... (251,932) --------- Net decrease in cash ..................................... (15,560) Cash, beginning of year ........................................... 94,556 --------- Cash, end of year ................................................. $ 78,996 =========
The accompanying notes are an integral part of these financial statements. F-64 167 MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: a. Organization and Basis of Presentation: Midcontinent Broadcasting Co. of Wisconsin, Inc. (the "Company") is a wholly-owned subsidiary of Midcontinent Broadcasting Co., which in turn is wholly-owned by Midcontinent Media, Inc. (the "Parent"). The Company owns and operates radio stations WZEE-FM, WTSO-AM and WMLI-FM (the "Stations") serving the Madison, Wisconsin area. The Company's financial statements have been prepared in accordance with generally accepted accounting principles, which require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses for the period presented. They also affect the disclosures of contingencies. Actual results could differ from those estimates. On February 8, 1996, the President signed into law the Telecommunications Act of 1996. Among other things, this legislation requires the Federal Communications Commission (the "FCC") to relax its numerical restrictions on local ownership and affords renewal applicants significant new protections from competing applications for the broadcast licenses. The ultimate effect of this legislation on the competitive environment is currently undeterminable. b. Property and Equipment: Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using accelerated and straight-line methods over the estimated useful lives of the assets as follows: buildings and improvements 5-39 years, tower and antennae 3-15 years, equipment 5-15 years, and other 3-10 years. Expenditures for repairs are expensed while major additions are capitalized. Upon sale or disposal, the asset cost and accumulated depreciation are removed and any gain or loss is recognized in earnings. c. Intangible Assets: Intangible assets are stated at cost and amortized on a straight-line basis over their estimated useful lives, as follows: FCC broadcast licenses -- 15 years. Accumulated amortization as of December 31, 1996 was $190,903. Goodwill -- Goodwill acquired prior to November 1, 1970 ($374,223) is not being amortized. Goodwill arising from acquisitions subsequent to November 1, 1970 is being amortized over 40 years. Accumulated amortization as of December 31, 1996 was $88,098. Other -- Five years. Accumulated amortization at December 31, 1996 was $7,048. On an ongoing basis, management evaluates the recoverability of the net carrying value of intangible assets by reference to the Company's undiscounted anticipated future cash flows. d. Barter Transactions: The Company exchanges advertising airtime for goods and services, as is customary in the broadcast industry. In accordance with Statement of Financial Accounting Standards No. 63, "Financial Reporting by Broadcasters", revenue is recognized as the advertising is broadcast at the estimated fair market value of goods or services received or to be received. The value of the goods and services received in barter transactions is charged to expense when received or used. Barter revenues and expenses were approximately $45,000 and $53,000, respectively, for 1996. e. Revenue Recognition: Revenue from the sale of air-time is recognized at the time the related program or advertisement is broadcast. f. Concentration of Risk: The Stations operate within the Madison, Wisconsin geographic area. They extend credit to their various customers in the form of accounts receivable. The Company performs ongoing credit F-65 168 MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) evaluations of its customers and maintains an allowance for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends and other information. g. Income Taxes: The Company files a consolidated federal income tax return with the Parent, which provides for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", which requires the liability method of accounting for deferred income taxes. The consolidated provision for income taxes is allocated among the members of the consolidated group based upon each member's pre-tax earnings compared to the consolidated pre-tax earnings. The liability for income taxes is included in Due to Parent in the accompanying balance sheet. At December 31, 1996, there was no provision for deferred income taxes, as temporary differences between tax and financial reporting bases of assets and liabilities are immaterial. 2. PROPERTY AND EQUIPMENT: Property and equipment consisted of the following at December 31, 1996: Land ......................................................... $ 27,013 Buildings and improvements ................................... 520,077 Tower and antennae ........................................... 567,569 Equipment .................................................... 1,249,975 Other ........................................................ 66,262 ---------- 2,430,896 Less accumulated depreciation ................................ 1,744,463 ---------- $ 686,433 ==========
Depreciation expense was $211,319 in 1996. 3. INTANGIBLE ASSETS: Intangible assets consisted of the following at December 31, 1996: FCC broadcast licenses ....................................... $2,749,000 Goodwill ..................................................... 532,523 Other intangibles ............................................ 35,574 ---------- 3,317,097 Less accumulated amortization ................................ 286,049 ---------- $3,031,048 ==========
4. ACCRUED EXPENSES: Accrued expenses consisted of the following at December 31, 1996: Salaries, wages and benefits ................................... $ 45,149 Property taxes ................................................. 38,367 Music license fees ............................................. 11,478 Professional fees .............................................. 9,300 Other .......................................................... 14,980 -------- $119,274 ========
F-66 169 MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 5. INCOME TAXES: The provision for income taxes for 1996 consists of the following: Currently payable Federal ...................................................... $144,190 State ........................................................ 44,555 -------- $188,745 ========
The following reconciles the statutory federal income tax rate with the effective income tax rate: Statutory federal income tax rate ................................ 34.0% State income tax, net ............................................ 5.3 Effect of tax sharing arrangement among consolidated group ....... (5.3) ---- Effective income tax rate ........................................ 34.0% ====
6. EMPLOYEE BENEFIT PLAN: The Company, along with other affiliated companies, participates in a profit sharing plan for substantially all full-time employees who have at least one year of service and have attained age 21. Company contributions, which are based on a percentage of the compensation paid to eligible employees, approximated $32,000 for 1996. The Company is not obligated to provide any postretirement medical and life insurance benefits or any other postretirement benefits to employees. 7. SUBSEQUENT EVENT: On January 2, 1997, the Company exchanged its broadcasting and real estate assets of stations WZEE-FM, WMLI-FM and WTSO-AM and $400,000 cash for a 50% partnership interest in Madison Radio Group (a general partnership). Simultaneously, Point Communications Limited Partnership ("Point"), a company that also owns and operates radio stations serving the Madison, Wisconsin area, exchanged its broadcasting and real estate assets of stations WMAD-FM, WIBA-FM and WIBA-AM and $400,000 cash, subject to its long-term debt, for the remaining 50% partnership interest in Madison Radio Group, and $3,500,000 cash (which was financed by Madison Radio Group borrowings). During 1996, the Company incurred $101,085 of costs directly related to its investment in Madison Radio Group, which are included in other assets on the accompanying balance sheet. In February 1997, Madison Radio Group entered into an agreement to sell substantially all the assets of its stations to Capstar Broadcasting Partners, Inc., a radio investment group. The closing of this transaction, which is subject to various conditions and approvals as defined in the agreement, is expected to occur in the fourth quarter of 1997. F-67 170 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Point Communications Limited Partnership: We have audited the accompanying balance sheet of Point Communications Limited Partnership (the "Partnership") as of December 31, 1996, and the related statement of operations, partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Point Communications Limited Partnership as of December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Milwaukee, Wisconsin February 3, 1997 F-68 171 POINT COMMUNICATIONS LIMITED PARTNERSHIP BALANCE SHEET DECEMBER 31, 1996 ASSETS Current assets: Cash and cash equivalents ..................................... $ 260,670 Certificate of deposit ........................................ 93,441 Accounts receivable, net of $65,000 allowance for doubtful accounts ............................. 1,309,154 Accounts receivable, related party ............................ 59,320 Prepaid expenses .............................................. 43,064 ----------- Total current assets ....................................... 1,765,649 Property and equipment, net ...................................... 2,339,617 Intangible assets, net ........................................... 10,060,913 Other ............................................................ 103,097 ----------- Total assets ............................................... $14,269,276 =========== LIABILITIES AND PARTNERS' EQUITY Current liabilities: Current portion of long-term debt ............................. $ 912,500 Accounts payable .............................................. 204,645 Accounts payable, related party ............................... 15,765 Accrued expenses .............................................. 135,156 Trade payable, net ............................................ 25,311 ----------- Total current liabilities .................................. 1,293,377 Long-term debt ................................................... 8,625,000 Partners' equity ................................................. 4,350,899 ----------- Total liabilities and partners' equity ..................... $14,269,276 ===========
The accompanying notes are an integral part of these financial statements. F-69 172 POINT COMMUNICATIONS LIMITED PARTNERSHIP STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 Broadcasting revenue: Gross revenue ................................................ $ 6,235,475 Less agency commissions ...................................... 634,833 ----------- Net broadcasting revenue .................................. 5,600,642 Operating expenses: Sales and promotion .......................................... 1,276,030 Programming, engineering and news ............................ 1,467,136 General and administrative ................................... 685,926 Depreciation and amortization ................................ 1,538,196 Management fees and other expenses ........................... 178,749 ----------- 5,146,037 ----------- Operating income .......................................... 454,605 Other income (expense): Interest expense ............................................. (1,071,241) Interest income .............................................. 7,916 ----------- (1,063,325) ----------- Net loss .................................................. $ (608,720) ===========
The accompanying notes are an integral part of these financial statements. F-70 173 POINT COMMUNICATIONS LIMITED PARTNERSHIP STATEMENT OF PARTNERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1996
GENERAL LIMITED PARTNER PARTNERS TOTAL ---------- ---------- ---------- Partners' equity, January 1, 1996 ..... $ 50,484 $4,909,135 $4,959,619 Net loss for 1996 ..................... (6,195) (602,525) (608,720) ---------- ---------- ---------- Partners' equity, December 31, 1996 ... $ 44,289 $4,306,610 $4,350,899 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. F-71 174 POINT COMMUNICATIONS LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996 Cash flows from operating activities: Net loss ...................................................... $ (608,720) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization .............................. 1,538,196 Changes in operating assets and liabilities: Accounts receivable ..................................... (293,368) Prepaid expenses ........................................ 3,648 Accounts payable and accrued expenses ................... 90,615 Trade payable, net ...................................... 19,584 ---------- Net cash provided by operating activities ............. 749,955 ---------- Cash flows from investing activities: Madison Radio Group related costs ............................. (103,097) Advances to related party ..................................... (32,082) Purchases of property and equipment ........................... (80,058) Other ......................................................... (5,510) ---------- Net cash used in investing activities ................... (220,747) ---------- Cash flows from financing activities: Principal payments on term loan ............................... (462,500) ---------- Net cash used in financing activities ................... (462,500) ---------- Net increase in cash and cash equivalents ............... 66,708 Cash and cash equivalents, beginning of year ..................... 193,962 ---------- Cash and cash equivalents, end of year ........................... $ 260,670 ========== Supplemental disclosure of cash flow information: Cash paid for interest ........................................ $ 985,801 ==========
The accompanying notes are an integral part of these financial statements. F-72 175 POINT COMMUNICATIONS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: a. ORGANIZATION AND BASIS OF PRESENTATION: Point Communications Limited Partnership (the "Partnership") was formed to acquire, own and operate radio stations WIBA-AM, WIBA-FM, WMAD-AM and WMAD-FM (the "Stations") servicing the Madison, Wisconsin area. The general partner of Point Communications L.P. is a corporation wholly-owned by the president of the radio stations. Included in management fees and other expenses in the Statement of Operations are management fees paid to the general partner and other costs related to the general partner's activities. The Partnership's financial statements have been prepared in accordance with generally accepted accounting principles, which require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses for the period presented. They also affect the disclosures of contingencies. Actual results could differ from those estimates. On February 8, 1996, the President signed into law the Telecommunications Act of 1996. Among other things, this legislation requires the Federal Communications Commission (the "FCC") to relax its numerical restrictions on local ownership and affords renewal applicants significant new protections from competing applications for the broadcast licenses. The ultimate effect of this legislation on the competitive environment is currently undeterminable. b. CASH EQUIVALENTS: For purposes of the Statement of Cash Flows, the Partnership considers all highly liquid, short-term investments purchased with original maturities of three months or less to be cash equivalents. c. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, as follows: buildings and improvements 15-39 years, tower and antennae 5-15 years, equipment 5-7 years, and other 3-5 years. Expenditures for repairs are expensed while major additions are capitalized. Upon sale or disposal, the asset cost and accumulated depreciation are removed and any gain or loss is recognized in earnings. d. INTANGIBLE ASSETS: Intangible assets are stated at cost and amortized on a straight-line basis over their estimated useful lives, as follows: FCC broadcast licenses -- 15 years. Accumulated amortization as of December 31, 1996 was $848,533. Other intangibles -- 15 years. Accumulated amortization as of December 31, 1996 was $82,089. Goodwill -- 15 years. Accumulated amortization as of December 31, 1996 was $25,721. Deferred financing costs -- loan term. Accumulated amortization as of December 31, 1996 was $67,933. Organization cost -- 5 years. Accumulated amortization as of December 31, 1996 was $26,033. On an ongoing basis, management evaluates the recoverability of the net carrying value of intangible assets by reference to the Partnership's undiscounted anticipated future cash flows. e. BARTER TRANSACTIONS: The Partnership exchanges advertising airtime for goods and services, as is customary in the broadcast industry. In accordance with Statement of Financial Accounting Standards No. 63, "Financial Reporting by Broadcasters", revenue is recognized as the advertising is broadcast at the estimated fair market value of goods or services received or to be received. The value of the goods and services received in barter transactions is charged to expense when received or used. Barter revenues and expenses approximated $214,000 for 1996. F-73 176 POINT COMMUNICATIONS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) f. REVENUE RECOGNITION: Revenue from the sale of air-time is recognized at the time the related program or advertisement is broadcast. g. CONCENTRATION OF RISK: The Stations operate within the Madison, Wisconsin geographic area. They extend credit to their various customers in the form of accounts receivable. The Partnership performs ongoing credit evaluations of its customers and maintains an allowance for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends and other information. h. ALLOCATIONS AND DISTRIBUTIONS: The profits and losses of the Partnership are being allocated among the partners, and cash flow from operations or cash from capital transactions, if any, will be distributed to the partners in accordance with the terms of the partnership agreement. i. INCOME TAXES: No provision for federal or state income taxes has been provided as the partners report their pro rata share of the partnership profits or losses on their individual tax returns. 2. PROPERTY AND EQUIPMENT: Property and equipment consisted of the following at December 31, 1996: Land and improvements ........................................ $ 283,200 Buildings .................................................... 725,720 Tower and antennae ........................................... 986,770 Equipment .................................................... 703,640 Other ........................................................ 148,983 ---------- 2,848,313 Less accumulated depreciation ................................ 508,696 ---------- $2,339,617 ==========
Depreciation expense was $383,010 in 1996. 3. INTANGIBLE ASSETS: Intangible assets consisted of the following at December 31, 1996: FCC broadcast licenses ...................................... $ 9,546,000 Other intangibles ........................................... 911,544 Goodwill .................................................... 301,306 Deferred financing costs .................................... 254,749 Organization costs .......................................... 97,623 ----------- 11,111,222 Less accumulated amortization ............................... 1,050,309 ----------- $10,060,913 ===========
F-74 177 POINT COMMUNICATIONS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 4. LONG-TERM DEBT: Long-term debt consisted of the following at December 31, 1996: Term loan payable in quarterly installments of $212,500 to $400,000, with a balloon payment of remaining balance due August 1, 2000, bearing interest at the bank's reference rate plus 2.5% (reference rate was 8.25% at December 31, 1996) ............ $9,537,500 Less current portion ......................................... 912,500 ---------- $8,625,000 ==========
The term loan is subject to certain restrictive financial covenants, including the maintenance of minimum broadcast operating cash flow amounts, and limitations on additional indebtedness, capital expenditures, lease agreements, investments and distributions to partners. The term loan is collateralized by substantially all assets of the Partnership. The carrying amount reported for long-term debt approximates fair value since the underlying instrument bears interest at a variable rate that reprices frequently. The aggregate scheduled maturities of debt in subsequent years is as follows: 1997 ................................................. $ 912,500 1998 ................................................. 1,125,000 1999 ................................................. 2,100,000 2000 ................................................. 5,400,000 ----------- $ 9,537,500 ===========
5. OPERATING LEASES: The Partnership leases vehicles, office equipment, office space and a tower site under operating leases with future minimum rental payments as follows: 1997 ................................................. $ 87,004 1998 ................................................. 67,512 1999 ................................................. 67,512 2000 ................................................. 67,512 2001 ................................................. 38,705 Thereafter ........................................... 331,000 ----------- $ 659,245 ===========
Rental expense charged to operations was $84,382 for 1996. 6. LETTER OF CREDIT: At December 31, 1996, the Partnership had a letter of credit outstanding for $90,000. The letter of credit can be drawn upon if the Partnership fails to make payments due under the terms and conditions of a network agreement which expires in May 1997. The Partnership has pledged a certificate of deposit as collateral for the letter of credit. F-75 178 POINT COMMUNICATIONS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 7. SUBSEQUENT EVENTS: On January 2, 1997, the Partnership exchanged its broadcasting and real estate assets of stations WMAD-FM, WIBA-FM and WIBA-AM and $400,000 cash, subject to its long-term debt, for a 50% partnership interest in Madison Radio Group (a general partnership), and $3,500,000 cash (which was financed by Madison Radio Group borrowings). Simultaneously, Midcontinent Broadcasting Co. of Wisconsin, Inc. ("Midcontinent"), a company that also owns and operates radio stations serving the Madison, Wisconsin area, exchanged its broadcasting and real estate assets of stations WZEE- FM, WMLI-FM and WTSO-AM and $400,000 cash for the remaining 50% partnership interest in Madison Radio Group. During 1996, the Partnership incurred $103,097 of costs directly related to its investment in Madison Radio Group, which are included in other assets on the accompanying balance sheet. Also, on January 2, 1997, the Partnership contributed the assets of its WMAD-AM station with a net book value of approximately $230,000 to an educational institution and received $85,000 cash. On February 4, 1997, Madison Radio Group entered into an agreement to sell substantially all the assets of its stations to Capstar Broadcasting Partners, Inc., a radio investment group. The closing of the transaction, which is subject to various conditions and approvals as defined in the agreement, is expected to occur in the fourth quarter of 1997. F-76 179 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners Community Pacific Broadcasting Company L.P.: We have audited the accompanying balance sheet of Community Pacific Broadcasting Company L.P. (the "Partnership") as of December 31, 1996, and the related statements of operations, partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Community Pacific Broadcasting Company L.P. as of December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. San Jose, California February 13, 1997 F-77 180 COMMUNITY PACIFIC BROADCASTING COMPANY L.P. (A DELAWARE LIMITED PARTNERSHIP) BALANCE SHEET DECEMBER 31, 1996 ASSETS Current assets: Cash .......................................................... $ 38,532 Accounts receivable, net of allowance for doubtful accounts of $70,525 ............................ 1,708,213 Prepaid expenses and other current assets ..................... 97,239 ----------- Total current assets ....................................... 1,843,984 Property and equipment, net ...................................... 3,843,508 Intangible assets, net ........................................... 12,817,337 Other assets ..................................................... 125,453 ----------- Total assets ............................................... $18,630,282 =========== LIABILITIES AND PARTNERS' EQUITY Current liabilities: Accounts payable .............................................. $ 237,996 Accrued liabilities ........................................... 483,065 Current portion of long-term debt ............................. 1,175,125 ----------- Total current liabilities .................................. 1,896,186 Long-term debt, net of current portion ........................... 8,696,875 ----------- Total liabilities .......................................... 10,593,061 ----------- Commitments (Note 9) Partners' equity ................................................. 8,037,221 ----------- Total liabilities and partners' equity ..................... $18,630,282 ===========
The accompanying notes are an integral part of these financial statements. F-78 181 COMMUNITY PACIFIC BROADCASTING COMPANY L.P. (A DELAWARE LIMITED PARTNERSHIP) STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 Revenue: Broadcasting revenue ........................................ $ 12,318,547 Less agency commissions ..................................... 1,119,613 ------------ Net revenue .............................................. 11,198,934 ------------ Station operating expenses: Programming and technical expense ........................... 3,935,571 Selling and promotion expense ............................... 2,981,563 General and administrative expense .......................... 1,998,698 ------------ Total station operating expense .......................... 8,915,832 ------------ Station operating income ................................. 2,283,102 Corporate expenses ............................................. 760,150 ------------ Operating income before depreciation and amortization .... 1,522,952 Depreciation and amortization .................................. 1,416,077 ------------ Operating income ......................................... 106,875 Other expense, net ............................................. (8,438) Loss on disposal of assets ..................................... (10,611) Interest expense ............................................... (933,315) ------------ Net loss ................................................. $ (845,489) ============
The accompanying notes are an integral part of these financial statements. F-79 182 COMMUNITY PACIFIC BROADCASTING COMPANY L.P. (A DELAWARE LIMITED PARTNERSHIP) STATEMENT OF CHANGES IN PARTNERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1996
TOTAL GENERAL LIMITED PARTNERS' PARTNER PARTNERS TOTAL ----------- ----------- ----------- Balances as of January 1, 1996 .......... $ 272,872 $ 7,583,322 $ 7,856,194 Capital contributions from partners ... 20,000 3,058,916 3,078,916 Capital distributions to partners ..... (800) (2,051,600) (2,052,400) Net loss .............................. (176,474) (669,015) (845,489) ----------- ----------- ----------- Balances as of December 31, 1996 ........ $ 115,598 $ 7,921,623 $ 8,037,221 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-80 183 COMMUNITY PACIFIC BROADCASTING COMPANY L.P. (A DELAWARE LIMITED PARTNERSHIP) STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996 Cash flows from operating activities: Net loss ...................................................... $ (845,489) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization .............................. 1,416,077 Loss on sale of fixed assets ............................... 10,611 Changes in operating assets and liabilities: Accounts receivable, net ................................ 116,834 Prepaid expenses and other current assets ............... 41,643 Accounts payable ........................................ (345,207) Accrued liabilities ..................................... (108,490) ---------- Net cash provided by operating activities ............. 285,979 ---------- Cash flows from investing activities: Purchase of property and equipment, net of acquisition ........ (408,731) Proceeds from sale of fixed assets ............................ 3,500 Intangible assets, net of acquisition ......................... (103,635) Increase in other assets ...................................... (17,919) Cash used in acquisition ...................................... (450,000) ---------- Net cash used in investing activities ...................... (976,785) ---------- Cash flows from financing activities: Proceeds from notes payable ................................... 1,408,000 Repayment of notes payable .................................... (1,650,000) Capital contributions from partners ........................... 3,092,954 Capital distributions to partners ............................. (2,209,658) ---------- Net cash provided by financing activities .................. 641,296 ---------- Net decrease in cash ............................................. (49,510) Cash, beginning of year .......................................... 88,042 ---------- Cash, end of year ................................................ $ 38,532 ========== Supplemental disclosure of cash flow information: Interest paid ................................................. $ 991,233 ========== Supplemental disclosure of noncash activities: Revenue related to barter transactions ........................ $2,171,006 ========== Advances from partners converted into equity .................. $ 427,046 ==========
The accompanying notes are an integral part of these financial statements. F-81 184 COMMUNITY PACIFIC BROADCASTING COMPANY L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION: Community Pacific Broadcasting Company L.P. (the Partnership), a Delaware limited partnership, was formed April 1, 1992 and operates AM and FM radio broadcasting stations in the following communities as of December 31, 1996: o Modesto, California -- KFIV-AM, KJSN-FM, KVFX-FM and KJAX-AM o Anchorage, Alaska -- KASH-AM, KASH-FM, KENI-AM and KBFX-FM o Des Moines, Iowa -- KGGO-FM, KDMI-AM, and KHKI-FM 2. USE OF ESTIMATES AND UNCERTAINTIES: The Partnership's financial statements have been prepared in accordance with generally accepted accounting principles, which require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses for the period presented. They also affect the disclosures of contingencies. Actual results could differ from those estimates. On February 8, 1996, the President signed into law the Telecommunications Act of 1996. Among other things, this legislation requires the Federal Communications Commission (the "FCC") to relax its numerical restrictions on local ownership and affords renewal applicants significant new protections from competing applications for the broadcast licenses. The ultimate effect of this legislation on the competitive environment is currently undeterminable. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Property and Equipment Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows: Tower and antennae .................... 7-20 years Broadcast equipment ................... 7 to 10 years Building .............................. 30 years Furniture and fixtures ................ 7 to 10 years Automobiles ........................... 3-5 years Leasehold improvements ................ Shorter of the life of the asset or the lease
When items are retired or sold, the cost and accumulated depreciation are removed and any gain or loss is included in income. F-82 185 COMMUNITY PACIFIC BROADCASTING COMPANY L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Intangible Assets: Intangible assets are stated at cost, less accumulated amortization. Amortization is determined using the straight-line method based upon the estimated useful lives of the assets as follows:
YEARS ----- FCC licenses and goodwill 20 Organization costs 5 Noncompetition agreements 5 Other 2-5
On an ongoing basis, management evaluates the recoverability of the net carrying value of intangible assets by reference to the Company's undiscounted anticipated future cash flows. Revenue: Revenue is recognized when advertisements are broadcast. Barter Transactions: The Partnership trades or barters commercial air time for syndicated radio shows and for goods and services used for promotional, sales and other business activities. These exchanges are recorded at the fair market value of the radio shows or the goods or services received or the value of the advertising time provided, whichever is more clearly determinable. Revenue from barter transactions is recognized as income when advertisements are broadcast, and radio shows are charged to expense when broadcast, and goods or services are charged to expense or capitalized when used or received. Barter revenue totaled $2,171,006 for the year ended December 31, 1996. Advertising Costs: The Partnership incurs various marketing and promotional costs to add and maintain listenership. These costs are expensed as incurred and totaled approximately $1,007,626 for the year ended December 31, 1996. Concentration of Credit Risk: The Partnership's revenue and accounts receivable primarily relate to advertising of products and services within the radio stations' broadcast areas. The Partnership's management perform ongoing credit evaluations of the customers' financial condition and, generally, require no collateral from their customers. The Partnership maintains an allowance for doubtful accounts and past credit losses have been within management's expectations. Income Taxes: No provision has been made for income taxes since the Partnership is not a taxable entity. Partners report their share of the Partnership's income on their respective tax returns. F-83 186 COMMUNITY PACIFIC BROADCASTING COMPANY L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 4. PROPERTY AND EQUIPMENT: At December 31, 1996, property and equipment consist of the following: Land and improvements ........................................ $ 131,130 Buildings .................................................... 400,603 Tower and antenna systems .................................... 952,025 Broadcast and transmitter equipment .......................... 2,644,931 Furniture and fixtures ....................................... 878,730 Leasehold improvements ....................................... 93,038 ---------- 5,100,457 Less accumulated depreciation ................................ 1,256,949 ---------- $3,843,508 ==========
Depreciation expense was $473,380 in 1996. 5. INTANGIBLE ASSETS: At December 31, 1996, intangible assets consist of the following: FCC licenses and goodwill ................................... $15,451,996 Organization costs .......................................... 103,511 Noncompetition agreements ................................... 117,500 Other ....................................................... 26,100 ----------- 15,699,107 Less accumulated amortization ............................... 2,881,770 ----------- $12,817,337 ===========
Amortization expense was $942,697 in 1996. 6. LONG-TERM DEBT: In January 1995, the Partnership entered into a variable rate loan agreement with a bank whereby the Partnership could borrow up to $11,500,000. Borrowings under this agreement bear interest at a rate based on the London Interbank Offered Rate (LIBOR) or the bank's prime rate plus the applicable margin, which ranges from 1.50% to 2.75% for LIBOR and prime depending on ratios of debt to operating cash flow. The interest rate is approximately 8.75% as of December 31, 1996 and $9,872,000 is outstanding under this agreement. The Partnership pays a commitment fee of 0.5% per annum on the unused portion of the loan commitment and paid a onetime facility fee of $115,000 in January 1995, which is being amortized over the term of the loan agreement. The credit facility agreement contains certain financial and operational covenants and other restrictions with which the Partnership must comply, which include limitations on incurrence of additional indebtedness, partner distributions and redemptions. Borrowings under this agreement are collateralized by substantially all assets of the Partnership. The carrying amount reported for long-term debt approximates fair value since the underlying instrument bears interest at a variable rate that reprices frequently. F-84 187 COMMUNITY PACIFIC BROADCASTING COMPANY L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Total annual maturities of long-term debt, excluding mandatory prepayments, are as follows: 1997 .................................................. $ 1,175,125 1998 .................................................. 1,653,125 1999 .................................................. 1,725,000 2000 .................................................. 2,156,250 2001 .................................................. 2,515,625 Thereafter ............................................ 646,875 ----------- $ 9,872,000 ===========
7. PARTNERS' EQUITY: Under the amended and restated agreement of limited partnership dated December 1, 1995, the general partner is authorized to manage the activities of the Partnership. No management fee is to be paid, although the general partner is reimbursed for expenses incurred. Extraordinary actions, as defined, require the approval of the holders of a majority of the voting partner units (general partner plus Classes B and C limited partner units). Losses and profits are allocated among the partners in accordance with the partnership agreement. For tax purposes, any gain, loss, income or deductions with respect to property contributed to the Partnership are subject to the special allocation rules of Section 704 of the Internal Revenue Code. In December 1995, the Partnership issued warrants to purchase 76,868 units of Class C stock at $0.75 per unit. In July 1996, the Partnership issued warrants to purchase 11,647 units of Class C stock at $0.825 per unit. The warrants expire five years after the date of issuance. 8. EMPLOYEE BENEFIT PLAN: The Company maintains a salary deferral 401(k) Plan (the Plan) that allows eligible employees, at their discretion, to make pretax contributions to the Plan. The Partnership may make discretionary contributions to the Plan. No amounts have been accrued or paid for such discretionary contributions in respect of the year ended December 31, 1996. 9. COMMITMENTS: The Partnership rents certain facilities and equipment under noncancelable operating leases. Minimum annual payments under these leases as of December 31, 1996 are as follows: 1997 .............................................. $ 323,670 1998 .............................................. 269,566 1999 .............................................. 245,175 2000 .............................................. 204,547 2001 .............................................. 151,938 Thereafter ........................................ 220,388 ----------- Total $ 1,415,284 ===========
Rent expense was approximately $362,685 for the year ended December 31, 1996. F-85 188 COMMUNITY PACIFIC BROADCASTING COMPANY L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Partnership has entered into several royalty agreements in order to broadcast music. Most of these contracts require payments based upon related advertising revenue. 10. ACQUISITION: In April 1996, the Partnership acquired substantially all the assets of KJAX-AM in Stockton, California, for $450,000 plus acquisition costs of $64,757. The purchase price has been allocated $100,000 to property and equipment, $325,000 to FCC licenses and goodwill and $25,000 to other intangibles. The acquisition has been accounted for as an asset purchase. The purchase price has been allocated to the assets acquired based on their estimated fair market value at the date of the acquisition. Accordingly, the accompanying financial statements include the results of operations of the acquired entity from the date of acquisition. Had the acquisition occurred January 1, 1996 the Partnership's results of operations for the year ended December 31, 1996 would not have been materially different. 11. PENDING SALE OF PARTNERSHIP: On December 26, 1996, the Partnership agreed to be acquired by Capstar Broadcasting Partners, Inc., a Delaware corporation, through an acquisition affiliate, Community Acquisition Company, Inc. The sale is subject to regulatory approval. The purchase price is estimated to be approximately $35.0 million and is subject to adjustment. No adjustments have been made to the financial statements to reflect the pending sale. F-86 189 INDEPENDENT AUDITORS' REPORT Stockholders and Board of Directors Q Broadcasting, Inc. Stamford, Connecticut We have audited the accompanying statements of operations and deficit and cash flows of Q Broadcasting, Inc. for each of the three years in the period ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, these financial statements referred to above present fairly, in all material respects, the results of Q Broadcasting, Inc.'s operations and its cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. Holtz Rubenstein & Co., LLP Certified Public Accountants Melville, New York February 12, 1996 F-87 190 Q BROADCASTING, INC. STATEMENTS OF OPERATIONS AND DEFICIT
YEARS ENDED SEPTEMBER 30, -------------------------------------------- 1995 1994 1993 ------------ ------------ ------------ REVENUE .................................. $ 2,508,867 $ 2,267,625 $ 1,511,181 Less: Commissions and fees ............ 222,411 193,342 127,866 ------------ ------------ ------------ 2,286,456 2,074,283 1,383,315 ------------ ------------ ------------ EXPENSES: Broadcast and production (Note 8) ..... 786,377 742,018 715,511 Selling and promotion ................. 1,500,873 880,429 844,004 General and administrative (Note 8) ... 823,312 703,908 764,768 Depreciation and amortization ......... 447,602 538,600 637,397 ------------ ------------ ------------ 3,558,164 2,864,955 2,961,680 ------------ ------------ ------------ LOSS FROM OPERATIONS ..................... (1,271,708) (790,672) (1,578,365) ------------ ------------ ------------ OTHER INCOME (EXPENSE): Interest expense (Note 9) ............. (493,578) (438,647) (257,732) Other, net ............................ 153,871 51,805 13,705 ------------ ------------ ------------ (339,707) (386,842) (244,027) ------------ ------------ ------------ NET LOSS ................................. (1,611,415) (1,177,514) (1,822,392) DEFICIT, beginning of period ............. (3,217,713) (2,040,199) (217,807) ------------ ------------ ------------ DEFICIT, end of period ................... $ (4,829,128) $ (3,217,713) $ (2,040,199) ============ ============ ============
See notes to financial statements. F-88 191 Q BROADCASTING, INC. STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, ----------------------------------------- 1995 1994 1993 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ............................................ $(1,611,415) $(1,177,514) $(1,822,392) ----------- ----------- ----------- Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ....................... 447,602 538,600 637,397 Provision for doubtful accounts ..................... 29,702 75,655 25,150 Changes in operating assets and liabilities: (Increase) decrease in assets: Accounts receivable ............................. 111,743 (444,619) (9,557) Prepaid expenses and other current assets ....... 337 (196) (690) Other assets .................................... 17,963 (25,309) (3,853) (Decrease) increase in liabilities: Accounts payable ................................ 54,530 14,456 (22,712) Accrued expenses ................................ 46,165 12,009 (31,444) ----------- ----------- ----------- Total adjustments ................................... 708,042 170,596 594,291 ----------- ----------- ----------- Net cash used in operating activities ............... (903,373) (1,006,918) (1,228,101) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment .................. (73,381) (23,118) (91,532) ----------- ----------- ----------- Net cash used in investing activities ............. (73,381) (23,118) (91,532) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal repayment of note payable ................. -- -- (327,719) Repayment of capital lease obligations .............. (8,692) (9,823) (8,585) Loans from stockholders ............................. 967,397 1,111,592 1,632,185 Loans to related parties ............................ (37,447) (35,433) -- ----------- ----------- ----------- Net cash provided by financing activities ......... 921,258 1,066,336 1,295,881 ----------- ----------- ----------- Net (decrease) increase in cash and cash equivalents ... (55,496) 36,300 (23,752) Cash and cash equivalents at beginning of period ....... 56,327 20,027 43,779 ----------- ----------- ----------- Cash and cash equivalents at end of period ............. $ 831 $ 56,327 $ 20,027 =========== =========== ===========
See notes to financial statements. F-89 192 Q BROADCASTING, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993 1. DESCRIPTION OF ORGANIZATION AND BUSINESS: Q Broadcasting, Inc. ("Q Broadcasting") owns and operates two radio broadcast stations in Stamford, Connecticut. These stations, WSTC-AM and WKHL-FM, principally serve the Stamford metropolitan area. 2. BASIS OF PRESENTATION: The financial statements have been prepared on a going concern basis which contemplates continuity of operations and realization of assets and liquidation of liabilities in the ordinary course of business. Q Broadcasting's ability to continue as a going concern is dependent upon the continued financial support of its shareholders. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: a. Revenue recognition Broadcasting revenue is recognized when commercials are aired. Barter transactions are recorded at the estimated fair value of the merchandise or services received. b. Depreciation Q Broadcasting provides for depreciation using the declining balance method over the estimated useful lives of the fixed assets as follows: Broadcast and other equipment ......................... 5 years Tower and antenna systems ............................. 7 years Transmitter equipment ................................. 7 years Furniture and fixtures ................................ 7 years
c. Amortization Q Broadcasting provides for amortization using the straight-line method over the estimated useful lives of the intangible assets as follows: Broadcast license ..................................... 25 years Transmitter lease ..................................... 23 years Covenant not to compete ............................... 3 years Organizational costs .................................. 5 years
d. Income taxes The shareholders of Q Broadcasting elected to be taxed as a "Small Business Corporation," for federal and state income tax purposes pursuant to the Internal Revenue Code. As a result of this election, the income of Q Broadcasting will be taxed directly to the individual shareholders. Accordingly, no provision for taxes is included in the financial statements of Q Broadcasting. F-90 193 Q BROADCASTING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) e. Statement of cash flows For purposes of the statement of cash flows, Q Broadcasting considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. f. Advertising Q Broadcasting charges to expense, advertising costs as incurred. Advertising costs amounted to $112,226, $41,405 and $227,094 for the years ended September 30, 1995, 1994 and 1993, respectively. 4. DUE FROM RELATED PARTIES: Q Broadcasting advanced funds on behalf of three related entities. Approximately $54,200 and $16,800 for two entities 100% owned by Q Broadcasting's owners as of September 30, 1995 and 1994, respectively and approximately $18,700 to an entity which Q Broadcasting's owners have a minority interest as of September 30, 1995 and 1994. 5. PROPERTY AND EQUIPMENT: Property and equipment, at cost, is summarized as follows:
SEPTEMBER 30, ----------------------- 1995 1994 ---------- ---------- Broadcast and office equipment .................. $ 586,269 $ 583,853 Tower and antenna systems ....................... 268,000 268,000 Transmitter equipment ........................... 75,000 75,000 Furniture and fixtures .......................... 300,484 229,519 ---------- ---------- 1,229,753 1,156,372 Less accumulated depreciation ................... 822,461 633,347 ---------- ---------- $ 407,292 $ 523,025 ========== ==========
Included in furniture and fixtures was $41,975 related to assets recorded under capital leases; the related amount included in accumulated depreciation is $28,707 and $19,095 as of September 30, 1995 and 1994. 6. INTANGIBLES: Intangibles, at cost, is summarized as follows:
SEPTEMBER 30, ----------------------- 1995 1994 ---------- ---------- Organizational costs ............................ $ 97,917 $ 97,917 Covenant not to compete ......................... 450,000 450,000 Broadcast license ............................... 1,000,000 1,000,000 Transmitter lease ............................... 1,700,000 1,700,000 ---------- ---------- 3,247,917 3,247,917 Less accumulated amortization ................... 872,722 614,234 ---------- ---------- $2,375,195 $2,633,683 ========== ==========
F-91 194 Q BROADCASTING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 7. CAPITAL LEASE OBLIGATIONS: Included in property and equipment are assets recorded under capital leases. The future minimum lease payments for these capital leases and the present value of the net minimum lease payments as of September 30, 1995 are as follows:
FISCAL YEAR 1996 .......................................................... $ 6,826 1997 .......................................................... 4,168 ------- Minimum lease payments .......................................... 10,994 Less amount representing interest ............................... 830 ------- Present value of net minimum lease payments ..................... $10,164 =======
8. COMMITMENTS: Q Broadcasting leases studio and office space and a transmitter tower site under operating leases expiring in September 1999 and December 2017, respectively. Rent expense for these leases was approximately $211,000, $186,000 and $179,000 for the years ended September 30, 1995, 1994 and 1993, respectively. Minimum rental commitments for the remaining terms of the operating leases are as follows:
Year Ending September 30, 1996 ....................................................... $ 212,685 1997 ....................................................... 213,180 1998 ....................................................... 213,180 1999 ....................................................... 213,180 2000 ....................................................... 21,780 Thereafter ................................................... 430,939
9. NOTE PAYABLE -- STOCKHOLDERS: In connection with advances made by its stockholders for the acquisition of assets and working capital, Q Broadcasting has issued an 8% demand note payable to its stockholders. The stockholders have agreed not to demand payment until a date subsequent to October 1, 1996. Interest expense for the years ended September 30, 1995, 1994 and 1993 was $492,397, $435,895 and $238,187, respectively. 10. SUBSEQUENT EVENT: Q Broadcasting sold substantially all of its operating assets to Commodore on May 30, 1996. 11. SUPPLEMENTARY INFORMATION -- STATEMENT OF CASH FLOWS: Barter transactions resulted in sales and related expenses of $315,900, $314,500 and $306,600 for the years ending September 30, 1995, 1994 and 1993, respectively. Cash paid during the years ended September 30, 1995, 1994 and 1993 for interest was $493,578, $438,648 and $261,018, respectively. F-92 195 REPORT OF INDEPENDENT AUDITORS Board of Directors Danbury Broadcasting Inc. We have audited the accompanying statement of operations and accumulated deficit and cash flows of Danbury Broadcasting, Inc. for the year ended June 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of Danbury Broadcasting, Inc.'s operations and its cash flows for the year ended June 30, 1995 in conformity with generally accepted accounting principles. Paneth, Haber & Zimmerman LLP New York, NY August 18, 1995 F-93 196 DANBURY BROADCASTING INC. STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
YEAR ENDED JUNE 30, 1995 ------------- REVENUE Broadcasting revenue ......................................... $ 3,451,684 Less agency commissions ...................................... 311,768 ----------- Net Revenue ............................................... 3,139,916 ----------- EXPENSES Programming .................................................. 502,299 Technical .................................................... 106,475 Selling ...................................................... 865,381 General and Administrative ................................... 903,627 Interest Expense ............................................. 347,578 Depreciation ................................................. 197,197 Amortization ................................................. 236,213 ----------- Total Expenses ............................................ 3,158,770 ----------- NET LOSS ........................................................ (18,854) ACCUMULATED DEFICIT Beginning of year ............................................ (681,947) Preferred stock dividends .................................... (55,000) ----------- End of year ............................................... $ (755,801) ===========
See notes to financial statements. F-94 197 DANBURY BROADCASTING INC. STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1995 ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss ..................................................... $ (18,854) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization ............................. 433,410 Change in: Accounts receivable ....................................... (78,637) Due from related party .................................... 24,663 Prepaid expenses and other current assets ................. (20,147) Other assets .............................................. (2,749) Accounts payable .......................................... (42,801) Accrued expenses .......................................... (71,465) ----------- Net Cash Provided by Operating Activities............... 223,420 ----------- CASH FLOWS FROM INVESTING ACTIVITIES Advances from affiliate ...................................... (6,100) Purchases of property and equipment .......................... (34,521) ----------- Net Cash Used in Investing Activities ................... (40,621) ----------- CASH FLOWS FROM FINANCING ACTIVITIES Deferred financing costs ..................................... (211,110) Proceeds of notes payable .................................... 3,404,106 Repayments of notes payable .................................. (3,263,384) Preferred stock dividends .................................... (27,500) ----------- Net Cash Used in Financing Activities ........................... (97,888) ----------- NET INCREASE IN CASH ............................................ 84,911 CASH Beginning of year ............................................ 92,716 ----------- End of year .................................................. $ 177,627 =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest Paid ................................................ $ 434,894 Income Taxes Paid ............................................ -- SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Broadcast equipment acquired through trade-out transactions .. $ 2,400 Broadcast equipment and property exchanged for favorable tower lease (Note 7) ............................. $ 190,248 Unpaid accrual of redeemable preferred stock dividends ....... $ 41,250
See notes to financial statements. F-95 198 DANBURY BROADCASTING INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1995 1. SIGNIFICANT ACCOUNTING POLICIES Nature of Business Danbury Broadcasting Inc. ("Danbury"), a Connecticut corporation, operates radio stations WRKI-FM and WINE-AM in Danbury, Connecticut. Its revenues are derived from advertisers consisting primarily of local businesses. Credit is extended to its advertisers in the normal course of business. Depreciation and Amortization Depreciation of property and equipment is computed over the estimated useful lives of the respective assets using the straight-line method. Estimated useful lives range from 5 to 20 years. Expenditures for repairs and maintenance are charged to operations as incurred. Goodwill, which is included in intangible assets, represents the cost of acquired assets in excess of values ascribed to the net identified assets and is being amortized using the straight-line method over 40 years. Costs incurred in obtaining long-term financing were capitalized and are included in intangible assets. They are being amortized using the straight-line method (that does not differ materially from the interest rate method) over the term of the related debt. A covenant not to compete, which restricts the seller and the previous owner from competing with Danbury in the Greater Danbury, Connecticut area for a period of four years, is included in intangible assets. This covenant is being amortized on a straight-line basis over its four year life. The stations' broadcast license is being amortized using the straight-line method over 25 years. A favorable lease for broadcast tower rental is being amortized using the straight-line method over its 30 year term. Non-Monetary Transactions Barter transactions represent the exchange of unsold advertising time for merchandise or services. Barter transactions are reported at the estimated fair value of the product or service received. Revenue is recognized when commercials are broadcast and merchandise or services obtained are reported when received or used. For merchandise or services received prior to the broadcast of the commercial, a liability is provided; conversely, a receivable is established when the commercial is broadcast prior to the receipt of the merchandise or services. Income Taxes Danbury has adopted Statement of Financial Accounting Standards 109 ("SFAS 109") and recognizes deferred tax assets and liabilities for temporary differences between amounts recorded for financial statement and tax purposes. F-96 199 DANBURY BROADCASTING INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 1995 2. BARTER TRANSACTIONS The accompanying financial statements include the following barter transactions:
YEAR ENDED JUNE 30, 1995 ------------- Barter revenue ................................................. $271,253 ======== Barter expenditures ............................................ $182,821 ========
3. REDEEMABLE PREFERRED STOCK The Series A cumulative preferred stock carries a liquidation preference of $1,000 per share and a par value of $100 per share. Danbury may redeem the shares at this price, plus accrued but unpaid dividends, at any time through June 30, 1997. At the earlier of that date, or an event of default (as defined) the holder can require Danbury to redeem the shares in full, with accrued but unpaid dividends out of funds "legally available". An event of default occurred during the year ended June 30, 1995 in that Danbury did not pay the full dividend. This gives the holders of the shares the right to demand redemption. The Series A cumulative preferred stock provides for an annual dividend of $110 per share. Dividends of $55,000 were declared on the preferred stock and $13,750 was paid for the year ended June 30, 1995. 4. LEASES During 1995, Danbury leased space on a transmitting tower under a five year lease renewable in five (5) year terms at Danbury's option from a related party (Note 7). Automobiles under operating leases expire in various years through 1998. Rent expense on the above, for the year ended June 30, 1995 was $46,500. 5. INCOME TAXES Danbury has a net operating loss carryforward of approximately $284,000 which can be carried forward to the years 2008 and 2009 to offset taxable income resulting in a deferred tax asset of $118,000. Other temporary differences resulting from differences between book and tax amortization and depreciation result in a deferred tax asset of approximately $81,000 at June 30, 1995. Total deferred tax assets of approximately $199,000 at June 30, 1995 have been completely offset by a valuation allowance. The valuation allowance decreased by $25,000 during the year ended June 30, 1995. F-97 200 DANBURY BROADCASTING INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 1995 Income tax benefit for the year ended June 30, 1995 differs from the expected statutory rate for the following reasons:
1995 -------- Federal, at statutory rates ................................... $ (6,500) State, net of Federal benefit ................................. (1,500) Nondeductible expenses ........................................ 10,000 Taxable gain on asset transfer ................................ 23,000 -------- 25,000 Change in deferred tax asset valuation allowance .............. (25,000) -------- Tax provision ................................................. $ -- ========
6. RETIREMENT PLAN Employees of Danbury may participate in profit sharing/401(k) savings plan and may elect to make contributions pursuant to a salary reduction agreement upon meeting length of service and age requirements. Danbury can elect to make discretionary contributions to the profit sharing plan but has not done so for the year. Danbury has matched 20% of individual 401(k) contributions during the year ended June 30, 1995. Danbury's cost amounted to approximately $4,500. 7. RELATED PARTY TRANSACTIONS During the year ended June 30, 1995, Danbury exchanged its tower and associated real property with a book value of $190,000 for a favorable lease with a Partnership formed to improve and rent the tower to Danbury and others. The Partnership has committed to the financing of tower improvements which will improve the broadcast signal. Danbury's lease for placement of its antenna on the tower at the optimal site is at below market rates. Danbury and the Partnership are related through common control. The favorable lease has been valued at $190,000, the book value of the property exchanged. F-98 201 INDEPENDENT AUDITORS' REPORT To the Board of Directors Adventure Communications -- Huntington (Division of Adventure Communications, Inc.) We have audited the accompanying balance sheet of Adventure Communications-Huntington (Division of Adventure Communications, Inc.) as of December 31, 1995, and the related statements of operations, division's deficit, and cash flows for the year ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Adventure Communications-Huntington (Division of Adventure Communications, Inc.) as of December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Brown, Edwards & Company, LLP Bluefield, West Virginia May 1, 1996 F-99 202 ADVENTURE COMMUNICATIONS -- HUNTINGTON (DIVISION OF ADVENTURE COMMUNICATIONS, INC.) BALANCE SHEET ASSETS
DECEMBER 31, 1995 ----------------- CURRENT ASSETS Cash ......................................................... $ 105,926 Accounts receivable, less allowance for doubtful accounts of $66,000 on December 31, 1995 (Note 7) .......... 647,986 Prepaid assets ............................................... 1,325 Other receivables ............................................ 43,120 Deferred income taxes (Note 5) ............................... 26,400 ----------- Total current assets ...................................... 824,757 ----------- PROPERTY AND EQUIPMENT, NET (Notes 3 and 7) ..................... 1,225,957 ----------- INTANGIBLES, NET (Note 4) ....................................... 135,140 ----------- $ 2,185,854 =========== LIABILITIES AND DIVISION'S EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses ........................ $ 177,321 Inter-divisional transaction payable (Note 6) ................ 2,282,170 ----------- Total current liabilities ................................. 2,459,491 ----------- Commitment (Note 7) ............................................. -- DIVISION'S DEFICIT .............................................. (273,637) ----------- $ 2,185,854 ===========
The Notes to Financial Statements are an integral part of this statement. F-100 203 ADVENTURE COMMUNICATIONS -- HUNTINGTON (DIVISION OF ADVENTURE COMMUNICATIONS, INC.) STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 ----------------- Advertising revenue ............................................. $ 3,352,771 Agency commissions .............................................. (187,292) ----------- Net revenue ............................................... 3,165,479 Other operating revenue ......................................... 36,225 ----------- Total revenue ............................................. 3,201,704 ----------- Operating expenses (Note 6): Station operating expenses ................................... 2,118,139 Corporate expenses ........................................... 572,980 Depreciation ................................................. 230,600 Amortization ................................................. 13,587 ----------- 2,935,306 ----------- Operating income .......................................... 266,398 Interest income ................................................. 7,273 ----------- Income before taxes ....................................... 273,671 Provision for income taxes (Note 5) ............................. (75,640) ----------- Net income ................................................... $ 198,031 ===========
The Notes to Financial Statements are an integral part of this statement. F-101 204 ADVENTURE COMMUNICATIONS -- HUNTINGTON (DIVISION OF ADVENTURE COMMUNICATIONS, INC.) STATEMENT OF DIVISION'S DEFICIT YEAR ENDED DECEMBER 31, 1995 Balance, January 1, 1995 .......................................... $(471,668) 1995 net income ................................................ 198,031 --------- Balance, December 31, 1995 ........................................ $(273,637) =========
The Notes to Financial Statements are an integral part of this statement. F-102 205 ADVENTURE COMMUNICATIONS -- HUNTINGTON (DIVISION OF ADVENTURE COMMUNICATIONS, INC.) STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995 ----------------- CASH FLOW FROM OPERATING ACTIVITIES Net income ................................................... $ 198,031 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................. 244,187 Deferred income taxes ..................................... (26,400) Changes in current assets and liabilities: (Increase) decrease in: Accounts receivable ....................................... (112,955) Prepaid expenses and other receivables .................... 4,027 Increase in: Accounts payable and accrued expenses ...................... 28,473 ----------- Net cash provided by operating activities ................ 335,363 ----------- CASH FLOW FROM INVESTING ACTIVITIES Purchase of property and equipment ........................... (366,455) Purchase of intangible assets ................................ (89,000) ----------- Net cash used in investing activities .................... (455,455) ----------- CASH FLOW FROM FINANCING ACTIVITIES Increase in inter-divisional payable ......................... 975,018 Repayment of inter-divisional payable ........................ (1,020,000) ----------- Net cash used in financing activities .................... (44,982) ----------- Decrease in cash ......................................... (165,074) CASH Beginning .................................................... 271,000 ----------- Ending ....................................................... $ 105,926 =========== SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS Barter revenue ............................................... $ 233,219 =========== Barter expense ............................................... $ 163,100 ===========
The Notes to Financial Statements are an integral part of this statement. F-103 206 ADVENTURE COMMUNICATIONS -- HUNTINGTON (DIVISION OF ADVENTURE COMMUNICATIONS, INC.) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 NOTE 1. SIGNIFICANT ACCOUNTING POLICIES Nature of business: Adventure Communications -- Huntington (the "Division") is a division of Adventure Communications, Inc. ("Adventure"). Adventure's principal business is the operation of AM and FM radio broadcasting stations in the areas of Bluefield and Huntington, West Virginia; Statesville, North Carolina; and Hilton Head, South Carolina. The Division operates WKEE-AM and FM, WBVB-FM, WZZW-AM and WIRO-AM (the Stations). Adventure also has joint operating and marketing agreements with other radio stations located in the Huntington area. Under these agreements, Adventure is responsible for various promotional and marketing activities of the Stations. Revenue and expenses resulting from these agreements are included in the Division's operations. On April 8, 1996, Adventure entered into an asset purchase agreement to sell substantially all the assets relating to the operations of the Stations (Note 11). Revenue recognition: Advertising revenue is recognized in the accounting period which corresponds with the broadcast of the advertisement. Barter revenue is reported when advertisements are broadcast and barter merchandise or services received are expensed when used. Barter transactions are valued at the market value of the broadcast time which approximates the market value of the product or services received. Property and equipment: Property and equipment are recorded at cost and are depreciated over their estimated useful lives using straight-line and accelerated methods. Valuation of receivables: The Division provides for bad debts under the reserve method which charges current operations for estimated uncollectibles based upon the Division's collection experience and an evaluation of the receivables at year end. Intangible assets: Acquisition costs (non-compete covenants and goodwill) in excess of the net tangible assets of acquired radio stations are amortized on a straight-line basis over periods of up to 15 years, and are included in the financial statements at cost less accumulated amortization. Income taxes: Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to the allowance for doubtful accounts which is not deductible for income tax return purposes until the accounts are written off as uncollectible. The deferred tax asset represents the future tax return deduction. Effective January 1, 1995, Adventure revoked its S Corporation election and became a taxable entity. Previously, its income and losses were included in the personal tax returns of the stockholders, and Adventure did not record an income tax provision or benefit. F-104 207 ADVENTURE COMMUNICATIONS HUNTINGTON (DIVISION OF ADVENTURE COMMUNICATIONS, INC.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 NOTE 1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Statement of cash flows: Separate disclosures have not been made for cash paid for interest and income taxes because these amounts are included in inter-divisional transactions with Adventure. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. NOTE 2. ACQUISITIONS In June 1995, Adventure purchased selected assets of an AM radio station in Ironton, Ohio. The acquisition was accounted for by the purchase method, and the statement of income includes the results of operations of this station from the date of acquisition. Property and equipment ..................................... $211,000 Intangibles ................................................ 89,000 -------- $300,000 --------
Pro forma results of operations from this acquisition were not material to the Division's operations. Therefore, such information has not been presented. NOTE 3. PROPERTY AND EQUIPMENT Major classes of property and equipment are as follows:
DECEMBER 31, 1995 ----------------- Land and improvements ........................................ $ 60,000 Buildings and improvements ................................... 550,557 Broadcasting equipment ....................................... 1,735,498 Furniture and fixtures ....................................... 124,756 Transportation equipment ..................................... 22,280 Computer and office equipment ................................ 187,416 ---------- 2,680,507 Less accumulated depreciation ................................ 1,454,550 ---------- $1,225,957 ==========
F-105 208 ADVENTURE COMMUNICATIONS HUNTINGTON (DIVISION OF ADVENTURE COMMUNICATIONS, INC.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 NOTE 4. INTANGIBLES Intangibles are stated at cost, net of amortization and consist of the following:
DECEMBER 31, 1995 ----------------- Non-compete covenant ........................................... $ 20,000 Goodwill ....................................................... 163,317 License fees ................................................... 30,000 -------- 213,317 Less accumulated amortization .................................. 78,177 -------- $135,140 ========
NOTE 5. INCOME TAXES The provision for income taxes consists of the following components:
YEAR ENDED DECEMBER 31, 1995 ----------------- Current expense .............................................. $(102,040) Deferred ..................................................... 26,400 --------- Provision for income taxes ................................ $ (75,640) =========
Income tax expense differs from the statutory federal rate of 34% as follows:
YEAR ENDED DECEMBER 31, 1995 ----------------- Tax expense .................................................. $(109,468) Non-deductible items ......................................... (4,172) Change in tax status ......................................... 38,000 --------- Provision for income taxes ................................ $ (75,640) =========
As discussed in Note 1, Adventure changed its tax status from nontaxable to taxable effective for 1995. Accordingly, the deferred tax asset of approximately $38,000 at the date that the termination election became effective has been recorded through a charge to the tax provision for 1995. NOTE 6. INTER-DIVISIONAL TRANSACTIONS Adventure has allocated to the Division various expenses it incurred for corporate services, overhead and interest costs. The amounts included in corporate services and overhead allocations are comprised mainly of corporate office salaries, related payroll taxes and employee benefits, professional fees and administrative expenses. These costs have been allocated based on revenues of the Division compared to total revenues of Adventure. Management believes the amounts allocated to the Division have been computed and charged to the Division on a reasonable basis. F-106 209 ADVENTURE COMMUNICATIONS HUNTINGTON (DIVISION OF ADVENTURE COMMUNICATIONS, INC.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 The Division is obligated to Adventure for monies received from Adventure for the original purchase of the Stations as well as the allocated expenses mentioned above. The Division, in return, transfers cash to Adventure that is in excess of its operating needs. These transactions are conducted on an interest free basis. The inter-divisional payable is analyzed below:
YEAR ENDED DECEMBER 31, 1995 ----------------- Balance, beginning ......................................... $ 2,327,152 Allocations of corporate costs to the Division ............. 675,018 Purchase of Stations ....................................... 300,000 Cash transfers ............................................. (1,020,000) ----------- Balance, ending ............................................ $ 2,282,170 ===========
NOTE 7. COMMITMENT Adventure is obligated for long-term debt of approximately $6,900,000 for which substantially all assets of Adventure (including the Division) are pledged as collateral. At December 31, 1995, the book value of total assets of Adventure exceeds the long-term debt. Approximately $3,700,000 of the debt is also secured by a $4,000,000 life insurance policy on the majority stockholder of Adventure. A note payable to the majority stockholder of Adventure of $2,400,000 is included in the $6,900,000 debt referred to above. NOTE 8. EMPLOYEE BENEFIT PLANS Adventure has a contributory profit sharing plan covering all full time employees with one or more years of service. The plan provides for annual employer contributions on a discretionary basis as determined by the Board of Directors. No contributions were made to the plan in 1995. Adventure also has a 401(k) retirement plan, whereby participants may contribute a percentage of their compensation. Adventure's matching contribution percentage (which is determined annually by Adventure) is limited to 10% of the participant's compensation for each plan year. The Division's contribution was approximately $8,200 for the year ended December 31, 1995. NOTE 9. OPERATING LEASES The Division leases certain transmission towers and automobiles under non-cancelable lease agreements. These leases have been classified as operating leases; and accordingly, all rents are charged to operations as incurred. The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 1995: F-107 210 ADVENTURE COMMUNICATIONS HUNTINGTON (DIVISION OF ADVENTURE COMMUNICATIONS, INC.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995
YEAR ENDING DECEMBER 31: 1996 ................................................... $15,630 1997 ................................................... 8,500 1998 ................................................... 2,400 1999 ................................................... 2,400 2000 ................................................... 2,400 ------- Total minimum payments required ........................ $31,330 =======
Lease expense was approximately $15,630 for 1995. NOTE 10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of the inter-divisional payable approximates fair value. It is included in the financial statements as a current liability due to the pending sales discussed in Note 11. The inter-divisional payable will be satisfied by the proceeds of the sale. In the financial statements of Adventure, all inter-divisional payables/receivables are eliminated. NOTE 11. SUBSEQUENT EVENT On April 8, 1996, Adventure entered into an asset purchase agreement to sell substantially all the assets relating to the operations of the Stations for $7,765,000. The sale of the Station is contingent on FCC consent. The buyer will purchase all of the assets for the Stations, free and clear of any liabilities, mortgages, liens, pledges, conditions or encumbrances except for the Stations' cash, rights to refunds or deposits which relate to the period prior to closing and accounts receivable. Also at closing, $475,000 of the sales price will be deposited with the indemnification escrow agent. The indemnification period will be for a period of two (2) years following the closing. The indemnification by seller and buyer shall be for any losses, liabilities or damages resulting from untrue representations, breach of warranty or non-fulfillment of covenants, liabilities not expressly assumed by buyer, liabilities resulting from operations prior to the closing date for the buyer or liabilities resulting from operation after the closing date for the seller. F-108 211 ANNEX A TO PROSPECTUS The following table hereto sets forth the market, FCC license classification and frequency of each of the Company's stations (including those with which the Company has or will have a JSA or LMA), assuming the consummation of the Pending Acquisitions, and the date on which each station's FCC license expires.
EXPIRATION FCC DATE OF MARKET(1) STATION(2) CLASS FREQUENCY LICENSE - --------- ---------- ----- --------- ------- NORTHEAST REGION Allentown-Bethlehem, PA WAEB-AM B 790 kHz 08-01-98 WAEB-FM B 104.1 MHz 08-01-98 WZZO-FM B 95.1 MHz 08-01-98 WKAP-AM(3) B 1470 kHz 08-01-98 Melbourne-Titusville-Cocoa, FL WMMB-AM C 1240 kHz 02-01-04 WGGD-FM A 95.1 MHz 02-01-04 WMYM-AM B 1350 kHz 02-01-04 WLRQ-FM C2 99.3 MHz 02-01-04 WHKR-FM C2 102.7 MHz 02-01-04 Fairfield County, CT WNLK-AM B 1350 kHz 04-01-98 WEFX-FM A 95.9 MHz 04-01-98 WSTC-AM C 1400 kHz 04-01-98 WKHL-FM A 96.7 MHz 04-01-98 WINE-AM D 940 kHz 04-01-98 WRKI-FM B 95.1 MHz 04-01-98 Ft. Pierce-Stuart-Vero Beach, FL WZZR-FM C2 92.7 MHz 02-01-04 WQOL-FM C2 103.7 MHz 02-01-04 WPAW-FM(3) C2 99.7 MHz 02-01-04 WBBE-FM C3 94.7 MHz 02-01-04 WAVW-FM A 101.7 MHz 02-01-04 WAXE-AM D 1370 kHz 02-01-04 Huntington, WV-Ashland, KY WTCR-AM B 1420 kHz 10-01-03 WTCR-FM B 103.3 MHz 10-01-03 WIRO-AM C 1230 kHz 10-01-04 WHRD-AM(3) D 1470 kHz 10-01-03 WZZW-AM D 1600 kHz 10-01-03 WKEE-AM D 800 kHz 10-01-03 WKEE-FM A 100.5 MHz 10-01-03 WAMX-FM A 106.3 MHz 10-01-03 WFXN-FM A 107.1 MHz 10-01-04 WBVB-FM A 97.1 MHz 10-01-04 Salisbury-Ocean City, MD WWFG-FM B 99.9 MHz 10-01-03 WOSC-FM B1 95.9 MHz 08-01-98 Dover, DE WDSD-FM B 94.7 MHz 08-01-98 WSRV-FM A 92.9 MHz 08-01-98 WDOV-AM B 1410 kHz 08-01-98 Wilmington, DE WJBR-AM D 1290 kHz 08-01-98 WJBR-FM B 99.5 MHz 08-01-98
A-1 212
EXPIRATION FCC DATE OF MARKET(1) STATION(2) CLASS FREQUENCY LICENSE - --------- ---------- ----- --------- ------- Westchester-Putnam Counties, NY WFAS-AM C 1230 kHz 06-01-98 WPUT-AM D 1510 kHz 06-01-98 WFAS-FM A 103.9 MHz 06-01-98 WZZN-FM A 106.3 MHz 06-01-98 WAXB-FM A 105.5 MHz 06-01-98 SOUTHEAST REGION Greenville, SC WJMZ-FM C 107.3 MHz 12-01-03 WESC-FM C 92.5 MHz 12-01-03 WESC-AM D 660 kHz 12-01-03 WFNQ-FM C 93.3 MHz 12-01-03 Columbia, SC WCOS-FM C1 97.5 MHz 12-01-03 WHKZ-FM A 96.7 MHz 12-01-03 WVOC-AM B 560 kHz 12-01-03 WSCQ-FM A 100.1 MHz 12-01-03 WCOS-AM C 1400 kHz 12-01-03 WNOK-FM C 104.7 MHz 12-01-03 Huntsville, AL WDRM-FM C1 102.1 MHz 04-01-04 WHOS-AM D 800 kHz 04-01-04 WBHP-AM C 1230 kHz 04-01-04 Jackson, MS WJMI-FM C 99.7 MHz 06-01-04 WOAD-AM C 1300 kHz 06-01-04 WKXI-AM B 1400 kHz 06-01-04 WKXI-FM C1 107.5 MHz 06-01-04 Shreveport, LA KRMD-FM C 101.1 MHz 06-01-04 KRMD-AM C 1340 kHz 06-01-04 Montgomery, AL WZHT-FM C 105.7 MHz 04-01-04 WMCZ-FM A 97.1 MHz 04-01-04 WDHT-FM C1 104.3 MHz * EXPIRATION FCC DATE OF MARKET(1) STATION(2) CLASS FREQUENCY LICENSE - --------- ---------- ----- --------- ------- Asheville, NC WWNC-AM B 570 kHz 12-01-03 WKSF-FM C 99.9 MHz 12-01-03 Tuscaloosa, AL WACT-AM D 1420 kHz 04-01-04 WACT-FM A 105.5 MHz 04-01-04 WTXT-FM C1 98.1 MHz 04-01-04 Wheeling, WV WWVA-AM A 1170 kHz 10-01-03 WOVK-FM B 98.7 MHz 10-01-03 WKWK-FM B 97.3 MHz 10-01-03 WBBD-AM D 1400 kHz 10-01-03 WRIR-FM B1 105.5 MHz 10-01-03 WEGW-FM B 107.5 MHz 10-01-03 WEEL-FM(3) A 95.7 MHz 10-01-04
A-2 213
EXPIRATION FCC DATE OF MARKET(1) STATION(2) CLASS FREQUENCY LICENSE - --------- ---------- ----- --------- ------- Winchester, VA WUSQ-FM B 102.5 MHz 10-01-03 WFQX-FM A 99.3 MHz 10-01-03 WNTW-AM B 610 kHz 10-01-03 Jackson, TN WTJS-AM B 1390 kHz 08-01-04 WTNV-FM C1 104.1 MHz 08-01-04 WYNU-FM C 92.3 MHz 08-01-04 Roanoke, VA WROV-AM C 1240 kHz 10-01-03 WROV-FM C1 96.3 MHz 10-01-03 WRDJ-FM C3 104.9 MHz * WJJS-FM A 106.1 MHz 10-01-03 WJLM-FM A 93.5 MHz 10-01-03 Lynchburg, VA WLDJ-FM B 102.7 MHz 10-01-03 WJJX-FM A 101.7 MHz 10-01-03 WJJS-AM B 1320 kHz 10-01-03 WYYD-FM C1 107.9 MHz 10-01-03 Statesville, NC WFMX-FM C 105.7 MHz 12-01-03 WSIC-AM C 1400 kHz 12-01-03 Gadsden, AL WAAX-AM B 570 kHz 04-01-04 WQEN-FM C 103.7 MHz 04-01-04 WEST REGION Stockton, CA KVFX-FM(3) A 96.7 MHz 12-01-97 KJAX-AM(3) B 1280 kHz 12-01-97 Des Moines, IA KHKI-FM(3) C1 97.3 MHz 02-01-05 KGGO-FM(3) C 94.9 MHz 02-01-05 KDMI-AM(3) B 1460 kHz 02-01-05 Madison, WI WIBA-AM B 1310 kHz 12-01-04 WIBA-FM B 101.5 MHz 12-01-04 WMAD-FM A 92.1 MHz 12-01-04 WTSO-AM B 1070 kHz 12-01-04 WZEE-FM B 104.1 MHz 12-01-04 WMLI-FM B1 96.3 MHz 12-01-04 Modesto, CA KJSN-FM(3) A 102.3 MHz 12-01-97 KFIV-AM(3) B 1360 kHz 12-01-97 Anchorage, AK KBFX-FM(3) C3 100.5 MHz 02-01-98 KENI-AM(3) B 550 kHz 02-01-98 KYAK-AM A 650 kHz 02-01-98 KGOT-FM C2 101.3 MHz 02-01-98 KYMG-FM C1 98.9 MHz 02-01-98 KASH-FM(3) C1 107.5 MHz 02-01-98 Fairbanks, AK KIAK-FM C 102.5 MHz 02-01-98 KIAK-AM B 970 kHz 02-01-98 KAKQ-FM C2 101.1 MHz 02-01-98 Yuma, AZ KYJT-FM A 100.9 MHz 10-01-97 KTTI-FM C 95.1 MHz 10-01-97 KBLU-AM B 560 kHz 10-01-97
- ------------ * Not licensed -- Construction Permit only. A-3 214 (1) Actual city of license may be different from metropolitan market served. Market may be different from market definition used under FCC multiple ownership rules. (2) The table does not include (i) station WING-FM in Dayton, Ohio, which is owned by the Company and for which an unrelated third party, who has an option to purchase such station, currently provides certain sales, programming and marketing services pursuant to an LMA, (ii) station WDRR-FM in Ft. Myers, Florida, in which the Company owns a 50% nonvoting interest and which the Company intends to sell or (iii) station KASH-AM in Anchorage, Alaska, which the Company will own upon consummation of the Community Pacific Acquisition, but expects to sell subsequent thereto to remain in compliance with the station ownership limitations under the Communications Act. See "Acquisitions." (3) The Company provides certain sales and marketing services to stations WKAP-AM in Allentown, Pennsylvania, WPAW-FM in Ft. Pierce-Stuart-Vero Beach, Florida and WEEL-FM in Wheeling, West Virginia, pursuant to JSAs. The Company provides certain sales, programming and marketing services to station WHRD-AM in Huntington, West Virginia, and pending consummation of the Community Pacific Acquisition, to stations KFIV-AM and KJSN-FM in Modesto, California, KVFX-FM and KJAX-FM in Stockton, California, KASH- FM, KENI-AM and KBFX-FM in Anchorage, Alaska, and KDMI-AM, KHKI-FM and KGGO-FM in Des Moines, Iowa, pursuant to LMAs. A-4 215 ================================================================================ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE. --------- TABLE OF CONTENTS
Page ---- Prospectus Summary ............................................... 3 Summary Historical Financial Data ................................ 10 Summary Pro Forma Financial Data ................................. 11 Risk Factors ..................................................... 12 Use of Proceeds .................................................. 19 Dividend Policy .................................................. 19 Dilution ......................................................... 20 Capitalization ................................................... 21 Pro Forma Financial Information .................................. 23 Selected Historical Financial Data ............................... 38 Management's Discussion and Analysis of Financial Condition and Results of Operations ................................................. 39 Business ......................................................... 45 The Pending Acquisitions ......................................... 65 Management ....................................................... 68 Security Ownership of Certain Beneficial Owners ............................................. 79 Certain Transactions ............................................. 80 Description of Capital Stock ..................................... 83 Shares Eligible for Future Sale .................................. 86 Description of Indebtedness ...................................... 88 Underwriting ..................................................... 93 Notice to Canadian Residents ..................................... 95 Legal Matters .................................................... 96 Experts .......................................................... 96 Available Information ............................................ 97 Glossary of Certain Terms and Market and Industry Data ................................................. 97 Index to Financial Statements .................................... F-1 Annex A -- Table of Additional Station Information ................................................... A-1
LOGO CAPSTAR BROADCASTING PARTNERS, INC. SHARES CLASS A COMMON STOCK ($.01 par value) PROSPECTUS CREDIT SUISSE FIRST BOSTON ALEX. BROWN & SONS INCORPORATED BT SECURITIES CORPORATION DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION UNTIL ____, 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ================================================================================ 216 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The estimated expenses payable by Capstar Broadcasting Partners, Inc. (the "Registrant" or the "Company") in connection with the registration of the securities offered hereby, other than underwriting discounts and commissions, are as follows: SEC Registration fee ....................................... $ 30,303 NASD filing fee ............................................ 10,500 Exchange/trading system application fee .................... * Accounting fees and expenses ............................... * Legal fees and expenses .................................... * Blue Sky fees and expenses (including fees of counsel) ..... * Transfer agent and registrar fees .......................... * Printing and engraving expenses ............................ * Miscellaneous .............................................. * -------- Total ............................................. $ * ========
- ---------------- * To be supplied by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Registrant's Restated Certificate of Incorporation (the "Certificate of Incorporation") provides that no director of the Registrant will be personally liable to the Registrant or any of its stockholders for monetary damages arising from the director's breach of fiduciary duty as a director. However, this does not apply with respect to any action in which the director would be liable under Section 174 of Title 8 of the General Corporation Law of Delaware nor does it apply with respect to any liability in which the director (i) breached his duty of loyalty to the Registrant; (ii) did not act in good faith or, in failing to act, did not act in good faith; (iii) acted in a manner involving intentional misconduct or a knowing violation of law or, in failing to act, shall have acted in a manner involving intentional misconduct or a knowing violation of law; or (iv) derived an improper personal benefit. The Certificate of Incorporation and By-laws provide that the Registrant will indemnify its officers and directors and former officers and directors against any expenses, judgments or settlement payments sustained or paid by such persons as a result of having acted as an officer or director of the Registrant, or, at the request of the Registrant, as an officer, director, agent or employee of another business entity. The Certificate of Incorporation and By-laws further provide that the Registrant may, by action of its Board of Directors, provide indemnification to employees and agents of the Registrant, individually or as a group, with the same scope and effect as the indemnification of directors and officers. The Registrant has entered into indemnification agreements with each of its directors and executive officers under which the Registrant has agreed to indemnify the director or officer to the fullest extent permitted by law and to advance expenses, if the director or officer becomes a party to or witness or other participant in any threatened, pending or completed action, suit or proceeding (a "Claim") by reason of any occurrence related to the fact that the person is or was a director, officer, employee, agent or fiduciary of the Registrant or a subsidiary of the Registrant or another entity at the Registrant's request (an "Indemnifiable Event"), unless a reviewing party (either outside counsel or a committee appointed by the Board of Directors) determines that the person would not be entitled to indemnification under applicable law. In addition, if a change in control or a potential change in control of the Registrant occurs and if the person indemnified so requests, the Registrant will establish a trust for the benefit of the indemnitee and fund the trust in an amount sufficient to satisfy all expenses reasonably anticipated at the time of the request to be incurred in connection with any Claim relating to an Indemnifiable Event. The reviewing party will determine the amount deposited II-1 217 in the trust. An indemnitee's rights under the indemnification agreement are not exclusive of any other rights under the Registrant's Restated Certificate of Incorporation or By-laws or applicable law. Under Section 145 of the General Corporation Law of Delaware, every Delaware corporation has the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of any corporation, partnership, joint venture, trust or other enterprise, against any and all expenses, judgments, fines and amounts paid in settlement and reasonably incurred in connection with such action, suit or proceeding. The power to indemnify applies only if the person acted in good faith and in a manner the person reasonably believed to be in the best interest, or not opposed to the best interest, of the corporation and with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful. The power to indemnify applies to actions brought by or in the right of the corporation as well, but only to the extent of defense and settlement expenses and not to any satisfaction of a judgment or settlement of the claim itself, and with the further limitation that in such actions no indemnification may be made in the event of any adjudication of negligence or misconduct unless the court, in its discretion, believes that in light of all the circumstances indemnification should apply. To the extent any person referred to in the two immediately preceding paragraphs is successful in the defense of the actions referred to therein, that person is entitled to indemnification under Section 145 of the General Corporation Law of Delaware as previously described. The form of Underwriting Agreement included as Exhibit 1 provides for indemnification of the Registrant and certain controlling persons under certain circumstances, including indemnification for liabilities under the Securities Act of 1933 (the "Securities Act"). ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES The following information relates to all securities issued or sold by the Registrant since inception and not registered under the Securities Act. Unless otherwise specified, each of the transactions described below was conducted in reliance upon the exemption from registration provided in Section 4(2) of the Securities Act and the rules and regulations promulgated thereunder. Furthermore, each of the certificates representing the Registrant's securities issued in connection with such transactions contains a restrictive legend, as appropriate, requiring each person acquiring such securities from the Registrant to furnish investment representations to the Registrant and stating that no underwriters participated in such transactions. In addition, the transactions described below give effect to the reclassification of the Registrant's common stock, par value $.01 per share, as Class A Common Stock, par value $.01 per share (the "Class A Common Stock"). On October 16, 1996, the Registrant sold 90,000,000 shares of Class A Common Stock to Capstar Broadcasting Partners, L.P. and 3,000,000 shares of Class A Common Stock to R. Steven Hicks for an aggregate purchase price of $93,000,000. On November 26, 1996, in reliance upon the exemption from registration provided in Section 3(b) of the Securities Act and Rule 701 promulgated thereunder, the Registrant granted stock purchase rights to purchase an aggregate of 1,155,000 shares of Class A Common Stock to key employees, which stock purchase rights were subsequently exercised in full for an aggregate purchase price of $1,155,000, at which time all 1,155,000 shares of Class A Common Stock were issued to the holders of the stock purchase rights. On January 27, 1997, the Registrant sold (i) 100,000 shares of Class A Common Stock to R. Steven Hicks for an aggregate purchase price of $100,000 and (ii) 500,000 shares of Class A Common Stock to William S. Banowsky, Jr. for an aggregate purchase price of $500,000. II-2 218 On February 20, 1997, the Registrant sold (i) 31,634,527 shares of Class A Common Stock to Capstar Broadcasting Partners, L.P. for an aggregate purchase price of $34,797,980, (ii) 363,636 shares of Class A Common Stock to Claude C. Turner for an aggregate purchase price of $400,000, (iii) 363,636 shares of Class A Common Stock to David J. Benjamin, III for an aggregate purchase price of $400,000, (iv) in connection with the Registrant's acquisition of Osborn Communications Corporation, 1,636,361 shares of Class A Common Stock to Frank D. Osborn in exchange for shares of common stock of Osborn Communications Corporation held of record by Mr. Osborn having a deemed value of $1,800,000 and (v) 18,181,818 shares of Class B Common Stock, par value $.01 per share, to Capstar BT Partners, L.P. for an aggregate purchase price of $20,000,000. On April 10, 1997, the Registrant sold 2,727,272 shares of Class A Common Stock to Capstar Boston Partners, L.L.C. for an aggregate purchase price of $3,000,000. On ____ 1997, the Registrant sold 1,538,461 shares of Class A Common Stock to Joseph L. Mathias, IV in connection with the Registrant's acquisition of Benchmark Communications Radio Limited Partnership, L.P. and certain of its subsidiary partnerships (collectively, "Benchmark") in exchange for part of Mr. Mathias's ownership interest in Benchmark having a deemed value of $2,000,000. Also in connection with the Registrant's acquisition of Benchmark, the Registrant sold 750,000 shares of Class A Common Stock to HM Fund III for consideration having a deemed value of $750,000 in the aggregate. Since inception, the Registrant has granted options to purchase an aggregate of 7,864,830 shares of Class A Common Stock to officers and key employees, of which options to purchase 795,880 shares of Class A Common Stock have terminated. None of the remaining options are currently exercisable. These transactions did not involve a public offering. Since inception, the Registrant has issued warrants to purchase an aggregate of 11,853,182 shares of Class A Common Stock to R. Steven Hicks, of which 9,482,546 shares of Class A Common Stock are currently purchasable under the terms of the warrants. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits 1.1 Form of Underwriting Agreement.+ 2.1.1 Agreement and Plan of Merger, dated June 21, 1996, by and among CMI Acquisition Company, Inc., Commodore Media, Inc. ("Commodore") and the stockholders and other signatories thereto. (1) 2.1.2 First Amendment to Agreement and Plan of Merger, dated as of September 3, 1996. (2) 2.1.3 Second Amendment to Agreement and Plan of Merger, dated as of October 16, 1996. (2) 3.1 Certificate of Incorporation of the Company.+ 3.2 By-Laws of the Company.+ 4.1 Form of Stock Certificate of Class A Common Stock, par value $0.01 per share, of the Company.+ 4.2 Indenture, dated February 20, 1997, between the Company and U.S. Trust Company of Texas, N.A, governing the Company's outstanding 12 3/4% Senior Discount Notes due 2009.* 4.3.1 Indenture, dated as of April 21, 1995, among Commodore, IBJ Schroder Bank & Trust Company, as Trustee, and the Guarantors named therein, governing Commodore's Senior Subordinated Notes (the "Commodore Indenture"). (3) 4.3.2 Amendment No. 1 to Commodore Indenture. (3) II-3 219 4.3.3 Amendment No. 2 to Commodore Indenture. (4) 4.3.4 Amendment No. 3 to Commodore Indenture. (4) 4.3.5 Amendment No. 4 to Commodore Indenture. (5) 4.3.6 Amendment No. 5 to Commodore Indenture. (6) 4.3.7 Amendment No. 6 to Commodore Indenture.* 5.1 Opinion of Vinson & Elkins L.L.P.+ 10.1.1 Agreement and Plan of Merger, dated as of December 9, 1996, by and among Benchmark Communications Radio Limited Partnership, Benchmark Acquisition, Inc., Benchmark Radio Acquisition Fund I Limited Partnership, Benchmark Radio Acquisition Fund IV Limited Partnership, Benchmark Radio Acquisition Fund VII Limited Partnership, Benchmark Radio Acquisition Fund VIII Limited Partnership, Joe L. Mathis IV, Bruce R. Spector, the Company and BCR Holding, Inc. ("Benchmark Merger Agreement").+ 10.1.2 Letter Agreement amending Benchmark Merger Agreement, dated January 9, 1997, by and among Benchmark Communications Radio Limited Partnership, Benchmark Acquisition, Inc. and the other signatories listed therein.+ 10.1.3 Letter Agreement amending Benchmark Merger Agreement, dated January 31, 1997, by and among Benchmark Communications Radio Limited Partnership, Benchmark Acquisition, Inc., BCR Holding, Inc., the Company, and the other signatories listed therein.+ 10.1.4 Letter Agreement amending Benchmark Merger Agreement, dated April [__], 1997, by and among Benchmark Communications Radio Limited Partnership, Benchmark Acquisition, Inc., BCR Holding, Inc., and the Company.+ 10.2 Asset Purchase Agreement, dated as of January 27, 1997, by and among Point Communications Limited Partnership, Midcontinent Broadcasting Co. of Wisconsin, Inc., Madison Radio Group and Point Madison Acquisition Company, Inc.+ 10.3 Asset Purchase Agreement, dated as of December 26, 1996, between Community Pacific Broadcasting Company L.P. and Community Acquisition Company, Inc.+ 10.4 Registration Rights Agreement, dated February 20, 1997, between the Company and BT Securities Corporation.* 10.5 Credit Agreement, dated February 20, 1997, among Commodore, as borrower, the Company, as guarantor, various banks, and Bankers Trust Company, as administrative agent.(7) 10.6 New Credit Facility.+ 10.7 Financial Advisory Agreement, dated as of October 16, 1996, between the Company and Hicks, Muse & Co. Partners, L.P. ("HMCo").* 10.8 Monitoring and Oversight Agreement, dated as of October 16, 1996, between the Company and HMCo.* 10.9 Form of Indemnification Agreement between the Company and each of its directors and officers.+ 10.10 Employment Agreement, dated February 14, 1997, between the Company and R. Steven Hicks.* 10.11 Employment Agreement, dated [______], 1997, between the Company and Paul D. Stone.+ II-4 220 10.12 Employment Agreement, dated [_______], 1997, between the Company and William S. Banowsky, Jr.+ 10.13 Amended and Restated Employment Agreement, dated October 16, 1996, between Commodore, the Company and James T. Shea, Jr.* 10.14 Employment Agreement, dated January 27, 1997, between Pacific Star Communications, Inc. and Claude C. Turner (also known as Dex Allen).* 10.15.1 Employment Agreement dated July 1, 1994, between Osborn Communications Corporation ("Osborn") and Frank D. Osborn. (8) 10.15.2 Amendment No. 1, dated July 1, 1996, to the employment agreement dated July 1, 1994 between Osborn and Frank D. Osborn. (9) 10.15.3 Amendment No. 2, dated July 23, 1996, to the employment agreement dated July 1, 1994 between Osborn and Frank D. Osborn. (9) 10.16 Employment Agreement, dated February 20, 1997, between Osborn and Frank D. Osborn.(6) 10.17 Form of Employment Agreement to be entered into between Pacific Star Communications, Inc. and David T. Benjamin, III.+ 10.18.1 1996 Stock Option Plan of the Company, dated October 16, 1996.* 10.18.2 First Amendment to the Capstar Broadcasting Partners, Inc. 1996 Stock Option Plan, dated February 13, 1997.* 10.19.1 Form of Incentive Stock Option Agreement.+ 10.19.2 Form of Non-Qualified Stock Option Agreement.+ 10.20.1 1996 Stock Purchase Plan of the Company, dated November 26, 1996.* 10.20.2 First Amendment to the Company's 1996 Stock Purchase Plan, dated January 27, 1997.* 10.21.1 Stockholders Agreement, dated October 16, 1996, among the Registrant, Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse"), R. Steven Hicks and the security holders listed therein.* 10.21.2 First Amendment and Supplement to Stockholders Agreement, dated January 27, 1997, by and among the Company, the securityholders listed therein and Hicks Muse.* 10.22.1 Stockholders Agreement, dated November 26, 1996, among the Company, the securityholders listed therein and Hicks Muse.* 10.22.2 First Amendment to Stockholders Agreement, dated January 27, 1997, by and among the Company and the securityholders listed therein.* 10.23.1 Stock Pledge, Security Agreement and Power of Attorney, dated February 20, 1997, executed by Claude C. Turner in favor of the Company.* 10.23.2 9% Promissory Note, dated February 20, 1997, executed by Claude C. Turner in favor of the Company in the principal sum of $200,000.* 10.24.1 9% Promissory Note, dated February 20, 1997, executed by David J. Benjamin, III in favor of the Company in the principal sum of $396,363.64.* 10.24.2 Stock Pledge, Security Agreement and Power of Attorney, dated February 20, 1997, executed by David J. Benjamin, III in favor of the Company.* 10.25 Mandatory Buyback Agreement, dated February 20, 1997, between David J. Benjamin, III and the Company* II-5 221 10.26 Registration Rights Agreement, dated February 20, 1997, between the Registrant and Frank D. Osborn.* 10.27 Warrant, dated October 16, 1996, issued to R. Steven Hicks.* 10.28 Warrant, dated February 20, 1997, issued to R. Steven Hicks.* 11.1 Statement Re: Computation of Per Share Earnings.* 11.2 Statement Re: Computation of Pro Forma Per Share Earnings for Recapitalization.* 11.3 Statement Re: Computation of Pro Forma Per Share Earnings.+ 21.1 List of Subsidiaries.* 23.1 Consent of Vinson & Elkins L.L.P. (included in their opinion filed as Exhibit 5 hereto).+ 23.2 Consent of Coopers & Lybrand L.L.P. - Capstar Broadcasting Partners, Inc.* 23.3 Consent of Ernst & Young LLP. * 23.4 Consent of Coopers & Lybrand L.L.P. - Benchmark Communications Radio Limited Partnership* 23.5 Consent of Coopers & Lybrand L.L.P. - Midcontinent Broadcasting Co.* 23.6 Consent of Coopers & Lybrand L.L.P. - Point Communications Limited Partnership* 23.7 Consent of Coopers & Lybrand L.L.P. - Community Pacific Broadcasing Company L.P.* 23.8 Consent of Holtz Rubenstein & Co., LLP.* 23.9 Consent of Paneth, Haber & Zimmerman, LLP.* 23.10 Consent of Brown, Edward & Co., LLP.* 24.1 Powers of Attorney (included on the signature page of this Registration Statement).* 27.1 Financial Data Schedule.* - -------------------------- + To be filed by amendment. * Filed herewith. (1) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, File No. 33-92732. (2) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, File No. 33-92732. (3) Incorporated by reference to Commodore's Registration Statement on Form S-4 (File No. 33-92732), dated July 26, 1995. (4) Incorporated by reference to Commodore's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-92732. (5) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, File No. 33-92732. (6) Incorporated by reference to Commodore's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 33-92732. (7) Incorporated by reference to Commodore's Current Report on Form 8-K dated February 20, 1997, File No. 33-92732. (8) Incorporated by reference to Osborn's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, File No. 0-16841. II-6 222 (9) Incorporated by reference to Osborn's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, File No. 0- 16841. (b) Financial Statement Schedules: The following financial statement schedules are included in this Registration Statement: Reports of Independent Accountants I -- Condensed Financial Information of Registrant II -- Valuation and Qualifying Accounts ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-7 223 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Company has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Austin, State of Texas, on the 14th day of April, 1997. CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ R. Steven Hicks ---------------------------------- R. Steven Hicks, Chairman of the Board KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors and officers of Capstar Broadcasting Partners, Inc., a Delaware corporation, which is filing a Registration Statement on Form S-1 with the Securities and Exchange Commission, Washington, D.C. 20549 under the provisions of the Securities Act of 1933 (the "Securities Act") hereby constitute and appoint R. Steven Hicks and William S. Banowsky, Jr., and each of them, the individual's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the person and in his or her name, place and stead, in any and all capacities, to sign such Registration Statement and any or all amendments, including post-effective amendments, to the Registration Statement, including a Prospectus or an amended Prospectus therein and any registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act, and all other documents in connection therewith to be filed with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact as agents or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ R. Steven Hicks Chairman of the Board, President and April 14, 1997 - ---------------------------- Chief Executive Officer (Principal R. Steven Hicks Executive Officer) /s/ Paul D. Stone Executive Vice President and Chief April 14, 1997 - ---------------------------- Financial Officer (Principal Financial and Paul D. Stone Accounting Officer) /s/ Eric C. Neuman Executive Vice President and Director April 14, 1997 - ---------------------------- Eric C. Neuman /s/ Thomas O. Hicks Director April 14, 1997 - ---------------------------- Thomas O. Hicks /s/ Lawrence D. Stuart, Jr. Director April 14, 1997 - ----------------------------- Lawrence D. Stuart, Jr.
224 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Capstar Broadcasting Partners, Inc. In connection with our audit of the consolidated financial statements of Capstar Broadcasting Partners, Inc. and Subsidiaries as of December 31, 1996 and for the period from October 11, 1996 ("inception") to December 31, 1996, which financial statements are included in the Prospectus, we have also audited the financial statement schedules of Capstar Broadcasting Partners, Inc. and Subsidiaries listed in Item 16(b) herein. In our opinion, this financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ COOPERS & LYBRAND Austin, Texas February 14, 1997 225 REPORT OF INDEPENDENT AUDITORS Board of Directors Capstar Broadcasting Partners, Inc. We have audited the consolidated balance sheet of Commodore Media, Inc. and Subsidiaries, the Predecessor Company of Capstar Broadcasting Partners, Inc., as of December 31, 1995, and for the period from January 1, 1996 to October 16, 1996 and for the years ended December 31, 1995 and 1994, and have issued our report thereon dated February 10, 1997 (included elsewhere in this Registration Statement). Our audits also included the financial statement schedule listed in Item 16(b) of this Registration Statement. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP February 10, 1997 New York, New York 226 CAPSTAR BROADCASTING PARTNERS, INC. PARENT COMPANY CONDENSED BALANCE SHEET
ASSETS December 31, 1996 ------------ Current assets: Cash and short-term investments $ 660,167 Accounts receivable 425 ------------ Total current assets 660,592 Property, plant and equipment 1,365,306 FCC licenses and goodwill, net of accumulated amortization 139,498,885 Deferred charges 1,800,234 Deposits and other assets 178,000 Investment in subsidiary (4,830,124) ------------ Total assets $138,672,893 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 786,817 Accrued interest 850,208 Due to affiliate 536,738 ------------ Total current liabilities 2,173,763 Long-term debt 45,025,003 Deferred income taxes 331,580 ------------ Total liabilities 47,530,346 ------------ Stockholders' equity: Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued and outstanding -- Class A common stock, $.01 par value, 200,000,000 shares authorized, 94,155,000 shares issued and outstanding 941,550 Additional paid-in capital 93,957,450 Accumulated deficit (3,756,453) ------------ Total stockholders' equity 91,142,547 ------------ Total liabilities and stockholders' equity $138,672,893 ============
See accompanying notes. S-2 227 CAPSTAR BROADCASTING PARTNERS, INC. PARENT COMPANY CONDENSED STATEMENT OF OPERATIONS
Period ended December 31, 1996 ------------ Corporate expenses $ 223,227 Interest expense 2,421,380 Depreciation and amortization 296,332 Equity in losses of subsidiary 71,514 Other expense 744,000 ----------- Net loss $(3,756,453) =========== Net loss per share $ (0.04) =========== Weighted average number of shares outstanding 93,691,842 ===========
See accompanying notes. S-3 228 CAPSTAR BROADCASTING PARTNERS, INC. PARENT COMPANY CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
CLASS A ADDITIONAL COMMON PAID-IN ACCUMULATED STOCK CAPITAL DEFICIT TOTAL -------- ----------- ----------- ----------- Balance at inception (October 11, 1996).................... $ - $ - $ - $ - Issuance of common stock in connection with Commodore Acquisition.................. 932,750 92,342,250 - 93,275,000 Issuance of warrants........... - 744,000 - 744,000 Issuance of common stock....... 8,800 871,200 - 880,000 Net loss for the period........ - - (3,756,453) (3,756,453) -------- ----------- ----------- ----------- Balance at December 31, 1996... $941,550 $93,957,450 ($3,756,453) $91,142,547 ======== =========== =========== ===========
See accompanying notes. S-4 229 CAPSTAR BROADCASTING PARTNERS, INC. PARENT COMPANY CONDENSED STATEMENT OF CASH FLOWS
Period ended December 31, 1996 ------------- Cash flows from operating activities: Net loss: $ (3,756,453) ------------- Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 296,332 Noncash compensation 744,000 Noncash interest 1,571,072 Equity in losses of subsidiary 71,514 Changes in assets and liabilities: Increase in accounts receivable (425) Increase in accounts payable and accrued expenses 786,817 Increase in accrued interest 850,208 Increase in due to affiliate 536,738 ------------- Total adjustments 4,856,256 ------------- Net cash provided by operating activities 1,099,803 Cash flows from investing activities: Purchase of property, plant and equipment (356,205) Acquisition of Commodore (125,569,125) Deferred acquisition costs incurred (785,431) Deposits on pending acquisitions and other (178,000) ------------- Net cash used in investing activities (126,888,761) Cash flows from financing activities: Proceeds from issuance of common stock 94,155,000 Proceeds from issuance of long-term debt 35,000,000 Payment of financing related costs (2,705,875) ------------- Net cash provided by financing activities 126,449,125 ------------- Net increase in cash and short-term cash investments 660,167 Cash and short-term cash investments at beginning of the period -- ------------- Cash and short-term cash investments at end of the period $ 660,167 =============
See accompany notes. S-5 230 CAPSTAR BROADCASTING PARTNERS, INC. NOTES TO PARENT COMPANY CONDENSED FINANCIAL STATEMENTS 1. General The accompanying condensed financial statements of Capstar Broadcasting Partners, Inc. (the "Company") should be read in conjunction with the consolidated financial statements of Capstar Broadcasting Partners, Inc. and Subsidiaries and its Predecessors included elsewhere in this prospectus and have been prepared using the equity method of accounting for an investment in subsidiary. 2. Other See notes 5, 6, 7, 11, 12, and 15 to the consolidated financial statements of Capstar Broadcasting Partners, Inc. and Subsidiaries and its Predecessor for a description of capital stock, long-term obligations, guarantees, and contingencies of the Company. The ability of the Company's subsidiaries to transfer funds to the Company in the form of cash dividends is restricted pursuant to the terms of certain debt agreements entered into by the Company's subsidiary, Commodore Media, Inc. S-6 231 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Additions ----------------------------- Balance Charged to Deductions Balance at Beginning Costs and Charged to Direct at End Description of Period Expenses(1) Other Accounts(2) Write-offs of Period ----------- ----------- ----------- ----------------- ---------- --------- PREDECESSOR: Allowance for doubtful accounts 12/31/94.... 453,782 468,155 -- (389,706) 532,231 Allowance for doubtful accounts 12/31/95.... 532,231 556,137 -- (388,032) 700,336 Allowance for doubtful accounts 10/16/96.... 700,336 488,320 -- (326,379) 862,277 CAPSTAR: Allowance for doubtful accounts 12/31/96.... 862,277 104,838 -- (129,034) 838,081
232 INDEX TO EXHIBITS (a) . . . . . . . Exhibits 1.1 Form of Underwriting Agreement.+ 2.1.1 Agreement and Plan of Merger, dated June 21, 1996, by and among CMI Acquisition Company, Inc., Commodore Media, Inc. ("Commodore") and the stockholders and other signatories thereto.(1) 2.1.2 First Amendment to Agreement and Plan of Merger, dated as of September 3, 1996.(2) 2.1.3 Second Amendment to Agreement and Plan of Merger, dated as of October 16, 1996.(2) 3.1 Certificate of Incorporation of the Company.+ 3.2 By-Laws of the Company.+ 4.1 Form of Stock Certificate of Class A Common Stock, par value $0.01 per share, of the Company.+ 4.2 Indenture, dated February 20, 1997, between the Company and U.S. Trust Company of Texas, N.A, governing the Company's outstanding 12 3/4% Senior Discount Notes due 2009.* 4.3.1 Indenture, dated as of April 21, 1995, among Commodore, IBJ Schroder Bank & Trust Company, as Trustee, and the Guarantors named therein, governing Commodore's Senior Subordinated Notes (the "Commodore Indenture").(3) 4.3.2 Amendment No. 1 to Commodore Indenture.(3) 4.3.3 Amendment No. 2 to Commodore Indenture.(4) 4.3.4 Amendment No. 3 to Commodore Indenture.(4) 4.3.5 Amendment No. 4 to Commodore Indenture.(5) 4.3.6 Amendment No. 5 to Commodore Indenture.(6) 4.3.7 Amendment No. 6 to Commodore Indenture.* 5.1 Opinion of Vinson & Elkins L.L.P.+ 10.1.1 Agreement and Plan of Merger, dated as of December 9, 1996, by and among Benchmark Communications Radio Limited Partnership, Benchmark Acquisition, Inc., Benchmark Radio Acquisition Fund I Limited Partnership, Benchmark Radio Acquisition Fund IV Limited Partnership, Benchmark Radio Acquisition Fund VII Limited Partnership, Benchmark Radio Acquisition Fund VIII Limited Partnership, Joe L. Mathis IV, Bruce R. Spector, the Company and BCR Holding, Inc. ("Benchmark Merger Agreement").+ 10.1.2 Letter Agreement amending Benchmark Merger Agreement, dated January 9, 1997, by and among Benchmark Communications Radio Limited Partnership, Benchmark Acquisition, Inc. and the other signatories listed therein.+ 10.1.3 Letter Agreement amending Benchmark Merger Agreement, dated January 31, 1997, by and among Benchmark Communications Radio Limited Partnership, Benchmark Acquisition, Inc., BCR Holding, Inc., the Company, and the other signatories listed therein.+ 10.1.4 Letter Agreement amending Benchmark Merger Agreement, dated April [__], 1997, by and among Benchmark Communications Radio Limited Partnership, Benchmark Acquisition, Inc., BCR Holding, Inc., and the Company.+ 233 10.2 Asset Purchase Agreement, dated as of January 27, 1997, by and among Point Communications Limited Partnership, Midcontinent Broadcasting Co. of Wisconsin, Inc., Madison Radio Group and Point Madison Acquisition Company, Inc.+ 10.3 Asset Purchase Agreement, dated as of December 26, 1996, between Community Pacific Broadcasting Company L.P. and Community Acquisition Company, Inc.+ 10.4 Registration Rights Agreement, dated February 20, 1997, between the Company and BT Securities Corporation.* 10.5 Credit Agreement, dated February 20, 1997, among Commodore, as borrower, the Company, as guarantor, various banks, and Bankers Trust Company, as administrative agent.(7) 10.6 New Credit Facility.+ 10.7 Financial Advisory Agreement, dated as of October 16, 1996, between the Company and Hicks, Muse & Co. Partners, L.P. ("HMCo").* 10.8 Monitoring and Oversight Agreement, dated as of October 16, 1996, between the Company and HMCo.* 10.9 Form of Indemnification Agreement between the Company and each of its directors and officers.+ 10.10 Employment Agreement, dated February 14, 1997, between the Company and R. Steven Hicks.* 10.11 Employment Agreement, dated [______], 1997, between the Company and Paul D. Stone.+ 10.12 Employment Agreement, dated [_______], 1997, between the Company and William S. Banowsky, Jr.+ 10.13 Amended and Restated Employment Agreement, dated October 16, 1996, between Commodore, the Company and James T. Shea, Jr.* 10.14 Employment Agreement, dated January 27, 1997, between Pacific Star Communications, Inc. and Claude C. Turner (also known as Dex Allen).* 10.15.1 Employment Agreement dated July 1, 1994, between Osborn Communications Corporation ("Osborn") and Frank D. Osborn.(8) 10.15.2 Amendment No. 1, dated July 1, 1996, to the employment agreement dated July 1, 1994 between Osborn and Frank D. Osborn.(9) 10.15.3 Amendment No. 2, dated July 23, 1996, to the employment agreement dated July 1, 1994 between Osborn and Frank D. Osborn.(9) 10.16 Employment Agreement, dated February 20, 1997, between Osborn and Frank D. Osborn.(6) 10.17 Form of Employment Agreement to be entered into between Pacific Star Communications, Inc. and David T. Benjamin, III.+ 10.18.1 1996 Stock Option Plan of the Company, dated October 16, 1996.* 10.18.2 First Amendment to the Capstar Broadcasting Partners, Inc. 1996 Stock Option Plan, dated February 13, 1997.* 10.19.1 Form of Incentive Stock Option Agreement.+ 10.19.2 Form of Non-Qualified Stock Option Agreement.+ 10.20.1 1996 Stock Purchase Plan of the Company, dated November 26, 1996.* 234 10.20.2 First Amendment to the Company's 1996 Stock Purchase Plan, dated January 27, 1997.* 10.21.1 Stockholders Agreement, dated October 16, 1996, among the Registrant, Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse"), R. Steven Hicks and the security holders listed therein.* 10.21.2 First Amendment and Supplement to Stockholders Agreement, dated January 27, 1997, by and among the Company, the securityholders listed therein and Hicks Muse.* 10.22.1 Stockholders Agreement, dated November 26, 1996, among the Company, the securityholders listed therein and Hicks Muse.* 10.22.2 First Amendment to Stockholders Agreement, dated January 27, 1997, by and among the Company and the securityholders listed therein.* 10.23.1 Stock Pledge, Security Agreement and Power of Attorney, dated February 20, 1997, executed by Claude C. Turner in favor of the Company.* 10.23.2 9% Promissory Note, dated February 20, 1997, executed by Claude C. Turner in favor of the Company in the principal sum of $200,000.* 10.24.1 9% Promissory Note, dated February 20, 1997, executed by David J. Benjamin, III in favor of the Company in the principal sum of $396,363.64.* 10.24.2 Stock Pledge, Security Agreement and Power of Attorney, dated February 20, 1997, executed by David J. Benjamin, III in favor of the Company.* 10.25 Mandatory Buyback Agreement, dated February 20, 1997, between David J. Benjamin, III and the Company* 10.26 Registration Rights Agreement, dated February 20, 1997, between the Registrant and Frank D. Osborn.* 10.27 Warrant, dated October 16, 1996, issued to R. Steven Hicks.* 10.28 Warrant, dated February 20, 1997, issued to R. Steven Hicks.* 11.1 Statement Re: Computation of Per Share Earnings.* 11.2 Statement Re: Computation of Pro Forma Per Share Earnings for Recapitalization.* 11.3 Statement Re: Computation of Pro Forma Per Share Earnings.+ 21.1 List of Subsidiaries.* 23.1 Consent of Vinson & Elkins L.L.P. (included in their opinion filed as Exhibit 5 hereto).+ 23.2 Consent of Coopers & Lybrand L.L.P. - Capstar Broadcasting Partners, Inc.* 23.3 Consent of Ernst & Young LLP.* 23.4 Consent of Coopers & Lybrand L.L.P. - Benchmark Communications Radio Limited Partnership* 23.5 Consent of Coopers & Lybrand L.L.P. - Midcontinent Broadcasting Co.* 23.6 Consent of Coopers & Lybrand L.L.P. - Point Communications Limited Partnership* 23.7 Consent of Coopers & Lybrand L.L.P. - Community Pacific Broadcasting Company L.P.* 23.8 Consent of Holtz Rubenstein & Co., LLP.* 23.9 Consent of Paneth, Haber & Zimmerman, LLP.* 23.10 Consent of Brown, Edward & Co., LLP.* 24.1 Powers of Attorney (included on the signature page of this Registration Statement).* 235 27.1 Financial Data Schedule.* - --------------------------- + To be filed by amendment. * Filed herewith. (1) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, File No. 33-92732. (2) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, File No. 33-92732. (3) Incorporated by reference to Commodore's Registration Statement on Form S-4 (File No. 33-92732), dated July 26, 1995. (4) Incorporated by reference to Commodore's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-92732. (5) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, File No. 33-92732. (6) Incorporated by reference to Commodore's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 33-92732. (7) Incorporated by reference to Commodore's Current Report on Form 8-K dated February 20, 1997, File No. 33-92732. (8) Incorporated by reference to Osborn's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, File No. 0-16841. (9) Incorporated by reference to Osborn's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, File No. 0- 16841. EX-4.2 2 INDENTURE AGREEMENT DATED FEBRUARY 20, 1997 1 EXHIBIT 4.2 ________________________________________________________________________________ ________________________________________________________________________________ INDENTURE Dated as of February 20, 1997 Between CAPSTAR BROADCASTING PARTNERS, INC., as Issuer, and U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee ____________________ $277,000,000 12 3/4% Senior Discount Notes due 2009, Series A 12 3/4% Senior Discount Notes due 2009, Series B ________________________________________________________________________________ ________________________________________________________________________________ 2 CROSS-REFERENCE TABLE
TIA Indenture Section Section ------- --------- 310(a)(1) . . . . . . . . . . . . . . . . . . . 7.10 (a)(2) . . . . . . . . . . . . . . . . . . 7.10 (a)(3) . . . . . . . . . . . . . . . . . . N.A. (a)(4) . . . . . . . . . . . . . . . . . . N.A. (a)(5) . . . . . . . . . . . . . . . . . . 7.08; 7.10 (b) . . . . . . . . . . . . . . . . . . . . 7.08; 7.10; 10.02 (c) . . . . . . . . . . . . . . . . . . . . N.A. 311(a) . . . . . . . . . . . . . . . . . . . . 7.11 (b) . . . . . . . . . . . . . . . . . . . . 7.11 (c) . . . . . . . . . . . . . . . . . . . . N.A. 312(a) . . . . . . . . . . . . . . . . . . . . 2.05 (b) . . . . . . . . . . . . . . . . . . . . 10.03 (c) . . . . . . . . . . . . . . . . . . . . 10.03 313(a) . . . . . . . . . . . . . . . . . . . . 7.06 (b)(1) . . . . . . . . . . . . . . . . . . N.A. (b)(2) . . . . . . . . . . . . . . . . . . 7.06 (c) . . . . . . . . . . . . . . . . . . . . 7.06; 10.02 (d) . . . . . . . . . . . . . . . . . . . . 7.06 314(a) . . . . . . . . . . . . . . . . . . . . 4.07; 4.09; 10.02 (b) . . . . . . . . . . . . . . . . . . . . N.A. (c)(1) . . . . . . . . . . . . . . . . . . 10.04 (c)(2) . . . . . . . . . . . . . . . . . . 10.04 (c)(3) . . . . . . . . . . . . . . . . . . N.A. (d) . . . . . . . . . . . . . . . . . . . . N.A. (e) . . . . . . . . . . . . . . . . . . . . 10.05 (f) . . . . . . . . . . . . . . . . . . . . N.A 315(a) . . . . . . . . . . . . . . . . . . . . 7.01(b) (b) . . . . . . . . . . . . . . . . . . . . 7.05; 10.02 (c) . . . . . . . . . . . . . . . . . . . . 7.01(a) (d) . . . . . . . . . . . . . . . . . . . . 7.01(c) (e) . . . . . . . . . . . . . . . . . . . . 6.11 316(a)(last sentence) . . . . . . . . . . . . . 2.09 (a)(1)(A) . . . . . . . . . . . . . . . . . 6.05 (a)(1)(B) . . . . . . . . . . . . . . . . . 6.04 (a)(2) . . . . . . . . . . . . . . . . . . N.A.
3 (b) . . . . . . . . . . . . . . . . . . . . 6.07 317(a)(1) . . . . . . . . . . . . . . . . . . . 6.08 (a)(2) . . . . . . . . . . . . . . . . . . 6.09 (b) . . . . . . . . . . . . . . . . . . . . 2.04 318(a) . . . . . . . . . . . . . . . . . . . . 10.01 (c) . . . . . . . . . . . . . . . . . . . . 10.01
______________________ N.A. means Not Applicable NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. 4 TABLE OF CONTENTS
Page ---- ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.02 Incorporation by Reference of TIA . . . . . . . . . . . . . 17 Section 1.03 Rules of Construction . . . . . . . . . . . . . . . . . . . 17 ARTICLE TWO THE SECURITIES Section 2.01 Form and Dating . . . . . . . . . . . . . . . . . . . . . . 18 Section 2.02 Execution and Authentication . . . . . . . . . . . . . . . . 18 Section 2.03 Registrar and Paying Agent . . . . . . . . . . . . . . . . . 19 Section 2.04 Paying Agent To Hold Assets in Trust . . . . . . . . . . . . 20 Section 2.05 Securityholder Lists . . . . . . . . . . . . . . . . . . . . 20 Section 2.06 Transfer and Exchange . . . . . . . . . . . . . . . . . . . 20 Section 2.07 Replacement Securities . . . . . . . . . . . . . . . . . . . 21 Section 2.08 Outstanding Securities . . . . . . . . . . . . . . . . . . . 21 Section 2.09 Treasury Securities . . . . . . . . . . . . . . . . . . . . 22 Section 2.10 Temporary Securities . . . . . . . . . . . . . . . . . . . . 22 Section 2.11 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 2.12 Defaulted Interest . . . . . . . . . . . . . . . . . . . . . 23 Section 2.13 CUSIP Number . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 2.14 Deposit of Moneys . . . . . . . . . . . . . . . . . . . . . 23 Section 2.15 Book-Entry Provisions for Global Securities . . . . . . . . . . . . . . . . . . . . . 23 Section 2.16 Registration of Transfers and Exchanges . . . . . . . . . . . . . . . . . . . . . . 25 Section 2.17 Designation . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE THREE REDEMPTION Section 3.01 Notices to Trustee . . . . . . . . . . . . . . . . . . . . . 29
-i- 5 Section 3.02 Selection of Securities To Be Redeemed . . . . . . . . . . . . . . . . . . . . . 30 Section 3.03 Notice of Redemption . . . . . . . . . . . . . . . . . . . 30 Section 3.04 Effect of Notice of Redemption . . . . . . . . . . . . . . . 31 Section 3.05 Deposit of Redemption Price . . . . . . . . . . . . . . . . 31 Section 3.06 Securities Redeemed in Part . . . . . . . . . . . . . . . 32 ARTICLE FOUR COVENANTS Section 4.01 Payment of Securities . . . . . . . . . . . . . . . . . . . 32 Section 4.02 Maintenance of Office or Agency . . . . . . . . . . . . . . 32 Section 4.03 Limitation on Restricted Payments . . . . . . . . . . . . . 32 Section 4.04 Corporate Existence . . . . . . . . . . . . . . . . . . . . 36 Section 4.05 Payment of Taxes and Other Claims . . . . . . . . . . . . . 36 Section 4.06 Maintenance of Properties and Insurance . . . . . . . . . . . . . . . . . . . . . 37 Section 4.07 Compliance Certificate; Notice of Default . . . . . . . . . . . . . . . . . . . . . . 37 Section 4.08 Compliance with Laws . . . . . . . . . . . . . . . . . . . . 38 Section 4.09 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 4.10 Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . . . . . . . 38 Section 4.11 Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . 39 Section 4.12 Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock of Subsidiaries . . . . . . . . . . . . . . . . . . . 40 Section 4.13 Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries . . . . . . . . . . . . . . . . . . . 40 Section 4.14 Change of Control . . . . . . . . . . . . . . . . . . . . . 41 Section 4.15 Limitation on Asset Sales . . . . . . . . . . . . . . . . . 43 Section 4.16 Limitation on Asset Swaps . . . . . . . . . . . . . . . . . 44 ARTICLE FIVE SUCCESSOR CORPORATION Section 5.01 Merger, Consolidation and Sale of Assets . . . . . . . . . . 45
-ii- 6 Section 5.02 Successor Corporation Substituted . . . . . . . . . . . . . 46 ARTICLE SIX DEFAULT AND REMEDIES Section 6.01 Events of Default . . . . . . . . . . . . . . . . . . . . . 46 Section 6.02 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 6.03 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . 48 Section 6.04 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . 49 Section 6.05 Control by Majority . . . . . . . . . . . . . . . . . . . . 49 Section 6.06 Limitation on Suits . . . . . . . . . . . . . . . . . . . . 49 Section 6.07 Rights of Holders To Receive Payment . . . . . . . . . . . . . . . . . . . . . 50 Section 6.08 Collection Suit by Trustee . . . . . . . . . . . . . . . . . 50 Section 6.09 Trustee May File Proofs of Claim . . . . . . . . . . . . . . 50 Section 6.10 Priorities . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 6.11 Undertaking for Costs . . . . . . . . . . . . . . . . . . . 51 ARTICLE SEVEN TRUSTEE Section 7.01 Duties of Trustee . . . . . . . . . . . . . . . . . . . . . 52 Section 7.02 Rights of Trustee . . . . . . . . . . . . . . . . . . . . . 53 Section 7.03 Individual Rights of Trustee . . . . . . . . . . . . . . . . 54 Section 7.04 Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . 54 Section 7.05 Notice of Default . . . . . . . . . . . . . . . . . . . . . 55 Section 7.06 Reports by Trustee to Holders . . . . . . . . . . . . . . . 55 Section 7.07 Compensation and Indemnity . . . . . . . . . . . . . . . . . 55 Section 7.08 Replacement of Trustee . . . . . . . . . . . . . . . . . . . 56 Section 7.09 Successor Trustee by Merger, Etc. . . . . . . . . . . . . . 57 Section 7.10 Eligibility; Disqualification . . . . . . . . . . . . . . . 58 Section 7.11 Preferential Collection of Claims Against the Company . . . . . . . . . . . . . . . . 58 ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE Section 8.01 Termination of the Company's Obligations . . . . . . . . . . 58
-iii- 7 Section 8.02 Acknowledgment of Discharge by Trustee . . . . . . . . . . . . . . . . . . . . . . 61 Section 8.03 Application of Trust Money . . . . . . . . . . . . . . . . . 61 Section 8.04 Repayment to the Company . . . . . . . . . . . . . . . . . . 61 Section 8.05 Reinstatement 61 ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 9.01 Without Consent of Holders . . . . . . . . . . . . . . . . . 62 Section 9.02 With Consent of Holders . . . . . . . . . . . . . . . . . . 62 Section 9.03 Compliance with TIA . . . . . . . . . . . . . . . . . . . . 64 Section 9.04 Revocation and Effect of Consents . . . . . . . . . . . . . 64 Section 9.05 Notation on or Exchange of Securities . . . . . . . . . . . . . . . . . . . . 65 Section 9.06 Trustee To Sign Amendments, Etc. . . . . . . . . . . . . . . 65 ARTICLE TEN MISCELLANEOUS Section 10.01 TIA Controls . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 10.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 10.03 Communications by Holders with Other Holders . . . . . . . . . . . . . . . . . . . . . . 67 Section 10.04 Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . 67 Section 10.05 Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . 67 Section 10.06 Rules by Trustee, Paying Agent, Registrar . . . . . . . . . . . . . . . . . . . . . 68 Section 10.07 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . 68 Section 10.08 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 68 Section 10.09 No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . 68 Section 10.10 No Recourse Against Others . . . . . . . . . . . . . . . . . 68 Section 10.11 Successors . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 10.12 Duplicate Originals . . . . . . . . . . . . . . . . . . . . 69 Section 10.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . 69
-iv- 8 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Exhibit A - Form of Series A Security Exhibit B - Form of Series B Security Exhibit C - Form of Legend for Global Securities Exhibit D - Transfer Certificate Exhibit E - Transferee Certificate for Institutional Accredited Investors Note: This Table of Contents shall not, for any purpose, be deemed to be part of the Indenture. -v- 9 INDENTURE, dated as of February 20, 1997, between Capstar Broadcasting Partners, Inc., a Delaware corporation (the "Company"), and U.S. Trust Company of Texas, N.A., a national banking association, as trustee (the "Trustee"). The Company has duly authorized the creation of an issue of 12 3/4% Senior Discount Notes due 2009, Series A, and 12 3/4% Senior Discount Notes due 2009, Series B, to be issued in exchange for the 12 3/4% Senior Discount Notes due 2009, Series A, pursuant to a registration rights agreement and, to provide therefor, the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Securities, when duly issued and executed by the Company and authenticated and delivered hereunder, the valid and binding obligations of the Company and to make this Indenture a valid and binding agreement of the Company, have been done. Each party hereto agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Company's 12 3/4% Senior Discount Notes due 2009 (the "Securities"): ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01 Definitions. "Acceleration Notice" has the meaning provided in Section 6.02. "Accreted Value" means, as of any date of determination, the sum of (i) the initial offering price of each Security and (ii) the portion of the excess of the principal amount at maturity of each Security over such initial offering price that shall have been amortized through such date, such amount to be so amortized on a daily basis and compounded semi-annually on each February 1 and August 1 at the rate of 12 3/4% per annum from the date of issuance of the Securities through the date of determination; provided, that the Accreted Value of the Securities shall be 100% from February 1, 2002 to maturity of the Securities. "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Subsidiary of the Company or at the time it merges or consolidates with the Company or any of its Subsidiaries or assumed in connection with the acquisition of assets from such Person and not incurred by such Person in 10 -2- connection with, or in anticipation or contemplation of, such Person becoming a Subsidiary of the Company or such acquisition, merger or consolidation. "Affiliate" means a Person who, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the Company. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Affiliate Transaction" has the meaning provided in Section 4.11. "Agent" means any Registrar, Paying Agent or Co-Registrar. "Asset Acquisition" means (i) an Investment by the Company or any Subsidiary of the Company in any other Person pursuant to which such Person shall become a Subsidiary of the Company or shall be consolidated or merged with the Company or any Subsidiary of the Company or (ii) the acquisition by the Company or any Subsidiary of the Company of assets of any Person comprising a division or line of business of such Person. "Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer for value by the Company or any of its Subsidiaries (excluding any Sale and Leaseback Transaction or any pledge of assets or stock by the Company or any of its Subsidiaries) to any Person other than the Company or a Wholly Owned Subsidiary of the Company of (i) any Capital Stock of any Subsidiary of the Company or (ii) any other property or assets of the Company or any Subsidiary of the Company other than in the ordinary course of business; provided, however, that for purposes of Section 4.15, Asset Sales shall not include (a) a transaction or series of related transactions in which the Company or its Subsidiaries receive aggregate consideration of less than $500,000, (b) transactions permitted under Section 4.16 or (c) transactions covered by Section 5.01. "Asset Swap" means the execution of a definitive agreement, subject only to the Federal Communications Commission's approval, if applicable, and other customary closing conditions, that the Company in good faith believes will be satisfied, for a substantially concurrent purchase and sale, or exchange, of Productive Assets between the Company or any of its Subsidiaries and another Person or group of affiliated Persons; provided that any amendment to or waiver of any closing condition that individually or in the aggregate is material to the Asset Swap shall be deemed to be a new Asset Swap. 11 -3- "Bankruptcy Law" means Title 11, United States Code or any similar federal, state or foreign law for the relief of debtors. "Board of Directors" means, with respect to any Person, the Board of Directors (or any other equivalent governing body) of such Person or any committee of the Board of Directors of such Person duly authorized, with respect to any particular matter, to exercise the power of the Board of Directors of such Person. "Board Resolution" means, with respect to any Person, a duly adopted resolution of the Board of Directors of such Person. "Business Day" means a day that is not a Legal Holiday. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated) of capital stock of such Person and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "Capitalized Lease Obligation" means, as to any Person, the obligation of such Person to pay rent or other amounts under a lease to which such Person is a party that is required to be classified and accounted for as a capital lease obligation under GAAP, and for purposes of this definition, the amount of such obligation at any date shall be the capitalized amount of such obligation at such date, determined in accordance with GAAP. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc.; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from Standard & Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $200,000,000; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the 12 -4- qualifications specified in clause (iv) above; and (vi) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (i) through (v) above. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group") (whether or not otherwise in compliance with the provisions of this Indenture), other than to Hicks Muse, any of its Affiliates (excluding Chancellor Broadcasting Company), officers and directors or R. Steven Hicks (the "Permitted Holders"); or (ii) a majority of the Board of Directors of the Company shall consist of Persons who are not Continuing Directors; or (iii) the acquisition by any Person or Group (other than the Permitted Holders) of the power, directly or indirectly, to vote or direct the voting of securities having more than 50% of the ordinary voting power for the election of directors of the Company. "Change of Control Date" has the meaning provided in Section 4.14. "Change of Control Offer" has the meaning provided in Section 4.14. "Change of Control Payment Date" has the meaning provided in Section 4.14. "Change of Control Redemption" has the meaning specified in the form of Security. "Commission" means the Securities and Exchange Commission. "Commodity Agreement" means any commodity futures contract, commodity option or other similar agreement or arrangement entered into by the Company or any of its Subsidiaries designed to protect the Company or any of its Subsidiaries against fluctuations in the price of commodities actually used in the ordinary course of business of the Company and its Subsidiaries. "Commodore" means Commodore Media, Inc., a Delaware corporation and a wholly owned subsidiary of the Company. "Commodore Indenture" means the indenture dated as of April 21, 1995 by and among Commodore, as Issuer, the Subsidiaries of Commodore named therein, as Guarantors, and IBJ Schroder Bank & Trust Company, as Trustee, as in effect on the Issue Date. 13 -5- "Company" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means such successor and also includes for the purposes of any provision contained herein and required by the TIA any other obligor on the Securities. "Consolidated EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent Consolidated Net Income has been reduced thereby, (A) all income taxes of such Person and its Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary or non-recurring gains or losses), (B) Consolidated Interest Expense and (C) Consolidated Non-Cash Charges, all as determined on a consolidated basis for such Person and its Subsidiaries in conformity with GAAP. "Consolidated Interest Expense" means, with respect to any Person for any period, without duplication, the sum of (i) the interest expense of such Person and its Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (a) any amortization of debt discount, (b) the net cost under Interest Swap Obligations (including any amortization of discounts), (c) the interest portion of any deferred payment obligation, (d) all commissions, discounts and other fees and charges owed with respect to letters of credit, bankers' acceptance financing or similar facilities and (e) all accrued interest and (ii) the interest component of Capitalized Lease Obligations paid or accrued by such Person and its Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" of any Person means, for any period, the aggregate net income (or loss) of such Person and its Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom, without duplication, (a) gains and losses from Asset Sales (without regard to the $500,000 limitation set forth in the definition thereof) or abandonments or reserves relating thereto and the related tax effects, (b) items classified as extraordinary or nonrecurring gains and losses, and the related tax effects according to GAAP, (c) the net income (or loss) of any Person acquired in a pooling of interests transaction accrued prior to the date it becomes a Subsidiary of such first referred to Person or is merged or consolidated with it or any of its Subsidiaries, (d) the net income of any Subsidiary to the extent that the declaration of dividends or similar distributions by that Subsidiary of that income is restricted by contract, operation of law or otherwise, (e) the net income of any Person, other than a Subsidiary, except to the extent of the lesser of (x) dividends or distributions paid to such first referred to Person or its Subsidiary by such Person and (y) the net income of such Person (but in no event less than zero), and the net loss of such Person shall be included only to the extent of the aggregate Investment of the first referred to Person or a 14 -6- consolidated Subsidiary of such Person and (f) any non-cash expenses attributable to grants or exercises of employee stock options. "Consolidated Non-Cash Charges" means, with respect to any Person for any period, the aggregate depreciation, amortization and other non-cash expenses of such Person and its Subsidiaries (excluding any such charges constituting an extraordinary or nonrecurring item) reducing Consolidated Net Income of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "Continuing Director" means, as of the date of determination, any Person who (i) was a member of the Board of Directors of the Company on the Issue Date, (ii) was nominated for election or elected to the Board of Directors of the Company with the affirmative vote of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election or (iii) is a representative of a Permitted Holder. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in currency values. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default. "Default Amount" means, (i) as of any date prior to February 1, 2002, the Accreted Value of all outstanding Securities (plus any applicable premium thereon) as of such date and (ii) as of any date on or after February 1, 2002, 100% of the principal amount at maturity of all outstanding Securities (plus any applicable premium thereon), plus accrued and unpaid interest, if any, thereon. "Depository" means, with respect to the Securities issued in the form of one or more Global Securities, The Depository Trust Company or another Person designated as Depository by the Company, which must be a clearing agency registered under the Exchange Act. "Discharged" has the meaning provided in Section 8.01. "Disqualified Capital Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the 15 -7- happening of any event, matures (excluding any maturity as the result of an optional redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof (except, in each case, upon the occurrence of a Change of Control), in whole or in part, on or prior to the final maturity date of the Securities. "Event of Default" has the meaning provided in Section 6.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Commission thereunder. "Financial Monitoring and Oversight Agreements" means, collectively, the Monitoring and Oversight Agreement between the Company and Hicks, Muse & Co. Partners, L.P., as in effect on the Issue Date, and the Financial Advisory Agreement between the Company and Hicks, Muse & Co. Partners, L.P., as in effect on the Issue Date. "Funds" shall have the meaning provided in Section 8.01. "GAAP" means generally accepted accounting principles as in effect in the United States of America as of the Issue Date. "Global Security" means a security evidencing all or a portion of the Securities issued to the Depository or its nominee in accordance with Section 2.01 and bearing the legend set forth in Exhibit C. "Hicks Muse" means Hicks, Muse, Tate & Furst Incorporated, a Delaware corporation. "Holder" or "Securityholder" means the Person in whose name a Security is registered on the Registrar's books. "Indebtedness" means with respect to any Person, without duplication, any liability of such Person (i) for borrowed money, (ii) evidenced by bonds, debentures, notes or other similar instruments, (iii) constituting Capitalized Lease Obligations, (iv) incurred or assumed as the deferred purchase price of property, or pursuant to conditional sale obligations and title retention agreements (but excluding trade accounts payable arising in the ordinary course of business), (v) for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (vi) for Indebtedness of others guaranteed by such Person, (vii) for Interest Swap Obligations, Commodity Agreements and Currency Agreements and (viii) for Indebtedness of any other Person of the type referred to in clauses (i) through (vii) 16 -8- which is secured by any Lien on any property or asset of such first referred to Person, the amount of such Indebtedness being deemed to be the lesser of the value of such property or asset or the amount of the Indebtedness so secured. The amount of Indebtedness of any Person at any date shall be the outstanding principal amount of all unconditional obligations described above, as such amount would be reflected on a balance sheet prepared in accordance with GAAP, and the maximum liability at such date of such Person for any contingent obligations described above. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "Interest Payment Date" means the stated maturity of an installment of interest on the Securities. "Interest Swap Obligations" means the obligations of any Person under any interest rate protection agreement, interest rate future, interest rate option, interest rate swap, interest rate cap or other interest rate hedge or arrangement. "Investment" means (i) any transfer or delivery of cash, stock or other property of value in exchange for Indebtedness, stock or other security or ownership interest in any Person by way of loan, advance, capital contribution, guarantee or otherwise and (ii) an investment deemed to have been made by the Company at the time any entity which was a Subsidiary of the Company ceases to be such a Subsidiary in an amount equal to the value of the loans and advances made, and any remaining ownership interest in, such entity immediately following such entity ceasing to be a Subsidiary of the Company. The amount of any non-cash Investment shall be the fair market value of such Investment, as determined conclusively in good faith by management of the Company unless the fair market value of such Investment exceeds $1,000,000, in which case the fair market value shall be determined conclusively in good faith by the Board of Directors of the Company at the time such Investment is made. "Issue Date" means the date of original issuance of the Securities. "Legal Holiday" has the meaning provided in Section 10.07. "Leverage Ratio" shall mean the ratio of (i) the aggregate outstanding amount of Indebtedness of the Company and its Subsidiaries as of the date of calculation on a consolidated basis in accordance with GAAP plus the aggregate liquidation preference of all outstanding Preferred Stock of the Company's Subsidiaries on such date less the Accreted Value of the Securities on such date to (ii) the Consolidated EBITDA of the Company for the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of determination. 17 -9- For purposes of this definition, the aggregate outstanding principal amount of Indebtedness of the Company and its Subsidiaries and the aggregate liquidation preference of all outstanding Preferred Stock of the Company's Subsidiaries for which such calculation is made shall be determined on a pro forma basis as if the Indebtedness and Preferred Stock giving rise to the need to perform such calculation had been incurred and issued and the proceeds therefrom had been applied, and all other transactions in respect of which such Indebtedness is being incurred or Preferred Stock is being issued had occurred, on the last day of the Four Quarter Period. In addition to the foregoing, for purposes of this definition, "Consolidated EBITDA" shall be calculated on a pro forma basis after giving effect to (i) the incurrence of the Indebtedness of such Person and its Subsidiaries and the issuance of the Preferred Stock of such Subsidiaries (and the application of the proceeds therefrom) giving rise to the need to make such calculation and any incurrence (and the application of the proceeds therefrom) or repayment of other Indebtedness, other than the incurrence or repayment of Indebtedness pursuant to working capital facilities, at any time subsequent to the beginning of the Four Quarter Period and on or prior to the date of determination, as if such incurrence (and the application of the proceeds thereof), or the repayment, as the case may be, occurred on the first day of the Four Quarter Period, (ii) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Subsidiaries (including any Person who becomes a Subsidiary as a result of such Asset Acquisition) incurring, assuming or otherwise becoming liable for Indebtedness or such Person's Subsidiaries issuing Preferred Stock) at any time on or subsequent to the first day of the Four Quarter Period and on or prior to the date of determination, as if such Asset Sale or Asset Acquisition (including the incurrence, assumption or liability for any such Indebtedness and the issuance of such Preferred Stock and also including any Consolidated EBITDA associated with such Asset Acquisition) occurred on the first day of the Four Quarter Period and (iii) cost savings resulting from employee terminations, facilities consolidations and closings, standardization of employee benefits and compensation practices, consolidation of property, casualty and other insurance coverage and policies, standardization of sales representation commissions and other contract rates, and reductions in taxes other than income taxes (collectively, "Cost Savings Measures"), which cost savings the Company reasonably believes in good faith would have been achieved during the Four Quarter Period as a result of such Asset Acquisitions (regardless of whether such cost savings could then be reflected in pro forma financial statements under GAAP, Regulation S-X promulgated by the Commission or any other regulation or policy of the Commission), provided that both (A) such cost savings and Cost Savings Measures were identified and such cost savings were quantified in an officer's certificate delivered to the Trustee at the time of the consummation of the Asset Acquisition and such officer's certificate states that such officer believes in good faith that actions will be commenced or initiated within 90 days of such Asset Acquisition to effect such Cost Savings Measures and (B) with respect to each Asset Acquisition completed prior to the 90th day preceding such date of determination, actions were commenced or initiated by the Company within 90 days of such Asset Acquisition to effect the 18 -10- Cost Savings Measures identified in such officer's certificate (regardless, however, of whether the corresponding cost savings have been achieved). Furthermore, in calculating "Consolidated Interest Expense" for purposes of the calculation of "Consolidated EBITDA," (i) interest on Indebtedness determined on a fluctuating basis as of the date of determination (including Indebtedness actually incurred on the date of the transaction giving rise to the need to calculate the Leverage Ratio) and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness as in effect on the date of determination and (ii) notwithstanding (i) above, interest determined on a fluctuating basis, to the extent such interest is covered by Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "Major Asset Sale" means an Asset Sale or series of related Assets Sales involving assets with a fair market value in excess of $25,000,000. "Maturity Date" means February 1, 2009. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents (including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents) received by the Company or any of its Subsidiaries from such Asset Sale net of (i) reasonable out-of-pocket expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions, recording fees, title insurance premiums, appraisers fees and costs reasonably incurred in preparation of any asset or property for sale), (ii) taxes paid or reasonably estimated to be payable (calculated based on the combined state, federal and foreign statutory tax rates applicable to the Company or the Subsidiary engaged in such Asset Sale) and (iii) repayment of Indebtedness secured by assets subject to such Asset Sale; provided that if the instrument or agreement governing such Asset Sale requires the transferor to maintain a portion of the purchase price in escrow (whether as a reserve for adjustment of the purchase price or otherwise) or to indemnify the transferee for specified liabilities in a maximum specified amount, the portion of the cash or Cash Equivalents that is actually placed in escrow or segregated and set aside by the transferor for such indemnification obligation shall not be deemed to be Net Cash Proceeds until the escrow terminates or the transferor ceases to segregate and set aside such funds, in whole or in part, and then only to the extent of the proceeds released from escrow to the transferor or that are no longer segregated and set aside by the transferor. 19 -11- "Net Proceeds Offer" has the meaning provided in Section 4.15. "New Credit Facility" means the credit agreement to be entered into among the Company, Commodore, Bankers Trust Company, as agent and the lenders parties thereto from time to time, as the same may be amended, supplemented or otherwise modified from time to time and (ii) any renewal, extension, refunding, restructuring, replacement or refinancing thereof (whether with the original agent and lenders or another agent or agents or other lenders and whether provided under the original New Credit Facility or any other credit agreement). "Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing, or otherwise relating to, any Indebtedness. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Treasurer, the Controller, or the Secretary of such Person, or any other officer designated by the Board of Directors serving in a similar capacity. "Officers' Certificate" means, with respect to any Person, a certificate signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of such Person and otherwise complying with the requirements of Sections 10.04 and 10.05, as they relate to the making of an Officers' Certificate. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee complying with the requirements of Sections 10.04 and 10.05, as they relate to the giving of an Opinion of Counsel. "Paying Agent" has the meaning provided in Section 2.03, except that, during the continuance of a Default or Event of Default and for the purposes of Articles Three and Eight and Sections 4.14 and 4.15, the Paying Agent shall not be the Company or any Affiliate of the Company. "Permitted Indebtedness" means, without duplication, (i) Indebtedness outstanding on the Issue Date; (ii) Indebtedness of the Company or a Subsidiary incurred pursuant to the New Credit Facility in an aggregate principal amount at any time outstanding not to exceed the sum of the aggregate commitments pursuant to the New Credit Facility as in effect on the Issue Date; (iii) Indebtedness evidenced by or arising under the Securities and the Indenture; (iv) Interest Swap Obligations; provided that such Interest Swap Obligations are entered into to protect the Company from fluctuations in interest rates of its Indebtedness; (v) additional Indebtedness of the Company or any of its Subsidiaries not to exceed $10,000,000 20 -12- in principal amount outstanding at any time (which amount may, but need not, be incurred under the New Credit Facility); (vi) Refinancing Indebtedness; (vii) Indebtedness owed by the Company to any Wholly Owned Subsidiary or by any Subsidiary of the Company to the Company or any Wholly Owned Subsidiary of the Company; (viii) guarantees by Subsidiaries of any Indebtedness permitted to be incurred pursuant to the Indenture; (ix) Indebtedness in respect of performance bonds, bankers' acceptances and surety or appeal bonds provided by the Company or any of its Subsidiaries to their customers in the ordinary course of their business; (x) Indebtedness arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Subsidiaries pursuant to such agreements, in each case incurred in connection with the disposition of any business assets or Subsidiaries of the Company (other than guarantees of Indebtedness or other obligations incurred by any Person acquiring all or any portion of such business assets or Subsidiaries of the Company for the purpose of financing such acquisition) in a principal amount not to exceed the gross proceeds actually received by the Company or any of its Subsidiaries in connection with such disposition; provided, however, that the principal amount of any Indebtedness incurred pursuant to this clause (x), when taken together with all Indebtedness incurred pursuant to this clause (x) and then outstanding, shall not exceed $7,500,000; and (xi) Indebtedness represented by Capitalized Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property used in a related business or incurred to refinance any such purchase price or cost of construction or improvement, in each case incurred no later than 365 days after the date of such acquisition or the date of completion of such construction or improvement; provided, however, that the principal amount of any Indebtedness incurred pursuant to this clause (xi) shall not exceed $3,000,000 at any time outstanding. "Permitted Investments" means (i) Investments by the Company or any Subsidiary of the Company to acquire the stock or assets of any Person (or Acquired Indebtedness acquired in connection with a transaction in which such Person becomes a Subsidiary of the Company) engaged in the broadcast business or businesses reasonably related thereto; provided that if any such Investment or series of related Investments involves an Investment by the Company in excess of $5,000,000, the Company is able, at the time of such Investment and immediately after giving effect thereto, to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.12 hereof, (ii) Investments received by the Company or its Subsidiaries as consideration for a sale of assets, (iii) Investments by the Company or any Wholly Owned Subsidiary of the Company in any Wholly Owned Subsidiary of the Company (whether existing on the Issue Date or created thereafter) or any Person that after such Investments, and as a result thereof, becomes a Wholly Owned Subsidiary of the Company and Investments in the Company by any Wholly Owned Subsidiary of the Company, (iv) cash and Cash Equivalents, (v) Investments in securities of trade 21 -13- creditors, wholesalers or customers received pursuant to any plan of reorganization or similar arrangement, (vi) loans or advances to employees of the Company or any Subsidiary thereof for purposes of purchasing the Company's Capital Stock and other loans and advances to employees made in the ordinary course of business consistent with past practices of the Company or such Subsidiary, and (vii) additional Investments in an aggregate amount not to exceed $1,000,000 at any time outstanding. "Person" means an individual, partnership, corporation, limited liability company, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "Preferred Stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "principal" of any Indebtedness (including the Securities) means the principal amount of such Indebtedness plus the premium, if any, on such Indebtedness. "Private Placement Legend" means the legend initially set forth on the Securities in the form set forth on Exhibit A. "Proceeds Purchase Date" shall have the meaning provided in Section 4.15. "Productive Assets" means assets of a kind used or usable by the Company and its Subsidiaries in broadcast business or businesses reasonably related thereto, and specifically includes assets acquired through Asset Acquisitions. "pro forma" means, unless otherwise provided herein, with respect to any calculation made or required to be made pursuant to the terms of this Indenture, a calculation in accordance with Article 11 of Regulation S-X promulgated under the Securities Act. "Public Equity Offering" means an underwritten public offering of Capital Stock (other than Disqualified Capital Stock) of the Company, pursuant to an effective registration statement filed with the Commission in accordance with the Securities Act. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. 22 -14- "Redemption Date" means, with respect to any Securities, the Maturity Date of such Security or the earlier date on which such Security is to be redeemed by the Company pursuant to the terms of the Securities. "Redemption Price" shall have the meaning provided in Section 3.03. "Refinancing Indebtedness" means any refinancing by the Company or any of its Subsidiaries of Indebtedness of the Company or any of its Subsidiaries incurred in accordance with Section 4.12 hereof (other than pursuant to clause (iii)) that does not (i) result in an increase in the aggregate principal amount of Indebtedness (such principal amount to include, for purposes of this definition, any premiums, penalties or accrued interest paid with the proceeds of the Refinancing Indebtedness) of such Person or (ii) create Indebtedness with (A) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being refinanced or (B) a final maturity earlier than the final maturity of the Indebtedness being refinanced. "Registrar" has the meaning provided in Section 2.03. "Representative" means the indenture trustee or other trustee, agent or representative in respect of any Senior Debt; provided that if, and for so long as, any Senior Debt lacks such a representative, then the Representative for such Senior Debt shall at all times constitute the holders of a majority in outstanding principal amount of such Senior Debt. "Restricted Payment" means (i) the declaration or payment of any dividend or the making of any other distribution (other than dividends or distributions payable in Qualified Capital Stock or in options, rights or warrants to acquire Qualified Capital Stock) on shares of the Company's Capital Stock, (ii) the purchase, redemption, retirement or other acquisition for value of any Capital Stock of the Company, or any warrants, rights or options to acquire shares of Capital Stock of the Company, other than through the exchange of such Capital Stock or any warrants, rights or options to acquire shares of any class of such Capital Stock for Qualified Capital Stock or warrants, rights or options to acquire Qualified Capital Stock, (iii) the making of any principal payment on, or the purchase, defeasance, redemption, prepayment, decrease or other acquisition or retirement for value, prior to any scheduled final maturity, scheduled repayment or scheduled sinking fund payment, of, any Indebtedness of the Company or its Subsidiaries that is subordinated or junior in right of payment to the Securities or (iv) the making of any Investment (other than a Permitted Investment). "Restricted Security" has the meaning assigned to such term in Rule 144(a)(3) under the Securities Act. 23 -15- "Securities" means the Company's 12 3/4% Senior Discount Notes due 2009, as amended or supplemented from time to time in accordance with the terms hereof, that are issued pursuant to this Indenture. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Senior Debt" means any Indebtedness of the Company (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law), whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be pari passu in right of payment to the Securities. Without limiting the generality of the foregoing, "Senior Debt" shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of, and all monetary obligations of every nature under, (w) the New Credit Facility, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities and (x) all Interest Swap Obligations. Notwithstanding the foregoing, Senior Debt shall not include any of the following amounts (whether or not constituting Indebtedness as defined herein): (i) any Indebtedness of the Company to a Subsidiary of the Company; (ii) Indebtedness and other amounts owing to trade creditors incurred in connection with obtaining goods, materials or services; (iii) Indebtedness represented by Disqualified Capital Stock; and (iv) any liability for federal, state, local or other taxes owed or owing by the Company. "Significant Subsidiary" means for any Person each Subsidiary of such Person which (i) for the most recent fiscal year of such Person accounted for more than 5% of the consolidated net income of such Person or (ii) as at the end of such fiscal year, was the owner of more than 5% of the consolidated assets of such Person. "Subsidiary," with respect to any Person, means (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. Notwithstanding anything in the Indenture to the contrary, all references to the Company and its consolidated Subsidiaries or to financial information prepared on a consolidated basis in 24 -16- accordance with GAAP shall be deemed to include the Company and its Subsidiaries as to which financial statements are prepared on a consolidated basis in accordance with GAAP and to financial information prepared on such a consolidated basis. Notwithstanding anything herein to the contrary, an Unrestricted Subsidiary shall not be deemed to be a Subsidiary for purposes hereof. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb), as amended, as in effect on the date on which this Indenture is qualified under the TIA, except as otherwise provided in Section 9.03. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "Trust Officer" means any officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters or, in the case of a successor trustee, an officer assigned to the department, division or group performing the corporate trust work of such successor. "Unrestricted Subsidiary" means a Subsidiary of the Company created after the Issue Date and so designated by a resolution adopted by the Board of Directors of the Company, provided that (a) neither the Company nor any of its other Subsidiaries (other than Unrestricted Subsidiaries) (1) provides any credit support for any Indebtedness of such Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness) or (2) is directly or indirectly liable for any Indebtedness of such Subsidiary and (b) at the time of designation of such Subsidiary, such Subsidiary has no property or assets (other than de minimis assets resulting from the initial capitalization of such Subsidiary). The Board of Directors may designate any Unrestricted Subsidiary to be a Subsidiary; provided, however, that immediately after giving effect to such designation (x) the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.12 hereof and (y) no Default or Event of Default shall have occurred or be continuing. Any designation pursuant to this definition by the Board of Directors of the Company shall be evidenced to the Trustee by the filing with the Trustee of a certified copy of the resolution of the Company's Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. "U.S. Government Obligations" has the meaning provided in Section 8.01. "U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. 25 -17- "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the total of the product obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "Wholly Owned Subsidiary" of any Person means any Subsidiary of such Person of which all the outstanding voting securities (other than directors' qualifying shares) which normally have the right to vote in the election of directors are owned by such Person or any Wholly Owned Subsidiary of such Person. SECTION 1.02 Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in, and made a part of, this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Holder or a Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company or any other obligor on the Securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03 Rules of Construction. Unless the context otherwise requires: 26 -18- (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP as in effect on the Issue Date; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; and (5) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. ARTICLE TWO THE SECURITIES SECTION 2.01 Form and Dating. The Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The exchange securities and the Trustee's certificate of authentication relating thereto shall be substantially in the form of Exhibit B hereto. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage. The Company shall approve the form of the Securities and any notation, legend or endorsement thereon. Each Security shall be dated the date of its authentication. The terms and provisions contained in the Securities shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. SECTION 2.02 Execution and Authentication. Two Officers, or an Officer and an Assistant Secretary, shall sign, or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to, the Securities for the Company by manual or facsimile signature. 27 -19- If an Officer or Assistant Secretary whose signature is on a Security was an Officer or Assistant Secretary at the time of such execution but no longer holds that office or position at the time the Trustee authenticates the Security, the Security shall nevertheless be valid. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate Securities for original issue in the aggregate principal amount at maturity of up to $277,000,000 upon receipt of a written order of the Company in the form of an Officers' Certificate. Such Officers' Certificate shall specify the amount of Securities to be authenticated and the date on which the Securities are to be authenticated. The aggregate principal amount at maturity of Securities outstanding at any time may not exceed $277,000,000 except as provided in Section 2.07. Upon the written order of the Company in the form of an Officers' Certificate, the Trustee shall authenticate Securities in substitution of Securities originally issued to reflect any name change of the Company. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate Securities. Unless otherwise provided in the appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company and Affiliates of the Company. The Securities shall be issuable in fully registered form only, without coupons, in denominations of $1,000 and any integral multiple thereof. SECTION 2.03 Registrar and Paying Agent. The Company shall maintain an office or agency (which shall be located in the Borough of Manhattan in the City of New York, State of New York), where (a) Securities may be presented or surrendered for registration of transfer or for exchange ("Registrar"), (b) Securities may be presented or surrendered for payment ("Paying Agent") and (c) notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company, upon notice to the Trustee, may have one or more co- Registrars and one or more additional paying agents reasonably acceptable to the Trustee. The term "Paying Agent" includes any additional paying agent. The Company may change the Paying Agent or Registrar without notice to any Holder. 28 -20- The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee, in advance, of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such. The Company initially appoints the Trustee as Registrar and Paying Agent until such time as the Trustee has resigned or a successor has been appointed. SECTION 2.04 Paying Agent To Hold Assets in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, or interest on, the Securities (whether such assets have been distributed to it by the Company or any other obligor on the Securities), and shall notify the Trustee of any default by the Company (or any other obligor on the Securities) in making any such payment. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Company to the Paying Agent and the completion of any accounting required to be made hereunder, the Paying Agent shall have no further liability for such assets. SECTION 2.05 Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of the Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee five (5) Business Days before each Interest Payment Date and at such other times as the Trustee may request in writing a list as of the applicable Record Date and in such form as the Trustee may reasonably require of the names and addresses of the Holders, which list may be conclusively relied upon by the Trustee. SECTION 2.06 Transfer and Exchange. Subject to Section 2.15, when Securities are presented to the Registrar or a co-Registrar with a request to register the transfer of such Securities or to exchange such Securities for an equal principal amount of Securities of other authorized denominations, the Registrar or co-Registrar shall register the transfer or make the exchange as requested if its requirements for 29 -21- such transaction are met; provided, however, that the Securities surrendered for transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar or co-Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's or co-Registrar's written request. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith. The Registrar or co-Registrar shall not be required to register the transfer of or exchange of any Security (i) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption pursuant to Section 3.03 of Securities and ending at the close of business on the day of such mailing and (ii) selected for redemption in whole or in part pursuant to Article Three, except the unredeemed portion of any Security being redeemed in part. SECTION 2.07 Replacement Securities. If a mutilated Security is surrendered to the Trustee or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the Trustee's requirements are met. If required by the Trustee or the Company, such Holder must provide an indemnity bond or other indemnity, sufficient in the judgment of the Company and the Trustee, to protect the Company, the Trustee or any Agent from any loss which any of them may suffer if a Security is replaced. The Company may charge such Holder for its reasonable, out-of-pocket expenses in replacing a Security, including reasonable fees and expenses of counsel. Every replacement Security shall constitute an additional obligation of the Company. SECTION 2.08 Outstanding Securities. Securities outstanding at any time are all the Securities that have been authenticated by the Trustee except those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Subject to Section 2.09, a Security does not cease to be outstanding because the Company or any of its Affiliates holds the Security. If a Security is replaced pursuant to Section 2.07 (other than a mutilated Security surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. A mutilated Security ceases to be outstanding upon surrender of such Security and replacement thereof pursuant to Section 2.07. 30 -22- If the principal amount at maturity of any Security is paid in accordance with the provisions of Section 4.01, such Security shall cease to be outstanding and interest thereon shall cease to accrue. If on a Redemption Date or the Maturity Date the Paying Agent holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the principal, premium and interest due on the Securities payable on that date and is not prohibited from paying such money to the Holders thereof pursuant to the terms of this Indenture, then on and after that date such Securities cease to be outstanding and interest on them ceases to accrue. SECTION 2.09 Treasury Securities. In determining whether the Holders of the required principal amount at maturity of Securities have concurred in any direction, waiver, consent or notice, Securities owned by the Company or an Affiliate shall be considered as though they are not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee knows are so owned shall be so considered. The Company shall notify the Trustee, in writing, when it or any of its Affiliates repurchases or otherwise acquires Securities, of the aggregate principal amount at maturity of such Securities so repurchased or otherwise acquired. SECTION 2.10 Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities upon receipt of a written order of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of temporary Securities to be authenticated and the date on which the temporary Securities are to be authenticated. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and execute, and the Trustee shall authenticate upon receipt of a written order of the Company pursuant to Section 2.02, definitive Securities in exchange for temporary Securities. SECTION 2.11 Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent, and no one else, shall cancel and, at the written direction of the Company, shall dispose and deliver evidence of disposal of all Securities surrendered for 31 -23- transfer, exchange, payment or cancellation. Subject to Section 2.07, the Company may not issue new Securities to replace Securities that the Company has paid or delivered to the Trustee for cancellation. If the Company shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. SECTION 2.12 Defaulted Interest. If the Company defaults in a payment of interest on the Securities, it shall pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest to the Persons who are Holders on a subsequent special record date, which date shall be the fifteenth day next preceding the date fixed by the Company for the payment of defaulted interest or the next succeeding Business Day if such date is not a Business Day. At least 15 days before the subsequent special record date, the Company shall mail to each Holder, with a copy to the Trustee, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. SECTION 2.13 CUSIP Numbers. The Company in issuing the Securities may use one or more "CUSIP" numbers, and if so, the Trustee shall use the CUSIP numbers in notices of redemption or exchange as a convenience to Holders; provided that no representation is hereby deemed to be made by the Trustee as to the correctness or accuracy of the CUSIP numbers printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. SECTION 2.14 Deposit of Moneys. Prior to 11:00 a.m. New York City time on each Interest Payment Date and Maturity Date, the Company shall have deposited with the Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such Interest Payment Date or Maturity Date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders on such Interest Payment Date or Maturity Date, as the case may be. SECTION 2.15 Book-Entry Provisions for Global Securities. (a) The Global Securities initially shall (i) be registered in the name of the Depository or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear legends as set forth in Exhibit C. 32 -24- Members of, or participants in, the Depository ("Participants") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Security, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and Participants, the operation of customary practices governing the exercise of the rights of a Holder of any Security. (b) Transfers of Global Securities shall be limited to transfers in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Securities may be transferred or exchanged for physical securities in accordance with the rules and procedures of the Depository and the provisions of Section 2.16. In addition, physical securities shall be transferred to all beneficial owners in exchange for their beneficial interests in Global Securities if (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for any Global Security and a successor Depository is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a request from the Depository to issue physical securities. (c) In connection with the transfer of Global Securities as an entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15, the Global Securities shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall upon written instructions from the Company authenticate and deliver, to each beneficial owner identified by the Depository in exchange for its beneficial interest in the Global Securities, an equal aggregate principal amount of physical securities of authorized denominations. (d) Any physical security constituting a Restricted Security delivered in exchange for an interest in a Global Security pursuant to paragraph (b) of this Section 2.15 shall, except as otherwise provided by Section 2.16, bear the Private Placement Legend. (e) The Holder of any Global Security may grant proxies and otherwise authorize any Person, including Participants and Persons that may hold interests through Participants, to take any action which a Holder is entitled to take under this Indenture or the Securities. 33 -25- SECTION 2.16 Registration of Transfers and Exchanges. (a) Transfer and Exchange of physical securities. When physical securities are presented to the Registrar or co-Registrar with a request: (i) to register the transfer of the physical securities; or (ii) to exchange such physical securities for an equal number of physical securities of other authorized denominations, the Registrar or co-Registrar shall register the transfer or make the exchange as requested if the requirements under this Indenture as set forth in this Section 2.16 for such transactions are met; provided, however, that the physical securities presented or surrendered for registration of transfer or exchange: (I) shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Registrar or co- Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and (II) in the case of physical securities the offer and sale of which have not been registered under the Securities Act, such physical securities shall be accompanied, in the sole discretion of the Company, by the following additional information and documents, as applicable: (A) if such physical security is being delivered to the Registrar or co-Registrar by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect (substantially in the form of Exhibit D hereto); or (B) if such physical security is being transferred to a Qualified Institutional Buyer in accordance with Rule 144A, a certification from such Holder to that effect (substantially in the form of Exhibit D hereto); or (C) if such physical security is being transferred to an Institutional Accredited Investor, delivery of a certification from the Holder to that effect (substantially in the form of Exhibit D hereto) and a Transferee Certificate for Institutional Accredited Investors substantially in the form of Exhibit E hereto; or (D) if such physical security is being transferred in reliance on Rule 144 under the Securities Act, delivery of a certification from the Holder to that effect (substantially in the form of Exhibit D hereto) and an Opinion of Counsel 34 -26- reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act; or (E) if such physical security is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification from the Holder to that effect (substantially in the form of Exhibit D hereto) and an Opinion of Counsel reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act. (b) Restrictions on Transfer of a physical security for a Beneficial Interest in a Global Security. A physical security may not be exchanged for a beneficial interest in a Global Security except upon satisfaction of the requirements set forth below. Upon receipt by the Registrar or co-Registrar of a physical security, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Registrar or co-Registrar, together with: (A) certification, substantially in the form of Exhibit D hereto, that such physical security is being transferred to a Qualified Institutional Buyer; and (B) written instructions directing the Registrar or co- Registrar to make, or to direct the Depository to make, an endorsement on the applicable Global Security to reflect an increase in the aggregate amount of the Securities represented by the Global Security, then the Registrar or co-Registrar shall cancel such physical security and cause, or direct the Depository to cause, in accordance with the standing instructions and procedures existing between the Depository and the Registrar or co-Registrar, the aggregate principal amount at maturity of Securities represented by the applicable Global Security to be increased accordingly. If no Global Security representing Securities held by Qualified Institutional Buyers is then outstanding, the Company shall issue and the Trustee shall, upon written instructions from the Company in accordance with Section 2.02, authenticate such a Global Security in the appropriate principal amount. (c) Transfer and Exchange of Global Securities. The transfer and exchange of Global Securities or beneficial interests therein shall be effected through the Depository in accordance with this Indenture (including the restrictions on transfer set forth herein) and the procedures of the Depository therefor. Upon receipt by the Registrar or co-Registrar of written instructions, or such other instruction as is customary for the Depository, from the Depository or its nominee requesting the registration of transfer of an interest in a physical security held by a 35 -27- Qualified Institutional Buyer to another type of Global Security or physical security, as the case may be, together with the applicable Global Securities or physical securities (or, if the applicable type of Global Security required to represent the interest as requested to be transferred is not then outstanding, only the Global Security representing the interest being transferred), the Registrar or co-Registrar shall cancel such Global Securities (or physical securities) and the Company shall issue and the Trustee shall, upon written instructions from the Company in accordance with Section 2.02, authenticate new Global Securities or physical securities of the types so cancelled (or the type so cancelled and applicable type required to represent the interest as requested to be transferred) reflecting the applicable increase and decrease of the principal amount of Securities represented by such types of Global Securities or physical securities, giving effect to such transfer. If the applicable type of Global Security or physical security required to represent the interest as requested to be transferred is not outstanding at the time of such request, the Company shall issue and the Trustee shall, upon written instructions from the Company in accordance with Section 2.02, authenticate a new Global Security or physical security of such type in principal amount equal to the principal amount of the interest requested to be transferred. (d) Transfer of a Beneficial Interest in a Global Security for a physical security. (i) Any Person having a beneficial interest in a Global Security may upon request exchange such beneficial interest for a physical security. Upon receipt by the Registrar or co-Registrar of written instructions, or such other form of instructions as is customary for the Depository, from the Depository or its nominee on behalf of any Person having a beneficial interest in a Global Security and upon receipt by the Trustee of a written order or such other form of instructions as is customary for the Depository or the Person designated by the Depository as having such a beneficial interest containing registration instructions and, in the case of any such transfer or exchange of a beneficial interest in Securities the offer and sale of which have not been registered under the Securities Act, the following additional information and documents: (A) if such beneficial interest is being transferred to the Person designated by the Depository as being the beneficial owner, a certification from such Person to that effect (substantially in the form of Exhibit D hereto); or (B) if such beneficial interest is being transferred to a Qualified Institutional Buyer in accordance with Rule l44A, a certification to that effect (substantially in the form of Exhibit D hereto); or 36 -28- (C) if such beneficial interest is being transferred to an Institutional Accredited Investor, delivery of a certification to that effect (substantially in the form of Exhibit D hereto) and a Certificate for Institutional Accredited Investors substantially in the form of Exhibit E hereto; or (D) if such beneficial interest is being transferred in reliance on Rule 144 under the Securities Act, delivery of a certification to that effect (substantially in the form of Exhibit D hereto) and an Opinion of Counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act; or (E) if such beneficial interest is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect (substantially in the form of Exhibit D hereto) and an Opinion of Counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act, then the Registrar or co-Registrar will cause, in accordance with the standing instructions and procedures existing between the Depository and the Registrar or co-Registrar, the aggregate principal amount of the applicable Global Security to be reduced and, following such reduction, the Company will execute and, upon receipt of an authentication order in the form of an Officers' Certificate in accordance with Section 2.02, the Trustee will authenticate and deliver to the transferee a physical security. (ii) Securities issued in exchange for a beneficial interest in a Global Security pursuant to this Section 2.16(d) shall be registered in such names and in such authorized denominations as the Depository, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Registrar or co- Registrar in writing. The Registrar or co- Registrar shall deliver such physical securities to the Persons in whose names such physical securities are so registered. (e) Restrictions on Transfer and Exchange of Global Securities. Notwithstanding any other provisions of this Indenture, a Global Security may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. 37 -29- (f) Private Placement Legend. Upon the transfer, exchange or replacement of Securities not bearing the Private Placement Legend, the Registrar or co-Registrar shall deliver Securities that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Securities bearing the Private Placement Legend, the Registrar or co-Registrar shall deliver only Securities that bear the Private Placement Legend unless, and the Trustee is hereby authorized to deliver Securities without the Private Placement Legend if (i) there is delivered to the Trustee an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act or (ii) such Security has been sold pursuant to an effective registration statement under the Securities Act. (g) General. By its acceptance of any Security bearing the Private Placement Legend, each Holder of such a Security acknowledges the restrictions on transfer of such Security set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Security only as provided in this Indenture. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.15 or this Section 2.16. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. SECTION 2.17 Designation. The Indebtedness evidenced by the Securities is hereby irrevocably designated as "senior indebtedness" or such other term denoting seniority for the purposes of any future Indebtedness of the Company that the Company makes subordinate to any senior indebtedness or such other term denoting seniority. ARTICLE THREE REDEMPTION SECTION 3.01 Notices to Trustee. If the Company elects to redeem Securities pursuant to paragraph 5 of the Securities, it shall notify the Trustee and the Paying Agent in writing of the Redemption Date and the principal amount at maturity of the Securities to be redeemed and whether it wants the Trustee to give notice of redemption to the Holders (at the Company's expense). Such notice 38 -30- must be given at least 60 days prior to the Redemption Date (unless a shorter notice shall be satisfactory to the Trustee), but shall not be given more than 90 days before the Redemption Date. Any such notice may be cancelled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. SECTION 3.02 Selection of Securities To Be Redeemed. If less than all of the Securities are to be redeemed at any time, the Trustee shall select the Securities to be redeemed in compliance with the requirements of the principal national securities exchange, if any, on which the Securities being redeemed are listed, or, in the absence of such requirements or if the Securities are not listed on a national securities exchange, on a pro rata basis. The Trustee shall make the selection from the Securities outstanding and not previously called for redemption and shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the principal amount at maturity thereof to be redeemed. Securities in denominations of $1,000 or less may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal amount at maturity of Securities that have denominations larger than $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. SECTION 3.03 Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail or cause to be mailed a notice of redemption by first class mail to each Holder at its registered address whose Securities are to be redeemed, with a copy to the Trustee. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. Each notice for redemption shall identify the Securities to be redeemed and shall state: (1) the Redemption Date; (2) the redemption price and the amount of accrued interest, if any, to be paid (the "Redemption Price"); (3) the paragraph of the Securities pursuant to which the Securities are being redeemed; 39 -31- (4) the name and address of the Paying Agent; (5) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (6) that, unless the Company defaults in making the redemption payment, the Accreted Value shall cease to accrete and interest, if any, on Securities called for redemption shall cease to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Securities is to receive payment of the Redemption Price upon surrender to the Paying Agent of the Securities redeemed; (7) if any Security is being redeemed in part, the portion of the principal amount at maturity of such Security to be redeemed and that, after the Redemption Date, and upon surrender of such Security, a new Security or Securities in the aggregate principal amount at maturity equal to the unredeemed portion thereof will be issued; and (8) if less than all the Securities are to be redeemed, the identification of the particular Securities (or portion thereof) to be redeemed, as well as the aggregate principal amount at maturity of Securities to be redeemed and the aggregate principal amount at maturity of Securities to be outstanding after such partial redemption. SECTION 3.04 Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price. Upon surrender to the Trustee or Paying Agent, such Securities called for redemption shall be paid at the Redemption Price. SECTION 3.05 Deposit of Redemption Price. On or before the Redemption Date, the Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price of all Securities to be redeemed on that date. The Paying Agent shall promptly return to the Company any U.S. Legal Tender so deposited that is not required for that purpose, except with respect to monies owed as obligations to the Trustee pursuant to Article Seven. If the Company complies with the preceding paragraph, then, unless the Company defaults in the payment of such Redemption Price, accretion or interest, as the case may be, on the Securities to be redeemed will cease to accrue on and after the applicable Redemption Date, whether or not such Securities are presented for payment. 40 -32- SECTION 3.06 Securities Redeemed in Part. Upon surrender of a Security that is to be redeemed in part, the Trustee shall authenticate for the Holder a new Security or Securities equal in principal amount at maturity to the unredeemed portion of the Security surrendered. ARTICLE FOUR COVENANTS SECTION 4.01 Payment of Securities. The Company shall pay the Accreted Value of and interest on the Securities on the dates and in the manner provided in the Securities. An installment of principal of or interest on the Securities shall be considered paid on the date it is due if the Trustee or Paying Agent holds on that date U.S. Legal Tender designated for and sufficient to pay the installment. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Notwithstanding anything to the contrary contained in this Indenture, the Company may, to the extent it is required to do so by law, deduct or withhold income or other similar taxes imposed by the United States of America from principal, premium or interest payments hereunder. SECTION 4.02 Maintenance of Office or Agency. The Company shall maintain the office or agency required under Section 2.03. The Company shall give prior notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 10.02. SECTION 4.03 Limitation on Restricted Payments. Neither the Company nor any of its Subsidiaries will, directly or indirectly, make any Restricted Payment if at the time of such Restricted Payment and immediately after giving effect thereto: 41 -33- (i) a Default or an Event of Default shall have occurred and be continuing at the time of or after giving effect to such Restricted Payment; or (ii) the Company is not able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.12 hereof; or (iii) the aggregate amount of Restricted Payments made subsequent to the Issue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined by the Board of Directors of the Company in good faith) exceeds the sum of: (A) (x) 100% of the aggregate Consolidated EBITDA of the Company (or, in the event such Consolidated EBITDA shall be a deficit, minus 100% of such deficit) accrued subsequent to the Issue Date to the most recent date for which financial information is available to the Company, taken as one accounting period; less (y) 1.4 times Consolidated Interest Expense for the same period, plus (B) 100% of the aggregate net proceeds, including the fair market value of property other than cash as determined by the Board of Directors of the Company in good faith, received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale on or subsequent to the Issue Date of Qualified Capital Stock of the Company (excluding (i) any net proceeds from issuances and sales financed directly or indirectly using funds borrowed from the Company or any Subsidiary of the Company, until and to the extent such borrowing is repaid, but including the proceeds from the issuance and sale of any securities convertible into or exchangeable for Qualified Capital Stock to the extent such securities are so converted or exchanged and including any additional proceeds received by the Company upon such conversion or exchange and (ii) any net proceeds received from issuances and sales that are used to consummate a transaction described in clauses (2) and (3) of paragraph (B) below), plus (C) without duplication of any amount included in clause (iii)(B) above, 100% of the aggregate net proceeds, including the fair market value of property other than cash (valued as provided in clause (iii)(B) above), received by the Company as a capital contribution on or after the Issue Date, plus (D) the amount equal to the net reduction in Investments (other than Permitted Investments) made by the Company or any of its Subsidiaries in any Person resulting from (i) repurchases or redemptions of such Investments by such 42 -34- Person, proceeds realized upon the sale of such Investment to an unaffiliated purchaser and repayments of loans or advances or other transfers of assets by such Person to the Company or any Subsidiary of the Company or (ii) the redesignation of Unrestricted Subsidiaries as Subsidiaries (valued in each case as provided in the definition of "Investment") not to exceed, in the case of any Subsidiary, the amount of Investments previously made by the Company or any Subsidiary in such Unrestricted Subsidiary, which amount was included in the calculation of Restricted Payments; provided, however, that no amount shall be included under this clause (D) to the extent it is already included in Consolidated EBITDA, plus (E) the aggregate net cash proceeds received by a Person in consideration for the issuance of such Person's Capital Stock (other than Disqualified Capital Stock) that are held by such Person at the time such Person is merged with and into the Company in accordance with Section 5.01 subsequent to the Issue Date; provided, however, that concurrently with or immediately following such merger the Company uses an amount equal to such net cash proceeds to redeem or repurchase the Company's Capital Stock, plus (F) $2,500,000. Notwithstanding the foregoing, these provisions will not prohibit: (1) the payment of any dividend or the making of any distribution within 60 days after the date of its declaration if such dividend or distribution would have been permitted on the date of declaration; (2) the purchase, redemption or other acquisition or retirement of any Capital Stock of the Company or any warrants, options or other rights to acquire shares of any class of such Capital Stock either (x) solely in exchange for shares of Qualified Capital Stock or other rights to acquire Qualified Capital Stock or (y) through the application of the net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock or warrants, options or other rights to acquire Qualified Capital Stock or (z) in the case of Disqualified Capital Stock, solely in exchange for, or through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of, Disqualified Capital Stock that has a redemption date no earlier than, and requires the payment of current dividends or distributions in cash no earlier than, in each case, the Disqualified Capital Stock being purchased, redeemed or otherwise acquired or retired; 43 -35- (3) the acquisition of Indebtedness of the Company that is subordinate or junior in right of payment to the Securities either (x) solely in exchange for shares of Qualified Capital Stock (or warrants, options or other rights to acquire Qualified Capital Stock), for shares of Disqualified Capital Stock that have a redemption date no earlier than, and require the payment of current dividends or distributions in cash no earlier than, in each case, the maturity date and interest payments dates, respectively, of the Indebtedness being acquired, or for Indebtedness of the Company that is subordinate or junior in right of payment to the Securities, at least to the extent that the Indebtedness being acquired is subordinated to the Securities and has a Weighted Average Life to Maturity no less than that of the Indebtedness being acquired or (y) through the application of the net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock (or warrants, options or other rights to acquire Qualified Capital Stock), shares of Disqualified Capital Stock that have a redemption date no earlier than, and require the payment of current dividends or distributions in cash no earlier than, in each case, the maturity date and interest payments dates, respectively, of the Indebtedness being refinanced, or Indebtedness of the Company that is subordinate or junior in right of payment to the Securities at least to the extent that the Indebtedness being acquired is subordinated to the Securities and has a Weighted Average Life to Maturity no less than that of the Indebtedness being refinanced; (4) payments by the Company to repurchase Capital Stock or other securities from employees of the Company in an aggregate amount not to exceed $5,000,000; (5) payments to enable the Company to redeem or repurchase stock purchase or similar rights in an aggregate amount not to exceed $500,000; (6) payments, not to exceed $100,000 in the aggregate, to enable the Company to make cash payments to holders of its Capital Stock in lieu of the issuance of fractional shares of its Capital Stock; (7) payments made pursuant to any merger, consolidation or sale of assets effected in accordance with Section 5.01; provided, however, that no such payment may be made pursuant to this clause (7) unless, after giving effect to such transaction (and the incurrence of any Indebtedness in connection therewith and the use of the proceeds thereof), the Company would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.12 such that after incurring that $1.00 of additional Indebtedness, the Leverage Ratio would be less than 6.0 to 1; and 44 -36- (8) the payments of dividends on the Company's Common Stock after an initial public offering of Common Stock in an annual amount not to exceed 6.0% of the gross proceeds (before deducting underwriting discounts and commissions and other fees and expenses of the offering) received by the Company from shares of Common Stock sold for the account of the Company (and not for the account of any stockholder) in such initial public offering; provided, however, that in the case of clauses (3), (4), (5), (6), (7) and (8), no Event of Default shall have occurred or be continuing at the time of such payment or as a result thereof. In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date, amounts expended pursuant to clauses (1), (4), (5), (6), (7) and (8) shall be included in such calculation. SECTION 4.04 Corporate Existence. Except as otherwise permitted by Article Five, the Company shall do or cause to be done all things reasonably necessary to preserve and keep in full force and effect its corporate or other existence and the corporate or other existence of each of its Significant Subsidiaries in accordance with the respective organizational documents of each such Significant Subsidiary and the material rights (charter and statutory) and franchises of the Company and each such Significant Subsidiary; provided, however, that the Company shall not be required to preserve, with respect to itself, any material right or franchise and, with respect to any of its Significant Subsidiaries, any such existence, material right or franchise, if the Board of Directors of the Company or such Significant Subsidiary, as the case may be, shall determine that the preservation thereof is no longer reasonably necessary or desirable in the conduct of the business of the Company or any such Significant Subsidiary. SECTION 4.05 Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon it or any of its Subsidiaries or properties of it or any of its Subsidiaries and (ii) all material lawful claims for labor, materials, supplies and services that, if unpaid, might by law become a Lien upon the property of it or any of its Subsidiaries; provided, however, that there shall not be required to be paid or discharged any such tax, assessment or charge, the amount, applicability or validity of which is being contested in good faith by appropriate proceedings and for which adequate provision has been made or where the failure to effect such payment or discharge is not adverse in any material respect to the Holders. 45 -37- SECTION 4.06 Maintenance of Properties and Insurance. (a) The Company shall, and shall cause each of its Subsidiaries to, maintain its material properties in normal condition (subject to ordinary wear and tear) and make all reasonably necessary repairs, renewals or replacements thereto as in the judgment of the Company may be reasonably necessary to the conduct of the business of the Company and its Subsidiaries; provided, however, that nothing in this Section 4.06 shall prevent the Company or any of its Subsidiaries from discontinuing the operation and maintenance of any of its properties, if such properties are, in the reasonable and good faith judgment of the Board of Directors of the Company or the Subsidiary, as the case may be, no longer reasonably necessary in the conduct of their respective businesses. (b) The Company shall provide or cause to be provided, for itself and each of its Subsidiaries, insurance (including appropriate self- insurance) against loss or damage of the kinds that, in the reasonable, good faith opinion of the Company, are reasonably adequate and appropriate for the conduct of the business of the Company and such Subsidiaries. SECTION 4.07 Compliance Certificate; Notice of Default. (a) The Company shall deliver to the Trustee, within 120 days after the end of the Company's fiscal year, an officers' certificate (signed by the principal executive officer, principal financial officer or principal accounting officer) stating that a review of its activities and the activities of its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing officers with a view to determining whether it has kept, observed, performed and fulfilled its obligations under this Indenture and further stating, as to each such officer signing such certificate, that to the best of his knowledge the Company during such preceding fiscal year has kept, observed, performed and fulfilled each and every such obligation and no Default or Event of Default occurred during such year and at the date of such certificate there is no Default or Event of Default that has occurred and is continuing or, if such signers do know of such Default or Event of Default, the certificate shall describe the Default or Event of Default and its status with particularity. The Officers' Certificate shall also notify the Trustee should the Company elect to change the manner in which it fixes its fiscal year end. (b) The annual financial statements delivered to the Trustee pursuant to Section 4.09 shall be accompanied by a written report of the Company's independent accountants that in conducting their audit of the financial statements which are a part of such annual report or such annual financial statements nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article Four, Five or Six insofar as they relate to accounting matters or, if any such violation has occurred, specifying the nature and 46 -38- period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) So long as any of the Securities are outstanding (i) if any Default or Event of Default has occurred and is continuing or (ii) if any Holder seeks to exercise any remedy hereunder with respect to a claimed Default under this Indenture or the Securities, the Company shall promptly deliver to the Trustee by registered or certified mail or by telegram, telex or facsimile transmission followed by hard copy by registered or certified mail an Officers' Certificate specifying such event, notice or other action. SECTION 4.08 Compliance with Laws. The Company shall comply, and shall cause each of its Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except for such noncompliances as are not in the aggregate reasonably likely to have a material adverse effect on the financial condition or results of operations of the Company and its Subsidiaries taken as a whole. SECTION 4.09 Reports. So long as any of the Securities are outstanding, the Company will provide to the holders of Securities and file with the Commission copies of the annual reports and of the information, documents, and other reports that the Company would have been required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act regardless of whether the Company is then obligated to file such reports. SECTION 4.10 Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of, premium or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the obligations or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein 47 -39- granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.11 Limitations on Transactions with Affiliates. Neither the Company nor any of its Subsidiaries will, directly or indirectly, enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with or for the benefit of any of its Affiliates (other than transactions between the Company and a Wholly Owned Subsidiary of the Company or among Wholly Owned Subsidiaries of the Company) (an "Affiliate Transaction"), other than Affiliate Transactions on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction on an arm's-length basis from a Person that is not an Affiliate; provided, however, that for a transaction or series of related transactions involving value of $1,000,000 or more, such determination will be made in good faith by a majority of the members of the Board of Directors of the Company and by a majority of the disinterested members of the Board of Directors of the Company, if any; provided, further, that for a transaction or series of related transactions involving value of $5,000,000 or more, the Board of Directors of the Company has received an opinion from a nationally recognized investment banking firm that such Affiliate Transaction is fair, from a financial point of view, to the Company or such Subsidiary. The foregoing restrictions will not apply to (1) reasonable and customary directors' fees, indemnification and similar arrangements and payments thereunder, (2) any obligations of the Company under the Financial Monitoring and Oversight Agreements (provided that each amendment of any of the foregoing agreements shall be subject to the limitations of this covenant) or any employment agreement, noncompetition or confidentiality with any officer of the Company, (3) reasonable and customary investment banking, financial advisory, commercial banking and similar fees and expenses paid to BT Securities Corporation and its Affiliates, (4) any Restricted Payment permitted to be made pursuant to Section 4.03, (5) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors of the Company, (6) loans or advances to employees in the ordinary course of business of the Company or any of its Subsidiaries consistent with past practices, (7) payments made in connection with the Osborn Acquisition, the Osborn Add-on Acquisitions, the Osborn Ft. Myers Disposition and the Pending Acquisitions, including fees to Hicks Muse as all such terms are defined in that certain Offering Memorandum dated February 14, 1997 relating to the Securities, and (8) the issuance of Capital Stock of the Company (other than Disqualified Capital Stock). 48 -40- SECTION 4.12 Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock of Subsidiaries. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (other than Permitted Indebtedness) and the Company's Subsidiaries will not issue any Preferred Stock; provided, however, that the Company and its Subsidiaries may incur Indebtedness and the Company's Subsidiaries may issue shares of Preferred Stock if, in either case, the Company's Leverage Ratio at the time of incurrence of such Indebtedness or the issuance of such Preferred Stock, as the case may be, after giving pro forma effect to such incurrence or issuance as of such date and to the use of proceeds therefrom is less than 7.0 to 1. SECTION 4.13 Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. Neither the Company nor any of its Subsidiaries will, directly or indirectly, create or otherwise cause to permit to exist or become effective, by operation of the charter of such Subsidiary or by reason of any agreement, instrument, judgement, decree, rule, order, statute or governmental regulation, any encumbrance or restriction on the ability of any Subsidiary to (a) pay dividends or make any other distributions on its Capital Stock; (b) make loans or advances or pay any Indebtedness or other obligation owed to the Company or any of its Subsidiaries; or (c) transfer any of its property or assets to the Company, except for such encumbrances or restrictions existing under or by reason of: (1) applicable law, (2) this Indenture, (3) customary non-assignment provisions of any lease governing a leasehold interest of the Company or any Subsidiary, (4) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, (5) agreements existing on the Issue Date (including the New Credit Facility and the Commodore Indenture) as such agreements are from time to time in effect; provided, however, that any amendments or modifications of such agreements that affect the encumbrances or restrictions of the types subject to this Section 4.13 shall not result in such encumbrances or restrictions being less favorable to the Company in any material respect, as determined in good faith by the Board of Directors of the Company, than the provisions as in effect before giving effect to the respective amendment or modification, (6) any restriction with respect to such a Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Subsidiary pending the closing of such sale or disposition, (7) an agreement effecting a refinancing, replacement or substitution of Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clause (2), 49 -41- (4) or (5) above; provided, however, that the provisions relating to such encumbrance or restriction contained in any such refinancing, replacement or substitution agreement are not less favorable to the Company in any material respect as determined in good faith by the Board of Directors of the Company than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clause (2), (4) or (5) above, (8) any agreement evidencing Indebtedness permitted under this Indenture; provided, however, that the provisions relating to such encumbrance or restriction contained in such agreement are not less favorable to the Company in any material respect as determined in good faith by the Board of Directors of the Company than the provisions relating to such encumbrance or restriction contained in this Indenture, or (9) restrictions on the transfer of assets subject to any Lien imposed by the holder of such Lien. SECTION 4.14 Change of Control. (a) In the event of a Change of Control, each Holder will have the right to require the Company to purchase all or a portion of such Holder's Securities pursuant to the offer described in paragraph (b) below (the "Change of Control Offer"), at a purchase price equal to (i) 101% of the Accreted Value thereof on the Change of Control Payment Date if the Change of Control Payment Date is on or before February 1, 2002 and (ii) 101% of the principal amount at maturity thereof, plus, without duplication, accrued and unpaid interest, if any, to the Change of Control Payment Date if such Change of Control Payment Date is after February 1, 2002. Prior to the mailing of the notice referred to below, but in any event within 30 days following the date on which the Company becomes aware that a Change of Control has occurred, the Company covenants that if the purchase of the Securities would violate or constitute a default under any other Indebtedness of the Company, then the Company shall, to the extent needed to permit such purchase of Securities, either (i) repay all such Indebtedness and terminate all commitments outstanding thereunder or (ii) obtain the requisite consents, if any, under such Indebtedness required to permit the purchase of the Securities as provided below. The Company will first comply with the covenant in the preceding sentence before it will be required to make the Change of Control Offer or purchase the Securities pursuant to the provisions described below. (b) Within 30 days following the date on which the Company becomes aware that a Change of Control has occurred (the "Change of Control Date"), the Company shall send, by first class mail, postage prepaid, a notice to each Holder of Securities, which notice shall govern the terms of the Change of Control Offer. The notice to the Holders shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Change of Control Offer. Such notice shall state: (1) that the Change of Control Offer is being made pursuant to this Section 4.14 and that all Securities validly tendered and not withdrawn will be accepted for payment; (2) the purchase price (including the amount of accrued interest, if any) and the purchase date (which shall be no earlier than 30 days nor later than 45 days 50 -42- from the date such notice is mailed, other than as may be required by law) (the "Change of Control Payment Date"); (3) that any Security not tendered will continue to accrue interest; (4) that, unless the Company defaults in making payment therefor, any Security accepted for payment pursuant to the Change of Control Offer shall cease to accrete or accrue interest, as the case may be, after the Change of Control Payment Date; (5) that Holders electing to have a Security purchased pursuant to a Change of Control Offer will be required to surrender the Security, properly endorsed for transfer together with such customary documents as the Company reasonably may request, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than five Business Days prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Security purchased; (7) that Holders whose Securities are purchased only in part will be issued new Securities in a principal amount equal to the unpurchased portion of the Securities surrendered; and (8) the circumstances and relevant facts regarding such Change of Control. (c) On or before the Change of Control Payment Date, the Company shall (i) accept for payment Securities or portions thereof (in integral multiples of $1,000) validly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase price of all Securities so tendered and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price out of the funds deposited with the Paying Agent in accordance with the preceding sentence. The Trustee shall promptly authenticate and mail to such Holders new Securities equal in principal amount to any unpurchased portion of the Securities surrendered. Upon the payment of the purchase price 51 -43- for the Securities accepted for purchase, the Trustee shall return the Securities purchased to the Company for cancellation. Any amounts remaining after the purchase of Securities pursuant to a Change of Control Offer shall be returned within three Business Days by the Trustee to the Company. (d) The Company will comply with the requirements of Rule 14e- 1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the purchase of the Securities pursuant to a Change of Control Offer. To the extent the provisions of any such rule conflict with the provisions of this Indenture relating to a Change of Control Offer, the Company shall comply with the provisions of such rule and be deemed not to have breached its obligations relating to such Change of Control Offer by virtue thereof. (e) Paragraphs (a)-(d) of this Section 4.14 notwithstanding, the Company shall not be required to make a Change of Control Offer if, instead, the Company elects to effect a Change of Control Redemption in compliance with the requirements listed on the Securities in Exhibit A and Exhibit B hereof. SECTION 4.15. Limitation on Asset Sales. (a) Neither the Company nor any of its Subsidiaries will consummate an Asset Sale unless (i) the Company or the applicable Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by management of the Company or, if such Asset Sale involves consideration in excess of $2,500,000, by the Board of Directors of the Company, as evidenced by a board resolution), (ii) at least 75% of the consideration received by the Company or such Subsidiary, as the case may be, from such Asset Sale is in cash or Cash Equivalents (other than in the case where the Company is exchanging all or substantially all the assets of one or more broadcast businesses operated by the Company (including by way of the transfer of capital stock) for all or substantially all the assets (including by way of the transfer of capital stock) constituting one or more broadcast businesses operated by another Person, in which event the foregoing requirement with respect to the receipt of cash or Cash Equivalents shall not apply) and is received at the time of such disposition and (iii) upon the consummation of an Asset Sale, the Company applies, or causes such Subsidiary to apply, such Net Cash Proceeds within 180 days of receipt thereof, either (A) to repay any Senior Debt of the Company or any Indebtedness of a Subsidiary of the Company (and, to the extent such Senior Debt relates to principal under a revolving credit or similar facility, to obtain a corresponding reduction in the commitments thereunder), (B) to reinvest, or to be contractually committed to reinvest pursuant to a binding agreement, in Productive Assets and, in the latter case, to have so reinvested within 360 days of the date of receipt of such Net Cash Proceeds or (C) to purchase Securities tendered 52 -44- to the Company for purchase at a price equal to 100% of the Accreted Value thereof plus accrued interest thereon, if any, to the date of purchase pursuant to an offer to purchase made by the Company as set forth below (a "Net Proceeds Offer"); provided, however, that the Company may defer making a Net Proceeds Offer until the aggregate Net Cash Proceeds from Asset Sales not otherwise applied in accordance with this Section 4.15 equal or exceed $5,000,000. (b) Subject to the deferral right set forth in the final proviso of paragraph (a), each notice of a Net Proceeds Offer will be mailed, by first class mail, to Holders of Securities not more than 180 days after the relevant Asset Sale or, in the event the Company or a Subsidiary has entered into a binding agreement as provided in (B) above, within 180 days following the termination of such agreement but in no event later than 360 days after the relevant Asset Sale. Such notice will specify, among other things, the purchase date (which will be no earlier than 30 days nor later than 45 days from the date such notice is mailed, except as otherwise required by law) and will otherwise comply with the procedures set forth in this Indenture. Upon receiving notice of the Net Proceeds Offer, holders of Securities may elect to tender their Securities in whole or in part in integral multiples of $1,000. To the extent holders properly tender Securities in an amount exceeding the Net Proceeds Offer, Securities of tendering holders will be repurchased on a pro rata basis (based upon the principal amount at maturity tendered. To the extent that the aggregate principal amount at maturity of Securities tendered pursuant to any Net Proceeds Offer is less than the amount of Net Cash Proceeds subject to such Net Proceeds Offer, the Company may use any remaining portion of such Net Cash Proceeds not required to fund the repurchase of tendered Securities for any purposes otherwise permitted by this Indenture. Upon the consummation of any Net Proceeds Offer, the amount of Net Cash Proceeds subject to any future Net Proceeds Offer from the Asset Sales giving rise to such Net Cash Proceeds shall be deemed to be zero. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act to the extent applicable in connection with the repurchase of Securities pursuant to a Net Proceeds Offer. SECTION 4.16. Limitation on Asset Swaps. The Company will not, and will not permit any Subsidiary to, engage in any Asset Swaps, unless: (i) at the time of entering into such Asset Swap and immediately after giving effect to such Asset Swap, no Default or Event of Default shall have occurred or be continuing or would occur as a consequence thereof, (ii) in the event such Asset Swap involves an aggregate amount in excess of $1,000,000, the terms of such Asset Swap have been approved by a majority of the members of the Board of Directors of the Company and (iii) in the event such Asset Swap involves an aggregate amount in excess of $5,000,000, the Company has received a written opinion from an independent investment banking firm of nationally recognized standing that 53 -45- such Asset Swap is fair to the Company or such Subsidiary, as the case may be, from a financial point of view. ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01 Merger, Consolidation and Sale of Assets. (a) The Company shall not, in a single transaction or through a series of related transactions, consolidate with or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, another Person or adopt a plan of liquidation, unless: (1) either (A) the Company is the surviving or continuing Person or (B) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person that acquires by conveyance, transfer or lease the properties and assets of the Company substantially as an entirety or in the case of a plan of liquidation, the Person to which assets of the Company have been transferred, shall be a corporation, partnership or trust organized and existing under the laws of the United States or any State thereof or the District of Columbia and such surviving or transferee Person shall expressly assume all the obligations of the Company under the Securities and this Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (2) immediately after giving effect to such transaction and the use of the proceeds therefrom (on a pro forma basis, including giving effect to any Indebtedness incurred or anticipated to be incurred in connection with such transaction), the Company (in the case of clause (A) of the foregoing clause (1)) or the surviving or transferee Person (in the case of clause (B) of the foregoing clause (1)) shall be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.12; (3) immediately after giving effect to such transactions no Default or Event of Default shall have occurred and be continuing; and (4) the Company has delivered to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate and Opinion of Counsel, each stating that 54 -46- such consolidation, merger or transfer complies with this Indenture and that all conditions precedent in this Indenture relating to such transaction have been satisfied. (b) For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of related transactions) of all or substantially all of the properties and assets of one or more Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. Notwithstanding the foregoing clauses (2) and (3), (a) any Subsidiary of the Company may consolidate with, merge into or transfer all or part of its properties and assets to the Company and (b) the Company may merge with a corporate Affiliate thereof incorporated solely for the purpose of reincorporating the Company in another jurisdiction in the United States to realize tax or other benefits. SECTION 5.02 Successor Corporation Substituted. Upon any consolidation or merger, or any transfer of assets in accordance with Section 5.01, the successor Person formed by such consolidation or into which the Company is merged or to which such transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein. When a successor corporation assumes all of the obligations of the Company hereunder and under the Securities and agrees to be bound hereby and thereby, the predecessor shall be released from such obligations. ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01 Events of Default. An "Event of Default" occurs if: (1) the Company defaults in the payment of interest on the Securities when the same becomes due and payable and the Default continues for a period of 30 days; or (2) the Company defaults in the payment of the Accreted Value or premium, if any, of any Securities when the same becomes due and payable, at maturity, upon redemption or otherwise; or 55 -47- (3) the Company fails to observe or perform any other covenant or agreement contained in the Securities or this Indenture and the Default continues for a period of 30 days after the Company receives written notice thereof specifying such Default from the Trustee or the Holders of at least 25% in aggregate principal amount at maturity of the outstanding Securities; or (4) there shall be a failure to pay at the final stated maturity (giving effect to any extensions thereof) the principal amount of any Indebtedness of the Company or any Subsidiary of the Company, or the acceleration of the final stated maturity (giving effect to any extensions thereof) of any such Indebtedness, if the aggregate principal amount of such Indebtedness, together with the aggregate principal amount of any other such Indebtedness in default for failure to pay principal at the final stated maturity (giving effect to any extensions thereof) or which has been accelerated, aggregates $5,000,000 or more at any time, in each case after a 10-day period during which such default shall not have been cured or such acceleration rescinded; or (5) one or more judgments in an aggregate amount in excess of $5,000,000 (which are not covered by insurance as to which the insurer has not disclaimed coverage) shall have been rendered against the Company or any of its Significant Subsidiaries and such judgments remain undischarged or unstayed for a period of 60 days after such judgment or judgments become final and non-appealable; or (6) the Company or any Significant Subsidiary (A) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (B) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (C) consents to the appointment of a custodian of it or for substantially all of its property, (D) consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it or (E) makes a general assignment for the benefit of its creditors; or (7) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of the Company or any Significant Subsidiary in an involuntary case or proceeding under any Bankruptcy Law, which shall (A) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of the Company or any Significant Subsidiary, (B) appoint a custodian of the Company or any Significant Subsidiary or for substantially all of its property or (C) order the winding-up or liquidation of its affairs; and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days. 56 -48- SECTION 6.02 Acceleration. If an Event of Default (other than an Event of Default specified in Section 6.01(6) or (7) with respect to the Company) occurs and is continuing and has not been waived pursuant to Section 6.04, the Trustee may, and the Trustee upon the request of Holders of 25% in principal amount at maturity of the outstanding Securities shall, or the Holders of at least 25% in aggregate principal amount at maturity of the Securities then outstanding may, declare the Default Amount to be due and payable by notice in writing to the Company and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the New Credit Facility, shall become due and payable upon the first to occur of an acceleration under the New Credit Facility or five Business Days after receipt by the Company and the Representative under the New Credit Facility of such Acceleration Notice (unless all Events of Default specified in such Acceleration Notice have been cured or waived). If an Event of Default specified in Section 6.01(6) or (7) with respect to the Company occurs and is continuing with respect to the Company, then the Default Amount shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholder. At any time after a declaration of acceleration with respect to the Securities, the Holders of a majority in principal amount at maturity of the Securities then outstanding (by notice to the Trustee) may rescind and cancel a declaration of acceleration and its consequences if (i) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction, (ii) all existing Events of Default have been cured or waived, except non-payment of the Default Amount and any accrued interest on the Securities that has become due solely by such declaration of acceleration, (iii) to the extent the payment of such interest is lawful, interest (at the same rate as specified in the Securities) on overdue installments of interest and overdue payments of Accreted Value and premium, which has become due otherwise than by such declaration of acceleration, has been paid, (iv) the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances and (v) in the event of the cure or waiver of a Default or Event of Default of the type described in Sections 6.01(6) and (7), the Trustee shall have received an Officers' Certificate and an Opinion of Counsel that such Default or Event of Default has been cured or waived and the Trustee shall be entitled to conclusively rely upon such Officers' Certificate and Opinion of Counsel. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 6.03 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, premium or interest, if any, on the Securities or to enforce the performance of any provision of the Securities or this Indenture. 57 -49- The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. SECTION 6.04 Waiver of Past Defaults. Subject to Sections 6.07 and 9.02, the Holders of a majority in principal amount of the outstanding Securities by notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a Default in the payment of the Accreted Value of or interest on any Security as specified in clauses (1) and (2) of Section 6.01. SECTION 6.05 Control by Majority. Subject to Section 2.09, the Holders of a majority in principal amount at maturity of the outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it, including, without limitation, any remedies provided for in Section 6.03. Subject to Section 7.01, however, the Trustee may, in its discretion, refuse to follow any direction that conflicts with any law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of another Securityholder, or that may involve the Trustee in personal liability; provided that the Trustee may take any other action deemed proper by the Trustee, in its discretion, that is not inconsistent with such direction. SECTION 6.06 Limitation on Suits. A Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee notice of a continuing Event of Default; (2) Holders of at least 25% in principal amount at maturity of the outstanding Securities make a written request to the Trustee to pursue the remedy; (3) such Holders offer to the Trustee indemnity or security against any loss, liability or expense to be incurred in compliance with such request which is reasonably satisfactory to the Trustee; 58 -50- (4) the Trustee does not comply with the request within 45 days after receipt of the request and the offer of satisfactory indemnity or security; and (5) during such 45-day period the Holders of a majority in principal amount of the outstanding Securities do not give the Trustee a direction which, in the opinion of the Trustee, is inconsistent with the request. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over such other Securityholder. SECTION 6.07 Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of, premium and interest on a Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08 Collection Suit by Trustee. If an Event of Default in payment of principal or interest specified in clause (1) or (2) of Section 6.01 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Securities for the whole amount of principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest at the rate set forth in the Securities and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09 Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, taxes, disbursements and advances of the Trustee, its agents and counsel) and the Securityholders allowed in any judicial proceedings relating to the Company or any other obligor upon the Securities, any of their respective creditors or any of their respective property, and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any custodian in any such judicial proceedings is hereby authorized by each Securityholder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of 59 -51- such payments directly to the Securityholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, taxes, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07. The Company's payment obligations under this Section 6.09 shall be secured in accordance with the provisions of Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding. SECTION 6.10. Priorities. If the Trustee collects any money pursuant to this Article Six, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Sections 6.09 and 7.07; Second: if the Holders are forced to proceed against the Company directly without the Trustee, to Holders for their collection costs; Third: to Holders for amounts due and unpaid on the Securities for Accreted Value or principal, premium and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and Fourth: to the Company or any other obligor on the Securities, as their interests may appear, or as a court of competent jurisdiction may direct. The Trustee, upon prior notice to the Company, may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. SECTION 6.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a 60 -52- suit by the Trustee, a suit by a Holder pursuant to Section 6.07, or a suit by a Holder or Holders of more than 10% in principal amount at maturity of the outstanding Securities. ARTICLE SEVEN TRUSTEE SECTION 7.01 Duties of Trustee. (a) If a Default or an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise thereof as a prudent Person would exercise or use under the circumstances in the conduct of its own affairs. (b) Except during the continuance of a Default or an Event of Default: (1) The Trustee need perform only those duties as are specifically set forth in this Indenture or the TIA and no duties, covenants, responsibilities or obligations shall be implied in this Indenture that are adverse to the Trustee. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates (including Officers' Certificates) or opinions (including Opinions of Counsel) furnished to the Trustee and conforming to the requirements of this Indenture. However, as to any certificates or opinions which are required by any provision of this Indenture to be delivered or provided to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) Notwithstanding anything to the contrary herein contained, the Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.01. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. 61 -53- (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.02, 6.04 or 6.05. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01. (f) The Trustee shall not be liable for interest on any money or assets received by it except as the Trustee may agree with the Company. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. (g) In the absence of bad faith, negligence or wilful misconduct on the part of the Trustee, the Trustee shall not be responsible for the application of any money by any Paying Agent other than the Trustee. SECTION 7.02 Rights of Trustee. Subject to Section 7.01: (a) The Trustee may rely and shall be fully protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may consult with counsel and may require an Officers' Certificate or an Opinion of Counsel, which shall conform to Sections 10.04 and 10.05. The Trustee shall not be liable for and shall be fully protected in respect of any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent or attorney appointed with due care. 62 -54- (d) The Trustee shall not be liable for any action that it takes or omits to take in good faith that it reasonably believes to be authorized or within its rights or powers. (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate (including any Officers' Certificate), statement, instrument, opinion (including any Opinion of Counsel), notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled, upon reasonable notice to the Company, to examine the books, records, and premises of the Company, personally or by agent or attorney. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders of the Securities pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred by it in compliance with such request, order or direction. (g) The Trustee may consult with counsel, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability with respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. SECTION 7.03 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company, any Subsidiary or Unrestricted Subsidiary, or their respective Affiliates, with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.04 Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, and it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement of the Company in this Indenture or the Securities other than the Trustee's certificate of authentication. 63 -55- SECTION 7.05 Notice of Default. If a Default or an Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Securityholder notice of the uncured Default or Event of Default within 60 days after such Default or Event of Default occurs. Except in the case of a Default or an Event of Default in payment of Accreted Value or principal of, premium or interest on, any Security, including an accelerated payment and the failure to make payment on the Change of Control Payment Date pursuant to a Change of Control Offer or on the Proceeds Purchase Date pursuant to a Net Proceeds Offer and, except in the case of a failure to comply with Article Five, the Trustee may withhold the notice if and so long as its Board of Directors, the executive committee of its Board of Directors or a committee of its directors and/or Trust Officers in good faith determines that withholding the notice is in the interest of the Security holders. The Trustee shall not be deemed to have knowledge of a Default or Event of Default other than (i) any Event of Default occurring pursuant to Section 6.01(1), 6.01(2) or 4.01; or (ii) any Default or Event of Default of which a Trust Officer shall have received written notification or obtained actual knowledge. SECTION 7.06 Reports by Trustee to Holders. Within 60 days after each February 1 of each year beginning with February 1, 1998, the Trustee shall, to the extent that any of the events described in TIA Section 313(a) occurred within the previous twelve months, but not otherwise, mail to each Securityholder a brief report dated as of such date that complies with TIA Section 313(a). The Trustee also shall comply with TIA Sections 313(b) and 313(c). A copy of each report at the time of its mailing to Securityholders shall be mailed to the Company and filed with the SEC and each stock exchange, if any, on which the Securities are listed. The Company shall promptly notify the Trustee if the Securities become listed on any stock exchange and the Trustee shall comply with TIA Section 313(d). SECTION 7.07 Compensation and Indemnity. The Company shall pay to the Trustee from time to time such compensation as may be agreed upon by the Company and the Trustee. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses, disbursements and advances incurred or made by it in connection with the performance of its duties and the 64 -56- discharge of its obligations under this Indenture. Such expenses shall include the reasonable fees and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee and its agents, employees, officers, stockholders and directors for, and hold them harmless against, any loss, liability or expense incurred by them except for such actions to the extent caused by any negligence, bad faith or willful misconduct on their part, arising out of or in connection with the acceptance or administration of this trust including the reasonable costs and expenses of defending themselves against any claim or liability in connection with the exercise or performance of any of their rights, powers or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel; provided that the Company will not be required to pay such fees and expenses if it assumes the Trustee's defense and there is no conflict of interest between the Company and the Trustee in connection with such defense as reasonably determined by the Trustee. The Company need not pay for any settlement made without its written consent. The Company need not reimburse any expense or indemnify against any loss or liability to the extent incurred by the Trustee through its negligence, bad faith or willful misconduct. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a lien prior to the Securities on all assets or money held or collected by the Trustee, in its capacity as Trustee, except assets or money held in trust to pay principal of or interest on particular Securities. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(6) or (7) occurs, such expenses and the compensation for such services shall be paid to the extent allowed under any Bankruptcy Law. SECTION 7.08 Replacement of Trustee. The Trustee may resign by so notifying the Company in writing at least 10 days in advance. The Holders of a majority in principal amount at maturity of the outstanding Securities may remove the Trustee by so notifying the Company and the Trustee and may appoint a successor Trustee with the Company's consent. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only with the successor Trustee's acceptance of appointment as provided in this Section. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; 65 -57- (2) the Trustee is adjudged bankrupt or insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall notify each Holder of such event and shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount at maturity of the Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Promptly after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 7.07, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Securityholder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount at maturity of the outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09 Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee; provided that such corporation shall be otherwise qualified and eligible under this Article Seven. 66 -58- SECTION 7.10 Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirement of TIA Sections 310(a)(1) and 310(a)(2). The Trustee (or in the case of a corporation included in a bank holding company system, the related bank holding company) shall have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. In addition, if the Trustee is a corporation included in a bank holding company system, the Trustee, independently of such bank holding company, shall meet the capital requirements of TIA Section 310(a)(2). The Trustee shall comply with TIA Section 310(b); provided, however, that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. The provisions of TIA Section 310 shall apply to the Company and any other obligor of the Securities. SECTION 7.11 Preferential Collection of Claims Against the Company. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. The provisions of TIA Section 311 shall apply to the Company and any other obligor of the Securities. ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE SECTION 8.01 Termination of the Company's Obligations. This Indenture shall cease to be of further effect and the obligations of the Company under the Securities and this Indenture shall terminate (except that the obligations under Sections 7.07, 8.04 and 8.05 shall survive the effect of this Article Eight) when all outstanding Securities theretofore authenticated and issued have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder. In addition, at the Company's option, either (a) the Company shall be deemed to have been Discharged from any and all obligations with respect to the Securities ("legal 67 -59- defeasance") after the applicable conditions set forth below have been satisfied or (b) the Company shall cease to be under any obligation to comply with any term, provision or condition set forth in Article Four (except that the Company's obligations under Sections 4.01 and 4.02 shall survive) and Section 5.01 ("covenant defeasance") after the applicable conditions set forth below have been satisfied: (1) The Company shall have deposited or caused to be deposited irrevocably with the Trustee as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Securities U.S. Legal Tender or U.S. Government Obligations or a combination thereof that, through the payment of interest thereon and Accreted Value or principal amounts in respect thereof in accordance with their terms, will be sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay all amounts of Accreted Value of and interest on the Securities on the dates such installments of interest or Accreted Value or principal amounts are due in accordance with the terms of such Securities, as well as the Trustee's fees and expenses; provided that no deposits made pursuant to this Section 8.01(1) shall cause the Trustee to have a conflicting interest as defined in and for purposes of the TIA; and provided, further, that, as confirmed by an Opinion of Counsel, no such deposit shall result in the Company, the Trustee or the trust becoming or being deemed to be an "investment company" under the Investment Company Act of 1940; (2) No Event of Default or Default with respect to the Securities shall have occurred and be continuing on the date of such deposit after giving effect to such deposit; (3) The Company shall have delivered to the Trustee an Opinion of Counsel, subject to certain qualifications, to the effect that (i) the Funds will not be subject to any rights of any other holders of Indebtedness of the Company, and (ii) the Funds so deposited will not be subject to avoidance under applicable Bankruptcy Law; (4) The Company shall have paid or duly provided for payment of all amounts then due to the Trustee pursuant to Section 7.07; (5) No such deposit will result in a Default under this Indenture or a breach or violation of, or constitute a default under, any other instrument or agreement (including, without limitation, the New Credit Facility) to which the Company or any of its Subsidiaries is a party or by which it or its property is bound; (6) Subject to the satisfaction of the conditions set forth in paragraphs (1) through (5) above, (a) the Company shall be deemed to have completed legal defeasance if the Company 68 -60- shall have delivered to the Trustee an Opinion of Counsel confirming that (i) the Company has received from, or there has been published by, the Internal Revenue Service, a ruling, or (ii) since the date of this Indenture there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the Securities will not recognize income, gain or loss for federal income tax purposes as a result of such legal defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance had not occurred and (b) the Company shall be deemed to have completed covenant defeasance if the Company shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that the Holders of the Securities will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; and (7) An Officers' Certificate and an Opinion of Counsel to the effect that all conditions precedent to the defeasance have been complied with. Notwithstanding the foregoing, the Opinion of Counsel required by subparagraph 7 above need not be delivered if all Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, (ii) will become due and payable on the Maturity Date within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company. "Discharged" means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by, and obligations under, the Securities and to have satisfied all the obligations under this Indenture relating to the Securities (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same upon compliance by the Company with the provisions of this Section), except (i) the rights of the Holders of Securities to receive, from the trust fund described in clause (1) above, payment of the principal of and the interest on such Securities when such payments are due, (ii) the Company's obligations with respect to the Securities under Sections 2.03 through 2.07, 7.07 and 7.08 and (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder. "Funds" means the aggregate amount of U.S. Legal Tender and/or U.S. Government Obligations deposited with the Trustee pursuant to this Article Eight. "U.S. Government Obligations" means direct obligations of, and obligations guaranteed by, the United States of America for the payment of which the full faith and credit of the United States of America is pledged. 69 -61- SECTION 8.02. Acknowledgment of Discharge by Trustee. Subject to Section 8.05, after (i) the conditions of Section 8.01, have been satisfied and (ii) the Company has delivered to the Trustee an Opinion of Counsel, stating that all conditions precedent referred to in clause (i) above relating to the satisfaction and discharge of this Indenture have been complied with, the Trustee upon written request of the Company shall acknowledge in writing the discharge of the Company's obligations under this Indenture except for those surviving obligations specified in this Article Eight. SECTION 8.03. Application of Trust Money. The Trustee shall hold in trust Funds deposited with it pursuant to Section 8.01. It shall apply the Funds through the Paying Agent and in accordance with this Indenture to the payment of Accreted Value or principal amounts and accrued and unpaid interest on the Securities. SECTION 8.04. Repayment to the Company. The Trustee and the Paying Agent shall promptly pay to the Company any Funds held by them for the payment of Accreted Value or principal amounts or interest that remains unclaimed for one year; provided, however, that the Trustee or such Paying Agent may, at the expense of the Company, cause to be published once in a newspaper of general circulation in the City of New York or mailed to each Holder, notice that such Funds remain unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing, any unclaimed balance of such Funds then remaining will be repaid to the Company. After payment to the Company, Holders entitled to the Funds must look to the Company for payment as general creditors unless an applicable abandoned property law designates another Person and all liability of the Trustee and Paying Agent with respect to such Funds shall cease. SECTION 8.05. Reinstatement. If the Trustee or Paying Agent is unable to apply any Funds by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.01 until such time as the Trustee or Paying Agent is permitted to apply all such Funds in accordance with Section 8.01; provided, however, that if the Company has made any payment of interest or Accreted Value of any Securities because of the 70 -62- reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from Funds held by the Trustee or Paying Agent. ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01 Without Consent of Holders. The Company, when authorized by a Board Resolution, and the Trustee, together, may amend or supplement this Indenture or the Securities without notice to or consent of any Securityholder: (1) to cure any ambiguity, defect or inconsistency; provided that such amendment or supplement does not adversely affect the rights of any Holder in any material respect; (2) to comply with Article Five; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; (4) to comply with requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA; or (5) to make any other change that does not adversely affect in any material respect the rights of any Securityholders hereunder; provided that the Company has delivered to the Trustee an Opinion of Counsel and an Officers' Certificate, each stating that such amendment or supplement complies with the provisions of this Section 9.01. SECTION 9.02 With Consent of Holders. Subject to Section 6.07, the Company, when authorized by a Board Resolution, and the Trustee, together, with the written consent of the Holder or Holders of at least a majority in principal amount at maturity of the outstanding Securities may amend or supplement this Indenture or the Securities, without notice to any other Securityholders. Subject to Sections 6.04 and 6.07, the Holder or Holders of a majority in aggregate principal amount at maturity of the 71 -63- outstanding Securities may waive compliance by the Company with any provision of this Indenture or the Securities without notice to any other Securityholder. No amendment, supplement or waiver, including a waiver pursuant to Section 6.04, shall, directly or indirectly, without the consent of each Holder of each Security affected thereby: (1) reduce the amount of Securities whose Holders must consent to an amendment; (2) reduce the rate of or change the time for payment of interest, including defaulted interest, on any Securities or amend the rate of accretion or amend the definition of Accreted Value; (3) reduce the Accreted Value of or change the fixed maturity of any Securities, or change the date on which any Securities may be subject to redemption or repurchase, or reduce the redemption or repurchase price therefor; (4) make any Securities payable in money other than that stated in the Securities and this Indenture; (5) make any change in provisions of this Indenture protecting the right of each Holder of a Security to receive payment of principal of, premium and interest on such Security on or after the due date thereof or to bring suit to enforce such payment or permitting Holders of a majority in principal amount at maturity of Securities to waive Defaults or Events of Default; or (6) after the Company's obligation to purchase the Securities arises under Section 4.14 or 4.15, amend, modify or change the obligation of the Company to consummate a Change of Control Offer or a Net Proceeds Offer or waive any default in the performance thereof or modify any of the provisions or definitions with respect to any such offers. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective (as provided in Section 9.04), the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. 72 -64- SECTION 9.03 Compliance with TIA. Every amendment, waiver or supplement of this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.04 Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. Subject to the following paragraph, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of his Security by notice to the Trustee or the Company received before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount at maturity of Securities have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver (at which time such amendment, supplement or waiver shall become effective). The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver, which record date shall be at least 30 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Securityholder, unless it makes a change described in any of clauses (1) through (6) of Section 9.02, in which case, the amendment, supplement or waiver shall bind only each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security; provided that any such waiver shall not impair or affect the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. 73 -65- SECTION 9.05 Notation on or Exchange of Securities. If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. SECTION 9.06 Trustee To Sign Amendments, Etc. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to and adopted in accordance with this Article Nine; provided that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel and an Officers' Certificate each stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or permitted by this Indenture. Such Opinion of Counsel shall not be an expense of the Trustee. SECTION TEN MISCELLANEOUS SECTION 10.01 TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. SECTION 10.02 Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: 74 -66- if to the Company: Capstar Broadcasting Partners, Inc. 600 Congress Avenue Suite 1400 Austin, TX 78701 Attention: Chief Financial Officer with a copy to: Vinson & Elkins L.L.P. 2001 Ross Avenue Suite 3700 Dallas, Texas 75201 Attention: Michael D. Wortley and Jeffrey A. Chapman if to the Trustee: U.S. Trust Company of Texas, N.A. 2001 Ross Avenue Suite 2700 Dallas, Texas 75201 Attention: Corporate Trust Department The Company and the Trustee by written notice to each other may designate additional or different addresses for notices. Any notice or communication to the Company or the Trustee shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if faxed; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Any notice or communication mailed to a Securityholder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. 75 -67- SECTION 10.03 Communications by Holders with Other Holders. Securityholders may communicate pursuant to TIA Section 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and any other Person shall have the protection of TIA Section 312(c). SECTION 10.04 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate, in form and substance satisfactory to the Trustee, stating that, in the opinion of the signers, all conditions precedent to be performed by the Company, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent to be performed by the Company, if any, provided for in this Indenture relating to the proposed action have been complied with. SECTION 10.05 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture, other than the Officers' Certificate required by Section 4.07, shall include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as is reasonably necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of each such Person, such condition or covenant has been complied with. 76 -68- SECTION 10.06 Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules in accordance with the Trustee's customary practices for action by or at a meeting of Securityholders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 10.07 Legal Holidays. A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions in New York, New York, Dallas, Texas or at such place of payment are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 10.08 Governing Law. THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. SECTION 10.09 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any of its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 10.10 No Recourse Against Others. A past, present or future director, officer, employee, stockholder or incorporator, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creations. Each Securityholder by accepting a Security waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Securities. 77 -69- SECTION 10.11 Successors. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 10.12 Duplicate Originals. All parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. SECTION 10.13 Severability. In case any one or more of the provisions in this Indenture or in the Securities shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. 78 -70- SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the date first written above. CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------- Name: William S. Banowsky, Jr. Title: U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee By: /s/ GERARD GANEY ------------------------------ Name: Gerard Ganey Title: 79 -71- EXHIBIT A [FORM OF SERIES A SECURITY] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER'S AND THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, 80 -72- CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN THE CASE OF THE FOREGOING CAUSE (E), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE ISSUER AND THE TRANSFER AGENT, THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. 81 -73- CAPSTAR BROADCASTING PARTNERS, INC. The Security is issued with original issue discount for purposes of Section 1271 et seq. of the Internal Revenue Code. For each $1,000 of principal amount of this Security, the issue price is $542.54 and the amount of original issue discount is $457.46. The issue date of this Security is February 20, 1997 and the yield to maturity is 12 3/4%. 12 3/4% Senior Discount Note due 2009, Series A No. $ CAPSTAR BROADCASTING PARTNERS, INC., a Delaware corporation (the "Company"), for value received, promises to pay to CEDE & CO. or registered assigns, the principal sum of Dollars, on February 1, 2009. Interest Payment Dates: February 1 and August 1 Record Dates: January 15 and July 15 Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. CAPSTAR BROADCASTING PARTNERS, INC. By: ------------------------------- Name: Title: By: ------------------------------- Name: Title: 82 -74- Trustee's Certificate of Authentication This is one of the 12 3/4% Senior Discount Notes due 2009 referred to in the within-mentioned Indenture. Dated: U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee By: --------------------------------- Authorized Signatory 83 -75- (REVERSE OF SECURITY) 12 3/4% Senior Discount Note due 2009 1. Interest. CAPSTAR BROADCASTING PARTNERS, INC., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semi-annually in arrears on each February 1 and August 1 (each an "Interest Payment Date") and at stated maturity, commencing August 1, 2002. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The principal of this Security shall not bear or accrue interest until February 1, 2002, except in the case of a default in payment of principal and/or premium, if any, upon acceleration, redemption or purchase and, in such case, the overdue principal and any overdue premium shall bear interest at the rate of 12 3/4% per annum (compounded semiannually on each February 15 and August 15) (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or duly provided for. To the extent, but only to the extent, interest on amounts in default constituting original issue discount prior to February 1, 2002 is not permitted by law, original issue discount shall continue to accrete until paid or duly provided for. On or after February 1, 2002, interest on overdue principal and premium, if any, and, to the extent permitted by law, on overdue installments of interest will accrue, until the principal and premium, if any, is paid or duly provided for, at the rate of 12 3/4% per annum. Interest on any overdue principal or premium shall be payable on demand. 2. Method of Payment. The Company shall pay interest on the Securities (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Securities are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company shall pay principal, premium and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal, premium and interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, U.S. Trust Company of Texas, N.A. (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying 84 -76- Agent, Registrar or co-Registrar without notice to the Holders. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Registrar or co-Registrar. 4. Indenture. The Company issued the Securities under an Indenture, dated as of February 20, 1997 (the "Indenture"), between the Company and the Trustee. This Security is one of a duly authorized issue of Securities of the Company designated as its 12 3/4% Senior Discount Notes due 2009 (the "Securities"), limited (except as otherwise provided in the Indenture) in aggregate principal amount at maturity to $277,000,000, which may be issued under the Indenture. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and the TIA for a statement of them. The Securities are general unsecured obligations of the Company. 5. Optional Redemption. (a) The Securities will be redeemable, at the Company's option, in whole at any time or in part from time to time, on and after February 1, 2002, at the following redemption prices (expressed as percentages of Accreted Value thereof on the applicable redemption date) if redeemed during the twelve-month period commencing on February 1 of the year set forth below, plus, in each case, accrued and unpaid interest, if any, thereon to the redemption date:
YEAR PERCENTAGE ---- ---------- 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106.375% 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.313% 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.250% 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.188% 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.125% 2007 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . 100.000%
(b) In addition, prior to February 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings or Major Asset Sales to redeem up to 25% of the principal amount at maturity of the Securities at a redemption price of 112.75% of the Accreted Value thereof at the redemption date of the Securities so redeemed; provided, however, that after any such redemption, at least 75% in aggregate principal amount at maturity of Securities would remain outstanding immediately after giving effect to such redemption. Any such redemption will be required to occur on or prior to the date that is one year after the receipt 85 -77- by the Company of the proceeds of a Public Equity Offering or Major Asset Sale. The Company shall effect such redemption on a pro rata basis. (c) In addition, prior to February 1, 2002, upon the occurrence of a Change of Control, the Company will have the option to redeem the Securities in whole but not in part (a "Change of Control Redemption") at a redemption price equal to 100% of the Accreted Value thereof at the redemption date of the Securities plus the Applicable Premium. In order to effect a Change of Control Redemption, the Company must send a notice to each holder of Securities, which notice shall govern the terms of the Change of Control Redemption. Such notice must be mailed to holders of Securities within 30 days following the date the Change of Control occurred (the "Change of Control Redemption Date") and state that the Company is effecting a Change of Control Redemption in lieu of a Change of Control Offer. "Applicable Premium" means, with respect to a Security at any Change of Control Redemption Date, the greater of (i) 1.0% of the Accreted Value of such Security and (ii) the excess of (A) the present value at such time of the redemption price of such Security at February 1, 2002 (such redemption price being described in paragraph (a) above) computed using a discount rate equal to the Treasury Rate plus 150 basis points over (B) the principal amount at maturity of such Security. "Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15(519) that has become publicly available at least two business days prior to the Change of Control Redemption Date (or, if such Statistical Release is no longer published, any publicly available source or similar market data)) most nearly equal to the period from the Change of Control Redemption Date to February 1, 2002; provided, however, that if the period from the Change of Control Redemption Date to February 1, 2002 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given except that if the period from the Change of Control Redemption Date to February 1, 2002 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. 6. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at such Holder's registered address. Securities in denominations larger than $1,000 may be redeemed in part. 86 -78- 7. Change of Control Offer. In the event of a Change of Control, upon the satisfaction of the conditions set forth in the Indenture, the Company shall be required to offer to repurchase all of the then outstanding Securities pursuant to a Change of Control Offer at a purchase price equal to 101% of the Accreted Value thereof on the Change of Control Payment Date if the Change of Control Payment Date is on or before February 1, 2002 and (ii) 101% of the principal amount at maturity thereof, plus, without duplication, all accrued and unpaid interest, if any, to the Change of Control Payment Date if such Change of Control Payment Date is after February 1, 2002. Holders of Securities that are the subject of such an offer to repurchase shall receive an offer to repurchase and may elect to have such Securities repurchased in accordance with the provisions of the Indenture pursuant to and in accordance with the terms of the Indenture. 8. Limitation on Disposition of Assets. Under certain circumstances the Company is required to apply the net proceeds from Asset Sales to offer to repurchase Securities at a price equal to 100% of the Accreted Value thereof, plus accrued interest to the date of repurchase. 9. Denominations; Transfer; Exchange. The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities during a period beginning 15 days before the mailing of a redemption notice for any Securities or portions thereof selected for redemption. 10. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. 11. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for one year, the Trustee and the Paying Agent will pay the money back to the Company. After that, all liability of the Trustee and such Paying Agent with respect to such money shall cease. 12. Discharge Prior to Redemption or Maturity. If the Company at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of, premium and interest on the Securities to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Securities (including certain covenants, but excluding its obligation to pay the principal of, premium and interest on the Securities). 87 -79- 13. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Securities may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount at maturity of the Securities then outstanding, and any existing Default or Event of Default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in aggregate principal amount at maturity of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities, or comply with Article Five of the Indenture or make any other change that does not adversely affect in any material respect the rights of any Holder of a Security. 14. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to, among other things, incur additional Indebtedness and issue Disqualified Capital Stock, engage in certain Asset Swaps, enter into transactions with Affiliates, create dividend or other payment restrictions affecting Subsidiaries and merge or consolidate with any other Person, sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets or adopt a plan of liquidation. Such limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 15. Successors. When a successor assumes, in accordance with the Indenture, all the obligations of its predecessor under the Securities and the Indenture, the predecessor will be released from those obligations. 16. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount at maturity of Securities then outstanding may declare all the Securities to be due and payable in the manner, at the time and with the effect provided in the Indenture. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Securities unless it has been offered indemnity or security reasonably satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount at maturity of the Securities then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines in good faith that withholding notice is in their interest. 17. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may 88 -80- otherwise deal with the Company, its Subsidiaries, Unrestricted Subsidiaries or their respective Affiliates as if it were not the Trustee. 18. No Recourse Against Others. No past, present or future stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 19. Authentication. This Security shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on this Security. 20. Governing Law. The laws of the State of New York shall govern this Security and the Indenture, without regard to principles of conflict of laws. 21. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (=Custodian), and U/G/M/A (=Uniform Gifts to Minors Act). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. 23. Registration Rights. Pursuant to the Registration Rights Agreement, the Company will be obligated upon the occurrence of certain events to consummate an exchange offer pursuant to which the Holder of this Security shall have the right to exchange this Series A Security for the Company's 12 3/4% Senior Discount Notes due 2009, Series B, which have been registered under the Securities Act, in like principal amount at maturity and having terms identical in all material respects as the Series A Securities. The Holders shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 24. Indenture. Each Holder, by accepting a Security, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time. 89 -81- Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Company will furnish to any Holder of a Security upon written request and without charge a copy of the Indenture. Requests may be made to: CAPSTAR BROADCASTING PARTNERS, INC., 600 Congress Avenue, Suite 1400, Austin, Texas 78701. 90 -82- [FORM OF ASSIGNMENT] I or we assign to PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER ________________________________________________________________________ (please print or type name and address) ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ the within Security and all rights thereunder, hereby irrevocably constituting and appointing ________________________________________________________________________ attorney to transfer the Security on the books of the Company with full power of substitution in the premises. Dated:___________________ ______________________________________________ NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Security in every particular without alteration or enlargement or any change whatsoever and be guaranteed by the endorser's bank or broker. Signature Guarantee: __________________________________________________ 91 -83- OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.14 or Section 4.15 of the Indenture, check the appropriate box: Section 4.14 [ ] Section 4.15 [ ] If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.14 or Section 4.15 of the Indenture, state the amount: $_____________ Date: ___________________ Your Signature: _______________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: ____________________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Trustee) 92 -84- EXHIBIT B CAPSTAR BROADCASTING PARTNERS, INC. The Security is issued with original issue discount for purposes of Section 1271 et seq. of the Internal Revenue Code. For each $1,000 of principal amount of this Security, the issue price is $542.54 and the amount of original issue discount is $457.46. The issue date of this Security is February 20, 1997 and the yield to maturity is 12 3/4%. 12 3/4% Senior Discount Note due 2009, Series B No. 1 $ CAPSTAR BROADCASTING PARTNERS, INC., a Delaware corporation (the "Company"), for value received, promises to pay to or registered assigns, the principal sum of Dollars, on February 1, 2009. Interest Payment Dates: February 1 and August 1 Record Dates: January 15 and July 15 Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. CAPSTAR BROADCASTING PARTNERS, INC. By: --------------------------------- Name: Title: By: --------------------------------- Name: Title: 93 -85- Trustee's Certificate of Authentication This is one of the 12 3/4% Senior Discount Notes due 2009 referred to in the within-mentioned Indenture. Dated: U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee By: --------------------------------- Authorized Signatory 94 -86- (REVERSE OF SECURITY) 12 3/4% Senior Discount Note due 2009 1. Interest. CAPSTAR BROADCASTING PARTNERS, INC., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semi-annually in arrears on each February 1 and August 1 (each an "Interest Payment Date") and at stated maturity, commencing August 1, 2002. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The principal of this Security shall not bear or accrue interest until February 1, 2002, except in the case of a default in payment of principal and/or premium, if any, upon acceleration, redemption or purchase and, in such case, the overdue principal and any overdue premium shall bear interest at the rate of 12 3/4% per annum (compounded semiannually on each February 15 and August 15) (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or duly provided for. To the extent, but only to the extent, interest on amounts in default constituting original issue discount prior to February 1, 2002 is not permitted by law, original issue discount shall continue to accrete until paid or duly provided for. On or after February 1, 2002, interest on overdue principal and premium, if any, and, to the extent permitted by law, on overdue installments of interest will accrue, until the principal and premium, if any, is paid or duly provided for, at the rate of 12 3/4% per annum. Interest on any overdue principal or premium shall be payable on demand. 2. Method of Payment. The Company shall pay interest on the Securities (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Securities are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company shall pay principal, premium and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal, premium and interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, U.S. Trust Company of Texas, N.A. (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying 95 -87- Agent, Registrar or co-Registrar without notice to the Holders. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Registrar or co-Registrar. 4. Indenture. The Company issued the Securities under an Indenture, dated as of February 20, 1997 (the "Indenture"), between the Company and the Trustee. This Security is one of a duly authorized issue of Securities of the Company designated as its 12 3/4% Senior Discount Notes due 2009 (the "Securities"), limited (except as otherwise provided in the Indenture) in aggregate principal amount at maturity to $277,000,000, which may be issued under the Indenture. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and the TIA for a statement of them. The Securities are general unsecured obligations of the Company. 5. Optional Redemption. (a) The Securities will be redeemable, at the Company's option, in whole at any time or in part from time to time, on and after February 1, 2002, at the following redemption prices (expressed as percentages of Accreted Value thereof on the applicable redemption date) if redeemed during the twelve-month period commencing on February 1 of the year set forth below, plus, in each case, accrued and unpaid interest, if any, thereon to the redemption date:
YEAR PERCENTAGE ---- ---------- 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106.375% 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.313% 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.250% 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.188% 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.125% 2007 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . 100.000%
(b) In addition, prior February 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings or Major Asset Sales to redeem up to 25% of the principal amount at maturity of the Securities at a redemption price of 112.75% of the Accreted Value thereof at the redemption date of the Securities so redeemed; provided, however, that after any such redemption, at least 75% in aggregate principal amount at maturity of Securities would remain outstanding immediately after giving effect to such redemption. Any such redemption will be required to occur on or prior to the date that is one year after the receipt 96 -88- by the Company of the proceeds of a Public Equity Offering or Major Asset Sale. The Company shall effect such redemption on a pro rata basis. (c) In addition, prior to February 1, 2002, upon the occurrence of a Change of Control, the Company will have the option to redeem the Securities in whole but not in part (a "Change of Control Redemption") at a redemption price equal to 100% of the Accreted Value thereof at the redemption date of the Securities plus the Applicable Premium. In order to effect a Change of Control Redemption, the Company must send a notice to each holder of Securities, which notice shall govern the terms of the Change of Control Redemption. Such notice must be mailed to holders of Securities within 30 days following the date the Change of Control occurred (the "Change of Control Redemption Date") and state that the Company is effecting a Change of Control Redemption in lieu of a Change of Control Offer. "Applicable Premium" means, with respect to a Security at any Change of Control Redemption Date, the greater of (i) 1.0% of the Accreted Value of such Security and (ii) the excess of (A) the present value at such time of the redemption price of such Security at February 1, 2002 (such redemption price being described in paragraph (a) above) computed using a discount rate equal to the Treasury Rate plus 150 basis points over (B) the principal amount at maturity of such Security. "Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15(519) that has become publicly available at least two business days prior to the Change of Control Redemption Date (or, if such Statistical Release is no longer published, any publicly available source or similar market data)) most nearly equal to the period from the Change of Control Redemption Date to February 1, 2002; provided, however, that if the period from the Change of Control Redemption Date to February 1, 2002 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one- twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given except that if the period from the Change of Control Redemption Date to February 1, 2002 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. 6. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at such Holder's registered address. Securities in denominations larger than $1,000 may be redeemed in part. 97 -89- 7. Change of Control Offer. In the event of a Change of Control, upon the satisfaction of the conditions set forth in the Indenture, the Company shall be required to offer to repurchase all of the then outstanding Securities pursuant to a Change of Control Offer at a purchase price equal to 101% of the Accreted Value thereof on the Change of Control Payment Date if the Change of Control Payment Date is on or before February 1, 2002 and (ii) 101% of the principal amount at maturity thereof, plus, without duplication, all accrued and unpaid interest, if any, to the Change of Control Payment Date if such Change of Control Payment Date is after February 1, 2002. Holders of Securities that are the subject of such an offer to repurchase shall receive an offer to repurchase and may elect to have such Securities repurchased in accordance with the provisions of the Indenture pursuant to and in accordance with the terms of the Indenture. 8. Limitation on Disposition of Assets. Under certain circumstances the Company is required to apply the net proceeds from Asset Sales to offer to repurchase Securities at a price equal to 100% of the Accreted Value thereof, plus accrued interest to the date of repurchase. 9. Denominations; Transfer; Exchange. The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities during a period beginning 15 days before the mailing of a redemption notice for any Securities or portions thereof selected for redemption. 10. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. 11. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for one year, the Trustee and the Paying Agent will pay the money back to the Company. After that, all liability of the Trustee and such Paying Agent with respect to such money shall cease. 12. Discharge Prior to Redemption or Maturity. If the Company at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of, premium and interest on the Securities to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Securities (including certain covenants, but excluding its obligation to pay the principal of, premium and interest on the Securities). 98 -90- 13. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Securities may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount at maturity of the Securities then outstanding, and any existing Default or Event of Default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in aggregate principal amount at maturity of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities, or comply with Article Five of the Indenture or make any other change that does not adversely affect in any material respect the rights of any Holder of a Security. 14. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to, among other things, incur additional Indebtedness and issue Disqualified Capital Stock, engage in certain Asset Swaps, enter into transactions with Affiliates, create dividend or other payment restrictions affecting Subsidiaries and merge or consolidate with any other Person, sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets or adopt a plan of liquidation. Such limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 15. Successors. When a successor assumes, in accordance with the Indenture, all the obligations of its predecessor under the Securities and the Indenture, the predecessor will be released from those obligations. 16. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount at maturity of Securities then outstanding may declare all the Securities to be due and payable in the manner, at the time and with the effect provided in the Indenture. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Securities unless it has been offered indemnity or security reasonably satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount at maturity of the Securities then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines in good faith that withholding notice is in their interest. 17. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may 99 -91- otherwise deal with the Company, its Subsidiaries, Unrestricted Subsidiaries or their respective Affiliates as if it were not the Trustee. 18. No Recourse Against Others. No past, present or future stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 19. Authentication. This Security shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on this Security. 20. Governing Law. The laws of the State of New York shall govern this Security and the Indenture, without regard to principles of conflict of laws. 21. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (=Custodian), and U/G/M/A (=Uniform Gifts to Minors Act). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. 23. Indenture. Each Holder, by accepting a Security, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time. Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Company will furnish to any Holder of a Security upon written request and without charge a copy of the Indenture. Requests may be made to: CAPSTAR BROADCASTING PARTNERS, INC., 600 Congress Avenue, Suite 1400, Austin, Texas 78701. 100 -92- [FORM OF ASSIGNMENT] I or we assign to PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER ________________________________ _______________________________________________________________________ (please print or type name and address) _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ the within Security and all rights thereunder, hereby irrevocably constituting and appointing _______________________________________________________________________ attorney to transfer the Security on the books of the Company with full power of substitution in the premises. Dated:___________________ ______________________________________________ NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Security in every particular without alteration or enlargement or any change whatsoever and be guaranteed by the endorser's bank or broker. Signature Guarantee: _________________________________ 101 -93- OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.14 or Section 4.15 of the Indenture, check the appropriate box: Section 4.14 [ ] Section 4.15 [ ] If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.14 or Section 4.15 of the Indenture, state the amount: $_____________ Date: ___________________ Your Signature:______________________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: _________________________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Trustee) 102 -94- EXHIBIT C FORM OF LEGEND FOR GLOBAL SECURITIES Any Global Security authenticated and delivered hereunder shall bear a legend (which would be in addition to any other legends required in the case of a Restricted Security) in substantially the following form: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. 103 -95- EXHIBIT D CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF SECURITIES Re: 12 3/4% Senior Discount Notes due 2009, Series A and 12 3/4% Senior Discount Notes due 2009, Series B (the "Securities"), of Capstar Broadcasting Partners, Inc. This Certificate relates to $_______ principal amount at maturity of Securities held in the form of* ___ a beneficial interest in a Global Security or* _______ physical securities by ______ (the "Transferor"). The Transferor:* / / has requested by written order that the Registrar deliver in exchange for its beneficial interest in the Global Security held by the Depositary a physical security or physical securities in definitive, registered form of authorized denominations and an aggregate number equal to its beneficial interest in such Global Security (or the portion thereof indicated above); or / / has requested that the Registrar by written order to exchange or register the transfer of a physical security or physical securities. In connection with such request and in respect of each such Security, the Transferor does hereby certify that the Transferor is familiar with the Indenture relating to the above captioned Securities and the restrictions on transfers thereof as provided in Section 2.16 of such Indenture, and that the transfer of this Security does not require registration under the Securities Act of 1933, as amended (the "Act") because*: / / Such Security is being acquired for the Transferor's own account, without transfer (in satisfaction of Section 2.16(a)(II)(A) or Section 2.16(d)(i)(A) of the Indenture). / / Such Security is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Act), in reliance on Rule 144A. / / Such Security is being transferred to an institutional "accredited investor" (within the meaning of subparagraphs (a)(1), (2), (3) or (7) of Rule 501 under the Act. 104 -96- / / Such Security is being transferred in reliance on Regulation S under the Act. / / Such Security is being transferred in reliance on Rule 144 under the Act. / / Such Security is being transferred in reliance on and in compliance with an exemption from the registration requirements of the Act other than Rule 144A or Rule 144 under the Act to a person other than an institutional "accredited investor." ______________________________ [INSERT NAME OF TRANSFEROR] By: _________________________ [Authorized Signatory] Date: _____________ *Check applicable box. 105 -97- EXHIBIT E Form of Certificate To Be Delivered in Connection with Transfers to Institutional Accredited Investors Capstar Broadcasting Partners, Inc. c/o U.S. Trust Company of Texas, N.A. Dear Sirs: This certificate is delivered to request a transfer of $ million in principal amount at maturity of 12 3/4% Senior Discount Notes due 2009 (the "Notes") of Capstar Broadcasting Partners, Inc. (the "Company"). Upon transfer, the Notes would be registered in the name of the new beneficial owner as follows: Name: Address: Taxpayer ID Number: The undersigned represents and warrants to you that: 1. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933 (the "Securities Act")) purchasing Notes for our own account or for the account of such an institutional "accredited investor" and we are acquiring the Notes not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risk of our investment in the shares of the Notes and we invest in or purchase securities similar to the Notes in the normal course of our business. We and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 2. We understand that the shares of the Notes have not been registered under the Securities Act and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Notes to offer, sell or otherwise transfer such Notes prior to the date which is three years after the later of the date of original issue and the last date on which the Company or any affiliate of the Company was the owner of such Notes (or any predecessor thereto) (the "Resale 106 -98- Restriction Termination Date") only (a) to the Company, (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) in a transaction complying with the requirements of Rule 144A under the Securities Act, to a person we reasonably believe is a qualified institutional buyer under Rule 144A (a "QIB") that purchases for its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the United States within the meaning of Regulation S under the Securities Act, (e) to an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act, that is purchasing for its own account or for the account of such an institutional "accredited investor," or (f) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and in compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of any of the Notes is proposed to be made pursuant to clause (e) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to the Company and the U.S. Trust Company of Texas, N.A. (the "Trustee"), which shall provide, among other things, that the transferee is an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act and that it is acquiring such Notes for investment purposes and not for distribution in violation of the Securities Act. Each purchaser acknowledges that the Company and the Trustee reserve the right prior to any offer, sale or other transfer prior to the Resale Restriction Termination Date of the Notes pursuant to clause (d), (e) or (f) above to require the delivery of an opinion of counsel, certificates and/or other information satisfactory to the Company and the Transfer Agent. TRANSFEREE: By: ____________________________ EX-4.3.7 3 AMENDMENT NO. 6 TO INDENTURE AGREEMENT 1 EXHIBIT 4.3.7. ================================================================================ COMMODORE MEDIA, INC., AS ISSUER, THE PARTIES LISTED ON THE SIGNATURE PAGES HERETO AS GUARANTORS, AS GUARANTORS, AND IBJ SCHRODER BANK & TRUST COMPANY, AS TRUSTEE -------------------------------------------- AMENDMENT NO. 6 DATED AS OF APRIL 10, 1997 TO THE INDENTURE DATED AS OF APRIL 21, 1995 -------------------------------------------- $76,808,000 13 1/4% SENIOR SUBORDINATED NOTES DUE 2003 ================================================================================ 2 AMENDMENT NO. 6, dated as of April 10, 1997 ("Amendment No. 6"), to the INDENTURE, dated as of April 21, 1995, as amended (the "Indenture"), among COMMODORE MEDIA, INC., a Delaware corporation, as Issuer (the "Company"), the parties listed on the signature pages hereto as Guarantors (each individually, a "Guarantor" and collectively, the "Guarantors"), and IBJ SCHRODER BANK & TRUST COMPANY, a New York banking corporation, as Trustee (the "Trustee"). Each party agrees for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Company's 13 1/4% Senior Subordinated Notes due 2003 (the "Notes") to amend, pursuant to Section 8.01(4) of the Indenture, the Indenture as follows: 1. In March 1997, the corporate name of Emerald City Broadcasting Corporation was changed to WNOK Acquisition Company, Inc. All references in the Indenture shall be to the new corporate name of such entity. 2. In April 1997, the corporate name of Commodore Holdings, Inc. was changed to Atlantic Star Communications, Inc. All references in the Indenture shall be to the new corporate name of such entity. 3. In April 1997, the corporate name of Osborn Communications Corporation was changed to Southern Star Communications, Inc. All references in the Indenture shall be to the new corporate name of such entity. 4. Capstar Acquisition Company, Inc., a Delaware corporation and a wholly owned subsidiary of the Company ("Capstar Acquisition"), is a Restricted Subsidiary acquired or created pursuant to Section 4.14(ii) of the Indenture. Capstar Acquisition delivers herewith the Guarantee attached as Exhibit A to this Amendment No. 6 pursuant to the provisions set forth in Sections 4.14 and 10.04 of the Indenture guaranteeing the obligations of the Company under the Indenture. For all purposes of the Indenture, Capstar Acquisition shall be deemed a party to the Indenture by virtue of its execution of this Amendment No. 6 and the defined term the "Guarantor" contained in Article 1.01 of the Indenture shall be deemed to include Capstar Acquisition. 5. This Amendment No. 6 supplements the Indenture and shall be a part and subject to all the terms thereof. Except as supplemented hereby, the Indenture and the Securities issued thereunder shall continue in full force and effect. 6. This Amendment No. 6 may be executed in counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same instrument. 7. THIS AMENDMENT NO. 6 SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF). 8. The Trustee shall not be responsible for any recital herein as such recitals shall be taken as statements of the Company, or the validity of the execution by the Guarantors of this Amendment No. 6. The Trustee makes no representation as to the validity or sufficiency of this Amendment No. 6. -2- 3 IN WITNESS WHEREOF, the parties have caused this Amendment No. 6 to the Indenture to be duly executed and attested as of the date and year first written above. COMMODORE MEDIA, INC. By: /s/ James T. Shea, Jr. ------------------------------------- James T. Shea, Jr. President ATTEST: /s/ William Banowsky, Jr. - --------------------------------------- William S. Banowsky, Jr. Vice President GUARANTORS: ATLANTIC STAR COMMUNICATIONS, INC. COMMODORE MEDIA OF DELAWARE, INC COMMODORE MEDIA OF PENNSYLVANIA, INC. COMMODORE MEDIA FLORIDA, INC. COMMODORE MEDIA OF KENTUCKY, INC. COMMODORE MEDIA OF NORWALK, INC. COMMODORE MEDIA OF WESTCHESTER, INC. DANBURY BROADCASTING, INC. By: /s/ James T. Shea, Jr. ------------------------------------- James T. Shea, Jr. President ATTEST: /s/ William S. Banowsky, Jr. - ----------------------------------------- William S. Banowsky, Jr. Vice President 4 SOUTHERN STAR COMMUNICATIONS, INC. ATLANTIC CITY BROADCASTING CORP. O.C.C., INC. BREADBASKET BROADCASTING CORPORATION SOUTHEAST RADIO HOLDING CORP. HOUNDSTOOTH BROADCASTING CORPORATION SNG HOLDINGS, INC. OSBORN ENTERTAINMENT ENTERPRISES CORPORATION ORANGE COMMUNICATIONS, INC. MOUNTAIN RADIO CORPORATION LADNER COMMUNICATIONS HOLDING CORP. RKZ TELEVISION, INC. YELLOW BRICK RADIO CORPORATION ASHEVILLE BROADCASTING CORP. CORKSCREW BROADCASTING CORPORATION DAYTONA BEACH BROADCASTING CORP. RAINBOW BROADCASTING CORPORATION GREAT AMERICAN EAST, INC. NELSON BROADCASTING CORPORATION SHORT BROADCASTING CORPORATION JAMBOREE IN THE HILLS, INC. MUSIC HALL CLUB, INC. BEATRICE BROADCASTING CORP. CURREY BROADCASTING CORPORATION OSBORN SOUND AND COMMUNICATIONS CORP. WAITE BROADCASTING CORP. AMERON BROADCASTING CORPORATION WNOK ACQUISITION COMPANY, INC. By: /s/ Frank D. Osborn -------------------------------- Frank D. Osborn President ATTEST: /s/ Michael F. Mangan - ---------------------------------------- Michael F. Mangan Vice President, Controller and Secretary 5 CAPSTAR ACQUISITION COMPANY, INC. By: /s/ William S. Banowsky, Jr. ------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ Peter S. Brodsky - ---------------------------- Peter S. Brodsky Secretary and Treasurer IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- ATTEST: - ------------------------------------- Name: -------------------------------- Title: ------------------------------- 6 GUARANTEE The Guarantor (the "Guarantor," which term includes any successor Person under the Indenture, dated April 21, 1995, as amended, among Commodore Media, Inc. and its subsidiaries and IBJ Schroder Bank & Trust Company (the "Indenture")) has unconditionally guaranteed, on a senior subordinated basis, jointly and severally, to the extent set forth in the Indenture and subject to the provisions of the Indenture, (a) the due and punctual payment of the principal of and interest on the Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal, and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Noteholders or the Trustee all in accordance with the terms set forth in Article 10 of the Indenture, and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantor to the Noteholders and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in Article 10 of the Indenture and reference is hereby made to the Indenture for the precise terms of this Guarantee. Terms used and not defined herein shall have the meaning set forth in the Indenture. GUARANTOR: CAPSTAR ACQUISITION COMPANY, INC. By: /s/ William S. Banowsky, Jr. -------------------------------- Name: William S. Banowsky, Jr. Title: Vice President EX-10.4 4 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.4 ================================================================================ REGISTRATION RIGHTS AGREEMENT Dated as of February 20, 1997 between CAPSTAR BROADCASTING PARTNERS, INC. as Issuer and BT SECURITIES CORPORATION as Initial Purchaser ================================================================================ $277,000,000 12-3/4% Senior Discount Notes due 2009 2 TABLE OF CONTENTS
Page ---- 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3. Shelf Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4. Additional Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 6. Registration Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 8. Rules 144 and 144A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 9. Underwritten Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (a) No Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (b) Adjustments Affecting Registrable Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (c) Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (d) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (e) Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (f) Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (g) Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (h) Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (i) Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 (j) Securities Held by the Company or Its Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 (k) Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 (l) Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-i- 3 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is dated as of February 20, 1997, between Capstar Broadcasting Partners, Inc., a Delaware corporation (the "Company"), and BT Securities Corporation (the "Initial Purchaser"). This Agreement is entered into in connection with the Purchase Agreement, dated February 14, 1997, between the Company and the Initial Purchaser (the "Purchase Agreement"), which provides for the issuance and sale by the Company to the Initial Purchaser of $277,000,000 of the Company's 12-3/4% Senior Discount Notes (the "Notes"). In order to induce the Initial Purchaser to enter into the Purchase Agreement, the Company has agreed to provideruar the registration rights set forth in this Agreement for the benefit of the Initial Purchaser and its direct and indirect transferees and assigns. The execution and delivery of this Agreement is a condition to the Initial Purchaser's obligation to purchase the Notes under the Purchase Agreement. The parties hereby agree as follows: 1. Definitions As used in this Agreement, the following terms shall have the following meanings: Additional Interest: See Section 4 hereof. Advice: See Section 5 hereof. Agreement: See the introductory paragraphs hereto. Applicable Period: See Section 2 hereof. Closing Date: The Closing Date as defined in the Purchase Agreement. Company: See the introductory paragraphs hereto. Depositary: The Depository Trust Company until a successor is appointed by the Company and the Transfer Agent. Effectiveness Date: The 180th day after the Issue Date. 4 -2- Effectiveness Period: See Section 3 hereof. Event Date: See Section 4 hereof. Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Exchange Notes: See Section 2 hereof. Exchange Offer: See Section 2 hereof. Exchange Registration Statement: See Section 2 hereof. Filing Date: Within 90 days after the Issue Date. Holder: Any holder of Registrable Notes. Indemnified Person: See Section 7(c) hereof. Indemnifying Person: See Section 7(c) hereof. Initial Purchaser: See the introductory paragraphs hereto. Initial Shelf Registration: See Section 3(a) hereof. Inspectors: See Section 5(o) hereof. Issue Date: The date on which the Notes were issued and sold to the Initial Purchaser pursuant to the Purchase Agreement. NASD: See Section 5(t) hereof. Participant: See Section 7(a) hereof. Participating Broker-Dealer: See Section 2 hereof. Person: An individual, partnership, corporation, limited liability company, unincorporated association, trust or joint venture, or a governmental agency or political subdivision thereof. 5 -3- Private Exchange: See Section 2 hereof. Private Exchange Notes: See Section 2 hereof. Prospectus: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Purchase Agreement: See the introductory paragraphs hereto. Records: See Section 5(o) hereof. Registrable Notes: Each Note upon original issuance thereof and at all times subsequent thereto, each Exchange Note as to which Section 2(c)(vi) hereof is applicable upon original issuance and at all times subsequent thereto and each Private Exchange Note upon original issuance thereof and at all times subsequent thereto, until in the case of any such Note, Exchange Note, or Private Exchange Note, as the case may be, the earliest to occur of (i) in the case of any Note, the date on which such Note has been exchanged for a freely transferable Note in the Exchange Offer, (ii) in the case of any Note, the date on which such Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iii) the date on which such Notes, Exchange Notes and Private Exchange Notes are distributed to the public pursuant to Rule 144 under the Securities Act or are saleable pursuant to Rule 144(k) under the Securities Act. Registration Statement: Any registration statement of the Company, including, but not limited to, the Exchange Registration Statement, filed with the SEC pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such 6 -4- securities being free of the registration and prospectus delivery requirements of the Securities Act. Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. Shelf Notice: See Section 2 hereof. Shelf Registration: See Section 3(b) hereof. Subsequent Shelf Registration: See Section 3(b) hereof. TIA: The Trust Indenture Act of 1939, as amended. Trustee: The Trustee under the Indenture for the Notes, the Exchange Notes and/or the Private Exchange Notes, as the context may require. Underwritten registration or underwritten offering: A registration in which securities of the Company are sold to an underwriter for reoffering to the public. 2. Exchange Offer (a) The Company shall file with the SEC, no later than the Filing Date, a registration statement on Form S-1 or S-4, if the use of such forms is then available, or other such appropriate form (the "Exchange Registration Statement") relating to a registered exchange (the "Exchange Offer") for any and all Notes for a like aggregate principal amount at maturity of another series of notes of the Company that will have terms identical in all material respects to the Notes (the "Exchange Notes"), except that the Exchange Notes shall have been registered pursuant to an effective Registration Statement under the Securities Act and shall contain no restrictive legend thereon. The Exchange Offer shall comply with all applicable tender offer 7 -5- rules and regulations under the Exchange Act. The Company agrees to use its reasonable best efforts to (x) cause the Exchange Registration Statement to be declared effective under the Securities Act on or before the Effectiveness Date; (y) keep the Exchange Offer open for at least 20 business days (or longer if required by applicable law) after the date that notice of the Exchange Offer is mailed to Holders; and (z) consummate the Exchange Offer on or prior to the 225th day following the Issue Date. If, after such Exchange Registration Statement is initially declared effective by the SEC, the Exchange Offer or the issuance of the Exchange Notes thereunder is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Exchange Registration Statement shall be deemed not to have become effective for purposes of this Agreement. Each Holder who wishes to exchange Notes for Exchange Notes in the Exchange Offer will be required to represent to the Company that (i) any Exchange Notes to be received by it will be acquired in the ordinary course of its business, (ii) it has no arrangement with any person to participate in the distribution of the Exchange Notes, and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company, or if it is an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. Upon consummation of the Exchange Offer in accordance with this Section 2, the provisions of this Agreement shall continue to apply, mutatis mutandis, solely with respect to Registrable Notes that are Private Exchange Notes and Exchange Notes held by Participating Broker-Dealers, and the Company shall have no further obligation to register Registrable Notes (other than Private Exchange Notes and other than in respect of any Exchange Notes as to which clause 2(c)(v) hereof applies) pursuant to Section 3 hereof. No securities other than the Exchange Notes shall be included in the Exchange Registration Statement. (b) The Company shall include within the Prospectus contained in the Exchange Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchaser, that shall contain a summary statement of the positions taken or policies made by the Staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by such broker-dealer (a "Participating Broker-Dealer") in the Exchange Offer (other than with respect to any Notes acquired by it and having the status of an unsold allotment in the initial distribution), whether such positions or policies have been publicly disseminated by the Staff of the SEC or such positions or policies, in the judgment of the Initial Purchaser, represent the prevailing views of the Staff of the SEC. Such "Plan of Distribution" section shall also expressly permit the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Securities Act, including all Participating Broker-Dealers, and include a statement describing the means by which Participating Broker-Dealers may resell the Exchange Notes. 8 -6- The Company shall use its reasonable best efforts to keep the Exchange Registration Statement effective and to amend and supplement the Prospectus contained therein in order to permit such Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirements of the Securities Act for such period of time as is necessary to comply with applicable law in connection with any resale of the Exchange Notes; provided, however, that such period shall not exceed 90 days after the consummation of the Exchange Offer (or such longer period if extended pursuant to the last paragraph of Section 5 hereof) (the "Applicable Period"). If, prior to consummation of the Exchange Offer, the Initial Purchaser holds any Notes acquired by it and having the status of an unsold allotment in the initial distribution, the Company shall, upon the request of the Initial Purchaser simultaneously with the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to the Initial Purchaser in exchange (the "Private Exchange") for such Notes held by the Initial Purchaser a like principal amount at maturity of notes having terms identical in all material respects to the Notes (the "Private Exchange Notes"), except for the placement of a restrictive legend on such Private Exchange Notes. The Private Exchange Notes shall be issued pursuant to the same indenture as the Exchange Notes and will bear the same CUSIP number as the Exchange Notes. Interest on the Exchange Notes and the Private Exchange Notes will accrue from the last interest payment date on which interest was paid on the Notes surrendered in exchange therefor or, if no interest has been paid on the Notes, from the Issue Date. In connection with the Exchange Offer, the Company shall: (1) mail to each Holder a copy of the Prospectus forming part of the Exchange Registration Statement, together with an appropriate letter of transmittal and related documents; (2) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York; (3) permit Holders to withdraw tendered Notes at any time prior to the close of business, New York time, on the last business day on which the Exchange Offer shall remain open; and (4) otherwise comply in all material respects with all applicable laws, rules and regulations. 9 -7- As soon as practicable after the close of the Exchange Offer or the Private Exchange, as the case may be, them Company shall: (1) accept for exchange all Notes tendered and not validly withdrawn pursuant to the Exchange Offer or the Private Exchange; (2) deliver to the Trustee for cancellation all Notes so accepted for exchange; and (3) cause the Trustee to authenticate and deliver promptly to each Holder of Notes, Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount at maturity to the Notes of such Holder so accepted for exchange. The Exchange Notes and the Private Exchange Notes may be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture, which in either event shall provide that (1) the Exchange Notes shall not be subject to the transfer restrictions set forth in the Indenture and (2) the Private Exchange Notes shall be subject to the transfer restrictions set forth in the Indenture. The Indenture or such indenture shall provide that the Exchange Notes, the Private Exchange Notes and the Notes shall vote and consent together on all matters as one class and that neither the Exchange Notes, the Private Exchange Notes nor the Notes will have the right to vote or consent as a separate class on any matter. (c) If, (i) because of any change in law or in currently prevailing interpretations of the Staff of the SEC, the Company is not permitted to effect an Exchange Offer, (ii) any Holder either is not eligible to participate in the Exchange Offer or participates in the Exchange Offer, and does not receive Exchange Notes in exchange for tendered Notes (in each case under this clause (ii) other than as a result of applicable interpretations of the staff of the SEC or applicable law then in effect as of the Issue Date), (iii) the Exchange Offer is not consummated within 225 days of the date of original issuance of the Notes, (iv) any holder of Private Exchange Notes so requests at any time after the consummation of the Private Exchange, (v) the Holders of not less than a majority of Registrable Notes reasonably determine that the interests of the Holders would be adversely affected by consummation of the Exchange Offer or (vi) in the case of any Holder that participates in the Exchange Offer, such Holder does not receive Exchange Notes on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such Holder as an affiliate of the Company within the meaning of the Securities Act or any prospectus delivery requirement applicable to such Holder), in the case of each of clauses (i) to and including (vi) of this sentence, then the Company shall promptly deliver to the Holders written notice thereof (the "Shelf Notice") and shall file a Shelf Registration pursuant to Section 3 hereof. 10 -8- 3. Shelf Registration If a Shelf Notice is delivered as contemplated by Section 2(c) hereof, then: (a) Shelf Registration. The Company shall as promptly as reasonably practicable file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Preferred Stock (the "Initial Shelf Registration"). If the Company shall not have yet filed an Exchange Registration Statement, the Company shall use its reasonable best efforts to file with the SEC the Initial Shelf Registration on or prior to the Filing Date. Otherwise, the Company shall use its best efforts to file with the SEC the Initial Shelf Registration within 30 days of the delivery of the Shelf Notice. The Initial Shelf Registration shall be on Form S-1 or another appropriate form permitting registration of such Registrable Preferred Stock for resale by Holders in the manner or manners designated by them (including, without limitation, one underwritten offering). The Company shall not permit any securities other than the Registrable Notes to be included in the Initial Shelf Registration or any Subsequent Shelf Registration (as defined below). The Company shall use its reasonable best efforts to cause the Initial Shelf Registration to be declared effective under the Securities Act on or prior to the Effectiveness Date and to keep the Initial Shelf Registration continuously effective under the Securities Act until the date that is 36 months from the Issue Date, subject to extension pursuant to the last paragraph of Section 5 hereof (the "Effectiveness Period"), or such shorter period ending when (i) all Registrable Notes covered by the Initial Shelf Registration have been sold in the manner set forth and as contemplated in the Initial Shelf Registration, (ii) a Subsequent Shelf Registration covering all of the Registrable Notes has been declared effective under the Securities Act or (iii) there are no longer any Registrable Notes outstanding. (b) Subsequent Shelf Registrations. If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder), the Company shall use its reasonable best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 45 days of such cessation of effectiveness amend the Initial Shelf Registration in a manner to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Notes (a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, the Company shall use its reasonable best efforts to cause the Subsequent Shelf Registration to be declared effective under the Securities Act as soon as practicable after such filing and to keep such Registration Statement continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of 11 -9- days during which the Initial Shelf Registration or any Subsequent Shelf Registration was previously continuously effective. As used herein the term "Shelf Registration" means the Initial Shelf Registration and any Subsequent Shelf Registration. (c) Supplements and Amendments. The Company shall use all reasonable efforts to supplement and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of a majority of shares of the Registrable Notes covered by such Registration Statement or by any underwriter of such Registrable Notes. (d) Suspension of Shelf Registration Statement. The Company's obligation to keep the Shelf Registration Statement effective and usable for offers and sales of the Notes and Exchange Notes may be suspended by the Company in good faith for valid business reasons, including, without limitation, a pending acquisition or divestiture of assets. Any such period during which the Company fails to keep the Shelf Registration Statement effective and usable for offers and sales of Notes and Exchange Notes is referred to as a "Suspension Period." A Suspension Period shall commence on and include the date that the Company gives notice that the Shelf Registration Statement is no longer effective or the prospectus included therein is no longer usable for offers and sales of Notes and Exchange Notes and shall end on the date when each Holder of Notes and Exchange Notes covered by such registration statement either receives the copies of the supplemented or amended prospectus contemplated by Section 3(c) hereof or is advised in writing by the Company that use of the prospectus may be resumed; provided that no Suspension Period shall exceed 90 days in any period of 365 consecutive days. 4. Additional Interest The Company and the Initial Purchaser agree that the Holders of Notes will suffer damages if the Company fails to fulfill its obligations under Section 2 or Section 3 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Company agrees to pay, as liquidated damages, additional interest on the Notes or the Private Exchange Notes (in either case, "Additional Interest") under the circumstances and to the extent set forth below (without duplication): (a) (i) if the Exchange Registration Statement, or, if required to be filed on behalf of any Holder, the Shelf Registration Statement is not filed within 90 days following the Issue Date, Additional Interest shall accrue on the Accreted Value of the Notes at a rate of 0.5% per annum for the first 90 days commencing on the 91st day after the Issue Date, such Additional 12 -10- Interest increasing by an additional 0.5% per annum at the beginning of each subsequent 90-day period, (ii) if the Exchange Registration Statement, or, if required to be filed on behalf of any Holder, the Shelf Registration Statement, is not declared effective within 180 days following the Issue Date, Additional Interest shall accrue on the Accreted Value of the Notes at a rate of 0.5% per annum for the first 90 days commencing on the 181st day after the Issue Date, such Additional Interest increasing by an additional 0.5% per annum at the beginning of each subsequent 90-day period, or (iii) if (A) the Company has not exchanged all of the Notes validly tendered in accordance with the terms of hte Exchange Offer on or prior to 225 days after the Issue Date or (B) the Exchange Registration Statement ceases to be effective at any time prior to the time that the Exchange Offer is consummated or (C) if applicable, the Shelf Registration Statement has been declared effective, if required to be filed on behalf of any Holder, and ceases to be effective at any time prior to the third anniversary of the Issue Date, unless all of the Notes registered thereunder have been sold thereunder or an amended or additional Registration Statement has been filed and declared effective within 90 days of the date on which the Shelf Registration Statement ceases to be effective, then Additional Interest shall accrue on the Accreted Value of the Notes at a rate of 0.5% per annum during the first 90 days commencing on (x) the 226th day after the Issue Date with respect to the Notes validly tendered and not exchanged by the Company, in the case of (A) above, or (y) the day the Exchange Registration Statement ceases to be effective or usable for its intended purpose in the case of (B) above, or (z) the 90th day following the day such Shelf Registration Statement ceases to be effective in the case of (C) above, such Additional Interest increasing by an additional 0.5% per annum at the beginning of each subsequent 90-day period; provided, however, that the Additional Interest may not exceed in the aggregate 1.0% per annum; and provided further, that (1) upon the filing of the Exchange Registration Statement or Shelf Registration Statement (in the case of clause (i) above), (2) upon the effectiveness of the Exchange Registration Statement or Shelf Registration Statement (in the case of (ii) above), or (3) upon the exchange of Exchange Notes for the Notes tendered (in the case of clause (iii)(A) above), or upon the effectiveness of the Exchange Registration Statement that had ceased to remain effective in the case of clause (iii)(B) above, or upon the effectiveness of the Shelf Registration Statement that had ceased to remain effective or the effectiveness of the additional Registration Statement (in the case of clause (iii)(C) above), the interest rate on the Notes shall decline to its original rate and Additional Interest on the Notes shall cease to accumulate. (b) The Company shall notify the Trustee within one business day after each and every date on which an event occurs in respect of which Additional Interest is required to be 13 -11- paid (an "Event Date"). Any amounts of Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be payable in cash semiannually on each February 1 and August 1 (to the holders of record on the January 15 and July 15 immediately preceding such dates), commencing with the first such date occurring after any such Additional Interest commences to accrue. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the Accreted Value of the Registrable Notes, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year consisting of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed) and the denominator of which is 360. 5. Registration Procedures In connection with the filing of any Registration Statement pursuant to Sections 2 or 3 hereof, the Company shall effect such registrations to permit the sale of the securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Company hereunder the Company shall: (a) Prepare and file with the SEC prior to the Filing Date, a Registration Statement or Registration Statements as prescribed by Sections 2 or 3 hereof, and use its reasonable best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, however, that, if (1) such filing is pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Company shall furnish to and afford the Holders of the Registrable Notes covered by such Registration Statement or each such Participating Broker-Dealer, as the case may be, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (in each case at least five business days prior to such filing). The Company shall not file any Registration Statement or Prospectus or any amendments or supplements thereto if the Holders of a majority in aggregate principal amount at maturity of Registrable Notes covered by such Registration Statement, or any such Participating Broker-Dealer, as the case may be, their counsel, or the managing underwriters, if any, shall reasonably object. Notwithstanding anything to the contrary contained in this Agreement, the Company shall not be required to engage in more than one underwritten offering pursuant to this Agreement. 14 -12- (b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration or Exchange Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period or the Applicable Period, as the case may be; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any securities being sold by a Participating Broker-Dealer covered by any such Prospectus. The Company shall be deemed not to have used its reasonable best efforts to keep a Registration Statement effective during the Applicable Period if it voluntarily takes any action that would result in selling Holders of the Registrable Notes covered thereby or Participating Broker-Dealers seeking to sell Exchange Notes not being able to sell such Registrable Notes or such Exchange Notes during that period unless such action is required by applicable law or unless the Company complies with this Agreement, including without limitation, the provisions of paragraphs 3(d) and 5(k) hereof and the last paragraph of this Section 5. (c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, notify the selling Holders of Registrable Notes, or each such Participating Broker-Dealer, as the case may be, their counsel and the managing underwriters, if any, promptly (but in any event within two business days), and confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act (including in such notice a written statement that any Holder may, upon request, obtain, at the sole expense of the Company, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) if at any time when a prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Notes or resales of Exchange Notes by Participating Broker-Dealers the representations and warranties of the Company contained in any agreement (including any underwriting agreement), contemplated by Section 5(m) hereof cease to be true and correct, (iv) of the receipt by the Company of any notification with respect to the suspension 15 -13- of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event, the existence of any condition or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in or amendments or supplements to such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and (vi) of the Company's determination that a post-effective amendment to a Registration Statement would be appropriate. (d) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its reasonable best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer, for sale in any jurisdiction, and, if any such order is issued, to use its reasonable best efforts to obtain the withdrawal of any such order at the earliest possible moment. (e) If a Shelf Registration is filed pursuant to Section 3 and if requested by the managing underwriter or underwriters (if any), or the Holders of a majority in aggregate principal amount at maturity of Registrable Notes being sold in connection with an underwritten offering or any Participating Broker-Dealer, (i) promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters (if any), such Holders, any Participating Broker-Dealer or counsel for any of them determine is reasonably necessary to be included therein, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment and (iii) supplement or make amendments to such Registration Statement. 16 -14- (f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, furnish to each selling Holder of Registrable Notes and to each such Participating Broker-Dealer who so requests and to counsel and each managing underwriter, if any, at the sole expense of the Company, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. (g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, deliver to each selling Holder of Registrable Notes, or each such Participating Broker-Dealer, as the case may be, their respective counsel, and the underwriters, if any, at the sole expense of the Company, as many copies of the Prospectus (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Registrable Notes covered by, or the sale by Participating Broker-Dealers of the Exchange Notes pursuant to, such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Notes or any delivery of a Prospectus contained in the Exchange Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, to use its reasonable best efforts to register or qualify, and to cooperate with the selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, the managing underwriter or underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Notes for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer, or the managing underwriter or underwriters reasonably request; provided, however, that where Exchange Notes held by Participating Broker-Dealers or Registrable Notes offered other than through an underwritten offering, the Company agrees to cause the Company's counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 5(h); keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is 17 -15- required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Exchange Notes held by Participating Broker-Dealers or the Registrable Notes covered by the applicable Registration Statement; provided, however, that the Company shall not be required to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction or be subject to taxation in any jurisdiction in which it is not so subject. (i) If a Shelf Registration is filed pursuant to Section 3 hereof, cooperate with the selling Holders of Registrable Notes and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Notes to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such Registrable Notes to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or Holders may reasonably request. (j) Use its reasonable best efforts to cause the Registrable Notes covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriter or underwriters, if any, to consummate the disposition of such Registrable Notes except as may be required solely as a consequence of the nature of such selling Holder's business, in which case the Company will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals. (k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, upon the occurrence of any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and (subject to Sections 3(d) and 5(a) hereof) file with the SEC, at the sole expense of the Company, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Notes being sold thereunder or to the purchasers of the Exchange Notes to whom such Prospectus will be delivered by a Participating Broker-Dealer, any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 18 -16- (l) Use its reasonable best efforts to cause the Registrable Notes covered by a Registration Statement or the Exchange Notes, as the case may be, to be rated with the appropriate rating agencies, if so requested by the Holders of a majority in aggregate principal amount of Registrable Notes covered by such Registration Statement or the Exchange Notes, as the case may be, or the managing underwriter or underwriters, if any. (m) Prior to the effective date of the first Registration Statement relating to the Registrable Notes, (i) provide the Trustee with certificates for the Registrable Notes in a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the Registrable Notes. (n) In connection with any underwritten offering of Registrable Notes pursuant to a Shelf Registration, enter into an underwriting agreement as is customary in underwritten offerings of debt securities similar to the Notes and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to expedite or facilitate the registration or the disposition of such Registrable Notes and, in such connection, (i) make such representations and warranties to, and covenants with, the underwriters with respect to the business of the Company and its subsidiaries (including any acquired business, properties or entity, if applicable) and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings of debt securities similar to the Notes, and confirm the same in writing if and when requested; (ii) obtain the written opinion of counsel to the Company and written updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions requested in underwritten offerings of debt securities similar to the Notes and such other matters as may be reasonably requested by the managing underwriter or underwriters; (iii) obtain "cold comfort" letters and updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included or incorporated by reference in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings of debt securities similar to the Notes and such other matters as reasonably requested by the managing underwriter or underwriters; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable than those set forth in Section 7 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate principal amount at maturity of Registrable Notes covered by such Registration Statement and the managing underwriter or underwriters or agents) with respect to 19 -17- all parties to be indemnified pursuant to said Section. The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder. (o) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, make available for inspection by any selling Holder of such Registrable Notes being sold, or each such Participating Broker-Dealer, as the case may be, any underwriter participating in any such disposition of Registrable Notes, if any, and any attorney, accountant or other agent retained by any such selling Holder or each such Participating Broker-Dealer, as the case may be, or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and instruments of the Company and its subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Company and its subsidiaries to supply all information reasonably requested by any such Inspector in connection with such Registration Statement. Records that the Company determines, in good faith, to be confidential and any Records that it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, (iii) disclosure of such information is, in the reasonable opinion of counsel for any Inspector, necessary or advisable in connection with any action, claim, suit or proceeding, directly or indirectly, involving or potentially involving such Inspector and arising out of, based upon, relating to, or involving this Agreement or any transactions contemplated hereby or arising hereunder or (iv) the information in such Records has been made generally available to the public (other than as a result of an impermissable disclosure or failure to safeguard by the Inspectors). Each selling holder of such Registrable Notes and each such Participating Broker-Dealer will be required to agree that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company unless and until such information is generally available to the public (other than as a result of an impermisable disclosure or failure to safeguard by such person). Each selling Holder of such Registrable Notes and each such Participating Broker-Dealer will be required to further agree that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company to undertake appropriate action to prevent disclosure of the Records deemed confidential at the Company's sole expense. 20 -18- (p) Provide an indenture trustee for the Registrable Notes or the Exchange Notes, as the case may be, and cause the Indenture or the trust indenture provided for in Section 2(b) hereof, as the case may be, to be qualified under the TIA not later than the effective date of the Exchange Offer or the first Registration Statement relating to the Registrable Notes; and in connection therewith, cooperate with the trustee under any such indenture and the Holders of the Registrable Notes, to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its reasonable best efforts to cause such trustee to execute, all documents as may be required to effect such changes and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner. (q) Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12- month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Notes is sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (r) Upon consummation of an Exchange Offer or a Private Exchange, obtain an opinion of counsel to the Company, in a form customary for underwritten transactions, addressed to the Trustee for the benefit of all Holders of Registrable Notes participating in the Exchange Offer or the Private Exchange, as the case may be, that the Exchange Notes or Private Exchange Notes, as the case may be and the related indenture constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its respective terms, subject to customary exceptions and qualifications. (s) If an Exchange Offer or a Private Exchange is to be consummated, upon delivery of Registrable Notes by Holders to the Company (or to such other Person as directed by the Company) in exchange for Exchange Notes or Private Exchange Notes, as the case may be, the Company shall mark, or cause to be marked, on the certificates representing such Registrable Notes that such Registrable Notes are being cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be. (t) Cooperate with each seller of Registrable Notes covered by any Registration Statement and each underwriter, if any, participating in the disposition of such 21 -19- Registrable Notes and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"). (u) Use its reasonable best efforts to take all other steps necessary or advisable to effect the registration of the Exchange Notes and/or Registrable Notes covered by a Registration Statement contemplated hereby. The Company may require each seller of Registrable Notes as to which any registration is being effected to furnish to the Company such information regarding such seller and the distribution of such Registrable Notes as the Company may, from time to time, reasonably request. The Company may exclude from such registration the Registrable Notes of any seller who unreasonably fails to furnish such information within a reasonable time after receiving such request. Each seller as to which any Shelf Registration is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such seller not materially misleading. Each Holder of Registrable Notes and each Participating Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, that, upon actual receipt of any notice from the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such Holder will forthwith discontinue disposition of such Registrable Notes covered by such Registration Statement or Prospectus or Exchange Notes to be sold by such Holder or Participating Broker-Dealer, as the case may be, until such Holder's or Participating Broker-Dealer's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event the Company shall give any such notice, each of the Effectiveness Period and the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Registrable Notes covered by such Registration Statement or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(k) hereof or (y) the Advice. 6. Registration Expenses (a) All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not the Exchange Offer or a Shelf Registration is filed or becomes effective, including, without limitation, (i) all 22 -20- registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Notes or Exchange Notes, (ii) printing expenses, including, without limitation, expenses of printing certificates for Registrable Notes or Exchange Notes in a form eligible for deposit with The Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company and fees and disbursements of special counsel for the sellers of Registrable Notes (subject to the provisions of Section 6(b) hereof), (v) fees and disbursements of all independent certified public accountants referred to in Section 5(m)(iii) hereof (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vi) rating agency fees, (vii) Securities Act liability insurance, if the Company desires such insurance, (viii) fees and expenses of all other Persons retained by the Company, (ix) internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees of the Company performing legal or accounting duties), (x) the expense of any annual audit, (xi) the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, if applicable, and (xii) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, securities sales agreements, indentures and any other documents necessary in order to comply with this Agreement. Notwithstanding the foregoing, the Holders of Transfer Restricted Securities being registered shall pay all underwriting discounts, commissions and placement agent fees attributable to the sale of such Transfer Restricted Securities. (b) The Company shall reimburse the Holders of the Registrable Notes being registered in a Shelf Registration for the reasonable fees and disbursements of not more than one counsel (in addition to appropriate local counsel) chosen by the Holders of a majority in aggregate principal amount at maturity of the Registrable Notes to be included in such Registration Statement. 7. Indemnification (a) The Company agrees to indemnify and hold harmless each Holder of Registrable Notes and each Participating Broker-Dealer selling Exchange Notes during the Applicable Period, the officers and directors of each such Person, and each Person, if any, who controls any such Person within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a "Participant"), from and against any and all losses, claims, damages and liabilities (including, without limitation, the reasonable legal fees and other 23 -21- expenses actually incurred in connection with any suit, action or proceeding or any claim asserted) caused by, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by, arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Participant furnished to the Company in writing by such Participant expressly for use therein; provided, however, that the Company will not be required to indemnify a Participant if such untrue statement or omission or alleged untrue statement or omission was contained or made in any preliminary prospectus and corrected in the Prospectus or any amendment or supplement thereto and it is established in the related proceeding that such Participant failed to deliver or provide a copy of the Prospectus (as amended or supplemented) to such Person with or prior to the confirmation of the sale of such Registrable Notes or Exchange Notes sold to such Person if required by applicable law, unless such failure to deliver or provide a copy of the Prospectus (as amended or supplemented) was a result of noncompliance by the Company with Section 5 of this Agreement; provided further that the foregoing proviso shall not limit the Company's obligation to indemnify a Participant for any other untrue statement or omission or alleged untrue statement or omission of a material fact in the Prospectus that was the subject matter of the related proceeding. (b) Each Participant agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors and officers who sign the Registration Statement and each Person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to each Participant, but only (i) with reference to information relating to such Participant furnished to the Company in writing by such Participant expressly for use in any Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus or (ii) with respect to any untrue statement or representation made by such Participant in writing to the Company. The liability of any Participant under this paragraph shall in no event exceed the proceeds received by such Participant from sales of Registrable Notes or Exchange Notes giving rise to such obligations. (c) If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such Person (the "Indemnified Person") shall promptly notify the Person against whom such indemnity may 24 -22- be sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may reasonably designate in such proceeding and shall pay the reasonable fees and expenses actually incurred by such counsel related to such proceeding; provided, however, that the failure to so notify the Indemnifying Person shall not relieve it of any obligation or liability which it may have hereunder or otherwise (unless and to the extent that it did not otherwise learn of such action or claim and such omission results in the forfeiture by the Indemnifying Person of substantial rights and defenses). In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed in writing to the contrary, (ii) the Indemnifying Person has failed to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and the Indemnified Person shall have been advised by counsel that representation of both parties by the same counsel would be inappropriate under applicable standards of professional conduct due to differing interests between them. It is understood that, unless there exists a conflict among Indemnified Persons, the Indemnifying Person shall not, in connection with any one such proceeding or separate but substantially similar related proceeding in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed promptly as they are incurred. Any such separate firm for the Participants and such control Persons of Participants shall be designated in writing by Participants who sold a majority in aggregate principal amount at maturity of Registrable Notes and Exchange Notes sold by all such Participants and any such separate firm for the Company, its directors, its officers and such control Persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed), but if settled with such consent or if there be a final non-appealable judgment for the plaintiff for which the Indemnified Person is entitled to indemnification pursuant to this Agreement, the Indemnifying Person agrees to indemnify and hold harmless each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement or compromise of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party, or indemnity could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional written release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are 25 -23- the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of any Indemnified Person. (d) If the indemnification provided for in the first and second paragraphs of this Section 7 is for any reason unavailable to, or insufficient to hold harmless, an Indemnified Person in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect (i) the relative benefits received by the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other from the offering of the Notes or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or such Participant or such other Indemnified Person, as the case may be, on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, and any other equitable considerations appropriate in the circumstances. (e) The parties agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Participants were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses actually incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall a Participant be required to contribute any amount in excess of the amount by which proceeds received by such Participant from sales of Registrable Notes or Exchange Notes, as the case may be, exceeds the amount of any damages that such Participant has otherwise been required to pay or has paid by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be 26 -24- entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (f) The indemnity and contribution agreements contained in this Section 7 will be in addition to any liability which the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above. 8. Rules 144 and 144A The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Registrable Notes, make publicly available annual reports and such information, documents and other reports of the type specified in Sections 13 and 15(d) of the Exchange Act. The Company further covenants for so long as any Registrable Notes remain outstanding, to make available to any Holder or beneficial owner of Registrable Notes in connection with any sale thereof and any prospective purchaser of such Registrable Notes from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Registrable Notes pursuant to Rule 144A. 9. Underwritten Registrations If any of the Registrable Notes covered by any Shelf Registration is to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount at maturity of such Registrable Notes included in such offering and reasonably acceptable to the Company. No Holder of Registrable Notes may participate in any underwritten registation hereunder unless such Holder (a) agrees to sell such Holder's Registrable Notes on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 10. Miscellaneous 27 -25- (a) No Inconsistent Agreements. The Company has not, as of the date hereof, and the Company shall not, after the date of this Agreement, enter into any agreement with respect to any of its securities that is inconsistent with the rights granted to the Holders of Registrable Notes in this Agreement or otherwise conflicts with the provisions hereof. The Company has not entered and will not enter into any agreement with respect to any of its securities that will grant to any Person piggy-back registration rights with respect to a Registration Statement. (b) Adjustments Affecting Registrable Notes. The Company shall not, directly or indirectly, take any action with respect to the Registrable Notes as a class that would adversely affect the ability of the Holders of Registrable Notes to include such Registrable Notes in a registration undertaken pursuant to this Agreement. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of (A) the Holders of not less than a majority in aggregate principal amount at maturity of the then outstanding Registrable Notes and (B) in circumstances that would adversely affect the Participating Broker-Dealers, the Participating Broker-Dealers holding not less than a majority in aggregate principal amount at maturity of the Exchange Notes held by all Participating Broker-Dealers; provided, however, that Section 7 and this Section 10(c) may not be amended, modified or supplemented without the prior written consent of each Holder and each Participating Broker-Dealer (including any person who was a Holder or Participating Broker-Dealer of Registrable Notes or Exchange Notes, as the case may be, disposed of pursuant to any Registration Statement). Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Notes whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Notes may be given by Holders of at least a majority of shares of the Registrable Notes being sold by such Holders pursuant to such Registration Statement; provided, however, that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately proceeding sentence. (d) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or facsimile: 1. if to a Holder of the Registrable Notes or any Participating Broker-Dealer, at the most current address of such Holder or Participating Broker-Dealer, as the case 28 -26- may be, on the stock books of the Company with a copy in like manner to the Initial Purchaser as follows: BT SECURITIES CORPORATION One Bankers Trust Plaza 130 Liberty Street New York, New York 10006 Facsimile No: (212) 250-7200 Attention: Corporate Finance Department with a copy to: Cahill Gordon & Reindel 80 Pine Street New York, New York 10005 Facsimile No: (212) 269-5420 Attention: William M. Hartnett, Esq. 2. if to the Initial Purchaser, at the addresses specified in Section 11(d)(1); 3. if to the Company, at the addresses as follows: Capstar Broadcasting Partners, Inc. 600 Congress Avenue Suite 1400 Austin, Texas 75243 Facsimile No: (512) 477-7388 Attention: R. Steven Hicks with copies to: Vinson & Elkins LLP 3700 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201-2975 Facsimile No: (214) 220-7716 Attention: Michael D. Wortley, Esq. 29 -27- All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; one business day after being timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if sent by facsimile. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, including the Holders; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign holds Registrable Notes. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (i) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. 30 -28- (j) Securities Held by the Company or Its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Notes is required hereunder, Registrable Notes held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (k) Third Party Beneficiaries. Holders of Registrable Notes and Participating Broker-Dealers are intended third party beneficiaries of this Agreement and this Agreement may be enforced by such Persons. (l) Entire Agreement. This Agreement, together with the Purchase Agreement and the Indenture, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Initial Purchaser on the one hand and the Company on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. 31 -29- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------- Name: William S. Banowsky, Jr. Title: BT SECURITIES CORPORATION By: /s/ CHRISTINE BARBELLA LOGGIA ------------------------------------- Name: Christine Barbella Loggia Title: EX-10.7 5 FINANCIAL ADVISORY AGREEMENT 1 EXHIBIT 10.7 FINANCIAL ADVISORY AGREEMENT THIS FINANCIAL ADVISORY AGREEMENT (this "Agreement") is made and entered into as of October 16, 1996, between Capstar Broadcasting Partners, Inc. (the "Company"), a Delaware corporation, and Hicks, Muse & Co. Partners, L.P., a Texas limited partnership (together with its successors, "HMCo."). WHEREAS, certain affiliates of HMCo., including Hicks, Muse, Tate & Furst Equity Fund III, L.P. ("HMTF") are simultaneously with the execution of this Agreement, purchasing, by means of the Company, all or a portion of the common stock of Commodore Media, Inc. ("Commodore"), a Delaware corporation (the "Acquisition"); WHEREAS, the Company has requested that HMCo. render, and HMCo. has rendered, financial advisory services to the Company and Commodore in connection with the negotiation of the Acquisition and the debt and equity financing transactions related thereto (collectively with the Acquisition, the "Transaction"); and WHEREAS, the Company has requested that HMCo. render financial advisory, investment banking, and other similar services to the Company and Commodore with respect to any future proposals for a tender offer, acquisition, sale, merger, exchange offer, recapitalization, restructuring, or other similar transaction directly or indirectly involving the Company or Commodore, or any of their respective subsidiaries, and any other person or entity (collectively, "Add-on Transactions"); NOW, THEREFORE, in consideration of the services rendered and to be rendered by HMCo. to the Company and Commodore, and to evidence the obligations of the Company to HMCo. and the mutual covenants herein contained, the Company and HMCo. hereby agree as follows: 1. Retention. (a) The Company hereby acknowledges that it has retained HMCo. for the benefit of the Company and Commodore, and HMCo. acknowledges that it has acted, as financial advisor to the Company and Commodore in connection with the Transaction. (b) The Company acknowledges that it has retained HMCo. as the exclusive financial advisor in connection with any Add-on Transactions that may be consummated during the term of this Agreement, and that the Company will not, and will cause Commodore not to, retain any other person or entity to provide such services in connection with any such Add-on Transaction without the prior written consent of HMCo. HMCO. agrees that it shall provide such financial 2 advisory, investment banking, and other similar services in connection with any such Add-on Transaction as may be requested from time to time by the board of directors of the Company. 2. Term. The term of this Agreement shall continue until the earlier to occur of (i) the tenth anniversary of the date hereof or (ii) the date on which HMTF and its affiliates cease to own beneficially, directly or indirectly, any securities of the Company or their successors. 3. Compensation. (a) As compensation for HMCo.'s services as financial advisor to the Company and Commodore in connection with the Transaction, the Company hereby irrevocably agrees to pay to HMCo. a cash fee of $3,375,000 to be paid at the closing of the Transaction. The parties hereto agree that the compensation due pursuant to this Section 3(a) shall be allocated among the segments of the financing for the Transaction in proportion to the dollar amount of each such segment. (b) As compensation for HMCo.'s financial advisory, investment banking, and other similar services rendered in connection with any Add-on Transaction pursuant to Section 1(b) hereof, the Company shall pay to HMCo., at the closing of any such Add-on Transaction, a cash fee in the amount of 1.5% of the Transaction Value of such Add-on Transaction. As used herein, the term "Transaction Value" means the total value of the Add-on Transaction, including, without limitation, the aggregate amount of the funds required to complete the Add-on Transaction (excluding any fees payable pursuant to this Section 3(b)) including the amount of any indebtedness, preferred stock or similar items assumed (or remaining outstanding). 4. Reimbursement of Expenses. In addition to the compensation to be paid pursuant to Section 3 hereof, the Company agrees to reimburse HMCo., promptly following demand therefor, together with invoices or reasonably detailed descriptions thereof, for all reasonable disbursements and out-of-pocket expenses (including fees and disbursements of counsel) incurred by HMCo. (i) as financial advisor to the Company or Commodore in connection with the Transaction or (ii) in connection with the performance by it of the services contemplated by Section 1(b) hereof. 5. Indemnification. The Company shall indemnify and hold harmless each of HMCo., its affiliates, and their respective directors, officers, controlling persons (within the meaning of Section 15 of the Securities Act of 1933 or Section 20(a) of the Securities Exchange Act of 1934), if any, agents and employees (HMCo., its affiliates, and such other specified persons being collectively referred to as "Indemnified Persons" and individually as an "Indemnified Person") from and against any and all claims, liabilities, losses, damages and expenses incurred by any Indemnified Person (including those resulting from the negligence of the Indemnified Person and fees and disbursements of the respective Indemnified Person's counsel) which (A) are related to or arise out of (i) actions taken or omitted to be taken (including any untrue statements made or any statements omitted to be made) by the Company and/or Commodore or (ii) actions taken or omitted to be taken 2 3 by an Indemnified Person with the Company's or Commodore's consent or in conformity with the Company's or Commodore's instructions or the Company's or Commodore's actions or omissions or (B) are otherwise related to or arise out of HMCo.'s engagement, and will reimburse each Indemnified Person for all costs and expenses, including fees of any Indemnified Person's counsel, as they are incurred, in connection with investigating, preparing for, defending, or appealing any action, formal or informal claim, investigation, inquiry or other proceeding, whether or not in connection with pending or threatened litigation, caused by or arising out of or in connection with HMCo.'s acting pursuant to the engagement, whether or not any Indemnified Person is named as a party thereto and whether or not any liability results therefrom. The Company will not however, be responsible for any claims, liabilities, losses, damages, or expenses pursuant to clause (B) of the preceding sentence that have resulted primarily from HMCo.'s bad faith, gross negligence or willful misconduct. The Company also agrees that neither HMCo. nor any other Indemnified Parson shall have any liability to the Company or Commodore for or in connection with such engagement except for any such liability for claims, liabilities, losses, damages, or expenses incurred by the Company and/or Commodore that have resulted primarily from HMCo.'s bad faith, gross negligence or willful misconduct. The Company further agrees that it will not, and the Company will cause Commodore to not, without the prior written consent of HMCo., settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not any Indemnified Person is an actual or potential party to such claim, action, suit or proceeding) unless such settlement, compromise or consent includes an unconditional release of HMCo. and each other Indemnified Person hereunder from all liability arising out of such claim, action, suit or proceeding. THE COMPANY HEREBY ACKNOWLEDGES THAT THE FOREGOING INDEMNITY SHALL BE APPLICABLE TO ANY CLAIMS, LIABILITIES, LOSSES, DAMAGES, OR EXPENSES THAT HAVE RESULTED FROM OR ARE ALLEGED TO HAVE RESULTED FROM THE ACTIVE OR PASSIVE OR THE SOLE, JOINT OR CONCURRENT ORDINARY NEGLIGENCE OF HMCO. OR ANY OTHER INDEMNIFIED PERSEON. The foregoing right to indemnity shall be in addition to any rights that HMCo. and/or any other Indemnified Person may have at common law or otherwise and shall remain in full force and effect following the completion or any termination of the engagement. The Company hereby consents, and shall cause Commodore to consent, to personal jurisdiction and to service and venue in any court in which any claim which is subject to this agreement is brought against HMCo. or any other Indemnified Person. It is understood that, in connection with HMCo.'s engagement, HMCo. may also be engaged to act for the Company and/or Commodore in one or more additional capacities, and that the terms of this engagement or any such additional engagement may be embodied in one or more separate written agreements. This indemnification shall apply to the engagement specified in the first paragraph hereof as well as to any such additional engagement(s) (whether written or oral) and any modification of said engagement or such additional engagement(s) and shall remain in full force and effect following the completion or termination of said engagement or such additional engagements. 3 4 The Company further understands that if HMCo. is asked to furnish the Company and/or Commodore a financial opinion letter or act for the Company and/or Commodore in any other formal capacity, such further action may be subject to a separate agreement containing provisions and terms to be mutually agreed upon. 6. Confidential Information. In connection with the performance of the services hereunder, HMCo. agrees not to divulge any confidential information, secret processes or trade secrets disclosed by the Company or Commodore to it solely in its capacity as a financial advisor, unless the Company consents to the divulging thereof or such information, secret processes, or trade secrets are publicly available or otherwise available to HMCo. without restriction or breach of any confidentiality agreement or unless required by any governmental authority or in response to any valid legal process. 7. Governing Law. This Agreement shall be construed, interpreted, and enforced in accordance with the laws of the State of Texas, excluding any choice-of-law provisions thereof. 8. Assignment. This Agreement and all provisions contained herein shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned (other than with respect to the rights and obligations of HMCo., which may be assigned to any one or more of its principals or affiliates) by any of the parties without the prior written consent of the other parties. 9. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, and the signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart. 10. Other Understanding. All discussions, understandings, and agreements theretofore made between any of the parties hereto with respect to the subject matter hereof are merged in this Agreement, which alone fully and completely expresses the Agreement of the parties hereto. 4 5 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. HICKS, MUSE & CO. PARTNERS, L.P., its General Partner By: HM PARTNERS INC., its General Partner By: /s/ MICHAEL D. SALIM --------------------------- Name: Michael D. Salim Title: Chief Financial Officer CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ PETER BRODSKY ------------------------------------------ Name: Peter Brodsky Title: Secretary 5 EX-10.8 6 MONITORING AND OVERSIGHT AGREEMENT 1 EXHIBIT 10.8 MONITORING AND OVERSIGHT AGREEMENT THIS MONITORING AND OVERSIGHT AGREEMENT (the "Agreement") is made and entered into effective as of October 16, 1996, between Capstar Broadcasting Partners, Inc., a Delaware corporation (the "Company") and Hicks, Muse & Co. Partners, L.P., a Texas limited partnership (together with its successors, "HMCo"). 1. Retention. The Company hereby acknowledges that it has retained HMCo, and HMCo acknowledges that, subject to reasonable advance notice in order to accommodate scheduling, HMCo will provide financial oversight and monitoring services to the Company as requested by the board of directors of the Company during the term of this Agreement. 2. Term. The term of this Agreement shall continue until the earlier to occur of (i) the tenth anniversary of the date hereof, or (ii) the date on which Hicks, Muse, Tate & Furst Equity Fund III, L.P. and its affiliates cease to own beneficially, directly, or indirectly, any securities of the Company or its successors. 3. Compensation. (a) As compensation for HMCo's services under this Agreement, the Company shall be obligated to pay to HMCo an annual fee (the "Monitoring Fee") of $100,000 (the "Base Fee"), subject to adjustment pursuant to paragraphs (b) and (c) below and prorated on a daily basis for any partial calendar year during the term of this Agreement. The Monitoring Fee shall be payable in equal quarterly installments on each January 1, April 1, July 1, and October 1 during the term of this Agreement (each a "Payment Date"), beginning with the first Payment Date following the date hereof. All payments shall be made by wire transfer of immediately available funds to the account described on Exhibit A hereto (or such other account as HMCo may hereafter designate in writing). (b) On January 1 of each calendar year during the term of this Agreement, the Monitoring Fee shall be adjusted to an annual amount equal to (i) the budgeted consolidated annual net sales of the Company and its subsidiaries for the then-current fiscal year, multiplied by (ii) 0.2% (the "Percentage"); provided, however, that in no event shall the annual Monitoring Fee be less than the Base Fee. (c) On each occasion that the Company or any of its subsidiaries shall acquire another entity or business during the term of this Agreement, the annual Monitoring Fee for the calendar year in which such acquisition occurs shall be adjusted prospectively (i.e., for periods subsequent to such acquisition until the next adjustment pursuant to clause (b) above), as of the 2 closing of such acquisition, to an annual amount equal to (i) the pro forma combined budgeted consolidated annual net sales of the Company and its subsidiaries for the entire then-current fiscal year of the Company (including the sales of the acquired entity or business for such entire fiscal year, on a pro forma basis), multiplied by (ii) the Percentage; provided, however, that in no event shall the annual Monitoring Fee be less than the Base Fee. (d) All past due payments in respect of the Monitoring Fee shall bear interest at the lesser of the highest rate of interest which may be charged under applicable law or the prime commercial lending rate per annum of Chemical Bank, N.A. or its successors (which rate is a reference rate and is not necessarily its lowest or best rate of interest actually charged to any customer) (the "Prime Rate") as in effect from time to time, plus five percent (5%), from the due date of such payment to and including the date on which payment is made to HMCo in full, including such interest accrued thereon. 4. Reimbursement of Expenses. In addition to the compensation to be paid pursuant to Section 3 hereof, the Company agrees to pay or reimburse HMCo for all "Reimbursable Expenses", which shall consist of (i) all reasonable disbursement and out-of-pocket expenses (including without limitation, costs of travel, postage, deliveries, communications, etc.) incurred by HMCo or its affiliates for the account of the Company or in connection with the performance by HMCo of the services contemplated by Section 1 hereof and (ii) the Company's Pro Rata Share of Allocable Expenditures as defined in Exhibit B hereto. Promptly (but not more than 10 days) after request by or notice from HMCo, the Company shall pay HMCo, by wire transfer of immediately available funds to the account described on Exhibit A hereto (or such other account as HMCo may hereafter designate in writing), the Reimbursable Expenses for which HMCo has provided the Company invoices or reasonably detailed descriptions. All past due payments in respect of the Reimbursable Expenses shall bear interest at the lesser of the highest rate of interest which may be charged under applicable law or the Prime Rate plus 5% from the Payment Date to and including the date on which such Reimbursable Expenses plus accrued interest thereon, are fully paid to HMCo. 5. Indemnification. The Company shall indemnify and hold harmless each of HMCo, its affiliates, and the respective directors, officers, controlling persons (within the meaning of Section 15 of the Securities Act of 1933 or Section 20(a) of the Securities Exchange Act of 1934), if any, agents and employees of HMCo and/or any of its affiliates (HMCo, its affiliates, and such other specified persons being collectively referred to as "Indemnified Persons", and individually as an "Indemnified Person") from and against any and all claims, liabilities, losses, damages, and expenses incurred by any Indemnified Person (including those arising out of an Indemnified Person's negligence and fees and disbursements of the respective Indemnified Person's counsel) which (A) are related to or arise out of (i) actions taken or omitted to be taken (including any untrue statements made or any statements omitted to be made) by the Company or (ii) actions taken or omitted to be taken by an Indemnified Person with the Company's consent or in conformity with the Company's instructions or the Company's actions or omissions or (B) are otherwise related to or -2- 3 arise out of HMCo's engagement, and will reimburse each Indemnified Person for all costs and expenses, including fees and disbursements of any Indemnified Person's counsel, as they are incurred, in connection with investigating, preparing for, defending, or appealing any action, formal or informal claim, investigation, inquiry, or other proceeding, whether or not in connection with pending or threatened litigation, caused by or arising out of or in connection with HMCo's acting pursuant to the engagement, whether or not any Indemnified Person is named as a party thereto and whether or not any liability results therefrom. The Company will not, however, be responsible for any claims, liabilities, losses, damages, or expenses pursuant to clause (B) of the preceding sentence that have resulted primarily from HMCo's bad faith, gross negligence, or willful misconduct. The Company also agrees that neither HMCo nor any other Indemnified Person shall have any liability to the Company for or in connection with such engagement except for any such liability for claims, liabilities, losses, damages, or expenses incurred by the Company that have resulted primarily from HMCo's bad faith, gross negligence, or willful misconduct. The Company further agrees that it will not, without the prior written consent of HMCo, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit, or proceeding in respect of which indemnifications may be sought hereunder (whether or not any Indemnified Person is an actual or potential party to such claim, action, suit, or proceeding) unless such settlement, compromise, or consent includes an unconditional release of HMCo and each other Indemnified Person hereunder from all liability arising out of such claim, action, suit, or proceeding. THE COMPANY HEREBY ACKNOWLEDGES THAT THE FOREGOING INDEMNITY SHALL BE APPLICABLE TO ANY CLAIMS, LIABILITIES, LOSSES, DAMAGES, OR EXPENSES THAT HAVE RESULTED FROM OR ARE ALLEGED TO HAVE RESULTED FROM THE ACTIVE OR PASSIVE OR THE SOLE, JOINT, OR CONCURRENT ORDINARY NEGLIGENCE OF HMCO OR ANY OTHER INDEMNIFIED PERSON. The foregoing right to indemnity shall be in addition to any rights that HMCo and/or any other Indemnified Person may have at common law or otherwise and shall remain in full force and effect following the completion or any termination of the engagement. The Company hereby consents to personal jurisdiction and to service and venue in any court in which any claim, which is subject to this agreement, is brought against HMCo or any other Indemnified Person. It is understood that, in connection with HMCo's engagement, HMCo may also be engaged to act for the Company in one or more additional capacities, and that the terms of this engagement or any such additional engagement(s) may be embodied in one or more separate written agreements. This indemnification shall apply to the engagement specified in the first paragraph hereof as well as to any such additional engagement(s) (whether written or oral) and any modification of said engagement or such additional engagement(s) and shall remain in full force and effect following the completion or termination of said engagement or such additional engagement(s). The Company further understands that if HMCo is asked to furnish the Company a financial opinion letter or act for the Company in any other formal capacity, such further action may be subject to a separate agreement containing provisions and terms to be mutually agreed upon. -3- 4 6. Confidential Information. In connection with the performance of the services hereunder, HMCo agrees not to divulge any confidential information, secret processes, or trade secrets disclosed by the Company to it solely in its capacity as a financial advisor, unless the Company consents to the divulging thereof or such information, secret processes, or trade secrets are publicly available or otherwise available to HMCo without restriction or breach of any confidentiality agreement or unless required by any governmental authority or in response to any valid legal process. 7. Governing Law. This Agreement shall be construed, interpreted, and enforced in accordance with the laws of the State of Texas, excluding any choice-of-law provisions thereof. 8. Assignment. This Agreement and all provisions contained herein shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned (other than with respect to the rights and obligations of HMCo, which may be assigned to any one or more of its principals or affiliates) by any of the parties without the prior written consent of the other parties. 9. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, and the signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart. 10. Other Understandings. All discussions, understandings, and agreements theretofore made between any of the parties hereto with respect to the subject matter hereof are merged in this Agreement, which alone fully and completely expresses the Agreement of the parties hereto. All calculations of the Monitoring Fee and Reimbursable Expenses shall be made by HMCo and, in the absence of mathematical error, shall be final and conclusive. -4- 5 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date and year first above written. HICKS, MUSE & CO. PARTNERS, L.P. By: HM PARTNERS INC., its General Partner By: /s/ MICHAEL D. SALIM --------------------------- Name: MICHAEL D. SALIM ------------------------- Title: CHIEF FINANCIAL OFFICER ------------------------ CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ PETER BRODSKY ---------------------------------- Name: PETER BRODSKY -------------------------------- Title: SECRETARY ------------------------------- -5- 6 EXHIBIT A [Wire Transfer Instructions] Texas Commerce Bank ABA #: 113000609 Account #: 08805113824 Credit: Hicks, Muse & Co. Partners Reference: Payment of [Monitoring Fees or Expenses] by _____________________________. 7 EXHIBIT B PRO RATA SHARE OF ALLOCABLE EXPENDITURES AND RELATED DEFINITIONS Pro Rata Share of Allocable Expenditures shall equal the product obtained by multiplying (i) the sum of all Allocable Expenditures that have not previously been paid or reimbursed to HMCo by the Company and other Participating Acquired Companies, by (ii) a fraction, the numerator of which shall equal the total amount of Invested Capital (as from time to time outstanding) that any Fund has invested in the Company's securities or instruments and the denominator of which shall equal the total amount of Invested Capital (as from time to time outstanding) that any Fund has invested in the securities or instruments of any and all Participating Acquired Companies. The capitalized terms used in the foregoing definitions have the meanings set forth below: Allocable Expenditures shall mean all variable, fixed, and other costs, expenses, expenditures, charges, or obligations (including without limitation letters of credit, deposits, etc.) that are related to assets utilized, services provided, or programs administered by HMCo or its affiliates in connection with the performance by HMCo of financial oversight and monitoring services on behalf of the Company and other Participating Acquired Companies, including without limitation corporate airplanes, charitable contributions, retainers for lobbyists and other professionals, and premiums and finance charges for director and officer insurance maintained for representatives of HMCo or its affiliates. Fund shall mean any one or more of the equity funds now or hereafter sponsored by Hicks, Muse, Tate & Furst Incorporated or its successors, including any LP Investment Entity (as defined in the limited partnership agreement for any such equity fund) formed under or with respect to any such equity fund. Invested Capital shall mean the total amount of partner capital that a Fund from time to time invests in the purchase of securities or instruments of a Participating Acquired Company, less the total cash distributions that constitute a return of such partner capital with proceeds from the disposition of all or any part of such securities or instruments. For each period for which the Pro Rata Share of Allocable Expenditures is being made, the applicable Invested Capital shall equal the amount outstanding as of the end of the respective period. Participating Acquired Company shall mean any partnership, corporation, trust, limited liability company, or other entity that is, for the period for which the Pro Rata Share of Allocable Expenditures is being determined, a party to a monitoring agreement or similar contract with HMCo or its affiliates and is, as of the end of such period, designated by HMCo to bear a portion of such allocable expenditures. HMCo may, in its sole and absolute discretion, determine not to designate an entity as a Participating Acquired Company with respect to such period. HMCo may make such 8 determination of non-designation for no reason or for any reason, including without limitation the respective entity's bankruptcy or other temporary or permanent inability to pay fees or expenses to HMCo or its affiliates. EX-10.10 7 EMPLOYMENT AGREEMENT - R. STEVEN HICKS 1 EXHIBIT 10.10 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of the 14th day of February, 1997 by and between Capstar Broadcasting Partners, Inc., a Delaware corporation (together with its successors and assigns permitted hereunder, the "Company"), and R. Steven Hicks (the "Executive"). WHEREAS, the Company has a need for executive management services; WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its stockholders to employ the Executive on the terms and conditions set forth herein; and WHEREAS, the Company acknowledges that contemporaneously with the execution and delivery of this Agreement, the Executive and GulfStar Communications, Inc. ("GulfStar") are entering into a substantially similar employment agreement (the "GulfStar Agreement") pursuant to which the Executive will provide executive management services to GulfStar. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. EMPLOYMENT PERIOD. Subject to Section 3, the Company hereby agrees to employ the Executive, and the Executive hereby agrees to be employed by the Company, in accordance with the terms and provisions of this Agreement, for the period commencing as of July 1, 1996 and ending on December 31, 2001 (the "Employment Period"); provided, however, that commencing on December 31, 2001 and on each anniversary of such date occurring thereafter, the Employment Period shall automatically be extended for one additional year unless at least six months prior to the ensuing expiration date (but no more than 12 months prior to such expiration date), the Company or the Executive shall have given written notice that it or he, as applicable, does not wish to extend this Agreement (a "Non-Renewal Notice"). The term "Employment Period", as utilized in this Agreement, shall refer to the Employment Period as so automatically extended. 2. TERMS OF EMPLOYMENT. (a) Position and Duties. (i) During the term of the Executive's employment, the Executive shall serve as the Chairman of the Board, President, and Chief Executive Officer of the Company and, in so doing, shall report to the Board. The Executive shall have supervision and control over, and responsibility for, such management and operational functions of the Company currently assigned 2 to such positions, and shall have such other powers and duties (including holding officer positions with the Company and one or more subsidiaries of the Company) as may from time to time be prescribed by the Board, so long as such powers and duties are reasonable and customary for the President and Chief Executive Officer of an enterprise comparable to the Company. (ii) During the term of the Executive's employment, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his business time to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully, effectively and efficiently such responsibilities. During the term of Executive's employment it shall not be a violation of this Agreement for the Executive to (1) serve on corporate, civic or charitable boards or committees, (2) deliver lectures or fulfill speaking engagements, (3) manage personal investments, and (4) devote a portion of his business time to the performance of his duties and obligations under the GulfStar Agreement, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. (b) Compensation. (i) Base Salary. During the term of the Executive's employment, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid in accordance with the customary payroll practices of the Company, at least equal to $250,000. Commencing on January 1, 1998, and on each subsequent January 1 as long as the Executive remains an employee of the Company (each such January 1 being herein referred to as an "Adjustment Date"), the Annual Base Salary of the Executive shall be increased by an amount equal to five percent (5%) of the then current Annual Base Salary or such greater amount as the Board in its discretion may determine appropriate The result of such increase to the then current Annual Base Salary shall constitute the Executive's Annual Base Salary commencing on the Adjustment Date then at hand and continuing until the next Adjustment Date. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. The term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) Bonuses. For each fiscal year of the Company, the Board shall approve a budget which shall include, among other things, a target for the revenues and net income of the Company for that year. If the revenues and net income for a fiscal year of the Company equal or exceed the targets for such revenues and net income as set forth in the budget, as evidenced by the audited income statement of the Company for such fiscal year, then, in addition to the Annual Base Salary, the Executive shall be awarded an annual performance bonus in such amount, if any, as shall be determined appropriate by the Board. At the election of the Board, the Bonus shall be payable on the first day of the first calendar month after such audited income statement is delivered to the Board or shall be payable in monthly payments, as nearly equal as practicable, payable on the first 2 3 day of such first calendar month and on the first day of each calendar month thereafter occurring during the remainder of the fiscal year next succeeding the fiscal year with respect to which the bonus is payable. (iii) Incentive, Savings and Retirement Plans. During the term of the Executive's employment, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other executives of the Company ("Investment Plans"). (iv) Welfare Benefit Plans. During the term of the Executive's employment, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs ("Welfare Plans") provided by the Company (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other executives of the Company. (v) Automobile Allowance. During the term of the Executive's employment, the Executive shall be entitled to receive a monthly automobile allowance equal to $750, which shall be paid monthly in accordance with the customary practices of the Company. (vi) Perquisites. During the term of the Executive's employment, the Executive shall be entitled to receive (in addition to the benefits described above) such perquisites and fringe benefits appertaining to his position in accordance with any practice established by the Board. (vii) Expenses. During the term of the Executive's employment, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by the Executive in accordance with the policies, practices and procedures of the Company. (viii) Vacation and Holidays. During the term of the Executive's employment, the Executive shall be entitled to paid vacation and paid holidays in accordance with the plans, policies, programs and practices of the Company for its executive officers. Each vacation day taken by the Executive under the terms of the GulfStar Agreement shall be counted as a vacation day under the plans, policies, programs and practices of the Company. (ix) Stock Options. In addition to any benefits the Executive may receive pursuant to paragraph 2(b)(iii), as may be determined appropriate by the Board, Capstar may, from time to time, grant Executive stock options (the "Executive Options") exercisable for shares of common stock, par value $.01 per share, of Capstar and subject to the terms of this Agreement, such Executive Options shall have such terms and provisions as may be determined appropriate by the 3 4 Board. Any such Executive Options will be granted under Capstar's 1996 Stock Option Plan (the "Stock Option Plan"). 3. TERMINATION OF EMPLOYMENT. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), the Company may give to the Executive written notice in accordance with Section 11(b) of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the Executive's inability to perform his duties and obligations hereunder for a period of 180 consecutive days due to mental or physical incapacity as determined by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause or Board Termination. The Company may terminate the Executive's employment during the Employment Period for Cause or without Cause. For purposes of this Agreement, "Cause" shall mean (i) a breach by the Executive of the Executive's obligations under Section 2(a) (other than as a result of physical or mental incapacity) which constitutes a continued material nonperformance by the Executive of his obligations and duties thereunder, as reasonably determined by the Board, and which is not remedied within 30 days after receipt of written notice from the Company specifying such breach, (ii) commission by the Executive of an act of fraud upon, or willful misconduct toward, the Company, as reasonably determined by a majority of the disinterested members of the Board (neither the Executive nor members of his family being deemed disinterested for this purpose) after a hearing by the Board following ten days' notice to the Executive of such hearing, (iii) a material breach by the Executive of Section 6 or Section 9, (iv) the conviction of the Executive of any felony (or a plea of nolo contendere thereto); or (v) the failure of the Executive to carry out, or comply with, in any material respect any directive of the Board consistent with the terms of this Agreement, which is not remedied within 30 days after receipt of written notice from the Company specifying such failure. For purposes of this Agreement, a "Board Determination" shall mean a determination by the Board (which is evidenced by one or more written resolutions to such effect) (i) to terminate the Executive's employment during the Employment Period based upon the Board's dissatisfaction with the manner in which the Executive has performed his obligations and duties under Section 2(a) and (ii) that Cause does not exist as a basis for such termination. For purposes of this Agreement, "without Cause" shall mean a termination by the Company of the Executive's employment during the Employment Period pursuant to a Board 4 5 Determination or for any other reason other than a termination based upon Cause, death or Disability. (c) Good Reason. The Executive's employment may be terminated during the Employment Period by the Executive for Good Reason or without Good Reason; provided, however, that the Executive agrees not to terminate his employment for Good Reason unless (i) the Executive has given the Company at least 30 days' prior written notice of his intent to terminate his employment for Good Reason, which notice shall specify the facts and circumstances constituting Good Reason, and (ii) the Company has not remedied such facts and circumstances constituting Good Reason within such 30-day period. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2(a) or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive (without limiting the foregoing, the Company and the Executive agree that the delegation of the authority, duties or responsibilities of the Executive to another person or persons, including any committee, shall be deemed to be an action by the Company which results in a material diminution in the Executive's position, authority, duties, or responsibilities as contemplated by Section 2(a)), provided, however, that Good Reason may not be asserted by the Executive under this clause (i) of Section 3(c) after a Non-Renewal Notice has been given by either the Company or the Executive; (ii) any termination or material reduction of a material benefit under any Investment Plan or Welfare Plan in which the Executive participates unless (1) there is substituted a comparable benefit that is economically substantially equivalent to the terminated or reduced benefit prior to such termination or reduction or (2) benefits under such Investment Plan or Welfare Plan are terminated or reduced with respect to all employees previously granted benefits thereunder; (iii) any failure by the Company to comply with any of the provisions of Section 2(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iv) any failure by the Company to comply with and satisfy Section 8(c), provided that such successor has received at least ten days prior written notice from the Company or the Executive of the requirements of Section 8(c); 5 6 (v) the relocation or transfer of the Executive's principal office to a location more than 20 miles from the Company's current executive offices as such are maintained on the date hereof in the city of Austin, Texas; or (vi) without limiting the generality of the foregoing, any material breach by the Company or any of its subsidiaries or other affiliates (as defined below) of (1) this Agreement or (2) any other agreement between the Executive and the Company or any such subsidiary or other affiliate. As used in this Agreement, "affiliate" means, with respect to a person, any other person controlling, controlled by or under common control with the first person; the term "control," and correlative terms, means the power, whether by contract, equity ownership or otherwise, to direct the policies or management of a person; and "person" means an individual, partnership, corporation, limited liability company, trust or unincorporated organization, or a government or agency or political subdivision thereof. (d) Notice of Termination. Any termination by the Company for Cause or without Cause, or by the Executive for Good Reason or without Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b). For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall not be more than 15 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason or without Good Reason, the date of receipt of the Notice of Termination or any later date specified therein pursuant to Section 3(d), as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause, the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the date of death of the Executive or the Disability Effective Date, as the case may be. 6 7 4. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for either Cause or Disability or the Executive shall terminate his employment for Good Reason, and the termination of the Executive's employment in any case is not due to his death or Disability: (i) The Company shall pay to the Executive in a lump sum in cash within ten days after the Date of Termination the aggregate of the following amounts: (1) the sum of the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid and any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay ("Accrued Obligations"); (2) the sum of two times the Executive's then current Annual Base Salary; and (3) any amount arising from Executive's participation in, or benefits under, any Investment Plans ("Accrued Investments"), which amounts shall be payable in accordance with the terms and conditions of such Investment Plans. (ii) Except as otherwise provided in Section 4(d), the Executive (and members of his family) shall be entitled to continue their participation in the Company's Welfare Plans for a period of 24 months from the Date of Termination. (iii) Notwithstanding the terms or conditions of any Executive Option or other similar stock option, stock appreciation right or similar agreements between the Company and the Executive, the Executive shall vest, as of the Date of Termination, in all rights under such agreements (i.e., Executive Options that would otherwise vest after the Date of Termination) and thereafter shall be permitted to exercise any and all such rights until the earlier to occur of (x) the expiration of such Executive Option, stock option, stock appreciation right or similar agreement pursuant to its terms or (y) 5:00 p.m., Dallas, Texas time, on the 90th day after the Date of Termination; provided, however, the provisions of this clause (iii) of this Section 4(a) shall not apply to a termination of the Executive's employment during the Employment Period that is made by the Company pursuant to a Board Determination. (b) Death or Disability. If the Executive's employment is terminated by reason of the Executive's death or Disability during the Employment Period, the Company shall pay to his legal representatives (i) in a lump sum in cash within ten days after the Date of Termination the aggregate of the following amounts: (A) an amount equal to the Executive's then current Annual Base Salary; and (B) the Accrued Obligations; and (ii) the Accrued Investments which shall be payable in accordance with the terms and conditions of the Investment Plans. In addition, except as otherwise provided in Section 4(d), the members of the Executive's family shall be entitled to continue their participation in the Company's Welfare Plans for a period of 12 months after the Date of Termination. Further, notwithstanding the terms or conditions of any Executive Options, stock option, stock appreciation right or similar agreements between the Company and the Executive, the 7 8 Executive shall vest, as of the Date of Termination, in all rights under such agreements (i.e., Executive Options, stock options that would otherwise vest after the Date of Termination) and thereafter his legal representatives shall be permitted to exercise any and all such rights until the earlier to occur of (x) the expiration of such Executive Option, stock option, stock appreciation right or similar agreement pursuant to its terms or (y) the first anniversary of the Date of Termination. The Company shall have no further payment obligations to the Executive or his legal representatives under this Agreement. (c) Cause; Other than for Good Reason. If the Executive's employment shall be terminated by the Company for Cause or by the Executive without Good Reason during the Employment Period, the Company shall have no further payment obligations to the Executive other than for payment of Accrued Obligations, Accrued Investments (which shall be payable in accordance with the terms and conditions of the Investment Plans), and the continuance of benefits under the Welfare Plans to the Date of Termination. (d) If pursuant to the terms and provisions of the Company's Welfare Plans the Executive (or members of his family) are not eligible to participate in the Company's Welfare Plans because the Executive is no longer an employee of the Company, then the Company may fulfill its obligations under clause (ii) of Section 4(a) or Section 4(b), as applicable, by either providing to the Executive (or his legal representatives), or reimbursing the Executive (or his legal representatives) for the costs of, benefits substantially similar to the benefits provided by the Company to its senior management under its Welfare Plans as such may from time to time exist after the Date of Termination. 5. FULL SETTLEMENT, MITIGATION. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. Neither the Executive nor the Company shall be liable to the other party for any damages in addition to the amounts payable under Section 4 arising out of the termination of the Executive's employment prior to the end of the Employment Period; provided, however, that the Company shall be entitled to seek damages for any breach of Sections 6, 7 or 9 or criminal misconduct. 6. CONFIDENTIAL INFORMATION. (a) The Executive acknowledges that the Company and their affiliates have trade, business and financial secrets and other confidential and proprietary information (collectively, the "Confidential Information"). As defined herein, Confidential Information shall not include (i) information that is generally known to other persons or entities who can obtain economic value from its disclosure or use and (ii) information required to be disclosed by the Executive pursuant to a subpoena or court order, or pursuant to a requirement of a governmental agency or law of the 8 9 United States of America or a state thereof or any governmental or political subdivision thereof; provided, however, that the Executive shall take all reasonable steps to prohibit disclosure pursuant to subsection (ii) above. (b) The Executive agrees (i) to hold such Confidential Information in confidence and (ii) not to release such information to any person (other than Company employees and other persons to whom the Company has authorized the Executive to disclose such information and then only to the extent that such Company employees and other persons authorized by the Company have a need for such knowledge). (c) The Executive further agrees not to use any Confidential Information for the benefit of any person or entity other than the Company. 7. SURRENDER OF MATERIALS UPON TERMINATION. Upon any termination of the Executive's employment, the Executive shall immediately return to the Company all copies, in whatever form, of any and all Confidential Information and other properties of the Company and their affiliates which are in the Executive's possession, custody or control. 8. SUCCESSORS. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 9. NON-COMPETITION. (a) The term of Non-Competition (herein so called) shall be for a term beginning on the date hereof and continuing until (i) if this Agreement is terminated during the Employment Period by either the Company or the Executive for any reason, the first anniversary of the Date of 9 10 Termination or (ii) if the Employment Period expires by reason of a Non-Renewal Notice, the last day of the Employment Period. (b) During the term of Non-Competition, the Executive will not (other than for the benefit of the Company pursuant to this Agreement) directly or indirectly, individually or as an officer, director, employee, shareholder, consultant, contractor, partner, joint venturer, agent, equity owner or in any capacity whatsoever, (i) engage in any radio broadcasting business that transmits a primary or city-grade signal within a Metro Survey Area (as currently defined by The Arbitron Company in its Radio Markets Reports) in which a station directly operated by the Company transmits a primary or city- grade signal (1), with respect to the term of Non-Competition that is during the Executive's employment, during such term of employment, and (2), with respect to the term of Non-Competition that is after the term of the Executive's employment, on the Date of Termination (all such areas being collectively called the "Geographic Area") (a "Competing Business"), (ii) hire, attempt to hire, or contact or solicit with respect to hiring any employee of the Company, or (iii) divert or take away any customers or suppliers of the Company in the Geographic Area. Notwithstanding the foregoing, the Company agrees that the Executive may own less than five percent of the outstanding voting securities of any publicly traded company that is a Competing Business so long as the Executive does not otherwise participate in such competing business in any way prohibited by the preceding clause. As used in this Section 9(b) (and in Section 6), "Company" shall include the Company and any of its subsidiaries. (c) During the term of Non-Competition, the Executive will not use the Executive's access to, knowledge of, or application of Confidential Information to perform any duty for any Competing Business; it being understood and agreed to that this Section 9(c) shall be in addition to and not be construed as a limitation upon the covenants in Section 9(b) hereof. (d) The Executive acknowledges that the geographic boundaries, scope of prohibited activities, and time duration of the preceding paragraphs are reasonable in nature and are no broader than are necessary to maintain the confidentiality and the goodwill of the Company's proprietary information, plans and services and to protect the other legitimate business interests of the Company. 10. EFFECT OF AGREEMENT ON OTHER BENEFITS. The existence of this Agreement shall not prohibit or restrict the Executive's entitlement to full participation in the executive compensation, employee benefit and other plans or programs in which executives of the Company are eligible to participate. 11. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. The captions of this 10 11 Agreement are not part of the provisions hereof and shall have no force or effect. Whenever the terms "hereof", "hereby", "herein", or words of similar import are used in this Agreement they shall be construed as referring to this Agreement in its entirety rather than to a particular section or provision, unless the context specifically indicates to the contrary. Any reference to a particular "Section" or "paragraph" shall be construed as referring to the indicated section or paragraph of this Agreement unless the context indicates to the contrary. The use of the term "including" herein shall be construed as meaning "including without limitation." This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: R. Steven Hicks Capstar Broadcasting Partners, Inc. 600 Congress Avenue, Suite 1400 Austin, Texas 78701 If to the Company: Capstar Broadcasting Partners, Inc. 200 Crescent Court, Suite 1600 Dallas, Texas 75201 Attn: Lawrence D. Stuart, Jr. or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term of this Agreement, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a portion of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. (d) The Company agrees to attempt to obtain and maintain a director's and officer's liability insurance policy during the term of the Executive's employment covering the Executive on commercially reasonable terms, and the amount of coverage shall be reasonable in relation to the Executive's position and responsibilities hereunder; provided, however, that such 11 12 coverage may be reduced or eliminated to the extent that the Company reduces or eliminates coverage for its directors and executives generally. (e) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (f) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (g) The Executive acknowledges that money damages would be both incalculable and an insufficient remedy for a breach of Section 6 or 9 by the Executive and that any such breach would cause the Company irreparable harm. Accordingly, the Company, in addition to any other remedies at law or in equity it may have, shall be entitled, without the requirement of posting of bond or other security, to equitable relief, including injunctive relief and specific performance, in connection with a breach of Section 6 or 9 by the Executive. (h) The provisions of this Agreement constitute the complete understanding and agreement between the parties with respect to the subject matter hereof. (i) This Agreement may be executed in two or more counterparts. (j) In the event any dispute or controversy arises under this Agreement and is not resolved by mutual written agreement between the Executive and the Company within 30 days after notice of the dispute is first given, then, upon the written request of the Executive or the Company, such dispute or controversy shall be submitted to arbitration to be conducted in accordance with the rules of the American Arbitration Association. Judgment may be entered thereon and the results of the arbitration will be binding and conclusive on the parties hereto. Any arbitrator's award or finding or any judgment or verdict thereon will be final and unappealable. All parties agree that venue for arbitration will be in Dallas, Texas, and that any arbitration commenced in any other venue will be transferred to Dallas, Texas, upon the written request of any party to this Agreement. All arbitrations will have three individuals acting as arbitrators: one arbitrator will be selected by the Executive, one arbitrator will be selected by the Company, and the two arbitrators so selected will select a third arbitrator. Any arbitrator selected by a party will not be affiliated, associated or related to the party selecting that arbitrator in any matter whatsoever. The decision of the majority of the arbitrators will be binding on all parties. The Company shall be responsible for paying its own and the Executive's attorneys fees, costs and other expenses pertaining to any such arbitration and enforcement regardless of whether an arbitrator's award or finding or any judgment or verdict thereon is entered 12 13 against the Executive. The Company shall promptly (and in no event after ten days following its receipt from the Executive of each written request therefor) reimburse the Executive for his reasonable attorneys fees, costs and other expenses pertaining to any such arbitration and the enforcement thereof. (k) Sections 6 and 9 of this Agreement shall survive the termination of this Agreement. (l) The Company and the Executive acknowledge that the Employment Period hereunder commenced as of July 1, 1996 and that no default exists hereunder on the part of either the Company or the Executive as to their respective obligations hereunder for the time period occurring prior to the date of this Agreement. 13 14 IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from the Board, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. EXECUTIVE /s/ R. STEVEN HICKS ----------------------------------- R. Steven Hicks CAPSTAR BROADCASTING PARTNERS, INC. /s/ PAUL D. STONE ----------------------------------- By: PAUL D. STONE ---------------------------------- Title: CHIEF FINANCIAL OFFICER ------------------------------- EX-10.13 8 AMENDED & RESTATED EMPLOYMENT AGREEMENT 1 EXHIBIT 10.13 AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement"), dated as of October , 1996, is made by and among Commodore Media, Inc., a Delaware corporation, (the "Company"), Capstar Broadcasting Partners, Inc., and Mr. James T. Shea, Jr. (the "Executive"). WHEREAS, effective as of October 16, 1996 ("Closing Date") and pursuant to a Plan and Agreement of Merger dated as of June 21, 1996, entered into by and among CMI Acquisition Company, Inc., the Company and certain designated shareholders (the "Merger Agreement"), CMI Acquisition Company, Inc. has been merged into the Company which now continues as the surviving corporation; WHEREAS, effective as of the Closing Date and pursuant to the Merger Agreement, Capstar Broadcasting Partners, Inc. has acquired a controlling interest in the Company and hereby enters into this Agreement for the sole purpose of confirming to the Executive that Capstar Broadcasting Partners, Inc. agrees to cause the Company to abide by the terms and conditions of this Agreement; WHEREAS, prior to the Closing Date, the Executive has served as the Chief Operating Officer of the Company pursuant to the terms of the Employment Agreement dated as of March 23, 1992, as amended on May 31, 1994, and as amended and restated April 21, 1995 ("Prior Agreement"), and the Executive has acquired special and unique knowledge, abilities and expertise with respect to the business of the Company; WHEREAS, since the Company desires to continue to employ the Executive after the Closing Date and for the Executive to serve as the President of the Company, the parties hereto deem it necessary and desirable to amend and restate the Prior Agreement to memorialize the terms and conditions of the Executive's employment with the Company after the Closing Date. NOW THEREFORE, in consideration of the promises and mutual covenants and agreements set forth herein and for other good and valuable consideration, the adequacy of which are hereby acknowledged, the parties agree to the following: 1. Definitions. "Annual Base Salary" shall mean the annual salary payable to Executive pursuant to Section 5.1 hereof from time to time in effect during the Term of Employment. "Annual Incentive" shall have the meaning set forth in Section 5.2(a) 2 hereof. "Board" shall mean the Board of Directors of the Company. "Cause" means (i) the commission by Executive of a felony, fraud, embezzlement or an act of serious, criminal moral turpitude which, in case of any of the foregoing, is reasonably likely to cause material harm to the business of the Company or any Company Affiliate, (ii) the commission of an act by Executive constituting material financial dishonesty against the Company or any Company Affiliate, (iii) the repeated refusal by Executive to use his reasonable and diligent efforts to follow the lawful and reasonable directives (in light of the terms of this Agreement) of the Board with respect to a matter or matters within the control of Executive, provided that, if such breach described in this clause (iii) is curable, Executive will, subject to the following proviso, be given written notice ( a "default notice") of such breach and will be given an opportunity to cure such breach to the reasonable satisfaction of the Board with thirty (30) days of receipt of such written notice, and provided further that Executive will only be entitled to cure two such defaults during the Term of Employment, or (iv) Executive's willful gross neglect in carrying out his duties and responsibilities under this Agreement, provided that, if such breach described in this clause (iv) is not likely to have a material adverse effect on the Company and its Subsidiaries, taken as a whole, Executive will, subject to the following proviso, be given a default notice of such breach and will be given an opportunity to cure such breach to the reasonable satisfaction of the Board within thirty (30) days of receipt of such written notice, and provided, further, that Executive will only be entitled to cure two such defaults during the Term of Employment. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Commencement Date" shall have the meaning set forth in Section 3 hereof. "Company Affiliate" shall mean any Person directly or indirectly controlling, controlled by, or under common control with, the Company. "Confidential Information" shall have the meaning set forth in Section 7 hereof. "Date of Termination" shall mean the earlier of (a) the date of termination, if any, specified in the Notice of Termination (which date shall not be earlier than the date of receipt of such Notice of Termination ) or (b) the date on which Executive's employment under its Agreement actually terminates. "Disability" shall mean Executive's inability to perform his duties and responsibilities under this Agreement for a period of more than 180 days in any twelve month period during the Term of Employment due to physical or mental incapacity or impairment. A determination of Disability will be made by a physician satisfactory to 2 3 both Executive (or his personal representative) and the Company; provided that if Executive (or such representative) and the Company cannot agree as to a physician, then each will select a physician and such physicians shall together select a third physician, whose determination as to Disability shall be completed within ten (10) days of the date on which the disagreement between Executive (or such representative) and the Company arose and the decision of such third physician will be final and binding on Executive and the Company. Executive (or his personal representative) and the Company shall have the right to present to such physician such information and arguments as each deems appropriate, including the opinion of other physicians. "Effective Date" shall mean the Closing Date. "GAAP" shall mean United States generally accepted accounting principles as in effect on the date hereof and on a basis consistent with such principles applied in the preparation of the Company's financial statements. "Good Reason" shall be deemed to exist if, without the express written consent of Executive, (a) Executive's rate of Annual Base Salary (as provided in Section 5.1 of this Agreement) is reduced, (b) Executive suffers a substantial reduction in his title, duties and responsibilities; provided, however, that Good Reason shall not be deemed to exist if the Company employs any person to fulfill Executive's duties hereunder during the 180-day period referred to in the definition "Disability," (c) Executive is required to provide services to the Company on a regular basis at a location outside the geographic area described in Section 5.8 hereof, (d) the Company fails to pay any amount in excess of $1,000 due to Executive hereunder within thirty (30) days of written notice from Executive, or (e) the Company breaches in any material respect of any of its material obligations pursuant to this Agreement (other than a payment obligation covered by (d) above), provided that if such breach described in this clause (e) is curable, the Company will, subject to the following proviso, be given written notice of such breach and will be given an opportunity to cure such breach to the reasonable satisfaction of Executive within thirty (30 ) days of receipt of such written notice, and provided further that the Company will only be entitled to cure two such breaches during the Term of Employment. "Noncompete Period" shall have the meaning set forth in Section 8(a) hereof. "Notice of Termination" shall have the meaning set forth in Section 6.4 hereof. "Person" shall mean any natural or legal person including any individual, partnership, joint venture, corporation, association, joint stock company, limited liability company, trust, unincorporated organization or government or any department or agency or political subdivision thereof. 3 4 "Prior Agreement" shall have the meaning set forth in the recitals hereof. "Subsidiary" shall mean, with respect to any Person, a corporation of which the securities having a majority of the voting power in electing directors are, at the time of determination, owned by such Person, directly or through one or more Subsidiaries. "Term of Employment" shall have the meaning set forth in Section 3 hereof. 2. Employment. During the Term of Employment, subject to the terms and provisions set forth in this Agreement, the Company shall employ the Executive as its President and Executive hereby accepts such employment. 3. Term of Employment. The term of employment under this Agreement shall commence as of the Effective Date (the "Commencement Date") and, unless earlier terminated by the Company or Executive under Section 6 of this Agreement, shall continue until April 30, 1999 (the "Term of Employment"). Notwithstanding the foregoing, the Company and Executive may mutually agree to extend the term of this Agreement, in which event all references herein to April 30, 1999 shall be replaced with such mutually agreed upon extended date. 4. Positions, Responsibilities and Duties. 4.1 Duties. During the Term of Employment, the Executive, as President of the Company, shall report to Steven Hicks and shall be responsible, subject to the direction of the Board, for the day-to-day operations of the Company and for such other duties and functions as may be directed from time to time by the Board; provided that such duties and functions are reasonable and customary for a President of a corporation engaged in the same industry as the Company and do not materially extend the scope of the Executive's regular duties. 4.2 Attention to Duties and Responsibilities. During the Term of Employment, Executive shall devote substantially all of his business time to the business and affairs of the Company and shall use his best efforts and ability to perform faithfully and efficiently his duties and responsibilities; provided, however, that Executive shall be allowed, to the extent that such activities do not interfere in any material respect with the performance by Executive of his duties and responsibilities under this Agreement and do not otherwise involve a material amount of his time, (i) to manage his personal affairs and to serve on the boards of directors, advisory boards or committees of, or otherwise participate in, civic or charitable organizations, trade associations or not-for-profit corporations, (ii) with the prior written approval of the Board, serve on the board of directors, advisory board or committee of any for-profit corporation, and (iii) to write for publications or speak publicly. 4 5 5. Compensation and Related Matters. 5.1 Annual Base Salary. During the Term of Employment, as compensation for the services to be provided by Executive under this Agreement, the Company shall pay Executive an Annual Base Salary of Two Hundred Sixty Two Thousand Five Hundred Dollars ($262,500), which shall be increased (but not decreased) at the commencement of each calendar year by an amount which shall not be less than (but, in the sole discretion of the Board, may be more than) five percent (5%) of the Annual Base Salary in effect immediately prior to such increase. The Annual Base Salary shall be payable in equal installments every two weeks. 5.2 Annual Incentive. (a) Calculation of Annual Incentive. Subject to Section 6 hereof, Executive shall be entitled to receive an annual incentive payment (the "Annual Incentive") for each year or portion thereof during the Term of Employment. For each calendar year or portion thereof during the Term of Employment ending after December 31, 1995, the Annual Incentive percentages, targets, limits and other factors shall be determined in good faith by the Board (after consultation with the Executive) to provide the Executive with a reasonable opportunity no less favorable to the Executive to earn a reasonable amount, no less than One Hundred Fifty Thousand Dollars ($150,000.00), the amount that had been available as the Annual Incentive for the period ending December 31, 1995. The Executive shall make a proposal to the Board of such percentages, targets, limits and other factors no later than fifteen (15) days after the commencement of the calendar year or portion thereof to which they will relate, and the Board, in consultation with the Executive, shall determine and adopt such percentages, targets, limits and other factors as it deems advisable and notify Executive of the same no later than forty-five (45) days after such commencement. If Executive and the Company are unable to agree on the Annual Incentive percentages, targets, limits and/or other factors, the dispute between the parties shall be submitted to arbitration in accordance with Section 10 hereof. (b) Payment of Annual Incentive. The Annual Incentive shall be due and payable by the Company as follows: (i) On October 15 of each calendar year commencing on October 15, 1996, the Company shall make a good faith estimate of the Annual Incentive to be paid to Executive in respect of such calendar year (or portion thereof) and shall provide Executive with a written copy thereof, together with such supporting information as executive may reasonably request. The Company shall, with fifteen (15) days thereof, pay to Executive an amount in cash equal to one-third of such estimate. (ii) On January 15 of each calendar year commencing on January 15, 1997, the Company shall make a good faith 5 6 estimate of the Annual Incentive to be paid to Executive in respect of the prior calendar year (or portion thereof) and shall provide Executive with a written copy thereof, together with such supporting information as Executive may reasonably request. The Company shall, within fifteen (15) day thereof, pay to Executive an amount in cash equal to the difference between (a) two-thirds of such estimate and (B) the amount previously paid to Executive pursuant to clause (i) above. (iii) Within fifteen (15) days after the delivery by the Company's accountants to the Company of the Company's audited financial statements for the prior calendar year but in any event no later than April 15 of such calendar year commencing with April 15, 1997, the Company shall finally determine the total Annual Incentive to be paid to Executive for the prior calendar year (or portion thereof) and pay to Executive the remaining portion, if any, of such Annual Incentive and shall provide Executive with a written copy of such final determination, together with such supporting information as Executive may reasonably request. The Annual Incentive shall be calculated by the Company's accountants in accordance wit GAAP. In the event that the payments made under clauses (i) and (ii) of this Section 5.2(b) are, in aggregate, in excess of the total amount finally determined under clause (iii) of the Section 5.2(b) to be due to Executive in respect of the Annual Incentive for a calendar year (or portion thereof), Executive shall repay such excess to the Company within thirty (30) days of such notice. If Executive fails to repay such excess in full within such thirty-day period, in addition to any other remedy that may be available to the Company by law or under this Agreement, the Company shall have the right to withhold any payments due to Executive hereunder in an amount up to, and to offset such withheld payments against, such excess. 5.3 Retirement and Savings Plan. During the Term of Employment, Executive shall be entitled to participate in all pension, retirement, savings and other employee benefit plans and programs, if any, generally applicable to employees or available to executives of the Company in accordance with the terms of such plans and programs. 5.4 Welfare Benefit Plans. During the Term of Employment, Executive, Executive's spouse, if any, and the Executive's eligible dependents, if any, shall be entitled top participate in and be covered by all welfare benefit plans and programs, if any, generally applicable to employees or available to executives of the Company in accordance with the terms of such plans and programs. 5.5 Expense Reimbursement. During the Term of Employment, the Executive shall be entitled to receive reimbursement for all reasonable expenses incurred 6 7 by the Executive in performing his duties and responsibilities hereunder in accordance with the policies and procedures of the Company as in effect at the time the expense was incurred, as the same may be changed prospectively from time to time. 5.6 Vacation Benefits. During the Term of Employment, Executive shall be entitled to four weeks paid vacation annually at such times which do not materially interfere with the operations of the Company. 5.7 Car Allowance. During the Term of Employment, the Company shall pay the lease payments with respect to an automobile leased by Executive in amount not to exceed $600 per month and shall reimburse Executive for any and all of his reasonable expenses in respect of such automobile including but not limited to insurance costs. 5.8 Geographic Location. Executive's services are now rendered and, during the Term of Employment, shall continue to be rendered hereunder primarily in (a) New York City, (b) at any location between Manhattan and lower Fairfield County (including lower Fairfield County), (c)Allentown, Pennsylvania, or (d) such other location mutually agreed to by the Company and Executive. 5.9 Life Insurance. As of the Effective Date, the Company shall obtain or continue the life insurance policy obtained by the Company prior to the Merger under the Prior Agreement, until the earlier to occur of (i) April 21, 2005 or (ii) the death of Executive, and the Company shall maintain and pay all premiums payable under, a ten-year term life insurance policy on Executive's life with a nationally recognized and reputable carrier of insurance reasonably acceptable to Executive for the benefit of the Company which policy provides (a) that such carrier of insurance shall provide the Company and Executive with thirty (30) days prior written notice of any cancellation of such policy and (b) subject to the proviso immediately below, Six Hundred Fifty Thousand Dollars ($650,000) of life insurance; provided, however, that in no event shall the Company be required to pay annual premiums in excess of One Thousand Dollars ($1,000) for any such life insurance policy. The Company's obligation under this Section 5.9 shall survive any termination of Executive's employment under this Agreement and the termination of this Agreement regardless of the circumstances of such termination. 5.10 Option Plan. On and after the Effective Date, the Executive shall participate in the Capstar Broadcasting Partners, Inc. 1996 Stock Option Plan, in substantially the form attached hereto as Exhibit A, (the "Option Plan") and, in connection therewith, the Executive shall be granted, as soon as practicable after execution of this Agreement, options under the Option Plan to purchase an aggregate of 549,500 shares of common stock, par value $.01 per share, of Capstar Broadcasting Partners, Inc. at an exercise price of $1.00 per share, with the grant of such options to be memorialized in written option grant agreements, in substantially the forms attached hereto as Exhibit B. The options granted to the Executive under this Section 5.10 shall be 7 8 subject to the terms and conditions of the Option Plan and the written option grant agreements memorializing the grant of such options to the Executive thereunder. 6. Termination. Executive's employment hereunder shall terminate automatically on April 30, 1999. Executive's employment hereunder may be terminated prior to April 30, 1999 under the following circumstances: 6.1 Termination Due Death, Disability, Without Cause or for Good Reason. (a) Upon sixty (60) days' prior written notice to Executive, the Company may terminate Executive's employment under this Agreement without Cause. (b) Upon thirty (30) days' prior written notice to the Board, Executive may terminate his employment under this Agreement for Good Reason and such notification shall specify the act, or acts, on the basis of which Executive has found Good Reason. The Board shall then be provided the opportunity, within twenty (20) days of its receipt of such notification, to meet with Executive to discuss such act or acts. If Executive does not rescind his termination of employment at such meeting, Executive's employment by the Company shall be terminated for Good Reason pursuant to this Section 6.1(b), subject to the Company's right to seek arbitration of the existence of Good Reason as provided in Section 11 of this Agreement. (c) In the event of Executive's death, or a termination of Executive's employment under this Agreement by either the Company or Executive due to Disability, or a termination by the Company of Executive's employment under this Agreement without Cause, or a termination by Executive of Executive's employment under this Agreement for Good Reason, the Term of Employment shall end and, notwithstanding Section 5 hereof, Executive, his estate or other legal representative, as the case may be, shall only be entitled to: (i) the continuation of the Annual Base Salary at the rate then in effect (as provided in Section 5.1 of this Agreement) on the Date of Termination for a period equal to (A) if the Date of Termination occurs after the April 21, 1998 but prior to April 30, 1999, a twelve month period commencing on such Date of Termination or (B) if the Date of Termination occurs prior to April 21, 1998, the lesser of (x) a twenty-four month period commencing on such Date of Termination and (y) the period commencing on such Date of Termination and ending on April 30, 1999; (ii) the pro rata amount of Annual Incentive due for the calendar year (or portion thereof) in which the Date of Termination occurs (based upon the number of days elapsed in such calendar year or portion thereof prior to 8 9 such Date of Termination); (iii) any Annual Base Salary accrued to the Date of Termination and any Annual Incentive relating to a prior year (or portion thereof) due in accordance with this Agreement, but not yet paid as of the Date of Termination; (iv) reimbursement for all expenses reimbursable under Section 5.5 and 5.7 of this Agreement incurred as of the Date of Termination, but not yet paid as of the Date of Termination; (v) except to the extent inapplicable due to Executive's death, the continuation of Executive's welfare benefits (as described in Section 5.4 of this Agreement) at the level in effect on the Date of Termination for a period equal to (A) if the Date of Termination occurs after April 21, 1998 but prior to April 30, 1999, a twelve month period commencing on such Date of Termination or (B) if the Date of Termination occurs prior to April 21, 1998, the lesser of (x) a twenty-four month period commencing on such Date of Termination and (y) the period commencing on such Date of Termination and ending on April 30, 1999 (or, to the extent that such continuation is not permitted by applicable law or if the Board so determines, the Company shall provide the economic equivalent in lieu thereof); (vi) except to the extent inapplicable due to Executive's death, any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans and programs, if any, generally applicable to employees or available to executives of the Company; (vii) except to the extent inapplicable due to Executive's death, the continuation of the life insurance policy pursuant to Section 5.9 of this Agreement; and (viii) such rights as Executive may have under any other written agreement between the Company and the Executive which is currently in effect. The amounts owed under Section 6.1(c)(i) shall be payable in equal installments every two weeks from the Date of Termination through the end of the period with respect to which such payments are to be made under Section 6.1(c)(i). Any amounts owed under Section 6.1(c)(ii) shall be determined and payable in accordance with Section 5.2. The amounts owed under Section 6.1(c)(iii) shall be paid within fifteen (15) days of the Date of Termination, and the amounts owed under Section 6.1(c)(iv) shall be paid in accordance with the policies and procedures of the Company in effect at the time the applicable expenses were incurred. Any amounts owed under Sections 6.1(c)(v) and (vi) shall be payable in accordance with the terms of the applicable plans and programs. Any amounts owed under Section 6.1(c)(ix) shall be payable in accordance with the respective 9 10 terms of the written agreements referred to therein. 6.2 Termination by the Company for Cause or the Termination of Employment by Executive without Good Reason. (a) The Company may terminate the Executive for Cause. In each case, the existence of Cause must be confirmed by the Board prior to any termination therefor. In the event of such a confirmation, the Company shall notify Executive that the Company intends to terminate Executive's employment for Cause under this Section 6.2. Such notification shall specify the act, or acts, on the basis of which the Board has so confirmed the existence of Cause, and Executive shall then be provided the opportunity together at the option of Executive with counsel selected by Executive, not less than seven(7) or more than thirty (30) days after his receipt of such notification, to meet with the Board to discuss such act or acts. If the Board does not rescind such confirmation at such meeting, Executive's employment by the Company shall immediately be terminated for Cause under this Section 6.2, subject to Executive's right to seek arbitration of the existence of Cause as provided in Section 11 of this Agreement, provided that if in any such arbitration proceeding, the arbitration determines that Cause did not exist, Executives' employment shall be deemed to be terminated without Cause as of the date the Company attempted to terminate Executive for Cause. (b) In the event that the Company terminates Executive's employment under this Agreement for Cause, or Executive terminates his employment with the Company without Good Reason, the Term of Employment shall end and, notwithstanding Section 5 hereof, Executive shall only be entitled to: (i) any Annual Base Salary accrued to the Date of Termination and any Annual Incentive relating to a prior year (or portion thereof) due in accordance with this Agreement, but not yet paid as of the Date of Termination; (ii) reimbursement for all expenses reimbursable under Sections 5.5 and 5.7 of this Agreement incurred as of the Date of Termination, but not yet paid as of the Date of Termination; (iii) any other compensation then due and owing and benefits under a benefit plan or program through the Date of Termination as may be provided in accordance with terms and provisions of any applicable plans and programs, if any, generally applicable to employees or available to executives of the Company (including claims for benefits arising prior to the Date of Termination that are payable in accordance with the terms and provisions of the applicable plan or program, regardless of whether such claims have been submitted as of the Date of Termination); (iv) except to the extent inapplicable due to Executive's death, the continuation of the life insurance policy pursuant to Section 5.9 of this 10 11 Agreement; and (v) such rights as Executive may have under any other written agreement between the Company and the Executive which is currently in effect. The amounts owed under Section 6.2(b)(i) shall be paid within fifteen (15) days of the Date of Termination, and the amounts owed under section 6.2(b)(ii) shall be paid in accordance with the policies and procedures of the Company in effect at the time the applicable expenses were incurred. Any amount owed under Section 6.2(b)(iii) shall be payable in accordance with the terms of the applicable plans and programs. Any amounts owed under Section 6.2(b)(v) shall be payable in accordance with the respective terms of the written agreement referred to therein. 6.3 No Mitigation; No Offset. In the event of any termination of employment under this Section 6, Executive shall be under no obligation to seek other employment and there shall be no offset against any amounts due Executive under this Agreement on account of any remuneration attributable to any subsequent employment that Executive may obtain. Any amounts due under this Section 6 are in the nature of severance payments, or liquidated damages, or both, and are not in the nature of penalty. 6.4 Notice of Termination. Any termination of Executive's employment under this Section 6 (other than a termination on April 30, 1999 or termination was a result of Executive's death) shall be communicated by a notice of termination (the "Notice of Termination") to the other party hereto given in accordance with Section 12.3 of this Agreement. Such Notice of Termination shall (a) indicate the specific termination provision in this Agreement relied upon, (b) set froth in reasonable detail the facts and circumstances claimed to provide basis for termination of Executive's employment under the provision so indicated, and (c) if the termination date is other than the date of receipt of such Notice of Termination, specify the date on which Executive's employment is to be terminated (which date shall not be earlier than the date on which such Notice of Termination is actually received). 7. Confidential Information. Executive acknowledges that the confidential information obtained by him while employed by the Company concerning the business or affairs of the Company, any Company Affiliate, or any stockholder of the Company ("Confidential Information") is the property of the Company, such Company Affiliate, or such stockholder, as the case may be. For purposes of this Agreement, the term "Confidential Information" does not include information that Executive can demonstrate (a) was in Executive's possession prior to first being employed by the Company, provided that such information is not known by Executive to be subject to another confidentiality agreement with, or other obligation of secrecy to, the Company or another party, (b) is generally available to the public and became generally available to the public other than as a result of a disclosure by Executive in violation of this Agreement, (c) became available to Executive on a non-confidential basis from a third party, provided that such third party is not known by Executive to be bound by a confidentiality 11 12 agreement with, or other obligation of secrecy to, the Company or another party or is otherwise prohibited from providing such information to Executive by a contractual, legal or fiduciary obligation to the Company , or (d) Executive is required to disclose pursuant to applicable law or regulation (as to which information, Executive will provide the Company with prior notice of such requirement and, if practicable, an opportunity to obtain an appropriate protective order). Executive agrees that he will not during the Term of Employment and for the two-year period following the Term of Employment, willfully disclose Confidential Information to any Person (other than employees of the Company or any Subsidiary thereof or any other person expressly authorized by the Board to receive Confidential Information or otherwise as required in the course of his duties during the Term of Employment) or use for his own account any Confidential Information without the prior written consent of the Board; provided, however, that Executive may disclose Confidential Information in connection with the resolution of any dispute arising in connection with the rights and obligations under this Agreement or any other agreements entered into by the parties in connection with the transactions contemplated by the Merger Agreement to the arbitrator in an arbitration proceeding pursuant to Section 10 upon receipt of appropriate assurances that the arbitrator and the other persons involved in such proceeding shall maintain the confidentiality of all such Confidential Information. Executive shall deliver to the Company at such time as the Board may request in writing, all memoranda, notes, plans, records, reports, computer tapes and software and other documents and data (and copies thereof) containing Confidential Information which he may then possess or have under his control. 8. Noncompete, Non-Solicitation. (a) Executive acknowledges that in the course of his employment with the Company he will become familiar with Confidential Information and that his services will be special unique and extraordinary value to the Company. Therefore, Executive agrees that, during the Term of Employment and, for (i) two years thereafter, or (ii) if Executive's employment is terminated without Cause or Executive resigns for Good Reason, for one year thereafter, provided that all amounts in excess of $1,000 required to be paid to Executive under this Agreement are promptly paid when due in accordance with this Agreement (in any case, the "Noncompete Period"), he shall not directly or indirectly own, manage, control, participate in, consult with, render services for, or in any manner engage in any broadcast radio business competing with the businesses of the Company or any of its Subsidiaries in any geographic market (as defined by Arbitron Metro) in which the Company or any of its Subsidiaries (x) operates on the Date of the Termination or (y) commences operations during the Noncompete Period and in either case continues to operate during the Noncompete Period; provided, however, that for purposes of this clause (y) operations in a market shall be deemed to be commenced during the Noncompete Period only if the Company or such Subsidiary have had substantial discussions prior to the Date of Termination concerning the commencement of such operations. Nothing herein shall prohibit Executive from being a passive owner of not more than seven and one-half percent (7 1/2%) of the outstanding stock of any class of a corporation which is publicly traded, so long as Executive has no active participation in 12 13 the business of such corporation. (b) During the Noncompete Period, Executive shall not directly or indirectly through another person (i) induce or attempt to induce any employee of the Company or any Subsidiary of the Company to leave the employ of such Person, or in any way interfere with the employment relationship between the Company or any Subsidiary of the Company and any employee thereof, (ii) hire any individual who was an executive of the Company or its Subsidiaries, a station or regional manager of the Company or its Subsidiaries or a radio personality employed by the Company or its Subsidiaries at any time during the Term of Employment (other than individuals who have not been employed by the Company or a Subsidiary of the Company for a period of at least six months prior to employment by Executive directly or indirectly through another Person), or (iii) induce or attempt to induce any customer, supplier, licensee or other Person having a business relationship with the Company or any Subsidiary of the Company to cease doing business with the Company or such Subsidiary of the Company, or interfere materially with the relationship between any such customer, supplier, licensee or other Person having a business relationship with the Company or and Subsidiary of the Company. (c) If, at the time of enforcement of this Section 8, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area held to be unreasonable and that the court shall be allowed to revise the restrictions contained herein and held to be unreasonable to cover the maximum period, scope and area permitted by law. 9. Non-Exclusivity of Rights. Nothing in this Agreement shall limit or otherwise prejudice such rights as Executive may have under any future agreements with the Company. 10. Resolution of Disputes. Any disputes arising under or in connection with this Agreement shall be resolved by arbitration, to be held in New York, New York, in accordance with the Commercial Arbitration Rules and procedures of the American Arbitration Association. Such arbitration shall be before a single arbitrator who shall be a retired federal or New York State judge acceptable to the Company and Executive. In the event that Executive and the Company cannot agree upon an arbitrator within thirty (30) days of a notice demanding such agreement from one to the other, the arbitrator shall be chosen by the American Arbitration Association in accordance with its Commercial Arbitration Rules. The decision of the arbitrator shall be final, conclusive and binding upon the Company and Executive. All costs, fees and expenses, including attorney fees, of any arbitration in connection with this Agreement, which results in any final decision of the arbitrator requiring the Company to make a payment to Executive , shall be borne by, and be the obligation of, the Company. In no event shall Executive be required to reimburse the Company for any of the costs and expenses incurred by the Company 13 14 relating to any arbitration. The obligations of the Company and Executive under this Section 11 shall survive the termination for any reason of the Term of Employment (whether such termination is by the Company, by Executive, or upon the expiration of the Term of Employment). Pending the outcome or resolution of any arbitration in connection with this Agreement other than a dispute relating to Executive's termination for Cause, the Company shall continue payment of all amounts, payments and benefits which are due to Executive under this Agreement; provided that in the event that the decision rendered by the arbitrator indicates that Executive was not entitled to continue to receive all or any portion of such amounts, payments and benefits, Executive shall immediately reimburse the Company for the same; and provided further, that in the event the decision rendered by the arbitrator indicates that Executive was wrongfully terminated for Cause, the Company will pay Executive all amounts Executive is entitled to receive under Section 6.1(c). 11. Successors. 11.1 Executive. This Agreement is personal to Executive and, without the prior express written consent of the Company, shall not be assignable by Executive, except that the Executive's rights to receive any compensation or benefits under this Agreement may be transferred or assigned pursuant to testamentary disposition, intestate succession or pursuant to a qualified domestic relations order. This Agreement shall inure to the benefit of and be enforceable by Executive's heirs, beneficiaries and/or legal representatives. 11.2 The Company. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns; provided that the Company shall only assign this Agreement to a purchaser of substantially all of the business of the Company, which purchaser shall agree to assume all of the Company's obligations hereunder. 12. Miscellaneous. 12.1 Applicable Law. The construction, validity and interpretations of this Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. 12.2 Amendments/Waiver. This Agreement may not be amended or modified other than by written agreement executed by the parties hereto or their respective successors and legal representatives. No waiver by any party to this Agreement of any breach of any term, provision or condition of this Agreement by the other party shall be deemed a waiver of a similar or dissimilar term, provision or condition at the same time, or any prior or subsequent time. 12.3 Notices. All notices, waivers and other communications hereunder shall be in writing and shall be given by hand-delivery to the other party, by facsimile 14 15 (with appropriate confirmation of transmission and with a hard copy to promptly follow by registered or certified mail, return receipt request, postage prepaid), by reputable overnight courier, or by registered or certified mail, return receipt requested, postage prepaid, and shall be deemed delivered when actually delivered by hand, upon receipt of confirmation of facsimile transmission, three days after mailing, or one day after dispatch by overnight courier, addressed as follows: If to Executive: Mr. James T. Shea, Jr. 3755 Foxrun Drive Allentown, Pennsylvania 18103 Telephone (610) 439-4110 If to the Company: Attn: Chairman of the Board Commodore Media, Inc. 500 Fifth Avenue, Suite 3000 New York, New York 10110 Facsimile: (212) 302-6457 or to such other address as either party shall have furnished to the other in writing in accordance herewith. 12.4 Withholding. Notwithstanding anything else to the contrary herein, the Company may withhold from any amounts payable under this Agreement such taxes as shall be required to be withheld pursuant to any applicable law or regulation. Where amounts are payable to Executive pursuant to this Agreement both in cash and in a form other than cash, the Company may, at its option and upon prior notice to Executive, withhold from such cash payments, or withhold from such payments in a form other than cash, or withhold from both. 12.5 Expenses. The Company shall promptly reimburse Executive for the reasonable attorney's fees of and expenses payable to the law firm of Dewey Ballantine for its representation of Executive in connection with the negotiation and preparation of this Agreement, and the other agreements contemplated in connection with the Merger contemplated hereby and thereby, against delivery of an invoice for such fees and expenses. 12.6 Severability. If any provision of this Agreement is held illegal, invalid or unenforceable under nay present or future law, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby: (a) such provision will be fully severable; (b) this Agreement will be construed 15 16 and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof; (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom; and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added, to the extent possible, automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as shall be agreed upon by the Company and Executive. 12.7 Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. 12.8 Entire Agreement. This Agreement contains the entire agreement between the parties concerning the subject matter hereof and supersedes all prior agreements (including, without limitation, the Prior Agreement), understandings, discussions, negotiations and undertakings, whether written or oral, between the parties with respect thereto. 12.9 Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. 12.10 Representation. Executive represents and warrants that the performance of Executive's duties and obligations under this Agreement will not violate any agreement between Executive and any other Person. 12.11 Survivorship. The respective rights and obligations of the parties under this Agreement shall survive any termination of this Agreement or Executive's employment hereunder for any reason to the extent necessary to the intended preservation of such rights and obligations [END OF PAGE] [SIGNATURE PAGE FOLLOWS] 16 17 IN WITNESS WHEREOF, Executive has hereunto set his hand, and the Company has caused this Amended and Restated Employment Agreement to be executed in its name and on behalf by its authorized representative, all as of the day and year first above written. COMMODORE MEDIA, INC. By: /s/ MICHAEL J. SALIM --------------------------- Its: Treasurer --------------------------- EXECUTIVE /s/ JAMES T. SHEA, JR. ------------------------------ JAMES T. SHEA, JR. FOR THE SOLE PURPOSE OF CONFIRMING TO THE EXECUTIVE THAT CAPSTAR BROADCASTING PARTNERS, INC. AGREES TO CAUSE THE COMPANY TO ABIDE BY THE TERMS AND CONDITIONS OF THIS AGREEMENT AS AMENDED AND RESTATED HEREIN. CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ PETER BRODSKY ---------------------------- Its: Vice President --------------------------- 17 10871 EX-10.14 9 EMPLOYMENT AGREEMENT/PACIFIC STAR & CLUADE TURNER 1 EXHIBIT 10.14 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of the 27th day of January, 1997 by and between Pacific Star Communications, Inc. (formerly known as Community Acquisition Company, Inc. ), a Delaware corporation (together with its successors and assigns permitted hereunder, the "Company"), and Claude C. Turner (also known as Dex Allen) (the "Executive"). WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its stockholders to employ the Executive on the terms and conditions set forth herein. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. EMPLOYMENT PERIOD. Subject to Section 3, the Company hereby agrees to employ the Executive, and the Executive hereby agrees to be employed by the Company, in accordance with the terms and provisions of this Agreement, for the period commencing on January 1, 1997 and ending on the fifth anniversary of such date (the "Employment Period"); provided, however, that commencing on such fifth anniversary and on each anniversary thereafter, the Employment Period shall automatically be extended for one additional year unless at least six months prior to such anniversary (but no more than 12 months prior to such anniversary), the Company or the Executive shall have given written notice that it or he, as applicable, does not wish to extend this Agreement (a "Non-Renewal Notice"). The term "Employment Period", as utilized in this Agreement, shall refer to the Employment Period as so automatically extended. 2. TERMS OF EMPLOYMENT. (a) Position and Duties. (i) During the term of the Executive's employment, the Executive shall serve as President and the Chief Operating Officer of the Company and the Chief Operating Officer of the West Coast Group operating division of the Company's parent, Capstar Broadcasting Partners, Inc. ("Capstar"), as defined from time to time by the Chief Executive Officer of Capstar (the "West Coast Group") and, in so doing, shall report to the Board and the President and/or Chief Executive Officer of Capstar. The Executive shall have supervision and control over, and responsibility for, such management and operational functions of the West Coast Group currently assigned to such position, and shall have such other powers and duties (including holding officer positions with the Company and one or more subsidiaries of the Company) as may from time to time be prescribed by 2 the Board, so long as such powers and duties are reasonable and customary for the Chief Operating Officer of an enterprise comparable to the Company. (ii) During the term of the Executive's employment, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote full business time to the business and affairs of the West Coast Group and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully, effectively and efficiently such responsibilities. During the term of Executive's employment it shall not be a violation of this Agreement for the Executive to (1) serve on corporate, civic or charitable boards or committees, (2) deliver lectures or fulfill speaking engagements and (3) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. (b) Compensation. (i) Base Salary. During the term of the Executive's employment, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid in accordance with the customary payroll practices of the Company, at least equal to $150,000 for the initial year of the Employment Period and an amount of at least $200,000 for each subsequent year of the Employment Period. Commencing on January 1, 1998, and on each subsequent January 1 as long as the Executive remains an employee of the Company (each such January 1 being herein referred to as an "Adjustment Date"), the Annual Base Salary of the Executive (which shall be deemed equal to $200,000 for initial Adjustment Date) shall be adjusted to reflect increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers for the San Diego, California metropolitan area (1967 = 100), published by the Bureau of Labor Statistics, United States Department of Labor (the "Index"). On each Adjustment Date, the Executive's Annual Base Salary shall be increased by a percentage of the Annual Base Salary for the prior calendar year equal to the percentage increase in the Index for the prior calendar year. The result of such calculation shall constitute the Executive's Annual Base Salary, as adjusted, commencing on the Adjustment Date then at hand and continuing until the next Adjustment Date. If (1) the Index ceases using the 1967 average of 100 as the basis of calculation, (2) a significant change is made in the number or nature (or both) of items used in determining the Index, or (3) the Index is discontinued for any reason, then the Company and the Executive shall, in good faith, agree upon a substitute Index or procedure which reasonably reflects and monitors the salaries of urban wage earners and clerical workers in the San Diego, California metropolitan area. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. The term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) Bonuses. For each fiscal year of the Company, the Board shall approve a budget which shall include, among other things, a target for the revenues and net income 2 3 of the West Coast Group for that year. If the revenues and net income for a fiscal year of the West Coast Group equal or exceed the targets for such revenues and net income as set forth in the budget, as evidenced by the audited income statement of Capstar for such fiscal year, then, in addition to the Annual Base Salary, the Executive shall be awarded a bonus in the amount of $50,000 (or such greater amount as the Board may determine appropriate) with respect to such fiscal year. At the election of the Board, the Bonus shall be payable on the first day of the first calendar month after such audited income statement is delivered to the Board or shall be payable in monthly payments, as nearly equal as practicable, payable on the first day of such first calendar month and on the first day of each calendar month thereafter occurring during the remainder of the fiscal year next succeeding the fiscal year with respect to which the bonus is payable. (iii) Incentive, Savings and Retirement Plans. During the term of the Executive's employment, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other executives of the Company ("Investment Plans"). (iv) Welfare Benefit Plans. During the term of the Executive's employment, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs ("Welfare Plans") provided by the Company (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other executives of the Company. (v) Stock Options. In addition to any benefits the Executive may receive pursuant to paragraph 2(b)(iii), as may be determined appropriate by the Board of Directors of Capstar, Capstar may, from time to time, grant Executive stock options (the "Executive Options") exercisable for shares of common stock, par value $.01 per share, of Capstar and subject to the terms of this Agreement, such Executive Options shall have such terms and provisions as may be determined appropriate by the Board of Directors of Capstar. Any such Executive Options will be granted under Capstar's 1996 Stock Option Plan. (vi) Perquisites. During the term of the Executive's employment, the Executive shall be entitled to receive (in addition to the benefits described above) such perquisites and fringe benefits appertaining to his position in accordance with any practice established by the Board. (vii) Expenses. During the term of the Executive's employment, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by the Executive in accordance with the policies, practices and procedures of the Company. 3 4 (viii) Vacation and Holidays. During the term of the Executive's employment, the Executive shall be entitled to paid vacation and paid holidays in accordance with the plans, policies, programs and practices of the Company for its executive officers. 3. TERMINATION OF EMPLOYMENT. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), the Company may give to the Executive written notice in accordance with Section 11(b) of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the Executive's inability to perform his duties and obligations hereunder for a period of 180 consecutive days due to mental or physical incapacity as determined by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause or Board Termination. The Company may terminate the Executive's employment during the Employment Period for Cause or without Cause. For purposes of this Agreement, "Cause" shall mean (i) a breach by the Executive of the Executive's obligations under Section 2(a) (other than as a result of physical or mental incapacity) which constitutes a continued material nonperformance by the Executive of his obligations and duties thereunder, as determined by the Board, and which is not remedied within 30 days after receipt of written notice from the Company specifying such breach, (ii) commission by the Executive of an act of fraud upon, or willful misconduct toward, the Company, as reasonably determined by a majority of the disinterested members of the Board (neither the Executive nor members of his family being deemed disinterested for this purpose) after a hearing by the Board following ten days' notice to the Executive of such hearing, (iii) a material breach by the Executive of Section 6 or Section 9, (iv) the conviction of the Executive of any felony (or a plea of nolo contendere thereto); or (v) the failure of the Executive to carry out, or comply with, in any material respect any directive of the Board consistent with the terms of this Agreement, which is not remedied within 30 days after receipt of written notice from the Company specifying such failure. For purposes of this Agreement, a "Board Determination" shall mean a determination by the Board (which is evidenced by one or more written resolutions to such effect) (i) to terminate the Executive's employment during the Employment Period based upon the Board's dissatisfaction with the manner in which the Executive has performed his obligations and duties under Section 2(a) and (ii) that Cause does not exist as a basis for such termination. For purposes of this Agreement, "without Cause" shall mean a termination by the Company of the 4 5 Executive's employment during the Employment Period pursuant to a Board Determination or for any other reason other than a termination based upon Cause, death or Disability. (c) Good Reason. The Executive's employment may be terminated during the Employment Period by the Executive for Good Reason or without Good Reason; provided, however, that the Executive agrees not to terminate his employment for Good Reason unless (i) the Executive has given the Company at least 30 days' prior written notice of his intent to terminate his employment for Good Reason, which notice shall specify the facts and circumstances constituting Good Reason, and (ii) the Company has not remedied such facts and circumstances constituting Good Reason within such 30-day period. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2(a) or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive (without limiting the foregoing, the Company and the Executive agree that the delegation of the authority, duties or responsibilities of the Executive to another person or persons, including any committee, shall be deemed to be an action by the Company which results in a material diminution in the Executive's position, authority, duties, or responsibilities as contemplated by Section 2(a)), provided, however, that Good Reason may not be asserted by the Executive under this clause (i) of Section 3(c) after a Non-Renewal Notice has been given by either the Company or the Executive; (ii) any termination or material reduction of a material benefit under any Investment Plan or Welfare Plan in which the Executive participates unless (1) there is substituted a comparable benefit that is economically substantially equivalent to the terminated or reduced benefit prior to such termination or reduction or (2) benefits under such Investment Plan or Welfare Plan are terminated or reduced with respect to all employees previously granted benefits thereunder; (iii) any failure by the Company to comply with any of the provisions of Section 2(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iv) any failure by the Company to comply with and satisfy Section 8(c), provided that such successor has received at least ten days prior written notice from the Company or the Executive of the requirements of Section 8(c); 5 6 (v) the relocation or transfer of the Executive's principal office to a location more than 50 miles from the Executive's current executive offices as such are maintained on the date hereof in the city of San Diego, California; or (vi) without limiting the generality of the foregoing, any material breach by the Company or any of its subsidiaries or other affiliates (as defined below) of (1) this Agreement or (2) any other agreement between the Executive and the Company or any such subsidiary or other affiliate. As used in this Agreement, "affiliate" means, with respect to a person, any other person controlling, controlled by or under common control with the first person; the term "control," and correlative terms, means the power, whether by contract, equity ownership or otherwise, to direct the policies or management of a person; and "person" means an individual, partnership, corporation, limited liability company, trust or unincorporated organization, or a government or agency or political subdivision thereof. (d) Notice of Termination. Any termination by the Company for Cause or without Cause, or by the Executive for Good Reason or without Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b). For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall not be more than 15 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason, Cause or a termination made pursuant to a Board Determination shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause or pursuant to a Board Determination, or by the Executive for Good Reason or without Good Reason, the date of receipt of the Notice of Termination or any later date specified therein pursuant to Section 3(d), as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or pursuant to a Board Determination, the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the date of death of the Executive or the Disability Effective Date, as the case may be. 6 7 4. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for either Cause or Disability or the Executive shall terminate his employment for Good Reason, and the termination of the Executive's employment in any case is not due to his death or Disability: (i) The Company shall pay to the Executive (1) in a lump sum in cash within ten days after the Date of Termination the aggregate of the following amounts: (a) the sum of the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid and any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay ("Accrued Obligations"); and (b) any amount arising from Executive's participation in, or benefits under, any Investment Plans ("Accrued Investments"), which amounts shall be payable in accordance with the terms and conditions of such Investment Plans; and (2) in regular installments in accordance with the customary payroll practices of the Company the Executive's then current Annual Base Salary for a period of one year from the Date of Termination. (ii) Notwithstanding the terms or conditions of any Executive Option, stock option, stock appreciation right or similar agreements between the Company and the Executive, the Executive shall vest, as of the Date of Termination, in all rights under such agreements (i.e., Executive Options or other similar stock options that would otherwise vest after the Date of Termination) and thereafter shall be permitted to exercise any and all such rights until the earlier to occur of (x) the expiration of such Executive Options or other similar stock option, stock appreciation right or similar agreement pursuant to its terms or (y) 5:00 p.m., Dallas, Texas time, on the 90th day after the Date of Termination; provided, however, the provisions of this clause (ii) of this Section 4(a) shall not apply to a termination of the Executive's employment during the Employment Period that is made by the Company pursuant to a Board Determination. (iii) Except as otherwise provided in Section 4(e), the Executive (and members of his family) shall be entitled to continue their participation in the Company's Welfare Plans until the earlier of (1) a period of one year from the Date of Termination or (2) the date the Executive has commenced new employment and has become eligible for comparable medical benefits. (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, the Company shall pay to his legal representatives (i) in a lump sum in cash within ten days after the Date of Termination the Accrued Obligations; and (ii) the Accrued Investments which amounts shall be payable in accordance with the terms and conditions of the Investment Plans. 7 8 (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, the Company shall have no further payment obligations to the Executive or his legal representatives under this Agreement, other than (i) the payment in a lump sum in cash within ten days after the Date of Termination, of the Accrued Obligations and (ii) the Accrued Investments which amounts shall be payable in accordance with the terms and conditions of the Investment Plans. (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated by the Company for Cause or by the Executive without Good Reason during the Employment Period, the Company shall have no further payment obligations to the Executive other than (i) the payment, in a lump sum in cash within ten days after the Date of Termination, of the Accrued Obligations, (ii) payment of the Accrued Investments, which amounts shall be payable in accordance with terms and conditions of the Investment Plans, and (iii) the continuance of benefits under the Welfare Plans to the Date of Termination. (e) If pursuant to the terms and provisions of the Company's Welfare Plans the Executive (or members of his family) are not eligible to participate in the Company's Welfare Plans because the Executive is no longer an employee of the Company, then the Company may fulfill its obligations under clause (iii) of Section 4(a) by either providing to the Executive (or his legal representatives), or reimbursing the Executive (or his legal representatives) for the costs of, benefits substantially similar to the benefits provided by the Company to its senior management under its Welfare Plans as such may from time to time exist after the Date of Termination. 5. FULL SETTLEMENT, MITIGATION. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. Neither the Executive nor the Company shall be liable to the other party for any damages in addition to the amounts payable under Section 4 arising out of the termination of the Executive's employment prior to the end of the Employment Period; provided, however, that the Company shall be entitled to seek damages for any breach of Sections 6, 7 or 9 or criminal misconduct. 6. CONFIDENTIAL INFORMATION. (a) The Executive acknowledges that the West Coast Group, the Company and their affiliates have trade, business and financial secrets and other confidential and proprietary information (collectively, the "Confidential Information"). As defined herein, Confidential Information shall not include (i) information that is generally known to other persons or entities who can obtain economic value from its disclosure or use and (ii) information required to be disclosed by the Executive pursuant to a subpoena or court order, or pursuant to a requirement of a governmental agency or law of the United States of America or a state thereof or any governmental 8 9 or political subdivision thereof; provided, however, that the Executive shall take all reasonable steps to prohibit disclosure pursuant to subsection (ii) above. (b) The Executive agrees (i) to hold such Confidential Information in confidence and (ii) not to release such information to any person (other than Company employees and other persons to whom the Company has authorized the Executive to disclose such information and then only to the extent that such Company employees and other persons authorized by the Company have a need for such knowledge). (c) The Executive further agrees not to use any Confidential Information for the benefit of any person or entity other than the Company. 7. SURRENDER OF MATERIALS UPON TERMINATION. Upon any termination of the Executive's employment, the Executive shall immediately return to the Company all copies, in whatever form, of any and all Confidential Information and other properties of the West Coast Group, the Company and their affiliates which are in the Executive's possession, custody or control. 8. SUCCESSORS. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 9. NON-COMPETITION. (a) The term of Non-Competition (herein so called) shall be for a term beginning on the date hereof and continuing until the first anniversary of the Date of Termination. 9 10 (b) During the term of Non-Competition, the Executive will not (other than for the benefit of the Company pursuant to this Agreement) directly or indirectly, individually or as an officer, director, employee, shareholder, consultant, contractor, partner, joint venturer, agent, equity owner or in any capacity whatsoever, (i) engage in any radio broadcasting business that transmits a primary or city-grade signal within a Metro Survey Area (as currently defined by The Arbitron Company in its Radio Markets Reports) in which a station directly operated by the Company transmits a primary or city- grade signal (1), with respect to the term of Non-Competition that is during the Executive's employment, during such term of employment, and (2), with respect to the term of Non-Competition that is after the term of the Executive's employment, on the Date of Termination (all such areas being collectively called the "Geographic Area") (a "Competing Business"), (ii) hire, attempt to hire, or contact or solicit with respect to hiring any employee of the Company, or (iii) divert or take away any customers or suppliers of the Company in the Geographic Area. Notwithstanding the foregoing, the Company agrees that the Executive may own less than five percent of the outstanding voting securities of any publicly traded company that is a Competing Business so long as the Executive does not otherwise participate in such competing business in any way prohibited by the preceding clause. As used in this Section 9(b) (and in Section 6), "Company" shall include the Company, Capstar and any subsidiaries of Capstar. (c) During the term of Non-Competition, the Executive will not use the Executive's access to, knowledge of, or application of Confidential Information to perform any duty for any Competing Business; it being understood and agreed to that this Section 9(c) shall be in addition to and not be construed as a limitation upon the covenants in Section 9(b) hereof. (d) The Executive acknowledges that the geographic boundaries, scope of prohibited activities, and time duration of the preceding paragraphs are reasonable in nature and are no broader than are necessary to maintain the confidentiality and the goodwill of the Company's proprietary information, plans and services and to protect the other legitimate business interests of the Company. 10. EFFECT OF AGREEMENT ON OTHER BENEFITS. The existence of this Agreement shall not prohibit or restrict the Executive's entitlement to full participation in the executive compensation, employee benefit and other plans or programs in which executives of the Company are eligible to participate. 11. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. Whenever the terms "hereof", "hereby", "herein", or words of similar import are used in this Agreement they shall be construed as referring to this Agreement in its entirety rather than to a particular section or 10 11 provision, unless the context specifically indicates to the contrary. Any reference to a particular "Section" or "paragraph" shall be construed as referring to the indicated section or paragraph of this Agreement unless the context indicates to the contrary. The use of the term "including" herein shall be construed as meaning "including without limitation." This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Claude C. Turner 2550 Fifth Avenue 11th Floor San Diego, California 92103 Facsimile: (619) 233-6517 with a copy to: Latham & Watkins 1001 Pennsylvania Avenue, N.W. Suite 1300 Washington, D.C. 20004 Attention: Joe Sullivan Facsimile: (202) 637-2201 If to the Company: Pacific Star Communications, Inc. c/o Capstar Broadcasting Partners, Inc. 200 Crescent Court, Suite 1600 Dallas, Texas 75201 Attn: Lawrence D. Stuart, Jr. or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term of this Agreement, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a portion of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. 11 12 Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. (d) The Company agrees to attempt to obtain and maintain a director's and officer's liability insurance policy during the term of the Executive's employment covering the Executive on commercially reasonable terms, and the amount of coverage shall be reasonable in relation to the Executive's position and responsibilities hereunder; provided, however, that such coverage may be reduced or eliminated to the extent that the Company reduces or eliminates coverage for its directors and executives generally. (e) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (f) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (g) The Executive acknowledges that money damages would be both incalculable and an insufficient remedy for a breach of Section 6 or 9 by the Executive and that any such breach would cause the Company irreparable harm. Accordingly, the Company, in addition to any other remedies at law or in equity it may have, shall be entitled, without the requirement of posting of bond or other security, to equitable relief, including injunctive relief and specific performance, in connection with a breach of Section 6 or 9 by the Executive. (h) The provisions of this Agreement constitute the complete understanding and agreement between the parties with respect to the subject matter hereof. (i) This Agreement may be executed in two or more counterparts. (j) In the event any dispute or controversy arises under this Agreement and is not resolved by mutual written agreement between the Executive and the Company within 30 days after notice of the dispute is first given, then, upon the written request of the Executive or the Company, such dispute or controversy shall be submitted to arbitration to be conducted in accordance with the rules of the American Arbitration Association. Judgment may be entered thereon and the results of the arbitration will be binding and conclusive on the parties hereto. Any arbitrator's award or finding or any judgment or verdict thereon will be final and unappealable. All parties agree that venue for arbitration will be in Dallas, Texas, and that any arbitration commenced in any other venue will be 12 13 transferred to Dallas, Texas, upon the written request of any party to this Agreement. All arbitrations will have three individuals acting as arbitrators: one arbitrator will be selected by the Executive, one arbitrator will be selected by the Company, and the two arbitrators so selected will select a third arbitrator. Any arbitrator selected by a party will not be affiliated, associated or related to the party selecting that arbitrator in any matter whatsoever. The decision of the majority of the arbitrators will be binding on all parties. The Company shall be responsible for paying its own and the Executive's attorneys fees, costs and other expenses pertaining to any such arbitration and enforcement regardless of whether an arbitrator's award or finding or any judgment or verdict thereon is entered against the Executive. The Company shall promptly (and in no event after ten days following its receipt from the Executive of each written request therefor) reimburse the Executive for his reasonable attorneys fees, costs and other expenses pertaining to any such arbitration and the enforcement thereof. (k) Sections 6 and 9 of this Agreement shall survive the termination of this Agreement. 13 14 IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from the Board, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. EXECUTIVE /s/ CLAUDE C. TURNER ----------------------------------- Claude C. Turner (also known as Dex Allen) PACIFIC STAR COMMUNICATIONS, INC. /s/ WILLIAM S. BANOWSKY, JR. ----------------------------------- By: William S. Banowsky, Jr. -------------------------------- Title: Executive Vice President ----------------------------- EX-10.18.1 10 1996 STOCK OPTION PLAN 1 EXHIBIT 10.18.1 CAPSTAR BROADCASTING PARTNERS, INC. 1996 STOCK OPTION PLAN 1. Purpose. Capstar Broadcasting Partners, Inc., a Delaware corporation (herein, together with its successors, referred to as the "Company"), by means of this 1996 Stock Option Plan (the "Plan"), desires to afford certain individuals and key employees of the Company and any parent corporation or subsidiary corporation thereof now existing or hereafter formed or acquired (such parent and subsidiary corporations sometimes referred to herein as "Related Entities") who are responsible for the continued growth of the Company an opportunity to acquire a proprietary interest in the Company, and thus to create in such persons an increased interest in and a greater concern for the welfare of the Company and any Related Entities. As used in the Plan, the terms "parent corporation" and "subsidiary corporation" shall mean, respectively, a corporation within the definition of such terms contained in Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the "Code"). The stock options described in Sections 6 and 7 (the "Options"), and the shares of Common Stock (as hereinafter defined) acquired pursuant to the exercise of such Options are a matter of separate inducement and are not in lieu of any salary or other compensation for services. 2. Administration. The Plan shall be administered by the Option Committee, or any successor thereto, of the Board of Directors of the Company (the "Board of Directors"), or by any other committee appointed by the Board of Directors to administer this Plan (the "Committee"); provided, the entire Board of Directors may act as the Committee if it chooses to do so. The number of individuals that shall constitute the Committee shall be determined from time to time by a majority of all the members of the Board of Directors, and, unless that majority of the Board of Directors determines otherwise, shall be no less than two individuals; provided, however, that unless the Plan and the Options granted thereunder otherwise comply with Rule 16b-3 (or any successor rule) under the Exchange Act (or any successor law) the Committee shall be composed of either (a) the entire Board of Directors or (b) persons who are "Non-Employee Directors under Rule 16b-3. The Chairman of the Board of Directors of the Company shall be a member of the Committee at all times. A majority of the Committee shall constitute a quorum (or if the Committee consists of only two members, then both members shall constitute a quorum), and subject to the provisions of Section 5, the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by all members of the Committee, shall be the acts of the Committee. The members of the Committee shall serve at the pleasure of the Board of Directors, which shall have the power, at any time and from time to time, to remove members from or add members to the Committee. Removal from the Committee may be with or without cause. Any individual serving as a member of the Committee shall have the right to resign from membership in the Committee by written notice to the Board of Directors. The Board of Directors, and not the 2 remaining members of the Committee, shall have the power and authority to fill vacancies on the Committee, however caused. The Board of Directors shall promptly fill any vacancy that causes the number of members of the Committee to be below two or, if the Company has a class of equity securities registered pursuant to Section 12 of the Exchange Act, any other number that Rule 16b-3 may require from time to time. 3. Shares Available. Subject to the adjustments provided in Section 10, the maximum aggregate number of shares of Common Stock, par value $0.01 per share, of the Company ("Common Stock") in respect of which Options may be granted for all purposes under the Plan shall be 4,100,000 shares. If, for any reason, any shares as to which Options have been granted cease to be subject to purchase thereunder, including the expiration of such Option, the termination of such Option prior to exercise, or the forfeiture of such Option, such shares shall thereafter be available for grants under the Plan. Options granted under the Plan may be fulfilled in accordance with the terms of the Plan with (i) authorized and unissued shares of the Common Stock, (ii) issued shares of such Common Stock held in the Company's treasury, or (iii) issued shares of Common Stock reacquired by the Company in each situation as the Board of Directors or the Committee may determine from time to time. 4. Eligibility and Bases of Participation. Grants of Incentive Options (as hereinafter defined) and Non-Qualified Options (as hereinafter defined) may be made under the Plan, subject to and in accordance with Section 6, to Key Employees. As used herein, the term "Key Employee" shall mean any employee of the Company or any Related Entity, including officers and directors of the Company or any Related Entity who are also employees of the Company or any Related Entity, who is regularly employed on a salaried basis and who is so employed on the date of such grant, whom the Committee identifies as having a direct and significant effect on the performance of the Company or any Related Entity. Grants of Non-Qualified Options may be made, subject to and in accordance with Section 7, to any Eligible Non-Employee. As used herein, the term "Eligible Non-Employee" shall mean any person or entity of any nature whatsoever, specifically including an individual, a firm, a company, a corporation, a partnership, a trust, or other entity (collectively, a "Person"), that the Committee designates as eligible for a grant of Options pursuant to this Plan because such Person performs bona fide consulting, advisory, or other services for the Company or any Related Entity (other than services in connection with the offer or sale of securities in a capital- raising transaction) and the Board of Directors or the Committee determines that the Person has a direct and significant effect on the financial development of the Company or any Related Entity. The adoption of this Plan shall not be deemed to give any Person a right to be granted any Options. Notwithstanding any other provision of this Plan to the contrary, with respect to the grant of any Options to any Key Employee or Eligible Non- Employee, the Committee shall first determine -2- 3 the number of shares in respect of which Options are to be granted to such Key Employee or Eligible Non-Employee and shall then cause to be granted to such Key Employee or Eligible Non-Employee an Option exercisable for such shares. The exercise price per share of Common Stock under each Option shall be fixed by the Committee at the time of grant of the Option and shall equal at least 100% of the Fair Market Value of a share of Common Stock on the date of grant. 5. Authority of Committee. Subject to and not inconsistent with the express provisions of the Plan, the Code and, if applicable, Rule 16b-3, the Committee shall have plenary authority to: a. determine the Key Employees and Eligible Non-Employees to whom Options shall be granted, the time when such Options shall be granted, the number of shares covered by the Options, the purchase price or exercise price under each Option, the period(s) during which such Options shall be exercisable (whether in whole or in part, including whether such Options shall become immediately exercisable upon the consummation of a "Sale of the Company" or a "Qualifying Public Offering"), the restrictions to be applicable to Options and all other terms and provisions thereof (which need not be identical); b. require, if determined necessary or appropriate by the Committee in order to comply with Rule 16b-3, as a condition to the granting of any Option, that the Person receiving such Option agree not to sell or otherwise dispose of such Option, any Common Stock acquired pursuant to such Option, or any other "derivative security" (as defined by Rule 16a-l(c) under the Exchange Act) for a period of six months following the later of the date of the grant of such Option or (ii) the date when the exercise price of such Option is fixed if such exercise price is not fixed at the date of grant of such Option, or for such other period as the Committee may determine; c. provide an arrangement through registered broker-dealers whereby temporary financing may be made available to an optionee by the broker-dealer, under the rules and regulations of the Board of Governors of the Federal Reserve, for the purpose of assisting the optionee in the exercise of an Option, such authority to include the payment by the Company of the commissions of the broker-dealer; d. provide the establishment of procedures for an optionee (i) to have withheld from the total number of shares of Common Stock to be acquired upon the exercise of an Option that number of shares having a Fair Market Value which, together with such cash as shall be paid in respect of fractional shares, shall equal the aggregate exercise price under such Option for the number of shares then being acquired (including the shares to be so withheld), and (ii) to exercise a portion of an Option by delivering that number of shares of Common Stock already owned by such optionee having an aggregate Fair Market Value which shall equal the partial Option exercise price and to deliver the shares thus acquired by such optionee in payment of shares to be -3- 4 received pursuant to the exercise of additional portions of such Option, the effect of which shall be that such optionee can in sequence utilize such newly acquired shares in payment of the exercise price of the entire Option, together with such cash as shall be paid in respect of fractional shares; e. provide (in accordance with Section 13 or otherwise) the establishment of a procedure whereby a number of shares of Common Stock or other securities may be withheld from the total number of shares of Common Stock or other securities to be issued upon exercise of an Option to meet the obligation of withholding for income, social security and other taxes incurred by an optionee upon such exercise or required to be withheld by the Company or a Related Entity in connection with such exercise; f. prescribe, amend, modify and rescind rules and regulations relating to the Plan; g. make all determinations permitted or deemed necessary, appropriate or advisable for the administration of the Plan, interpret any Plan or Option provision, perform all other acts, exercise all other powers, and establish any other procedures determined by the Committee to be necessary, appropriate, or advisable in administering the Plan or for the conduct of the Committee's business. Any act of the Committee, including interpretations of the provisions of the Plan or any Option and determinations under the Plan or any Option shall be final, conclusive and binding on all parties. The Committee may delegate to one or more of its members, or to one or more agents, such administrative duties as it may deem advisable, and the Committee or any Person to whom it has delegated duties as aforesaid may employ one or more Persons to render advice with respect to any responsibility the Committee or such Person may have under the Plan. The Committee may employ attorneys, consultants, accountants, or other Persons and the Committee, the Company, and its officers and directors shall be entitled to rely upon the advice, opinions, or valuations of any such Persons. No member or agent of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan and all members and agents of the Committee shall be fully protected by the Company in respect of any such action, determination or interpretation. 6. Stock Options for Key Employees. Subject to the express provisions of this Plan, the Committee shall have the authority to grant incentive stock options pursuant to Section 422 of the Code ("Incentive Options"), to grant non-qualified stock options (options which do not qualify under Section 422 of the Code) ("Non-Qualified Options"), and to grant both types of Options to Key Employees. No Incentive Option shall be granted pursuant to this Plan after the earlier of ten years from the date of adoption of the Plan or ten years from the date of approval of the Plan by the stockholders of the Company. Notwithstanding anything in this Plan to the contrary, Incentive Options may be granted only to Key Employees. The terms and conditions of the Options granted under this Section 6 shall be determined from time to time by the Committee; provided, however, that the Options granted under -4- 5 this Section 6 shall be subject to all terms and provisions of the Plan (other than Section 7), including the following: a. Option Exercise Price. Subject to Section 4, the Committee shall establish the Option exercise price at the time any Option is granted at such amount as the Committee shall determine; provided, that in the case of an Incentive Option granted to a person who, at the time such Incentive Option is granted, owns shares of the Company or any Related Entity which possess more than 10% of the total combined voting power of all classes of shares of the Company or of any Related Entity, the option exercise price shall not be less than 110% of the Fair Market Value per share of Common Stock at the date the Option is granted. The Option exercise price shall be subject to adjustment in accordance with the provisions of Section 10 of the Plan. b. Payment. The price per share of Common Stock with respect to each Option exercise shall be payable at the time of such exercise. Such price shall be payable in cash or by any other means acceptable to the Committee, including delivery to the Company of shares of Common Stock owned by the optionee or by the delivery or withholding of shares pursuant to a procedure created pursuant to Section 5.d. of the Plan. Shares delivered to or withheld by the Company in payment of the Option exercise price shall be valued at the Fair Market Value of the Common Stock on the day preceding the date of the exercise of the Option. c. Continuation of Employment. Each Incentive Option shall require the optionee to remain in the continuous employ of the Company or any Related Entity from the date of grant of the Incentive Option until no more than three months prior to the date of exercise of the Incentive Option. d. Exercisability of Stock Option. Subject to Section 8, each Option shall be exercisable in one or more installments as the Committee may determine at the time of the grant. No Option by its terms shall be exercisable after the expiration of ten years from the date of grant of the Option, unless, as to any Non- Qualified Option, otherwise expressly provided in such Option; provided, however, that no Incentive Option granted to a person who, at the time such Option is granted, owns stock of the Company, or any Related Entity, possessing more than 10% of the total combined voting power of all classes of stock of the Company, or any Related Entity, shall be exercisable after the expiration of five years from the date such Option is granted. e. Death. If any optionee's employment with the Company or a Related Entity terminates due to the death of such optionee, the estate of such optionee, or a Person who acquired the right to exercise such Option by bequest or inheritance or by reason of the death of the optionee, shall have the right to exercise such Option in accordance with its terms at any time and from time to time within 180 days after the date of death unless a longer period is expressly provided in such Option or a shorter -5- 6 period is established by the Committee pursuant to Section 8 (but in no event after the expiration date of such Option). f. Disability. If the employment of any optionee terminates because of his Disability (as defined in Section 18), such optionee or his legal representative shall have the right to exercise the Option in accordance with its terms at any time and from time to time within 180 days after the date of such termination unless a longer period is expressly provided in such Option or a shorter period is established by the Committee pursuant to Section 8 (but not after the expiration date of the Option); provided, however, that in the case of an Incentive Option, the optionee or his legal representative shall in any event be required to exercise the Incentive Option within one year after termination of the optionee's employment due to his Disability. g. Termination for Cause. Unless an optionee's Option expressly provides otherwise, such optionee shall immediately forfeit all rights under his Option, except as to the shares of stock already purchased thereunder, if the employment of such optionee with the Company or a Related Entity is terminated by the Company or any Related Entity for Good Cause (as defined below). The determination that there exists Good Cause for termination shall be made by the Option Committee (unless otherwise agreed to in writing by the Company and the optionee). h. Voluntary Termination; Other Termination of Employment. If the employment of an optionee with the Company or a Related Entity terminates for any reason (including if such optionee voluntarily terminates employment with or without consent of the Company or any Related Entity) other than those specified in subsections 6(e), (f) or (g) above, such optionee shall have the right to exercise his Option in accordance with its terms, within 30 days after the date of such termination, unless a longer period is expressly provided in such Option or a shorter period is established by the Committee pursuant to Section 8 (but not after the expiration date of the Option); provided, that no Incentive Option shall be exercisable more than three months after such termination. i. Maximum Exercise. The aggregate Fair Market Value of stock (determined at the time of the grant of the Option) with respect to which Incentive Options are exercisable for the first time by an optionee during any calendar year under all plans of the Company and any Related Entity shall not exceed $100,000. 7. Stock Option Grants to Eligible Non-Employees. Subject to the express provisions of this Plan, the Committee shall have the authority to grant Non-Qualified Options to Eligible Non-Employees. The terms and conditions of the Options granted under this Section 7 shall be determined from time to time by the Committee; provided, however, that the Options granted under this Section 7 shall be subject to all terms and provisions of the Plan (other than Section 6), including the following: -6- 7 a. Option Exercise Price. Subject to Section 4, the Committee shall establish the Option exercise price at the time any Non-Qualified Option is granted at such amount as the Committee shall determine. The Option exercise price shall be subject to adjustment in accordance with the provisions of Section 10 of the Plan. b. Payment. The price per share of Common Stock with respect to each Option exercise shall be payable at the time of such exercise. Such price shall be payable in cash or by any other means acceptable to the Committee, including delivery to the Company of shares of Common Stock owned by the optionee or by the delivery or withholding of shares pursuant to a procedure created pursuant to Section 5.d. of the Plan. Shares delivered to or withheld by the Company in payment of the Option exercise price shall be valued at the Fair Market Value of the Common Stock on the day preceding the date of the exercise of the Option. c. Exercisability of Stock Option. Subject to Section 8, each Option shall be exercisable in one or more installments as the Committee may determine at the time of the grant. No Option shall be exercisable after the expiration of ten years from the date of grant of the Option, unless otherwise expressly provided in such Option. d. Death. If the retention by the Company or any Related Entity of the services of any Eligible Non-Employee terminates because of his death, the estate of such optionee, or a Person who acquired the right to exercise such Option by bequest or inheritance or by reason of the death of the optionee, shall have the right to exercise such Option in accordance with its terms, at any time and from time to time within 180 days after the date of death unless a longer period is expressly provided in such Option or a shorter period is established by the Committee pursuant to Section 8 (but in no event after the expiration date of such Option). e. Disability. If the retention by the Company or any Related Entity of the services of any Eligible Non-Employee terminates because of his Disability, such optionee or his legal representative shall have the right to exercise the Option in accordance with its terms at any time and from time to time within 180 days after the date of the optionee's termination unless a longer or shorter period is expressly provided in such Option or established by the Committee pursuant to Section 8 (but not after the expiration of the Option). f. Termination for Cause; Voluntary Termination. If the retention by the Company or any Related Entity of the services of any Eligible Non-Employee is terminated (i) for Good Cause, (ii) as a result of removal of the optionee from office as a director of the Company or of any Related Entity for cause by action of the stockholders of the Company or such Related Entity in accordance with the by-laws of the Company or such Related Entity, as applicable, and the corporate law of the Jurisdiction of incorporation of the Company or such Related Entity, or (iii) as a result of the voluntarily termination by optionee of optionee's service without the consent of the -7- 8 Company or any Related Entity, then such optionee shall immediately forfeit his rights under his Option except as to the shares of stock already purchased. The determination that there exists Good Cause for termination shall be made by the Option Committee (unless otherwise agreed to in writing by the Company and the optionee). g. Other Termination of Relationship. If the retention by the Company or any Related Entity of the services of any Eligible Non-Employee terminates for any reason other than those specified in subsections 7(d), (e) or (f) above, such optionee shall have the right to exercise his or its Option in accordance with its terms within 30 days after the date of such termination, unless a longer period is expressly provided in such Option or a shorter period is established by the Committee pursuant to Section 8 (but not after the expiration date of the Option). h. Ineligibility for Other Grants. Any Eligible Non-Employee who receives an Option pursuant to this Section 7 shall be ineligible to receive any Options under any other Section of the Plan. 8. Change of Control; Sale of the Company. If (i) a Change of Control or a Sale of the Company shall occur, (ii) the Company shall enter into an agreement providing for a Change of Control or a Sale of the Company, or (iii) any member of the HMC Group shall enter into an agreement providing for a Sale of the Company, then the Committee may declare any or all Options outstanding under the Plan to be exercisable in full at such time or times as the Committee shall determine, notwithstanding the express provisions of such Options. Each Option accelerated by the Committee pursuant to the preceding sentence shall terminate, notwithstanding any express provision thereof or any other provision of the Plan, on such date (not later than the stated exercise date) as the Committee shall determine; provided, however, that such termination shall not occur prior to the date on which the Option becomes fully exercisable pursuant to such acceleration. 9. Purchase Option. a. Except as otherwise expressly provided in any particular Option, if (i) any optionee's employment (or, in the case of any Option granted under Section 7, the optionee's relationship) with the Company or a Related Entity terminates for any reason at any time or (ii) a Change of Control occurs, the Company (and/or its designees) shall have the option (the "Purchase Option") to purchase, and if the option is exercised, the optionee (or the optionee's executor or the administrator of the optionee's estate, in the event of the optionee's death, or the optionee's legal representative in the event of the optionee's incapacity) (hereinafter, collectively with such optionee, the "Grantor") shall sell to the Company and/or its assignee(s), all or any portion (at the Company's option) of the shares of Common Stock and/or Options held by the Grantor (such shares of Common Stock and Options collectively being referred to as -8- 9 the "Purchasable Shares"), subject to the Company's compliance with the conditions hereinafter set forth. b. The Company shall give notice in writing to the Grantor of the exercise of the Purchase Option within one year from the date of the termination of the optionee's employment or engagement or such Change of Control. Such notice shall state the number of Purchasable Shares to be purchased and the determination of the Board of Directors of the Fair Market Value per share of such Purchasable Shares. If no notice is given within the time limit specified above, the Purchase Option shall terminate. c. The purchase price to be paid for the Purchasable Shares purchased pursuant to the Purchase Option shall be, in the case of any Common Stock, the Fair Market Value per share as of the date of the notice of exercise of the Purchase Option times the number of shares being purchased, and in the case of any Option, the Fair Market Value per share times the number of vested shares subject to such Option which are being purchased, less the applicable per share Option exercise price. The purchase price shall be paid in cash. The closing of such purchase shall take place at the Company's principal executive offices within ten days after the purchase price has been determined. At such closing, the Grantor shall deliver or shall cause to be delivered to the purchasers the certificates or instruments evidencing the Purchasable Shares being purchased, duly endorsed (or accompanied by duly executed stock powers) and otherwise in good form for delivery, against payment of the purchase price by check of the purchasers). In the event that, notwithstanding the foregoing, the Grantor shall have failed to obtain the release of any pledge or other encumbrance on any Purchasable Shares by or upon the scheduled closing date (at the option of the purchasers), the closing shall nevertheless occur on such scheduled closing date, with the cash purchase price being reduced to the extent of all unpaid indebtedness for which such Purchasable Shares are then pledged or encumbered. d. To assure the enforceability of the Company's rights under this Section 9, each certificate or instrument representing Common Stock or an Option held by him or it shall bear a conspicuous legend in substantially the following form: THE SHARES (REPRESENTED BY THIS CERTIFICATE] [ISSUABLE PURSUANT TO THIS AGREEMENT] ARE SUBJECT TO AN OPTION TO REPURCHASE PROVIDED UNDER THE PROVISIONS OF THE COMPANY'S 1996 STOCK OPTION PLAN AND A STOCK OPTION AGREEMENT ENTERED INTO PURSUANT THERETO. A COPY OF SUCH OPTION PLAN AND OPTION AGREEMENT ARE AVAILABLE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES. The Company's rights under this Section 9 shall terminate upon the consummation of a Qualifying Public Offering. -9- 10 10. Adjustment of Shares. Unless otherwise expressly provided in a particular Option, in the event that, by reason of any merger, consolidation, combination, liquidation, reorganization, recapitalization, stock dividend, stock split, split-up, split- off, spin-off, combination of shares, exchange of shares or other like change in capital structure of the Company (collectively, a "Reorganization"), the Common Stock is substituted, combined, or changed into any cash, property, or other securities, or the shares of Common Stock are changed into a greater or lesser number of shares of Common Stock, the number and/or kind of shares and/or interests subject to an Option and the per share price or value thereof shall be appropriately adjusted by the Committee to give appropriate effect to such Reorganization, such that the Option shall thereafter be exercisable for such securities, cash, and/or other property as would have been received in respect of the Common Stock subject to the Option had the Option been exercised in full immediately prior to such event. Any fractional shares or interests resulting from such adjustment shall be eliminated. Notwithstanding the foregoing, (i) each such adjustment with respect to an Incentive Option shall comply with the rules of Section 424(a) of the Code, and (ii) in no event shall any adjustment be made which would render any Incentive Option granted hereunder other than an "incentive stock option" for purposes of Section 422 of the Code. In the event the Company is not the surviving entity of a Reorganization and, following such Reorganization, any optionee will hold Options issued pursuant to this Plan which have not been exercised, canceled, or terminated in connection therewith, the Company shall cause such Options to be assumed (or canceled and replacement Options of equivalent value issued) by the surviving entity or a Related Entity. 11. Assignment or Transfer. a. Except as otherwise expressly provided in any Nonqualified Option, no Option granted under the Plan or any rights or interests therein shall be assignable or transferable by an optionee except by will or the laws of descent and distribution, and during the lifetime of an optionee, Options granted to him or her hereunder shall be exercisable only by the optionee or, in the event that a legal representative has been appointed in connection with the Disability of an optionee, such legal representative. b. At least ninety (90) days prior to selling, pledging, hypothecating, transferring or otherwise disposing ("Transfer") of any interest in Common Stock issued upon exercise of an Option, the optionee proposing such Transfer shall deliver a written notice (the "Sale Notice") to the Company. The Sale Notice will disclose in reasonable detail the identity of the prospective transferee(s) and the terms and conditions of the proposed transfer. Such optionee (and such optionee's transferees) shall not consummate any such Transfer until ninety (90) days after the Sale Notice has been delivered to the Company, unless the Company has notified such optionee in writing that it will not exercise its rights under this Section 11.b. (The date of the first to occur of such events is referred to herein as the "Authorization Date"). The Company or its designee may elect to purchase all (but not less than all) of the shares -10- 11 of Common Stock to be Transferred upon the same terms and conditions as those set forth in the Sale Notice ("Right of First Refusal") by delivering a written notice of such election to such optionee within thirty (30) days after the receipt of the Sale Notice by the Company (the "Election Notice"). If the Company has not elected to purchase all of the shares of Common Stock specified in the Sale Notice, such optionee may Transfer the shares of Common Stock to the prospective transferee(s) as specified in the Sale Notice, at a price and on terms no more favorable to the transferee(s) thereof than specified in the Sale Notice, during the 90-day period immediately following the Authorization Date and in the event of any such Transfer of shares the provisions of the Plan (including, without limitation, the provisions of this Section 11) shall no longer apply to the shares thus transferred. Any Option Shares not so transferred within such 90-day period must be reoffered to the Company in accordance with the provisions of this Section 11.b. The Right of First Refusal will not apply with respect to Transfers of such shares of Common Stock (i) by will or pursuant to applicable laws of descent and distribution or (ii) among the optionee's family group; provided that the restrictions contained in this Section 11.b. will continue to be applicable to the shares of Common Stock after any such Transfer and provided further that the transferees of such shares of Common Stock have agreed in writing to be bound by the terms and provisions of this Plan and the applicable Option Agreement as each may be amended from time to time. In addition, upon any transfer to a member of the optionee's family group, the optionee shall be required to give notice to the Company and as a condition to such Transfer to a member of the optionee's family group, the optionee will maintain all voting control over all of the shares of Common Stock. The optionee's, "family group" means the optionee's spouse and lineal descendants (whether natural or adopted) and any trust solely for the benefit of the optionee and/or the optionee's spouse and/or lineal descendants. In addition, with the prior approval of the Committee, notwithstanding the provisions of this Section 11.b., an optionee may pledge such shares of Common Stock creating a security interest therein; provided, that the pledgee agrees in writing to be bound, and that such shares of Common Stock remain bound, by the terms and provisions of this Plan and the applicable Option Agreement, as each may be amended from time to time. The rights and obligations pursuant to this Section 11.b. hereof will terminate upon the consummation of a Qualified Public Offering. To assure the enforceability of the Company's rights under this Section 11.b., each certificate or instrument representing Common Stock or an Option held by him or it shall bear a conspicuous legend in substantially the following form: THE SHARES [REPRESENTED BY THIS CERTIFICATE] [ISSUABLE PURSUANT TO THIS AGREEMENT] ARE SUBJECT TO A RIGHT OF FIRST REFUSAL PROVIDED UNDER THE COMPANY'S 1996 STOCK OPTION PLAN AND A STOCK OPTION AGREEMENT ENTERED INTO PURSUANT THERETO. A COPY OF SUCH OPTION PLAN AND OPTION AGREEMENT -11- 12 ARE AVAILABLE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES. 12. Compliance with Securities Laws. The Company shall not in any event be obligated to file any registration statement under the Securities Act or any applicable state securities law to permit exercise of any option or to issue any Common Stock in violation of the Securities Act or any applicable state securities law. Each optionee (or, in the event of his death or, in the event a legal representative has been appointed in connection with his Disability, the Person exercising the Option) shall, as a condition to his right to exercise any Option, deliver to the Company an agreement or certificate containing such representations, warranties and covenants as the Company may deem necessary or appropriate to ensure that the issuance of shares of Common Stock pursuant to such exercise is not required to be registered under the Securities Act or any applicable state securities law. Certificates for shares of Common Stock, when issued, may have substantially the following legend, or statements of other applicable restrictions, endorsed thereon, and may not be immediately transferable: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT VIOLATE APPLICABLE FEDERAL OR STATE LAWS. This legend shall not be required for shares of Common Stock issued pursuant to an effective registration statement under the Securities Act and in accordance with applicable state securities laws. 13. Withholding Taxes. By acceptance of the Option, the optionee will be deemed to (i) agree to reimburse the Company or Related Entity by which the optionee is employed for any federal, state, or local taxes required by any government to be withheld or otherwise deducted by such corporation in respect of the optionee's exercise of all or a portion of the Option; (ii) authorize the Company or any Related Entity by which the optionee is employed to withhold from any cash compensation paid to the optionee or in the optionee's behalf, an amount sufficient to discharge any federal, state, and local taxes imposed on the Company, or the Related Entity by which the optionee is employed, and which otherwise has not been reimbursed by the optionee, in respect of the optionee's exercise of all or a portion of the Option; and (iii) agree that the Company may, in its discretion, hold the stock -12- 13 certificate to which the optionee is entitled upon exercise of the Option as security for the payment of the aforementioned withholding tax liability, until cash sufficient to pay that liability has been accumulated, and may, in its discretion, effect such withholding by retaining shares issuable upon the exercise of the Option having a Fair Market Value on the date of exercise which is equal to the amount to be withheld. 14. Costs and Expenses. The costs and expenses of administering the Plan shall be borne by the Company and shall not be charged against any Option nor to any employee receiving an Option. 15. Funding of Plan. The Plan shall be unfunded. The Company shall not be required to make any segregation of assets to assure the payment of any Option under the Plan. 16. Other Incentive Plans. The adoption of the Plan does not preclude the adoption by appropriate means of any other incentive plan for employees. 17. Effect on Employment. Nothing contained in the Plan or any agreement related hereto or referred to herein shall affect, or be construed as affecting, the terms of employment of any Key Employee except to the extent specifically provided herein or therein. Nothing contained in the Plan or any agreement related hereto or referred to herein shall impose, or be construed as imposing, an obligation on (i) the Company or any Related Entity to continue the employment of any Key Employee, and (ii) any Key Employee to remain in the employ of the Company or any Related Entity. 18. Definitions. In addition to the terms specifically defined elsewhere in the Plan, as used in the Plan, the following terms shall have the respective meanings indicated: a. "Affiliate" shall mean, as to any Person, a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. b. "Authorization Date" shall have the meaning set forth in Section 11.b. hereof. c. "Board of Directors" shall have the meaning set forth in Section 2 hereof. -13- 14 d. "Change of Control" shall mean the first to occur of the following events: (i) any sale, lease, exchange, or other transfer (in one transaction or series of related transactions) of all or substantially all of the assets of the Company (including, the capital stock or assets of its operating subsidiaries) to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), other than one or more members of the HMC Group, (ii) a majority of the Board of Directors of the Company shall consist of Persons who are not Continuing Directors; or (iii) the acquisition by any Person or Group (other than one or more members of the HMC Group), together with their associates and Affiliates, of the power, directly or indirectly, to vote or direct the voting of securities having more than 50% of the ordinary voting power for the election of directors of the Company. e. "Code" shall have the meaning set forth in Section 1 hereof. f. "Committee" shall have the meaning set forth in Section 2 hereof. g. "Common Stock" shall have the meaning set forth in Section 3 hereof. h. "Company" shall have the meaning set forth in Section 1 hereof. i. "Continuing Director" shall mean, as of the date of determination, any Person who (i) was a member of the Board of Directors of the Company on the date of adoption of this Plan, (ii) was nominated for election or elected to the Board of Directors of the Company with the affirmative vote of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election, or (iii) is a member of the HMC Group. j. "Designated Date" means the first date on which each of the following conditions shall have been met: (i) the Company shall have consummated a Qualifying Public Offering and (ii) the Company shall have ceased to be an Equity Fund Company. k. "Disability" shall mean permanent disability as defined under the appropriate provisions of the long-term disability plan maintained for the benefit of employees of the Company or any Related Entity who are regularly employed on a salaried basis unless another meaning shall be agreed to in writing by the Committee and the optionee; provided, however, that in the case of an Incentive Option "disability" shall have the meaning specified in Section 22(e)(3) of the Code. l. "Election Notice" shall have the meaning set forth in Section 11.b. hereof. m. "Eligible Non-Employee" shall have the meaning set forth in Section 4 hereof. n. "Equity Fund Company" means any Person in which one or more Equity Fund Investment Vehicles own(s), directly or indirectly, more than 10% of the fully- -14- 15 diluted common stock or has an unrecovered investment of $1,000,000 or more, and each Subsidiary thereof. o. "Equity Fund Investment Vehicle" means HMTF/CH Holdings, L.P., Hicks, Muse, Tate & Furst Equity Fund II, L.P., Hicks, Muse, Tate & Furst Equity Fund III, L.P., or any other similar investment entity formed by Hicks, Muse, Tate & Furst Incorporated. p. "Exchange Act" means the Securities Exchange Act of 1934, as amended. q. "Fair Market Value", shall, as it relates to the Common Stock, mean the average of the high and low prices of such Common Stock as reported on the principal national securities exchange on which the shares of Common Stock are then listed on the date specified herein, or if there were no sales on such date, on the next preceding day on which there were sales, or if such Common Stock is not listed on a national securities exchange, the last reported bid price in the over-the-counter market, or if such shares are not traded in the over-the-counter market, the per share cash price for which all of the outstanding Common Stock could be sold to a willing purchaser in an arms length transaction (without regard to minority discount, absence of liquidity, or transfer restrictions imposed by any applicable law or agreement) at the date of the event giving rise to a need for a determination. Except as may be otherwise expressly provided in a particular Option, Fair Market Value shall be determined in good faith by the Committee. r. "Good Cause", with respect to any Key Employee, shall mean (unless another definition is agreed to in writing by the Company and the optionee) termination by action of the Board of Directors because of: (A) the optionee's conviction of, or plea of nolo contendere to, a felony or a crime involving moral turpitude; (B) the optionee's personal dishonesty, incompetence, willful misconduct, willful violation of any law, rule, or regulation (other than minor traffic violations or similar offenses) or breach of fiduciary duty which involves personal profit; (C) the optionee's commission of material mismanagement in the conduct of his duties as assigned to him by the Board of Directors or the optionee's supervising officer or officers of the Company or any Related Entity; (D) the optionee's willful failure to execute or comply with the policies of the Company or any Related Entity or his stated duties as established by the Board of Directors or the optionee's supervising officer or officers of the Company or any Related Entity, or the optionee's intentional failure to perform the optionee's stated duties; or (E) substance abuse or addiction on the part of the optionee. "Good Cause", with respect to any Eligible Non-Employee, shall mean (unless another definition is agreed to in writing by the Company and the optionee) termination by action of the Board of Directors because of: (A) the optionee's conviction of, or plea of nolo contendere to, a felony or a crime involving moral turpitude; (B) the optionee's personal dishonesty, incompetence, willful misconduct, willful violation of any law, rule, or regulation (other than minor traffic -15- 16 violations or similar offenses) or breach of fiduciary duty which involves personal profit; (C) the optionee's commission of material mismanagement in providing services to the Company or any Related Entity; (D) the optionee's willful failure to comply with the policies of the Company in providing services to the Company or any Related Entity, or the optionee's intentional failure to perform the services for which the optionee has been engaged; (E) substance abuse or addiction on the part of the optionee; or (F) the optionee's willfully making any material misrepresentation or willfully omitting to disclose any material fact to the board of directors of the Company or any Related Entity with respect to the business of the Company or any Related Entity. Notwithstanding the foregoing, in the case of each optionee listed on Schedule A hereto, who as of the effective date of the Plan, has an employment agreement with the Company or any Related Entity that contains a definition of "Good Cause" (or any similar definition), then during the term of such employment agreement the definition contained in such employment agreement shall be the applicable definition of "Good Cause" under the Plan as to such optionee. s. "Grantor" has the meaning set forth in Section 9 hereof. t. "Hicks Muse Company" shall mean any Person in which the HMC Group beneficially owns more than 25% of the fully-diluted common stock or has an unrecovered investment of $1,000,000 or more, and each Subsidiary thereof. u. "HMC Group" shall mean Hicks, Muse, Tate & Furst Incorporated, its Affiliates and their respective employees, officers, and directors (and members of their respective families and trusts for the primary benefit of such family members). v. "Incentive Options" shall have the meaning set forth in Section 6 hereof. w. The term "included" when used herein shall mean "including, but not limited to". x. "Key Employee" shall have the meaning set forth in Section 4 hereof. y. "Marketable Securities" shall mean securities (i) of a class or series listed or traded on the New York Stock Exchange, American Stock Exchange, or NASDAQ National Market and (ii) which, as a matter of law, shall at the time of acquisition be (or which at the date of acquisition are legally committed to become within six months after the date of acquisition) freely saleable in unlimited quantities by the HMC Group to the public, either pursuant to an effective registration statement under the Securities Act as amended (including a current prospectus which is available for delivery) or without the necessity of such registration. z. "Non-Qualified Options" shall have the meaning set forth in Section 6 hereof. aa. "Options" shall have the meaning set forth in Section 1 hereof. -16- 17 ab. "Person" shall have the meaning set forth in Section 4 hereof, ac. "Plan" shall have the meaning set forth in Section 1 hereof. ad. "Purchasable Shares" shall have the meaning set forth in Section 9 hereof. ae. "Purchase Option" shall have the meaning set forth in Section 9 hereof. af. "Qualifying Public Offering" shall mean a firm commitment underwritten public offering of Common Stock for cash and the shares of Common Stock registered under the Securities Act are listed on a national securities exchange or traded on the NASDAQ National Market; provided, however, that such a public offering shall not constitute a "Qualifying Public Offering" unless the aggregate proceeds to the Company (prior to deducting any underwriters' discounts and commissions) from such offering and any similar prior public offerings exceed $10 million.. ag. "Related Entities" shall have the meaning set forth in Section 1 hereof. ah. "Reorganization" shall have the meaning set forth in Section 10 hereof. ai. "Right of First Refusal" shall have the meaning set forth in Section 11.b. hereof. aj. "Rule 16b-3" shall mean Rule 16b-3 as amended, or other applicable rules, under Section 16(b) of the Exchange Act. ak. "Sale of the Company" shall mean the first to occur of (i) any sale, lease, exchange, or other transfer (in one transaction or series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act, other than one or more members of the HMC Group (a "Clause 1 Event"), (ii) the Company's ceasing to be a Hicks Muse Company in a transaction or series of related transactions initiated or agreed to by the HMC Group (other than the distribution by one or more Equity Fund Investment Vehicles, following a Qualifying Public Offering, of equity securities of the Company to the investors in such Equity Fund Investment Vehicle(s)) (a "Clause 2 Event"), or (iii) the consummation of a transaction or series of related transactions initiated or agreed to by the HMC Group pursuant to which the HMC Group receives, in respect of its shares of Common Stock, cash and/or which have an aggregate value equal to at least 75%; of the total value of all Common Stock owned by the HMC Group immediately prior to such transaction, as determined by the Board of Directors in good faith (a "Clause 3 Event"); provided, however, that the occurrence of a Clause 1 Event, a Clause 2 Event or a Clause 3 Event on any date after the Designated Date shall not constitute a "Sale of the Company". al. "Sale Notice" shall have the meaning set forth in Section 11.b hereof. -17- 18 am. "Securities Act" shall mean the Securities Act of 1933, as amended. an. "Subsidiary" shall mean, with respect to any Person, any other Person of which such first Person owns or has the power to vote, directly or indirectly, securities representing a majority of the votes ordinarily entitled to be cast for the election of directors or other governing Persons. ao. "Transfer" shall have the meaning set forth in Section 11.b. hereof. 19. Amendment of Plan. The Board of Directors shall have the right to amend, modify, suspend or terminate the Plan at any time; provided, that no amendment shall be made which shall increase the total number of shares of the Common Stock which may be issued and sold pursuant to Options granted under the Plan or decrease the minimum Option exercise price in the case of an Incentive Option, or modify the provisions of the Plan relating to eligibility with respect to Incentive Options unless such amendment is made by or with the approval of the stockholders. The Board of Directors shall have the right to amend the Plan and the Options outstanding thereunder, without the consent or joinder of any optionee or other Person, in such manner as may be determined necessary or appropriate by the Board of Directors in order to cause the Plan and the Options outstanding thereunder (i) to qualify as "incentive stock options" within the meaning of Section 422 of the Code, (ii) to comply with Rule 16b-3 (or any successor rule) under the Exchange Act (or any successor law) and the regulations (including any temporary regulations) promulgated thereunder, or (iii) to comply with Section 162(m) of the Code (or any successor section) and the regulations (including any temporary regulations) promulgated thereunder. Except as provided above, no amendment, modification, suspension or termination of the Plan shall alter or impair any Options previously granted under the Plan, without the consent of the holder thereof. 20. Effective Date. The Plan shall become effective on October 16, 1996, the date on which it was approved by the Board of Directors of the Company and the stockholders of the Company. -18- EX-10.18.2 11 1ST AMEND TO THE CAPSTAR BROADCASTING PARTNERS 1 EXHIBIT 10.18.2 CAPSTAR BROADCASTING PARTNERS, INC. FIRST AMENDMENT TO THE CAPSTAR BROADCASTING PARTNER, INC. 1996 STOCK OPTION PLAN THIS FIRST AMENDMENT TO THE CAPSTAR BROADCASTING PARTNERS, INC. 1996 STOCK OPTION PLAN (this "Amendment") is made and adopted by Capstar Broadcasting Partners, Inc., a Delaware corporation (the "Corporation"), effective as of February 20, 1997. RECITALS WHEREAS, on October 16, 1996 the stockholders of the Corporation approved, and the Corporation adopted, the Capstar Broadcasting Partners, Inc. 1996 Stock Option Plan (the "Plan"); and WHEREAS, the Board approved that the Chairman of the Board no longer be required, pursuant to the terms of the Plan, to serve as a member of the committee that is appointed by the Board to administer the Plan (the "Administration Amendment"); and WHEREAS, the Board of Directors of the Corporation (the "Board") approved and recommended to the stockholders of the Corporation an increase (the "Increase") in the number of shares of the Corporation's common stock, par value $0.01 per share (the "Common Stock"), in respect of which stock options may be granted under the Plan by an additional 4,900,000 shares, such that the total number of shares of Common Stock in respect of which options may be granted under the Plan shall be 9,000,000 shares; and WHEREAS, on February 20, 1997, the stockholders of the Corporation approved the Increase and the Administration Amendment. AMENDMENT NOW, THEREFORE, the Plan is hereby amended to read as follows: 1. Section 2. The third sentence of the first paragraph of Section 2 is hereby deleted in its entirety. 2. Section 3. The first sentence of Section 3 is hereby amended to read, in its entirety, as follows: 2 "Subject to the adjustments provided in Section 10, the maximum aggregate number of shares of Common Stock, par value $0.01 per share, of the Company ("Common Stock") in respect of which Options may be granted for all purposes under the Plan shall be 9,000,000 shares." Except as expressly set forth herein, the Plan shall remain in full force and effect without further amendment or modification. IN WITNESS WHEREOF, the Corporation, acting by and through its officer hereunto duly authorized, has executed this Amendment effective as of the date first written above. CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ R. STEVEN HICKS ---------------------------- R. Steven Hicks President and Chief Executive Officer EX-10.20.1 12 1996 STOCK PURCHASE PLAN DATED NOVEMBER 26, 1996 1 EXHIBIT 10.20.1 CAPSTAR BROADCASTING PARTNERS, INC. 1996 STOCK PURCHASE PLAN ---------------- PART I PURPOSES; DEFINITIONS; RESERVATION OF SHARES; AND PARTICIPATION IN PLAN ARTICLE I PURPOSES 1.1 Purposes of Plan. The purpose of this Capstar Broadcasting Partners, Inc. 1996 Stock Purchase Plan the (the "Plan") is to afford certain Key Employees (as hereinafter defined) of Capstar Broadcasting Partners, Inc., a Delaware corporation (the "Company"), and any parent corporation or subsidiary corporation thereof now existing or hereafter formed or acquired (such parent and subsidiary corporations sometimes referred to herein as "Related Entities") who are expected to contribute materially to the success of the Company and any Related Entities an opportunity to acquire a proprietary interest in the Company, and thus to retain such persons and create in such persons an increased interest in and a greater concern for the welfare of the Company and any Related Entities. ARTICLE II DEFINITIONS 2.1 Certain terms used herein shall have the meaning stated below, subject to the provisions of Section 7.1. "Board" or "Board of Directors" means the Board of Directors of the Company. "Committee" has the meaning set forth in Section 7.1 hereto. "Common Stock" means the Common Stock, par value $.01 per share, of the Company. "Company" has the meaning set forth in Section 1.1 hereto. "Exercise Price" has the meaning set forth in Section 5.1 hereto. 2 "Key Employee" has the meaning set forth in Section 4.1 hereto. "Plan" has the meaning set forth in Section 1.1 hereto. "Related Entity" has the meaning set forth in Section 1.1 hereto. "Securities Act" means The Securities Act of 1933, as amended. "Stock Purchase Right" means an award of a right to purchase a share of Common Stock at the Exercise Price which is granted by the Company to a Key Employee pursuant to Section 5.1 hereof. "Stockholders Agreement" means that certain Stockholders Agreement between the Company and each of the Key Employees in substantially the form attached hereto as Exhibit A. "Subsidiary" means, with respect to any person, any other person of which such first person owns or has the power to vote, directly or indirectly, securities representing a majority of the votes ordinarily entitled to be cast for the election of directors or other governing persons. ARTICLE III SHARES AVAILABLE 3.1 Shares Available Under Plan. Subject to the adjustments provided in Section 9.2, the maximum number of shares of Common Stock in respect of which Stock Purchase Rights may be granted for all purposes under the Plan shall be 3,155,000 shares. If, for any reason, any shares as to which Stock Purchase Rights have been granted cease to be subject to purchase hereunder, including the expiration of such Stock Purchase Right, the termination of such Stock Purchase Right, or the forfeiture of such Stock Purchase Right, such shares shall thereafter be available for grants under the Plan. Stock Purchase Rights granted under the Plan may be fulfilled in accordance with the terms of the Plan with (i) authorized and unissued shares of Common Stock, (ii) issued shares of such Common Stock held in the Company's treasury, or (iii) issued shares of Common Stock reacquired by the Company, in each situation as the Board of Directors or the Committee may determine from time to time. ARTICLE IV PARTICIPATION IN PLAN 4.1 Eligibility to Receive Stock Purchase Rights. Stock Purchase Rights under the Plan may be granted only to Key Employees. As used herein, the term "Key Employee" shall mean any 2 3 employee of the Company or any Related Entity, including officers and directors of the Company or any Related Entity who are also employees of the Company or any Related Entity, who is regularly employed on a salaried basis and who is so employed on the date of such grant, whom the Committee identifies as having a direct and significant effect on the performance of the Company or any Related Entity. 4.2 Effect on Employment. Nothing contained in the Plan or any agreement related hereto or referred to herein shall affect, or be construed as affecting, the terms of employment of any Key Employee except to the extent specifically provided herein or therein. Nothing contained in the Plan or any agreement related hereto or referred to herein shall impose, or be construed as imposing, an obligation on (i) the Company or any of its Subsidiaries to continue the employment of any Key Employee, and (ii) any Key Employee to remain in the employ of the Company or any of its Subsidiaries. PART II STOCK PURCHASE RIGHTS ARTICLE V STOCK PURCHASE RIGHTS 5.1 Grant of Stock Purchase Rights. (a) Award Rights. The Committee shall determine the number of shares of Common Stock covered by each Stock Purchase Right granted to each Key Employee and shall then cause to be granted to such Key Employee a Stock Purchase Right exercisable for such shares. (b) Term of Rights. Every Stock Purchase Right granted hereunder shall be valid for a period of no less than 30 days after the date of grant and may be valid for such longer period as the Committee may determine. (c) Exercise Price. The purchase price per share of Common Stock under each Stock Purchase Right shall be $1.00 per share, or such other purchase price as may be determined by the Committee (the "Exercise Price"). (d) Form of Instrument. Each award of a Stock Purchase Right shall be made pursuant to an instrument substantially in the form attached hereto as Exhibit B. Such instrument shall specify the number of shares covered by such Stock Purchase Right, the Exercise Price, the term of such grant, and the restrictions set forth in Article VI. 3 4 5.2 Exercise of Stock Purchase Right. The price per share of Common Stock with respect to each exercise of a Stock Purchase Right shall be payable at the time of such exercise. Such price shall be payable in cash by a cashier's or bank certified check or by any other means acceptable to the Committee. Stock certificates evidencing any shares of Common Stock will be issued and delivered to the person entitled thereto upon payment of the Exercise Price. 5.3 Rights of Key Employee Prior to Exercise. A Key Employee shall not have any rights as a stockholder with respect to any share of Common Stock issuable upon exercise of a Stock Purchase Right unless and until such Key Employee shall have become the holder of record of such share by exercise of such Stock Purchase Right. ARTICLE VI RESTRICTIONS APPLICABLE TO STOCK PURCHASE RIGHTS 6.1 Restrictions. Each Stock Purchase Right granted under the Plan shall contain the following terms, conditions and restrictions and such additional terms, conditions and restrictions as may be determined by the Committee: (a) No Stock Purchase Right granted under the Plan may be assigned, transferred, sold, pledged, hypothecated or otherwise disposed of by a Key Employee, and any Stock Purchase Right granted to such Key Employee shall be exercisable only by such Key Employee. (b) No shares of Common Stock will be issued upon exercise of any Stock Purchase Right unless such Key Employee shall, at the time of such exercise, execute and deliver to the Company the Stockholders Agreement, subject to the Company's execution and delivery thereof. (c) Each Stock Purchase Right shall terminate by its terms and without any further action or obligation of the Company if, prior to exercise, the Key Employee's employment with the Company or any Subsidiary shall terminate for any reason. PART III ADMINISTRATION, AMENDMENT AND TERMINATION OF PLAN; MISCELLANEOUS ARTICLE VII ADMINISTRATION OF PLAN 4 5 7.1 The Committee. The Plan shall be administered by the Committee, or any successor thereto, of the Board of Directors, or by any other committee appointed by the Board of Directors to administer the Plan (the "Committee"); provided, the entire Board of Directors may act as the Committee if it chooses to do so. The number of individuals that shall constitute the Committee shall be determined from time to time by a majority of all the members of the Board of Directors, and, unless that majority of the Board of Directors determines otherwise, shall be no less than two individuals. The Chairman of the Board shall be a member of the Committee at all times. A majority of the Committee shall constitute a quorum (or if the Committee consists of only two members, then both members shall constitute a quorum), and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by all members of the Committee, shall be the acts of the Committee. The members of the Committee shall serve at the pleasure of the Board, which shall have the power, at any time and from time to time, to remove members from or add members to the Committee. Removal from the Committee may be with or without cause. Any individual serving as a member of the Committee shall have the right to resign from membership in the Committee by written notice to the Board of Directors, The Board of Directors, and not the remaining members of the Committee, shall have the power and authority to fill vacancies on the Committee, however caused. 7.2 Authority of Committee. The Committee shall have full and final authority to (i) prescribe, amend, modify and rescind rules and regulations relating to the Plan, (ii) make all determinations permitted or deemed necessary, appropriate or advisable for the administration of the Plan, interpret any Plan or Stock Purchase Right provision, perform all other acts, exercise all other powers, and establish any other procedures determined by the Committee to be necessary, appropriate, or advisable in administering the Plan or for the conduct of the Committee's business. Any act of the Committee, including interpretations of the provisions of the Plan or any Stock Purchase Right and determinations under the Plan or any Stock Purchase Right shall be final, conclusive and binding on all parties. The Committee may delegate to one or more of its members, or to one or more agents, such administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. The Committee may employ attorneys, consultants, accountants, or other persons and the Committee, the Company, and its officers and directors shall be entitled to rely upon the advice, opinions, or valuations of any such persons. No member or agent of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan and all members and agents of the Committee shall be fully protected by the Company in respect to the Plan and all members and agents of the Committee shall be fully protected by the Company in respect of any such action, determination or interpretation. 5 6 ARTICLE VIII AMENDMENT OF PLAN 8.1 Amendment of Plan. The Board of Directors shall have the right to amend, modify, suspend or terminate the Plan at any time. Except as otherwise provided above, no amendment, modification, suspension or termination of the Plan shall alter or impair any Stock Purchase Rights previously granted under the Plan, without the consent of the holder thereof. ARTICLE IX MISCELLANEOUS PROVISIONs 9.1 Compliance with Securities Laws. The Company shall not in any event be obligated to file any registration statement under the Securities Act or any applicable state securities law to permit exercise of any Stock Purchase Right or to issue any Common Stock in violation of the Securities Act or any applicable state securities law. Each grantee shall, if requested by the Committee and as a condition to his right to exercise any Stock Purchase Right, deliver to the Company an agreement in substantially the form attached hereto as Exhibit C, containing such representations, warranties and covenants as the Company may deem necessary or appropriate to ensure that the issuance of shares of Common Stock pursuant to such exercise is not required to be registered under the Securities Act or any applicable state securities law. Certificates for shares of Common Stock, when issued, may have substantially the following legend, or statements of other applicable restrictions, endorsed thereon, and may not be immediately transferable: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT VIOLATE APPLICABLE FEDERAL OR STATE LAWS. This legend shall not be required for shares of Common Stock issued pursuant to an effective registration statement under the Securities Act and in accordance with applicable state securities laws. 6 7 9.2 Adjustment of Shares. Unless otherwise expressly provided in a particular Stock Purchase Right, in the event that, by reason of any merger, consolidation, combination, liquidation, reorganization, recapitalization, stock dividend, stock split, split-up, split-off, spin-off, combination of shares, exchange of shares or other like change in capital structure of the Company (collectively, a "Reorganization"), the Common Stock is substituted, combined, or changed into any cash, property, or other securities, or the shares of Common Stock are changed into a greater or lesser number of shares of Common Stock, the number and/or kind of shares and/or interests subject to a Stock Purchase Right and the per share price or value thereof shall be appropriately adjusted by the Committee to give appropriate effect to such Reorganization, such that the Stock Purchase Right shall thereafter be exercisable for such securities, cash, and/or other property as would have been received in respect of the Common Stock subject to the Stock Purchase Right had the Stock Purchase Right been exercised in full immediately prior to such event. Any fractional shares or interests resulting from such adjustment shall be eliminated. In the event the Company is not the surviving entity of a Reorganization and, following such Reorganization, any grantee will hold a Stock Purchase Right issued pursuant to the Plan which has not been exercised, canceled, or terminated in connection therewith, the Company shall cause such Stock Purchase Right to be assumed (or canceled and a replacement Stock Purchase Right of equivalent value issued) by the surviving entity. 9.3 Use of Proceeds. The proceeds from the sale of Common Stock pursuant to Stock Purchase Rights granted under the Plan shall constitute general funds of the Company and may be used for such corporate purposes as the Company may determine. 9.4 Costs and Expenses. The costs and expenses of administering the Plan shall be borne by the Company and shall not be charged against any Stock Purchase Right nor to any Key Employee. 9.5 Other Incentive Plans. The adoption of the Plan does not preclude the adoption by appropriate means of any other incentive plan for employees. 9.6 Effective Date. The Plan shall become effective on November 26, 1996, the date on which it was approved by the Board of Directors. 7 8 [See EXHIBIT 10.22.1.] 9 EXHIBIT B FORM OF NOTICE OF STOCK PURCHASE RIGHT GRANT 10 C O N F I D E N T I A L Interoffice CAPSTAR BROADCASTING PARTNERS, INC. Memorandum - -------------------------------------------------------------------------------- NOTICE OF STOCK PURCHASE RIGHT GRANT TO: -------------------- FROM: R. Steven Hicks Chief Executive Officer and President DATE: -------------------- At the direction of the Committee (the "Committee") of the Board of Directors of Capstar Broadcasting Partners, Inc. (the "Company") which administers the Capstar Broadcasting Partners, Inc. 1996 Stock Purchase Plan (the "Plan"), I am pleased to notify you that the Committee has granted to you, pursuant to the Plan, a Stock Purchase Right to purchase _____________ shares of Common Stock, par value $.01 per share (the "Common Stock"), of the Company at the price of $1.00 per share (for a total purchase price of $______________). This Stock Purchase Right, granted to you as of , 199 , expires if not exercised by 5:00 p.m., New York City time, on , 199 or such later time as the Approvals (defined hereinafter) have been obtained or made. Enclosed please find the 1996 Stock Purchase Plan and two (2) copies of each of the following: (i) Exercise Agreement; and (ii) Stockholders Agreement. In order to exercise your Stock Purchase Right, you must: 1. Complete and sign two copies of the enclosed Exercise Agreement. 2. Sign two copies of the enclosed Stockholders Agreement. 3. Deliver prior to 5:00 p.m., New York City time, on ____________________, 199__ or such later time as the Approvals have been obtained or made, the signed copies of 11 the Exercise Agreement and the Stockholders Agreement and the purchase price payable in cash by a cashier's or bank certified check, or by such other means acceptable to the Committee, in the full amount of the purchase price of the shares you wish to purchase to: Capstar Broadcasting Partners, Inc. 600 Congress Avenue Suite 1270 Austin, Texas 78701 Attention: R. Steven Hicks Your Stock Purchase Right is limited and conditioned as provided in the Plan including, but not limited to, the following: A. Your Stock Purchase Right may not be assigned, transferred, sold, pledged, hypothecated or otherwise disposed of, and is exercisable only by you; B. You must execute and deliver to the Company copies of the Exercise Agreement and the Stockholders Agreement for your shares of the Common Stock to be issued; C. Your Stock Purchase Right may not be exercised until such time as the Company has obtained the requisite approval or made the requisite filings under applicable federal and state securities laws (the "Approvals"); and D. Your Stock Purchase Right shall terminate without any further action (including notice) if, prior to exercise, your employment with the Company or any of its subsidiaries terminates for any reason. Review the enclosed materials carefully before determining whether to exercise your Stock Purchase Right. If you have any questions, please call me at (512) 469-7998. Enclosures 2 12 EXHIBIT C FORM OF EXERCISE AGREEMENT 13 Name: -------------------------------- No. of Shares: ----------------------- Total Amount Due (Purchase Price): -------------------- EXERCISE AGREEMENT Capstar Broadcasting Partners, Inc. 600 Congress Avenue Suite 1270 Austin, Texas 78701 Attention: R. Steven Hicks Ladies and Gentlemen: The undersigned understands that Capstar Broadcasting Partners, Inc., a Delaware corporation (the "Company"), is offering for sale to the undersigned pursuant to the exercise of stock purchase rights granted to the undersigned under its 1996 Stock Purchase Plan (the "Plan"), a copy of which has been received and reviewed by the undersigned, up to an aggregate of ___________ shares (the "Acquired Shares") of its Common Stock, $.01 par value per share (the "Common Stock"), at an exercise price of $1.00 per share. 1. Exercise. Subject to the terms and conditions of this Exercise Agreement (the "Agreement"), the undersigned hereby irrevocably exercises his stock purchase right and agrees to purchase the number of shares of Common Stock set forth above having an aggregate purchase price (the "Purchase Price") as set forth above. 2. Payment. A cashier's or bank certified check made payable to "Capstar Broadcasting Partners, Inc." accompanies this Agreement in payment of the Purchase Price, net of any amount due and owing by the Company to the undersigned. The undersigned understands that no interest shall accrue on such payment pending delivery of the stock certificate(s) evidencing the undersigned's shares purchased pursuant to this Agreement. 3. Delivery of Stock Certificates. The undersigned hereby irrevocably directs the Company to deliver the stock certificate(s) evidencing the undersigned's shares purchased pursuant to this Agreement to the undersigned at the address set forth below the undersigned's signature hereto. 14 4. Adoption of Stockholders Agreement. Two signed copies of the Stockholders Agreement accompany this Agreement. The Company agrees that it shall execute and deliver one original signed copy of the Stockholders Agreement to the undersigned. 5. Representations and Warranties of the Undersigned. The undersigned hereby represents and warrants to the Company as follows: (a) The undersigned is acquiring the Acquired Shares for his own account for investment, and not with a view to distribution, resale, subdivision, or fractionalization thereof; and the undersigned has no present plans to enter into any contract, undertaking, agreement, or arrangement for the distribution, resale, subdivision, or fractionalization of any of the Acquired Shares. In order to induce the Company to issue and sell the Acquired Stock, it is agreed that the Company will have no obligation to recognize the ownership, beneficial or otherwise, of the shares comprising such Acquired Shares by anyone but the undersigned, unless and until the undersigned sells or otherwise transfers such Acquired Shares, subject to compliance with the terms hereof and the Stockholders Agreement. (b) (i) The undersigned can bear the economic risk of losing his entire investment; (ii) his overall commitment to investments which are not readily marketable is not disproportionate to his net worth, and his investment in the Acquired Shares will not cause such overall commitment to become excessive; (iii) he has adequate means of providing for his current needs and personal contingencies and has no need for liquidity in his investment in the Acquired Shares; (iv) he has such knowledge and experience in financial and business matters that he is capable of evaluating the risks and merits of this investment, or has retained advisors who have such knowledge and experience; and (v) he is familiar with the business and financial condition, properties, operations and prospects of the Company. (c) The undersigned and/or his attorney and/or his accountant have had an opportunity to ask questions of and receive answers from the Company, or a person or persons acting on its behalf, concerning (i) the terms and conditions of this investment and (ii) the Company and the business and prospects of the Company, and answers have been provided to his satisfaction to all of his questions related thereto. (d) The undersigned recognizes that an investment in the Company involves certain risks, and he has taken full cognizance of and understands all of the risks related to the purchase of the Acquired Shares. (e) The address set forth below the undersigned's signature is his true and correct residence or principal place of business, and the undersigned has no present intention of becoming a resident of any other state or jurisdiction or moving his principal place of business. 2 15 (f) The undersigned understands and agrees, and acknowledges that (i) it has been disclosed to him, that the Acquired Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or applicable state securities laws and that the economic risk of the investment must be borne indefinitely by the undersigned, and the Acquired Shares cannot be sold, pledged, hypothecated, or otherwise transferred unless subsequently registered under the Securities Act and such laws, or an exemption from such registration is available, and there is compliance with the requirements of the Stockholders Agreement; (ii) such registration under the Securities Act and such laws is unlikely at any time in the future; (iii) the Company is not obligated to file a notification under Regulation A of the Securities Act or a registration statement under the Securities Act or any state securities laws except as provided in the Stockholders Agreement; (iv) the benefits of Rule 144 under the Securities Act governing the possible disposition of the Acquired Shares are not currently available or anticipated to be available in the future, and the Company has not covenanted to take any action necessary to make such Rule 144 available for a limited resale of the Acquired Shares; and (v) it is not anticipated that there will be any market for resale of the Acquired Shares. (g) The undersigned understands and agrees, and acknowledges that the following restrictions and limitations are applicable to the undersigned's purchase and resales, pledges, hypothecations, or other transfers of the Acquired Shares, and, therefore, that the undersigned must bear the economic risk of investment in the Acquired Shares for an indefinite period of time as described in Section 5(f): (i) A legend will be placed on the certificates representing the Acquired Shares in substantially the following form: THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH OFFER, SALE, PLEDGE, TRANSFER, OR OTHER DISPOSITION WILL NOT VIOLATE APPLICABLE FEDERAL OR STATE SECURITIES LAWS. (ii) Stop transfer instructions have been or will be placed with respect to the Acquired Shares so as to restrict the resale, pledge, hypothecation, or other transfer thereof in accordance with the above legend. 3 16 (iii) The legend and stop transfer instructions described in Sections 5(g)(i) and (ii) above will be placed with respect to any new certificate issued upon presentment by the undersigned of a certificate for transfer. (iv) Any applicable blue sky or state securities laws legends shall also be placed on the certificates representing the Acquired Shares. (h) The undersigned understands and agrees that his Acquired Shares shall be subject to the terms and conditions of the Stockholders Agreement. 6. Representations and Warranties of the Company. The Company hereby represents and warrants to the undersigned as follows: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. (b) The Acquired Shares, when issued, will be duly authorized, validly issued, fully paid and nonassessable and will not be issued in violation of any preemptive or similar rights. 7. Indemnification. The undersigned acknowledges and understands the meaning and legal consequences of the representations and warranties set forth in Section 5 hereof and that the Company has relied or will rely upon such representations, warranties, and covenants of the undersigned, and the undersigned hereby agrees to indemnify and hold harmless the Company and its officers, directors, controlling persons, agents, and employees, from and against any and all loss, claim, damage, liability, or expense, and any action in respect thereof, joint or several, to which any such person may become subject, due to or arising out of a breach of any such representation or warranty, together with all reasonable costs and expenses (including attorneys' fees) incurred by any such person in connection with any action, suit, proceeding, demand, assessment, or judgment incident to any of the matters so indemnified against. All representations and warranties contained in this Agreement, and the indemnification contained herein, shall survive the sale of the Common Stock. 8. Plan. This Agreement is subject to all the terms, conditions, limitations and restrictions contained in the Plan. In the event of any conflict or inconsistency between the terms hereof and the terms of the Plan, the terms of the Plan shall be controlling. 9. Counterparts. This Agreement may be executed and delivered (including by facsimile transmission) in multiple counterparts, and by the different parties hereto in separate counterparts, 4 17 each of which when executed and delivered (including by facsimile transmission) shall be deemed to be an original but all of which taken together shall constitute one and the same Agreement. 5 18 IN WITNESS WHEREOF, the undersigned has executed this Agreement this ____ day of __________________, 199___. - ------------------------------------------- Investor Signature - ------------------------------------------- Investor's Printed Name - ------------------------------------------- - ------------------------------------------- - ------------------------------------------- - ------------------------------------------- Telephone No.: ----------------------------- Accepted as of ________________, 199___. CAPSTAR BROADCASTING PARTNERS, INC. By: ---------------------------------------- Name: R. Steven Hicks Title: Chief Executive Officer and President 6 EX-10.20.2 13 1ST AMEND TO COMPANY'S 1996 STOCK PURCHASE PLAN 1 EXHIBIT 10.20.2 CAPSTAR BROADCASTING PARTNERS, INC. FIRST AMENDMENT TO THE CAPSTAR BROADCASTING PARTNER, INC. 1996 STOCK PURCHASE PLAN THIS FIRST AMENDMENT TO THE CAPSTAR BROADCASTING PARTNERS, INC. 1996 STOCK PURCHASE PLAN (this "Amendment") is made and adopted by Capstar Broadcasting Partners, Inc., a Delaware corporation (the "Corporation"), effective as of January 27, 1997. RECITALS WHEREAS, on October 16, 1996 the Corporation adopted the Capstar Broadcasting Partners, Inc. 1996 Stock Purchase Plan (the "Plan"); and WHEREAS, the Board approved that the Chairman of the Board no longer be required, pursuant to the terms of the Plan, to serve as a member of the committee that is appointed by the Board to administer the Plan (the "Administration Amendment"); AMENDMENT NOW, THEREFORE, the Plan is hereby amended as follows: 1. Section 7.1. The third sentence of Section 7.1 is hereby deleted in its entirety. Except as expressly set forth herein, the Plan shall remain in full force and effect without further amendment or modification. IN WITNESS WHEREOF, the Corporation, acting by and through its officer hereunto duly authorized, has executed this Amendment effective as of the date first written above. CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ R. STEVEN HICKS ---------------------------- R. Steven Hicks President and Chief Executive Officer EX-10.21.1 14 STOCKHOLDERS AGREEMENT DATED OCTOBER 16, 1996 1 EXHIBIT 10.21.1 STOCKHOLDERS AGREEMENT THIS STOCKHOLDERS AGREEMENT (this "Stockholders Agreement") dated as of October 16, 1996, is entered into by and among Capstar Broadcasting Partners, Inc., a Delaware corporation (the "Company"), and the securityholders listed on the signature pages hereof (collectively, the "Holders"), and Hicks, Muse, Tate & Furst Incorporated, a Texas corporation ("HMTF"). In consideration of the premises, mutual covenants and agreements hereinafter contained and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS Section 1.1 Definitions. "Accredited Investor" means an "Accredited Investor," as defined in Regulation D, or any successor rule then in effect. "Additional Securities" shall have the meaning set forth in Section 7.1 hereof. "Advice" shall have the meaning provided in Section 3.5 hereof. "Affiliate, means, with respect to any Person, any Person who, directly or indirectly, controls, is controlled by or is under common control with that Person. "Appraised Value" means, as to any Securities, the fair market value of such Securities at the date of the Purchase Notice as determined by an Independent Financial Expert selected by HMTF; provided, however, if R. Steven Hicks shall object to such determination within 10 days after being notified thereof by HMTF, R. Steven Hicks shall within such ten-day period select an Independent Financial Expert to determine the fair market value of such Securities on behalf of R. Steven Hicks. In the event that the Independent Financial Experts selected by each of HMTF and R. Steven Hicks cannot agree on the fair market value of such Securities, then the two Independent Financial Experts shall mutually select a third Independent Financial Expert to determine the fair market value of such Securities, and the value selected by such third firm shall be binding on all the parties hereto. Each such Independent Financial Expert may use any customary method of determining fair market value. The cost of the Independent Financial Expert selected by HMTF shall be paid by HMTF, the cost of the Independent Financial Expert, if any, selected by R. Steven Hicks shall be paid by R. Steven Hicks, and the cost of the Independent Financial Expert, if any, mutually selected by the two Independent Financial Experts appointed by each of HMTF and R. Steven Hicks shall be paid one-half by HMTF and one-half by R. Steven Hicks. "Authorization Date" shall have the meaning set forth in Section 5.3 hereof. "Business Day" means a day that is not a Legal Holiday. "Capstar L.P." means Capstar Broadcasting Partners, L.P., a Delaware limited partnership. "Change of Control" means the first to occur of the following events: (i) any sale, lease, exchange, or other transfer (in one transaction or series of related transactions) of all or substantially all of the assets 2 of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), other than one or more members of the HMC Group, (ii) a majority of the Board of Directors of the Company shall consist of Persons who are not Continuing Directors; or (iii) the acquisition by any Person or Group (other than one or more members of the HMC Group) of the power, directly or indirectly, to vote or direct the voting of securities having more than 50% of the ordinary voting power for the election of directors of the Company. "Common Stock" means shares of the Common Stock, $0.01 par value per share, of the Company, and any capital stock into which such Common Stock thereafter may be changed. "Common Stock Equivalents" means, other than the Warrant, without duplication with any other Common Stock or Common Stock Equivalents, any rights, warrants, options, convertible securities or indebtedness, exchangeable securities or indebtedness, or other rights, exercisable for or convertible or exchangeable into, directly or indirectly, Common Stock of the Company and securities convertible or exchangeable into Common Stock of the Company, whether at the time of issuance or upon the passage of time or the occurrence of some future event. "Company" shall have the meaning set forth in the introductory paragraph hereof. "Continuing Director" means, as of the date of determination, any Person who (i) was a member of the Board of Directors of the Company on October 17, 1996, (ii) was nominated for election or elected to the Board of Directors of the Company with the affirmative vote of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election, or (iii) is a member of the HMC Group. "Co-Seller" shall have the meaning set forth in Section 4.1 hereof. "Demand Registration" shall have the meaning set forth in Section 3.1.1 hereof. "Demand Request" shall have the meaning set forth in Section 3.1.1. hereof. "Disqualifying Event" shall mean the removal of R. Steven Hicks as a director of the Company or any of its Subsidiaries for cause under the General Corporation Law of the State of Delaware. "Election Notice" shall have the meaning set forth in Section 5.3 hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder. "Excluded Registration" means a registration under the Securities Act of (i) a registration to effect a Qualified IPO if such registration only includes equity securities to be issued by the Company and does not include any equity securities for the account of any other securityholder of the Company, (ii) securities pursuant to one or more Demand Registrations pursuant to Section 3 hereof, (iii) securities registered on Form S-8 or any similar successor form and (iv) securities registered to effect the acquisition of or combination with another Person. "Fully-Diluted Common Stock" means, at any time, the then outstanding Common Stock of the Company plus (without duplication) all shares of Common Stock issuable, whether at such time or upon the -2- 3 passage of time or the occurrence of future events, upon the exercise, conversion, or exchange of (i) all then outstanding Common Stock Equivalents and (ii) the Warrant. "HMC Group" means HMTF and its Affiliates (including Capstar L.P.) and its and their respective officers, directors, and employees (and members of their respective families (other than R. Steven Hicks) and trusts for the primary benefit of such family members). "HMC Group Designee" shall have the meaning set forth in Section 2.1.1 hereof. "HMTF" shall have the meaning set forth in the introductory paragraph hereof. "Holders" shall have the meaning set forth in the introductory paragraph hereof and shall include any direct or indirect transferee of any such Holder who shall become a party to this Stockholders Agreement. "Independent Financial Expert" means any investment bank which is registered as a broker dealer under the Exchange Act and has aggregate net capital of at least $50 million. "Inspectors" shall have the meaning provided in Section 3.4 hereof. "Legal Holiday" shall have the meaning provided in Section 9.2 hereof. "Material Adverse Effect" shall have the meaning provided in Section 3.1.4 hereof. "NASD" shall have the meaning provided in Section 3.4 hereof. "New Shares" shall have the meaning set forth in Section 8.1 hereof. "New Warrant" shall have the meaning set forth in Section 8.1 hereof. "Non-HMC Group Holder" means each Holder other than Capstar L.P. "Offer Notice" shall have the meaning set forth in Section 7.1 hereof. "Offered Securities" shall have the meaning provided in Section 5.3 hereof. "Participation Offer" shall have the meaning provided in Section 4.2 hereof. "Permitted Transfer" means (i) a transfer upon the death of a Holder to such Holder's executors, administrators, testamentary trustees, legatees or beneficiaries, (ii) a gift made by a Holder to the spouse or natural or adoptive children or stepchildren of such Holder, or to a trust established for the benefit of one or more of such persons, (iii) a transfer made by Holder to a corporation at least 80% of the capital stock of which is owned by such Holder, or (iv) a pledge or hypothecation of shares of Common Stock by a Holder to a bank or other financial institution in connection with financing for the Company; provided that in each case the proposed transferee (x) shall execute and deliver to the Company and HMTF a written agreement pursuant to which such transferee agrees to be bound by this Agreement and (y) except in the case of clause (i) or (ii) above, certifies to the reasonable satisfaction of the Company that such transferee is an Accredited Investor. -3- 4 "Person" or "person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. "Preemptive Rights Offer" shall have the meaning set forth in Section 7.1 hereof. "Preemptive Rights Transaction" shall have the meaning set forth in Section 7.1 hereof. "Purchase Option" shall have the meaning provided in Section 6.1. "Qualified IPO" means a firm commitment underwritten public offering of Common Stock for cash pursuant to a registration statement under the Securities Act where the aggregate proceeds to the Company prior to deducting any underwriters' discounts and commissions from such offering and any similar prior public offerings exceed $10 million. "Records" shall have the meaning provided in Section 3.4 hereof. "Registrable Shares" means at any time (i) the Common Stock of the Company owned by the HMC Group or the Holders, whether owned on the date hereof or acquired hereafter and (ii) the Warrant Shares; provided, however, that Registrable Shares shall not include any shares (x) the sale of which has been registered pursuant to the Securities Act and which shares have been sold pursuant to such registration, or (y) which have been sold to the public pursuant to Rule 144 of the SEC under the Securities Act. "Registration Expenses" shall have the meaning provided in Section 3.6 hereof. "Regulation D" means Regulation D promulgated under the Securities Act by the SEC. "Requesting Holder" shall have the meaning provided in Section 3.1.5 hereof. "Required Filing Date, shall have the meaning provided in Section 3.1.1(b) hereof. "Required Holders" means Holders who then own beneficially more than 66- 2/3% of the aggregate number of Registrable Shares. "Rights Holder" shall have the meaning set forth in Section 7.1 hereof. "SEC" means the Securities and Exchange Commission. "Securities" means the Common Stock, the Warrant Shares, the Warrant and any New Warrant. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. "Seller Affiliates" shall have the meaning provided in Section 3.7.1 hereof. "Significant Sale" shall have the meaning provided in Section 4.1 hereof. "Stockholders Agreement" means this Stockholders Agreement, as such from time to time may be amended. -4- 5 "Subsidiary" of any Person means (i) a corporation a majority of whose outstanding shares of capital stock or other equity interests with voting power, under ordinary circumstances, to elect directors, is at the time, directly or indirectly, owned by such Person, by one or more subsidiaries of such Person or by such Person and one or more subsidiaries of such Person, and (ii) any other Person (other than a corporation) in which such Person, a subsidiary of such Person or such Person and one or more subsidiaries of such Person, directly or indirectly, at the date of determination thereof, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of the directors or other governing body of such Person. "Suspension Notice" shall have the meaning provided in Section 3.5 hereof. "Transfer" means any disposition of any Security or any interest therein that would constitute a "sale" thereof within the meaning of the Securities Act. "Transfer Notice" shall have the meaning provided in Section 5.3 hereof. "Warrant" means that certain Warrant dated October 16, 1996, for 9,300,000 shares of Common Stock, issued by the Company to R. Steven Hicks. "Warrant Shares" means shares of Common Stock issuable to a Holder upon the exercise of the Warrant or any New Warrant. Section 1.2 Rules of Construction. Unless the context otherwise requires (1) a term has the meaning assigned to it; (2) "or" is not exclusive; (3) words in the singular include the plural, and words in the plural include the singular; (4) provisions apply to successive events and transactions; and (5) "herein," "thereof" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision. ARTICLE 2 MANAGEMENT OF THE COMPANY AND CERTAIN ACTIVITIES Section 2.1 Board of Directors. 2.1.1 Board Representation. Subject to Section 2.1.3, the Board of Directors of the Company shall consist of such individuals as may be designated from time to time by the HMC Group (an "HMC Group Designee"); provided, however, that so long as (A) no Disqualifying Event shall have occurred and (3) either (i) R. Steven Hicks shall be serving as President and Chief Executive Officer of the Company or (ii) R. Steven Hicks and his Affiliates (provided that R. Steven Hicks shall have all voting rights with respect to the shares of Common Stock held by such Affiliates) shall own of record and beneficiary Common Stock and Warrant Shares equal to not less than 3% of the Fully-Diluted Common Stock, appropriately adjusted for stock splits, stock dividends and stock combinations, one of the HMC Group Designees shall be R. Steven Hicks. Each Holder shall vote his or its shares of Common Stock at any regular or special meeting -5- 6 of stockholders of the Company or in any written consent executed in lieu of such a meeting of stockholders and shall take all other actions necessary to give effect to the agreements contained in this Agreement (including without limitation the election of persons designated by the HMC Group to be elected as directors as described in the preceding sentence) and to ensure that the certificate of incorporation and bylaws as in effect immediately following the date hereof do not, at any time thereafter, conflict in any respect with the provisions of this Agreement. In order to effectuate the provisions of this Section 2, each Holder hereby agrees that when any action or vote is required to be taken by such Holder pursuant to this Agreement, such Holder shall use his or its best efforts to call, or cause the appropriate officers and directors of the Company to call, a special or annual meeting of stockholders of the Company, as the case may be, or execute or cause to be executed a consent in writing in lieu of any such meetings pursuant to Section 228(a) of the General Corporation Law of the State of Delaware. 2.1.2 Vacancies. If, prior to his election to the Board of Directors of the Company pursuant to Section 2.1.1 hereof, any HMC Group Designee shall be unable or unwilling to serve as a director of the Company, the HMC Group shall be entitled to nominate a replacement who shall then be an HMC Group Designee for purposes of this Section 2. If, following an election to the Board of Directors of the Company pursuant to Section 2.1.1 hereof, any HMC Group Designee shall resign or be removed or be unable to serve for any reason prior to the expiration of his term as a director of the Company, the HMC Group shall, within 30 days of such event, notify the Board of Directors of the Company in writing of a replacement HMC Group Designee, and either (i) the Holders shall vote their shares of Common Stock, at any regular or special meeting called for the purpose of filling positions on the Board of Directors of the Company or in any written consent executed in lieu of such a meeting of stockholders, and shall take all such other actions necessary to ensure the election to the Board of Directors of the Company of such replacement HMC Group Designee to fill the unexpired term of the HMC Group Designee who such new HMC Group Designee is replacing or (ii) the Board of Directors shall elect such replacement HMC Group Designee to fill the unexpired term of the HMC Group Designee who such new HMC Group Designee is replacing. If the HMC Group requests that any HMC Group Designee be removed as a Director (with or without cause) by written notice thereof to the Company, then the Company shall take all actions necessary to effect, and each of the Holders shall vote all its or his capital stock in favor of, such removal upon such request; provided, however, that R. Steven Hicks may not be removed as a Director without cause so long as (i) the right of the HMC Group to designate directors under Section 2.1.1 shall not have been terminated pursuant to Section 2.1.3 and (ii) he is entitled to be an HMC Group Designee under Section 2.1.1. 2.1.3 Termination of Rights. The right of the HMC Group to designate directors under Section 2.1.1, and the obligation of the Holders to vote their shares as provided herein, shall terminate upon the first to occur of (i) the termination or expiration of this Stockholders Agreement or this Article 2, (ii) such time as the HMC Group elects in writing to terminate its rights under this Article 2, or (iii) such time as the HMC Group cease to own any shares of Common Stock. 2.1.4 Costs and Expenses. The Company will pay all reasonable out-of- pocket expenses incurred by the designees of the HMC Group in connection with their participation in meetings of the Board of Directors (and committees thereof) of the Company and the Boards of Directors (and committees thereof) of the Subsidiaries of the Company. Section 2.2 Other Activities of the Holders; Fiduciary Duties. It is understood and accepted that the Holders and their Affiliates have interests in other business ventures which may be in conflict with the activities of the Company and its Subsidiaries and that, subject to applicable law, nothing in this Stockholders Agreement shall limit the current or future business activities of the Holders whether or not such activities are competitive with those of the Company and its Subsidiaries. Nothing in this Agreement, -6- 7 express or implied, shall relieve any officer or director of the Company or any of its Subsidiaries, or any Holder, of any fiduciary or other duties or obligations they may have to the Company's stockholders. ARTICLE 3 REGISTRATION RIGHTS Section 3.1 Demand Registration. 3.1.1 Request for Registration. (a) At any time after the consummation of a Qualified IPO, any Holder or Holders may request the Company, in writing (a "Demand Request"), to effect the registration under the Securities Act of all or part of its or their Registrable Shares (a "Demand Registration"); provided that the Registrable Shares proposed to be sold by the Holders requesting a Demand Registration (the "Requesting Holders," which term shall include parties deemed "Requesting Holders" pursuant to Section 3.1.5 hereof) represent, in the aggregate, more than 35% of the total number of Registrable Shares held by all Holders. (b) Each Demand Request shall specify the number of Registrable Shares proposed to be sold. Subject to Section 3.1.6, the Company shall file the Demand Registration within 90 days after receiving a Demand Request (the "Required Filing Date") and shall use all commercially reasonable efforts to cause the same to be declared effective by the SEC as promptly as practicable after such filing; provided, that the Company need effect only three Demand Registrations; provided, further, that if any Registrable Shares requested to be registered pursuant to a Demand Request under this Section 3.1 are excluded from a registration pursuant to Section 3.1.4 below, the Holders shall have the right, with respect to each such exclusion, to one additional Demand Registration under this Section 3.1 with respect to such excluded Registrable Shares. 3.1.2 Effective Registration and Expenses. A registration will not count as a Demand Registration until it has become effective (unless the Requesting Holders withdraw all their Registrable Shares and the Company has performed its obligations hereunder in all material respects, in which case such demand will count as a Demand Registration unless the Requesting Holders pay all Registration Expenses, as hereinafter defined, in connection with such withdrawn registration); provided, that if, after it has become effective, an offering of Registrable Shares pursuant to a registration is interfered with by any stop order, injunction, or other order or requirement of the SEC or other governmental agency or court, such registration will be deemed not to have been effected and will not count as a Demand Registration. 3.1.3 Selection of Underwriters. The offering of Registrable Shares pursuant to a Demand Registration shall be in the form of a "firm commitment" underwritten offering. The Requesting Holders of a majority of the Registrable Shares to be registered in a Demand Registration shall select the investment banking firm or firms to manage the underwritten offering; provided that such selection shall be subject to the consent of the Company, which consent shall not be unreasonably withheld. 3.1.4 Priority on Demand Registrations. No securities to be sold for the account of any Person (including the Company) other than a Requesting Holder shall be included in a Demand Registration unless the managing underwriter or underwriters shall advise the Company or the Requesting Holders in writing -7- 8 that the inclusion of such securities will not materially and adversely affect the price or success of the offering (a "Material Adverse Effect"). Furthermore, in the event the managing underwriter or underwriters shall advise the Company or the Requesting Holders that even after exclusion of all securities of other Persons pursuant to the immediately preceding sentence, the amount of Registrable Shares proposed to be included in such Demand Registration by Requesting Holders is sufficiently large to cause a Material Adverse Effect, the Registrable Shares of the Requesting Holders to be included in such Demand Registration shall equal the number of shares which the Company is so advised can be sold in such offering without a Material Adverse Effect and such shares shall be allocated pro rata among the Requesting Holders on the basis of the number of Registrable Shares requested to be included in such registration by each such Requesting Holder. 3.1.5 Rights of Nonrequesting Holders. Upon receipt of any Demand Request, the Company shall promptly (but in any event within 10 days) give written notice of such proposed Demand Registration to all other Holders, who shall have the right, exercisable by written notice to the Company within 20 days of their receipt of the Company's notice, to elect to include in such Demand Registration such portion of their Registrable Securities as they may request. All Holders requesting to have their Registrable Shares included in a Demand Registration in accordance with the preceding sentence shall be deemed to be "Requesting Holders" for purposes of this Section 3.1. 3.1.6 Deferral of Filing. The Company may defer the filing (but not the preparation) of a registration statement required by Section 3.1 until a date not later than 180 days after the Required Filing Date (or, if longer, 180 days after the effective date of the registration statement contemplated by clause (ii) below) if (i) at the time the Company receives the Demand Request, the Company or any of its Subsidiaries are engaged in confidential negotiations or other confidential business activities, disclosure of which would be required in such registration statement (but would not be required if such registration statement were not filed), and the Board of Directors of the Company determines in good faith that such disclosure would be materially detrimental to the Company and its stockholders or would have a material adverse effect on any such confidential negotiations or other confidential business activities, or (ii) prior to receiving the Demand Request, the Board of Directors had determined to effect a registered underwritten public offering of the Company's securities for the Company's account and the Company had taken substantial steps (including, but not limited to, selecting a managing underwriter for such offering) and is proceeding with reasonable diligence to effect such offering. A deferral of the filing of a registration statement pursuant to this Section 3.1.6 shall be lifted, and the requested registration statement shall be filed forthwith, if, in the case of a deferral pursuant to clause (i) of the preceding sentence, the negotiations or other activities are disclosed or terminated, or, in the case of a deferral pursuant to clause (ii) of the preceding sentence, the proposed registration for the Company's account is abandoned. In order to defer the filing of a registration statement pursuant to this Section 3.1.6, the Company shall promptly (but in any event within 10 days), upon determining to seek such deferral, deliver to each Requesting Holder a certificate signed by an executive officer of the Company stating that the Company is deferring such filing pursuant to this Section 3.1.6 and a general statement of the reason for such deferral and an approximation of the anticipated delay. Within 20 days after receiving such certificate, the holders of a majority of the Registrable Shares held by the Requesting Holders and for which registration was previously requested may withdraw such Demand Request by giving notice to the Company; if withdrawn, the Demand Request shall be deemed not to have been made for all purposes of this Agreement. The Company may defer the filing of a particular registration statement pursuant to this Section 3.1.6 only once. -8- 9 Section 3.2 Piggyback Registrations. 3.2.1 Right to Piggyback. Each time the Company proposes to register any of its equity securities (other than pursuant to an Excluded Registration) under the Securities Act for sale to the public (whether for the account of the Company or the account of any securityholder of the Company) and the form of registration statement to be used permits the registration of Registrable Shares, the Company shall give prompt written notice to each Holder of Registrable Shares (which notice shall be given not less than 30 days prior to the effective date of the Company's registration statement), which notice shall offer each such Holder the opportunity to include any or all of its or his Registrable Shares in such registration statement, subject to the limitations contained in Section 3.2.2 hereof. Each Holder who desires to have its or his Registrable Shares included in such registration statement shall so advise the Company in writing (stating the number of shares desired to be registered) within 20 days after the date of such notice from the Company. Any Holder shall have the right to withdraw such Holder's request for inclusion of such Holder's Registrable Shares in any registration statement pursuant to this Section 3.2.1 by giving written notice to the Company of such withdrawal. Subject to Section 3.2.2 below, the Company shall include in such registration statement all such Registrable Shares so requested to be included therein; provided, however, that the Company may at any time withdraw or cease proceeding with any such registration if it shall at the same time withdraw or cease proceeding with the registration of all other equity securities originally proposed to be registered. 3.2.2 Priority on Registrations. If the Registrable Shares requested to be included in the registration statement by any Holder differ from the type of securities proposed to be registered by the Company and the managing underwriter advises the Company that due to such differences the inclusion of such Registrable Shares would cause a Material Adverse Effect, then (i) the number of such Holder's or Holders' Registrable Shares to be included in the registration statement shall be reduced to an amount which, in the judgment of the managing underwriter, would eliminate such Material Adverse Effect or (ii) if no such reduction would, in the judgment of the managing underwriter, eliminate such Material Adverse Effect, then the Company shall have the right to exclude all such Registrable Shares from such registration statement provided no other securities of such type are included and offered for the account of any other Person in such registration statement. Any partial reduction in number of Registrable Shares to be included in the registration statement pursuant to clause (i) of the immediately preceding sentence shall be effected pro rata based on the ratio which such Holder's requested shares bears to the total number of shares requested to be included in such registration statement by all Persons who have requested that their shares be included in such registration statement. If the Registrable Shares requested to be included in the registration statement are of the same type as the securities being registered by the Company and the managing underwriter advises the Company that the inclusion of such Registrable Shares would cause a Material Adverse Effect, the Company will be obligated to include in such registration statement, as to each Holder, only a portion of the shares such Holder has requested be registered equal to the ratio which such Holder's requested shares bears to the total number of shares requested to be included in such registration statement by all Persons who have requested that their shares be included in such registration statement. If as a result of the provisions of this Section 3.2.2 any Holder shall not be entitled to include all Registrable Securities in a registration that such Holder has requested to be so included, such Holder may withdraw such Holder's request to include Registrable Shares in such registration statement. No Person may participate in any registration statement hereunder unless such Person (x) agrees to sell such person's Registrable Shares on the basis provided in any underwriting arrangements approved by the Company and (y) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements, and other documents reasonably required under the terms of such underwriting arrangements; provided, however, that no such Person shall be required to make any representations or warranties in connection with any such registration other than representations and warranties as to (i) such Person's ownership of his or its Registrable Shares to be sold or transferred free and clear of all liens, claims, and encumbrances, (ii) such Person's power and authority to effect such -9- 10 transfer, and (iii) such matters pertaining to compliance with securities laws as may be reasonably requested; provided further, however, that the obligation of such Person to indemnify pursuant to any such underwriting arrangements shall be several, not joint and several, among such Persons selling Registrable Shares, and the liability of each such Person will be in proportion to, and provided further that such liability will be limited to, the net amount received by such Person from the sale of his or its Registrable Shares pursuant to such registration. 3.3 Holdback Agreement. Unless the managing underwriter otherwise agrees, each of the Company and the Holders agrees, and the Company agrees, in connection with any underwritten registration, to use its reasonable efforts to cause its Affiliates to agree, not to effect any public sale or private offer or distribution of any Common Stock or Common Stock Equivalents during the ten business days prior to the effectiveness under the Securities Act of any underwritten registration and during such time period after the effectiveness under the Securities Act of any underwritten registration (not to exceed 120 days) (except, if applicable, as part of such underwritten registration) as the Company and the managing underwriter may agree. 3.4 Registration Procedures. Whenever any Holder has requested that any Registrable Shares be registered pursuant to this Stockholders Agreement, the Company will use its commercially reasonable efforts to effect the registration and the sale of such Registrable Shares in accordance with the intended method of disposition thereof, and pursuant thereto the Company will as expeditiously as possible: (i) prepare and file with the SEC a registration statement on any appropriate form under the Securities Act with respect to such Registrable Shares and use its commercially reasonable efforts to cause such registration statement to become effective; (ii) prepare and file with the SEC such amendments, post-effective amendments, and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 180 days (or such lesser period as is necessary for the underwriters in an underwritten offering to sell unsold allotments) and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (iii) furnish to each seller of Registrable Shares and the underwriters of the securities being registered such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus), any documents incorporated by reference therein and such other documents as such seller or underwriters may reasonably request in order to facilitate the disposition of the Registrable Shares owned by such seller or the sale of such securities by such underwriters (it being understood that, subject to Section 3.5 and the requirements of the Securities Act and applicable State securities laws, the Company consents to the use of the prospectus and any amendment or supplement thereto by each seller and the underwriters in connection with the offering and sale of the Registrable Shares covered by the registration statement of which such prospectus, amendment or supplement is a part); (iv) use its commercially reasonable efforts to register or qualify such Registrable Shares under such other securities or blue sky laws of such jurisdictions as the managing underwriter reasonably requests; use its commercially reasonable efforts to keep each such registration or qualification (or exemption therefrom) effective during the period in which such registration statement is required to be kept effective; and do any and all other acts and things which may be reasonably necessary or advisable to enable each -10- 11 seller to consummate the disposition of the Registrable Shares owned by such seller in such jurisdictions (provided, however, that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph or (B) consent to general service of process in any such jurisdiction); (v) promptly notify each seller and each underwriter and (if requested by any such Person) confirm such notice in writing (A) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post-effective amendment, when the same has become effective, (B) of the issuance by any state securities or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Shares under state securities or "blue sky" laws or the initiation of any proceedings for that purpose, and (C) of the happening of any event which makes any statement made in a registration statement or related prospectus untrue or which requires the making of any changes in such registration statement, prospectus or documents so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and, as promptly as practicable thereafter, prepare and file with the SEC and furnish a supplement or amendment to such prospectus so that, as thereafter deliverable to the purchasers of such Registrable Shares, such prospectus will not contain any untrue statement of a material fact or omit a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (vi) make generally available to the Company's securityholders an earnings statement satisfying the provisions of Section 11(a) of the Securities Act no later than 30 days after the end of the 12-month period beginning with the first day of the Company's first fiscal quarter commencing after the effective date of a registration statement, which earnings statement shall cover said 12-month period, and which requirement will be deemed to be satisfied if the Company timely files complete and accurate information on Forms 10-Q, 10-K and 8-K under the Exchange Act and otherwise complies with Rule 158 under the Securities Act; (vii) if requested by the managing underwriter or any seller promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or any seller reasonably requests to be included therein, including, without limitation, with respect to the Registrable Shares being sold by such seller, the purchase price being paid therefor by the underwriters and with respect to any other terms of the underwritten offering of the Registrable Shares to be sold in such offering, and promptly make all required filings of such prospectus supplement or post- effective amendment; (viii) as promptly as practicable after filing with the SEC of any document which is incorporated by reference into a registration statement (in the form in which it was incorporated), deliver a copy of each such document to each seller; (ix) cooperate with the sellers and the managing underwriter to facilitate the timely preparation and delivery of certificates (which shall not bear any restrictive legends unless required under applicable law) representing securities sold under any registration statement, and enable such securities to be in such denominations and registered in such names as the managing underwriter or such sellers may request and keep available and make available to the Company's transfer agent prior to the effectiveness of such registration statement a supply of such certificates; (x) promptly make available for inspection by any seller, any underwriter participating in any disposition pursuant to any registration statement, and any attorney, accountant or other agent or representative retained by any such seller or underwriter (collectively, the "Inspectors"), all financial and -11- 12 other records, pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information requested by any such Inspector in connection with such registration statement; provided, that, unless the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, the Company shall not be required to provide any information under this subparagraph (x) if (A) the Company believes, after consultation with counsel for the Company, that to do so would cause the Company to forfeit an attorney-client privilege that was applicable to such information or (B) if either (1) the Company has requested and been granted from the SEC confidential treatment of such information contained in any filing with the SEC or documents provided supplementally or otherwise or (2) the Company reasonably determines in good faith that such Records are confidential and so notifies the Inspectors in writing unless prior to furnishing any such information with respect to (A) or (B) such Holder of Registrable Securities requesting such information agrees to enter into a confidentiality agreement in customary form and subject to customary exceptions; and provided, further that each Holder of Registrable Securities agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company at its expense, to undertake appropriate action and to prevent disclosure of the Records deemed confidential; (xi) furnish to each seller underwriter a signed counterpart of (A) an opinion or opinions of counsel to the Company, and (B) a comfort letter or comfort letters from the Company's independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letters, as the case may be, as the sellers or managing underwriter reasonably requests; (xii) cause the Registrable Shares included in any registration statement to be (A) listed on each securities exchange, if any, on which similar securities issued by the Company are then listed, or (B) authorized to be quoted and/or listed (to the extent applicable) on the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") or the NASDAQ National Market System if the Registrable Shares so qualify; (xiii) provide a CUSIP number for the Registrable Shares included in any registration statement not later than the effective date of such registration statement; (xiv) cooperate with each seller and each underwriter participating in the disposition of such Registrable Shares and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. ("NASD"); (xv) during the period when the prospectus is required to be delivered under the Securities Act, promptly file all documents required to be filed with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act; (xvi) notify each seller of Registrable Shares promptly of any request by the SEC for the amending or supplementing of such registration statement or prospectus or for additional information; (xvii) prepare and file with the SEC promptly any amendments or supplements to such registration statement or prospectus which, in the opinion of counsel for the Company or the managing underwriter, is required in connection with the distribution of the Registrable Shares; -12- 13 (xviii) enter into such agreements (including underwriting agreements in the managing underwriter's customary form) as are customary in connection with an underwritten registration; and (xix) advise each seller of such Registrable Shares, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the SEC suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for such purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued. 3.5 Suspension of Dispositions. Each Holder agrees by acquisition of any Registrable Shares that, upon receipt of any notice (a "Suspension Notice") from the Company of the happening of any event of the kind described in Section 3.4(v)(C), such Holder will forthwith discontinue disposition of Registrable Shares until such Holder's receipt of the copies of the supplemented or amended prospectus, or until it is advised in writing (the "Advice") by the Company that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the prospectus, and, if so directed by the Company, such Holder will deliver to the Company all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Shares current at the time of receipt of such notice. In the event the Company shall give any such notice, the time period regarding the effectiveness of registration statements set forth in Section 3.4(ii) hereof shall be extended by the number of days during the period from and including the date of the giving of the Suspension Notice to and including the date when each seller of Registrable Shares covered by such registration statement shall have received the copies of the supplemented or amended prospectus or the Advice. The Company shall use its commercially reasonable efforts and take such actions as are reasonably necessary to render the Advice as promptly as practicable. 3.6 Registration Expenses. All expenses incident to the Company's performance of or compliance with this Article 3 including, without limitation, all registration and filing fees, all fees and expenses associated with filings required to be made with the NASD (including, if applicable, the fees and expenses of any "qualified independent underwriter" as such term is defined in Schedule E of the By-Laws of the NASD, and of its counsel), as may be required by the rules and regulations of the NASD, fees and expenses of compliance with securities or "blue sky" laws (including reasonable fees and disbursements of counsel in connection with "blue sky" qualifications of the Registrable Shares), rating agency fees, printing expenses (including expenses of printing certificates for the Registrable Shares in a form eligible for deposit with Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by a holder of Registrable Shares), messenger and delivery expenses, the Company's internal expenses (including without limitation all salaries and expenses of its officers and employees performing legal or accounting duties), the fees and expenses incurred in connection with any listing of the Registrable Shares, fees and expenses of counsel for the Company and its independent certified public accountants (including the expenses of any special audit or "cold comfort" letters required by or incident to such performance), securities acts liability insurance (if the Company elects to obtain such insurance), the fees and expenses of any special experts retained by the Company in connection with such registration, and the fees and expenses of other persons retained by the Company and reasonable fees and expenses of one firm of counsel for the sellers (which shall be selected by the holders of a majority of the Registrable Shares being included in any particular registration statement) (all such expenses being herein called "Registration Expenses") will be borne by the Company whether or not any registration statement becomes effective; provided that, except as expressed otherwise provided above, in no event shall Registration Expenses include any underwriting discounts, commissions, or fees attributable to the sale of the Registrable Shares or any counsel, accountants, or other persons retained or employed by the Holders. -13- 14 3.7 Indemnification. 3.7.1 The Company agrees to indemnify and reimburse, to the fullest extent permitted by law, each seller of Registrable Shares, and each of its employees, advisors, agents, representatives, partners, officers, and directors and each Person who controls such seller (within the meaning of the Securities Act or the Exchange Act) and any agent or investment advisor thereof (collectively, the "Seller Affiliates") (A) against any and all losses, claims, damages, liabilities, and expenses, joint or several (including, without limitation, attorneys' fees and disbursements except as limited by 3.7.3) based upon, arising out of, related to or resulting from any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus, or preliminary prospectus or any amendment thereof or supplement thereto, or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, (B) against any and all loss, liability, claim, damage, and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation or investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon, arising out of, related to or resulting from any such untrue statement or omission or alleged untrue statement or omission, and (C) against any and all costs and expenses (including reasonable fees and disbursements of counsel) as may be reasonably incurred in investigating, preparing, or defending against any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon, arising out of, related to or resulting from any such untrue statement or omission or alleged untrue statement or omission, to the extent that any such expense or cost is not paid under subparagraph (A) or (B) above; except insofar as the same are made in reliance upon and in strict conformity with information furnished in writing to the Company by such seller or any Seller Affiliate for use therein or arise from such seller's or any Seller Affiliate's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such seller or Seller Affiliate with a sufficient number of copies of the same. The reimbursements required by this Section 3.7.1 will be made by periodic payments during the course of the investigation or defense, as and when bills are received or expenses incurred. 3.7.2 In connection with any registration statement in which a seller of Registrable Shares is participating, each such seller will furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the fullest extent permitted by law, each such seller will indemnify the Company and its directors and officers and each Person who controls the Company (within the meaning of the Securities Act or the Exchange Act) against any and all losses, claims, damages, liabilities, and expenses (including, without limitation, reasonable attorneys' fees and disbursements except as limited by Section 3.7.3) resulting from any untrue statement or alleged untrue statement of a material fact contained in the registration statement, prospectus, or any preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission is contained in any information or affidavit so furnished in writing by such seller or any of its Seller Affiliates specifically for inclusion in the registration statement; provided that the obligation to indemnify will be several, not joint and several, among such sellers of Registrable Shares, and the liability of each such seller of Registrable Shares will be in proportion to, and provided further that such liability will be limited to, the net amount received by such seller from the sale of Registrable Shares pursuant to such registration statement; provided, however, that such seller of Registrable Shares shall not be liable in any such case to the extent that prior to the filing of any such registration statement or prospectus or amendment thereof or supplement thereto, such seller has furnished in writing to the Company information expressly for use in such registration statement or prospectus or any amendment thereof or -14- 15 supplement thereto which corrected or made not misleading information previously furnished to the Company. 3.7.3 Any Person entitled to indemnification hereunder will (A) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give such notice shall not limit the rights of such Person) and (B) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however, that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person unless (X) the indemnifying party has agreed to pay such fees or expenses, or (Y) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such person. If such defense is not assumed by the indemnifying party as permitted hereunder, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld). If such defense is assumed by the indemnifying party pursuant to the provisions hereof, such indemnifying party shall not settle or otherwise compromise the applicable claim unless (1) such settlement or compromise contains a full and unconditional release of the indemnified party or (2) the indemnified party otherwise consents in writing. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the reasonable fees and disbursements of such additional counsel or counsels. 3.7.4 Each party hereto agrees that, if for any reason the indemnification provisions contemplated by Section 3.7.1 or Section 3.7.2 are unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities, or expenses (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, liabilities, or expenses (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the actions which resulted in the losses, claims, damages, liabilities or expenses as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or indemnified party, and the parties, relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 3.7.4 were determined by pro rata allocation (even if the Holders or any underwriters or all of them were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 3.7.4. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities, or expenses (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or, except as provided in Section 3.7.3, defending any such action or claim. Notwithstanding the provisions of this Section 3.7.4, no Holder shall be required to contribute an amount greater than the dollar amount by which the proceeds received by such Holder with respect to the sale of any Registrable Shares exceeds the amount of damages which such Holder has otherwise been required to pay by reason of such statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of Section -15- 16 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations in this Section 3.7.4 to contribute shall be several in proportion to the amount of Registrable Shares registered by them and not joint. If indemnification is available under this Section 3.7, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Section 3.7.1 and Section 3.7.2 without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 3.7.4. 3.7.5 The indemnification and contribution provided for under this Stockholders Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director, or controlling Person of such indemnified party and will survive the transfer of securities. ARTICLE 4 TRANSFERS OF SECURITIES Section 4.1 Drag Along Rights. 4.1.1 Applicability. In connection with any Transfer by members of the HMC Group of shares of Common Stock representing more than 50% of the shares of Common Stock then held by the HMC Group (a "Significant Sale"), the HMC Group shall have the right to require each non-selling Holder (each, a "Co-Seller") to Transfer a portion of its Common Stock which represents the same percentage of the Fully-Diluted Common Stock held by such Co-Seller as the shares being disposed of by the HMC Group represent of the Fully-Diluted Common Stock held by the HMC Group. (For example, if the HMC Group is selling 50% of their Fully- Diluted Common Stock position, each Co-Seller shall be required to sell 50% of its Fully-Diluted Common Stock position.) All Common Stock Transferred by Holders pursuant to this Section 4.1 shall be sold at the same price and otherwise treated identically with the Common Stock being sold by the HMC Group in all respects; provided, that the Co-Seller shall not be required to make any representations or warranties in connection with such Transfer other than representations and warranties as to (i) such Co-Seller's ownership of his or its Common Stock to be Transferred free and clear of all liens, claims and encumbrances, (ii) such Co-Seller's power and authority to effect such transfer, and (iii) such matters pertaining to compliance with securities laws as the transferee may reasonably require except that the transferee may not require that each Transferring Co-Seller be an Accredited Investor. 4.1.2 Notice of Significant Sale. HMTF, on behalf of the HMC Group, shall give each Co-Seller at least 30 days' prior written notice of any Significant Sale as to which the HMC Group intends to exercise its rights under Section 4.1. If the HMC Group elects to exercise its rights under Section 4.1, the Co-Sellers shall take such actions as may be reasonably required and otherwise cooperate in good faith with the HMC Group in connection with consummating the Significant Sale (including, without limitation, the voting of any Common Stock or other voting capital stock of the Company to approve such Significant Sale). At the closing of such Significant Sale, each Co-Seller shall deliver certificates for all shares of Common Stock to be sold by such Co-Seller, duly endorsed for transfer, with the signature guaranteed, to the purchaser against payment of the appropriate purchase price. -16- 17 Section 4.2 Tag Along Rights. 4.2.1 Applicability. If the HMC Group desires to effect a Significant Sale and it does not elect to exercise its rights under Section 4.1 hereof, then at least 30 days prior to the closing of such Significant Sale, HMTF shall cause the HMC Group to make an offer (the "Participation Offer") to each Co- Seller to include in the proposed Significant Sale a portion of its Common Stock which represent the same percentage of such Co-Seller's Fully Diluted Common Stock as the shares being sold by the HMC Group represent of its Fully- Diluted Common Stock; provided that, if the consideration to be received by the HMC Group includes any securities, only Co-Sellers who have certified to the reasonable satisfaction of HMTF that they are Accredited Investors shall be entitled to participate in such transfer, unless the transferee consents otherwise. 4.2.2 Terms of Participation Offer. The Participation Offer shall describe the terms and conditions of the proposed Significant Sale and shall be conditioned upon (i) the consummation of the transactions contemplated in the Participation Offer with the transferee named therein, and (ii) each Co- Seller's execution and delivery of all agreements and other documents as the members of the HMC Group are required to execute and deliver in connection with such Significant Sale (provided that the Co-Seller shall not be required to make any representations or warranties in connection with such sale or transfer other than representations and warranties as to (A) such Co-Seller's ownership of his Common Stock to be sold or transferred free and clear of all liens, claims, and encumbrances, (B) such Co-Seller's power and authority to effect such transfer and (C) such matters pertaining to compliance with securities laws as the transferee may reasonably require). If any Co-Seller shall accept the Participation Offer, HMTF shall cause the HMC Group to reduce, to the extent necessary, the number of shares of Common Stock it otherwise would have sold in the proposed transfer so as to permit those Co-Sellers who have accepted the Participation Offer to sell the number of shares of Common Stock that they are entitled to sell under this Section 4.2, and HMTF shall cause the HMC Group to transfer and such Co-Sellers shall transfer the number of shares Common Stock specified in the Participation Offer to the proposed transferee in accordance with the terms of such transfer as set forth in the Participation Offer. Section 4.3 Certain Events Not Deemed Transfers. In no event shall any exchange, reclassification, or other conversion of shares into any cash, securities, or other property pursuant to a merger or consolidation of the Company or any Subsidiary with, or any sale or transfer by the Company or any Subsidiary of all or substantially all its assets to, any Person constitute a Significant Sale of shares of Common Stock by the HMC Group for purposes of Section 4.1 or 4.2. In addition, Sections 4.1 and 4.2 hereof shall not apply to any transfer, sale, or disposition of shares of Common Stock solely among members of the HMC Group. Section 4.4 Transfer and Exchange. When Securities are presented to the Company with a request to register the transfer of such Securities or to exchange such Securities for Securities of other authorized denominations, the Company shall register the transfer or make the exchange as requested if the requirements of this Stockholders Agreement for such transaction are met; provided, however, that the Securities surrendered for transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Company, duly executed by the Holder thereof or its attorney and duly authorized in writing. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith. -17- 18 Section 4.5 Replacement Securities. If a mutilated Security is surrendered to the Company or if the Holder of a Security claims and submits an affidavit or other evidence, satisfactory to the Company, to the effect that the Security has been lost, destroyed or wrongfully taken, the Company shall issue a replacement Security if the Company's requirements are met. If required by the Company, such Securityholder must provide an indemnity bond, or other form of indemnity, sufficient in the judgment of the Company to protect the Company against any loss which may be suffered. The Company may charge such Securityholder for its reasonable out-of-pocket expenses in replacing a Security which has been mutilated, lost, destroyed or wrongfully taken. ARTICLE 5 LIMITATION ON TRANSFERS Section 5.1 Restrictions on Transfer. The Securities shall not be Transferred or otherwise conveyed, assigned or hypothecated before satisfaction of (i) the conditions specified in this Section 5.1 and Sections 5.2 through 5.3, which conditions are intended to ensure compliance with the provisions of the Securities Act with respect to the Transfer of any Security and (ii) if applicable, Article 4 hereof. Any purported Transfer in violation of this Article 5 and/or, if applicable, Article 4 hereof shall be void ab initio and of no force or effect. Except for Transfers subject to Sections 4.1 or 4.2 (it being understood that transactions pursuant to such Sections are not subject to this Article 5) hereof and except for Transfers to the public pursuant to an effective registration statement or sales to the public pursuant to Rule 144 under the Securities Act otherwise permitted hereunder, each Holder will cause any proposed transferee of any Security or any interest therein held by it to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Stockholders Agreement. R. Steven Hicks shall not Transfer, convey, assign or hypothecate any Securities to any Affiliate of R. Steven Hicks or any member of R. Steven Hicks' family unless R. Steven Hicks shall have and retain all voting rights with respect to such Securities. Section 5.2 Restrictive Legends. 5.2.1 Securities Act Legend. Except as otherwise provided in Section 5.4 hereof, each Security held by a Holder, and each Security issued to any subsequent transferee of such Security, shall be stamped or otherwise imprinted with a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH OFFER, SALE, PLEDGE, TRANSFER, OR OTHER DISPOSITION WILL NOT VIOLATE APPLICABLE FEDERAL OR STATE SECURITIES LAWS. 5.2.2 Other Legends. Each Security issued to each Holder or a subsequent transferee shall include a legend in substantially the following form: THIS SECURITY IS SUBJECT TO RESTRICTIONS ON TRANSFER, VOTING AND OTHER TERMS AND CONDITIONS SET FORTH IN THE STOCKHOLDERS AGREEMENT DATED AS OF OCTOBER ___, 1996, A COPY OF WHICH MAY BE OBTAINED FROM CAPSTAR BROADCASTING PARTNERS, INC. AT ITS PRINCIPAL EXECUTIVE OFFICES. -18- 19 Section 5.3 Right of First Refusal. 5.3.1 Right of First Refusal. Prior to any Transfer or attempted Transfer by any Non-HMC Group Holder of any Securities or Common Stock Equivalents (the "Offered Securities") other than pursuant to a registration under the Securities Act or a Permitted Transfer, the Non-HMC Group Holder of such Offered Securities shall (i) give prior written notice (a "Transfer Notice") to HMTF of such Non-HMC Group Holder's intention to effect such Transfer, describing the terms and conditions of the proposed Transfer, including the identity of the prospective transferee(s), the number of shares of Offered Securities such Non-HMC Group Holder desires to sell and the purchase price. After receipt of the Transfer Notice, HMTF (or as provided in Section 5.3.3, an assignee of HMTF who is a member of the HMC Group) shall have the option for 15 days from the date of receipt of the Transfer Notice to elect to purchase all, but not less than all, of the Offered Securities upon the same terms and conditions as those set forth in the Transfer Notice by delivering a written notice (the "Election Notice") of such election to such Non-HMC Group Holder within such 15-day period. The Non-HMC Group Holder shall not consummate such Transfer until the earlier to occur of the lapse of the 15-day period or the date on which HMTF (acting for itself or if applicable, its assignee) notifies such Non-HMC Group Holder in writing that it will not exercise its rights under this Section 5.3 (the "Authorization Date"). If neither HMTF (nor any assignee) has elected to purchase all of the Offered Securities or has failed to make a timely election, such Non-HMC Group Holder may Transfer all, but not less than all, of the Offered Securities to the prospective transferee(s) thereof specified in the Transfer Notice, at a price and on terms no more favorable to such prospective transferee(s) than as specified in the Transfer Notice, during the 30-day period immediately following the Authorization Date, provided that, if required by the Company, such Non-HMC Group Holder shall either (i) provide to the Company an opinion reasonably satisfactory to the Company (or supply such other evidence reasonably satisfactory to the Company) that the proposed Transfer may be effected without registration under the Securities Act, or (ii) certify to the Company that the Non-HMC Group Holder reasonably believes that each proposed transferee is a "qualified institutional buyer" and that such Non-HMC Group Holder has taken reasonable steps to make each proposed transferee aware that such Holder may rely on Rule 144A under the Securities Act in effecting such Transfer. Each Security issued upon such Transfer shall bear the restrictive legend set forth in Section 5.2, unless in the reasonable judgment of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. If the Offered Securities are not so transferred within such 30-day period, such Offered Securities must be reoffered to HMTF in accordance with the provisions of this Section 5.3 if such Non-HMC Group Holder still desires to Transfer the Offered Securities. 5.3.2 Closing. If HMTF (or an assignee) exercises the right to purchase the Offered Securities by timely delivery of the Election Notice, unless otherwise agreed by the Non-HMC Group Holder of the Offered Securities and HMTF, (acting for itself, or if applicable, its assignee) the closing will take place at the offices of the Company in Dallas, Texas on the fifth business day after the date of the Election Notice. At the closing, HMTF (or, if applicable, its assignee) will pay the purchase price set forth in the Transfer Notice in cash (by certified or cashier's check) solely upon such Holder's delivery to HMTF (or, if applicable, its assignee), of valid certificates or agreements evidencing all of the Offered Securities then being purchased pursuant to the Election Notice. Certificates or agreements representing the Offered Securities will be duly endorsed (with signature guaranteed) for transfer to HMTF (or, if applicable, its assignee). By delivery of such certificates or agreements to HMTF (or, if applicable, its assignee) such Non- HMC Group Holder will be deemed to represent and warrant to HMTF (or, if applicable, its assignee) that the transferred Offered Securities are owned by such Non-HMC Group Holder free and clear of all liens, adverse claims, and other encumbrances other than as provided in this Stockholders Agreement. The Non-HMC Group Holder will promptly perform, whether before or after any such closing, such additional acts (including without -19- 20 limitation executing and delivering additional documents) as are reasonably required by either such party to effect more fully the transactions contemplated by this Section 5.3. 5.3.3 Assignment. The rights of HMTF under this Section 5.3 may be assigned or transferred in whole or in part by HMTF, without any consent or other action on the part of any other party hereto, to any one or more members of the HMC Group. Section 5.4 Termination of Certain Restrictions. Notwithstanding the foregoing provisions of this Section 5, the restrictions imposed by Section 5.3.1 upon the transferability of the Securities and the legend requirements of Section 5.2.1 shall terminate as to any Security (i) when and so long as such Security shall have been effectively registered under the Securities Act and disposed of pursuant thereto or disposed pursuant to the provision of Rule 144 or (ii) when the Company shall have received an opinion of counsel reasonably satisfactory to it that such Security may be transferred without registration thereof under the Securities Act and that such legend may be removed. Whenever the restrictions imposed by Section 5.2 shall terminate as to any Security, the Holder thereof shall be entitled to receive from the Company, at the Company's expense, a new Security not bearing the restrictive legend set forth in Section 5.2. ARTICLE 6 PURCHASE OPTION Section 6.1. Purchase Option. 6.1.1 Purchase Option. Unless Section 4.1 or 4.2 is otherwise applicable, if (i), and at such time as, R. Steven Hicks' is no longer a director, officer or employee of the Company or any Subsidiary of the Company, for any reason at any time or (ii) a Change of Control occurs, the Company shall have the option (the "Purchase Option") to purchase, and if the Purchase Option is exercised, R. Steven Hicks (or the executor or administrator of R. Steven Hicks' estate, in the event of R. Steven Hicks' death, or R. Steven Hicks' legal representative in the event of his incapacity) (hereinafter, collectively with R. Steven Hicks, the "Grantor") shall sell to HMTF, (or as provided in Section 6.1.4 an assignee of HMTF) all or any portion (at the option of HMTF acting for itself or, if applicable, its assignee) of the shares of Common Stock, Warrants and/or Common Stock Equivalents held by the Grantor (such shares of Common Stock, Warrants and/or Common Stock Equivalents collectively being referred to as the "Purchasable Securities"), subject to HMTF's (or, if applicable, its assignee) compliance with the conditions hereinafter set forth. HMTF (acting for itself or, if applicable, its assignee) shall give notice (the "Purchase Notice") in writing to the Grantor of the exercise of the Purchase Option within 120 days from the date R. Steven Hicks is no longer a director, officer or employee of the Company or any Subsidiary of the Company or such Change of Control. Such Purchase Notice shall state the number of Purchasable Securities to be purchased and the exercise price for each Purchasable Security (on a per share basis or, in the case of securities other than capital stock, other applicable denomination). If no notice is given within the time limit specified above, the Purchase Option shall terminate. 6.1.2 Closing. Unless otherwise agreed by the Grantor and HMTF, (acting for itself or, if applicable, its assignee) the closing of each exercise of the Purchase Option will take place at the offices of the Company in Dallas, Texas, on the fifth business day after the Purchase Notice is mailed or delivered in accordance with this Section 6.1. At the closing, HMTF (of, if applicable, its assignee) will pay the exercise price to the Grantor in cash (by certified or cashier's check) solely upon such Grantor's delivering to HMTF (or, if applicable, its assignee) valid certificates or agreements evidencing all Purchasable Securities then being purchased pursuant to the exercise of the Purchase Option. Certificates or agreements representing -20- 21 the Purchasable Securities will be duly endorsed (with signature guaranteed) for transfer to HMTF (or, if applicable, its assignee). Upon delivery of such certificates or agreements to HMTF(or, if applicable, its assignee) , the Grantor will be deemed to represent and warrant to HMTF (or, if applicable, its assignee) that the transferred Purchasable Securities are owned by the Grantor free and clear of all liens, adverse claims, and other encumbrances other than as provided in this Stockholders Agreement. In the event that, notwithstanding the foregoing, the Grantor shall have failed to obtain the release of any lien, adverse claim or other encumbrance on any Purchasable Securities by the scheduled closing date (at the option of HMTF acting for itself or, if applicable, its assignee) the closing shall nevertheless occur on such scheduled closing date, with the exercise price being reduced to the extent of all unpaid indebtedness for which such Purchasable Securities are then encumbered. Payment of the exercise price for the Purchasable Securities is not required in order to effect the timely exercise of the Purchase Option. In order to ensure the transfer of the Purchasable Securities purchased upon exercise of the Purchase Option, the Grantor hereby appoints HMTF as his or its attorney in fact for the purpose of effecting any such transfer, and the Grantor acknowledges and agrees that such power of attorney is coupled with an interest and is irrevocable. Moreover, HMTF (or, if applicable, its assignee) and the Grantor will promptly perform, whether before or after any Purchase Option closing, such additional acts (including without limitation executing and delivering additional documents) as are reasonably required by either such party to effect more fully the transactions contemplated hereby. 6.1.3 Exercise Price. The exercise price for each Purchasable Security will equal the Appraised Value per share (or, in the case of securities other than capital stock, other applicable denomination) to be paid in connection with the exercise of the Purchase Option. 6.1.4 Assignment of Purchase Option. The Purchase Option may be assigned or transferred in whole or in part by HMTF to any one or more members of the HMC Group without any consent or other action on the part of any other party hereto. ARTICLE 7 PREEMPTIVE RIGHTS 7.1 Rights to Participate in Future Sales. In case the Company proposes to issue or sell any shares of Common Stock to any member of the HMC Group (the "Additional Securities"), the Company shall, no later than twenty days prior to the consummation of such transaction (a "Preemptive Rights Transaction"), give notice in writing (the "Offer Notice") to R. Steven Hicks (the "Rights Holder") of such Preemptive Rights Transaction. The Offer Notice shall describe the proposed Preemptive Rights Transaction and contain an offer (the "Preemptive Rights Offer") to sell to Rights Holder if he certifies (to the reasonable satisfaction of the Company) that the Rights Holder is an Accredited Investor, at the same price and for the same consideration to be paid by the proposed purchaser, all of the Rights Holder's pro rata portion of the Additional Securities (which shall be based on the ratio that the Fully-Diluted Common Stock held by the Rights Holder, excluding, for the purposes of such calculation, any shares of Common Stock issuable upon exercise of any Common Stock Equivalents granted pursuant to any employee, officer or director benefit plan or arrangement, bears to the Fully-Diluted Common Stock held by the HMC Group). If the Rights Holder fails to accept such offer by written notice five days after his receipt of the Offer Notice, the Company may proceed with the proposed issue or sale of the Additional Securities, free of any right on the part of the Rights Holder under this Section 7.1 in respect thereof. Notwithstanding any provision contained herein to the contrary, the rights of the Rights Holder arising under this Section 7.1 shall not be transferable and any attempted transfer or assignment shall render such right void. -21- 22 7.2 Exceptions to Preemptive Rights. Section 7.2 shall not apply to (i) issuances or sales of Common Stock to any member of the HMC Group who is an employee, officer, and/or director of the Company and/or any of its Subsidiaries pursuant to employee benefit or similar plans or arrangements of the Company and/or its Subsidiaries, (ii) issuances or sales of Common Stock upon exercise of any Common Stock Equivalent, (iii) securities distributed or set aside ratably to all holders of Common Stock on a per share equivalent basis, or (iv) issuances or sales of Common Stock pursuant to a registered underwritten public offering, a merger of the Company or a subsidiary of the Company into or with another entity or an acquisition by the Company of a subsidiary of the Company or another business or corporation. ARTICLE 8 ADDITIONAL WARRANTS 8.1 HMC Group Investment. If after the date of this Stockholders Agreement, the HMC Group should purchase additional shares of Common Stock from the Company, other than shares of Common Stock issued upon the exercise of any Common Stock Equivalents granted pursuant to any employee, officer or director benefit plan of arrangement ("New Shares"), then the Rights Holder shall be entitled to receive from the Company for no additional consideration a warrant (a "New Warrant") in the same form and substance as the Warrant except that each New Warrant shall provide: (a) for an initial Exercise Price (as such term is defined and used in the Warrant) equal to the price per share of Common Stock paid by the HMC Group in connection with such purchase, with such initial Exercise Price being increased at the rate of interest provided for in the Warrant; (b) for a term of ten years from the date of grant; (c) for a number of shares subject thereto equal to an amount of (i) 10% of the New Shares so purchased by the HMC Group up to an aggregate purchase price of $10,000,000 and (ii) 7.5% of the New Shares so purchased by the HMC Group at an aggregate purchase price that is in excess of that provided in clause (i) above; and (d) that the number of shares of Common Stock subject to each New Warrant shall be allocated 80% to the A Warrant and 20% to the B Warrant (as such terms are defined and used in the Warrant). Notwithstanding any provision contained herein to the contrary, the rights of the Rights Holder arising under this Section 8.1 shall not be transferable and any attempted transfer or assignment shall render such right void. ARTICLE 9 TERMINATION The provisions of this Agreement shall terminate on the tenth anniversary of the date of this Stockholders Agreement; provided, however, that Sections 4.1 and 4.2 and Articles 5 (other than Sections 5.2 and 5.4), 6, 7 and 8 of this Agreement shall terminate upon the consummation prior to the expiration of such 10-year period of a Qualified IPO. -22- 23 ARTICLE 10 MISCELLANEOUS Section 10.1 Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows (or at such other address as may be substituted by notice given as herein provided): If to the Company: Capstar Broadcasting Partners, Inc. 200 Crescent Court, Suite 1600 Dallas, Texas 75201 Attention: President Copies to: Vinson & Elkins L.L.P. 3700 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 Attention: Michael D. Wortley If to HMTF: Hicks, Muse, Tate & Furst Incorporated 200 Crescent Court, Suite 1600 Dallas, Texas 75201 Attention: Thomas 0. Hicks John R. Muse Jack D. Furst Lawrence D. Stuart, Jr. Hicks, Muse, Tate & Furst Incorporated 1325 Avenue of the Americas 25th Floor New York, New York 10019 Attention: Charles W. Tate Alan B. Menkes Michael J. Levitt Copies to: Vinson & Elkins L.L.P. 3700 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 Attention: Michael D. Wortley -23- 24 If to any Holder, at its address listed on the signature pages hereof. Any notice or communication hereunder shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five calendar days after mailing if sent by registered or certified mail (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Section 10.2 Legal Holidays. A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions at such place are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest on the amount of such payment shall accrue for the intervening period. Section 10.3 Governing Law; Jurisdiction. THIS STOCKHOLDERS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Section 10.4 Successors and Assigns. Whether or not an express assignment has been made pursuant to the provisions of this Stockholders Agreement, provisions of this Stockholders Agreement that are for the Holders' benefit as the holders of any Securities are also for the benefit of, and enforceable by, all subsequent holders of Securities, except as otherwise expressly provided herein. This Stockholders Agreement shall be binding upon the Company, each Holder, and their respective successors and assigns. Section 10.5 Duplicate Originals. All parties may sign any number of copies of this Stockholders Agreement. Each signed copy shall be an original, but all of them together shall represent the same agreement. Section 10.6 Severability. In case any provision in this Stockholders Agreement shall be held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and the remaining provisions shall not in any way be affected or impaired thereby. Section 10.7 No Waivers; Amendments. 10.7.1 No failure or delay on the part of the Company or any Holder in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Company or any Holder at law or in equity or otherwise. 10.7.2 Any provision of this Stockholders Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Company and the Required Holders; provided that no such amendment or waiver shall, (i) unless signed by all of the Holders, amend the provisions of Section 2.1, (ii) unless signed by all of the Holders affected, (A) amend the provisions of this Section 10.7.2 or (B) change the number of Holders which shall be required for the Holders or any of them to take any -24- 25 action under this Section 10.7.2 or any other provision of this Stockholders Agreement, and (iii) unless signed by a majority of the Holders who are not members of the HMC Group, amend Article 3, Section 4.1, Section 4.2 or Article 5, or grant a waiver thereunder, so as to (A) impose additional obligations on or modify existing obligations in a manner adverse to such Holder who is not a member of the HMC Group, Holders who are not members of the HMC Group that are not imposed on Holders who are members of the HMC Group or (B) adversely affect the rights granted to the Holders who are not members of the HMC Group where such amendment or waiver does not apply to the same extent to the rights granted thereunder to the Holders who are members of the HMC Group. Section 10.8 Third Parties. Each member of the HMC Group is an intended third party beneficiary of this Stockholders Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -25- 26 SIGNATURES TO STOCKHOLDERS AGREEMENT IN WITNESS WHEREOF, the parties hereto have caused this Stockholders Agreement to be duly executed, all as of the date first written above. CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ R. STEVEN HICKS --------------------------- Name: R. Steven Hicks ------------------------- Title: President ------------------------ HICKS, MUSE, TATE & FURST INCORPORATED By: /s/ THOMAS O. HICKS --------------------------- Name: Thomas O. Hicks ------------------------- Title: President ------------------------ 27 SIGNATURES TO STOCKHOLDERS AGREEMENT NAME OF HOLDER: CAPSTAR BROADCASTING PARTNERS, L.P. By: HM3/Capstar Partners, L.P., its General Partner By: HM3/Capstar, Inc., its General Partner By: /s/ THOMAS O. HICKS ----------------------------- Name: Thomas O. Hicks --------------------------- Title: President -------------------------- 28 SIGNATURES TO STOCKHOLDERS AGREEMENT NAME OF HOLDER: /s/ R. STEVEN HICKS ------------------------------- R. Steven Hicks Address: 600 Congress Ave. ------------------------------- Suite 1270 ------------------------------- Austin, TX 78701 ------------------------------- ------------------------------- EX-10.21.2 15 1ST AMEND & SUPPLEMENT TO STOCKHOLDERS AGREEMENT 1 EXHIBIT 10.21.2 FIRST AMENDMENT AND SUPPLEMENT TO STOCKHOLDERS AGREEMENT THIS FIRST AMENDMENT AND SUPPLEMENT (the "Supplement") to the Stockholders Agreement dated as of October 16, 1996, by and among Capstar Broadcasting Partners, Inc., a Delaware corporation ("the "Company"), the securityholders listed on the signature pages thereto, and Hicks, Muse, Tate & Furst Incorporated, a Texas corporation ("HMTF"), as amended or supplemented (the "Stockholders Agreement"), is entered into effective as of January 27, 1997, by and among the Company, the Holders (as such term is defined in the Stockholders Agreement) and Jason Mabry, Kristen Lea Hicks, Shelly Mabry Ellard, Larry Taylor as Custodian for Robert S. Hicks, Jr. under the Texas Uniform Gifts to Minors Act (the "UGMA") and Larry Taylor as Custodian for Brandon Vaughan Hicks under the UGMA (collectively, the "New Holders") pursuant to the terms of the Stockholders Agreement. RECITALS: WHEREAS, the Company and the Holders desire to amend Section 8.1 of the Stockholders Agreement; WHEREAS, R. Steven Hicks, a Holder, desires to make a gift of a total of 100,000 shares of Common Stock, par value $0.01 per share (the "Shares"), of the Company to the New Holders; WHEREAS, the Company, the Holders and the New Holders desire to supplement the Stockholders Agreement as provided therein in order to effect such gift; and WHEREAS, any capitalized term used herein, and not otherwise defined herein, shall have the meaning set forth in the Stockholders Agreement. AGREEMENTS: NOW, THEREFORE, in consideration of the foregoing and the agreements herein contained, the parties hereto covenant and agree as follows: 1. Amendment to Section 8.1. Section 8.1 of the Stockholders Agreement is hereby amended and restated to read in its entirety to read as follows: "8.1 HMC Group Investment. If after the date of this Stockholders Agreement, the HMC Group or the Rights Holder should purchase additional shares of Common Stock from the Company, other than shares of Common Stock issued upon the exercise of any Common Stock Equivalents granted pursuant to any employee, officer or director benefit plan of arrangement ("New Shares"), then the Rights Holder shall be entitled to receive from the Company for no additional 2 consideration a warrant (a "New Warrant") in the same form and substance as the Warrant except that each New Warrant shall provide: (a) for an initial Exercise Price (as such term is defined and used in the Warrant) equal to the price per share of Common Stock paid by the HMC Group in connection with such purchase, with such initial Exercise Price being increased at the rate of interest provided for in the Warrant; (b) for a term of ten years from the date of grant; (c) for a number of shares subject thereto equal to an amount of (i) 10% of the New Shares so purchased by the HMC Group or the Rights Holder up to an aggregate purchase price of $10,000,000 and (ii) 7.5% of the New Shares so purchased by the HMC Group or the Rights Holder at an aggregate purchase price that is in excess of that provided in clause (i) above; and (d) that the number of shares of Common Stock subject to each New Warrant shall be allocated 80% to the A Warrant and 20% to the B Warrant (as such terms are defined and used in the Warrant). Notwithstanding any provision contained herein to the contrary, the rights of the Rights Holder arising under this Section 8.1 shall not be transferable and any attempted transfer or assignment shall render such right void." 2. Permitted Transfer Status. Each New Holder hereby agrees to take and hold the Shares subject to the provisions and upon the conditions specified in the Stockholders Agreement. 3. Holder Status. Each New Holder hereby agrees and is deemed to be a "Holder" for all purposes under the terms of the Stockholder Agreement. 4. Grantor Status. Each Holder hereby agrees and is deemed to be a "Grantor" for all purposes pursuant to Section 6.1 of the Stockholders Agreement. 5. Voting Rights. Each New Holder hereby agrees that, during the term of the Stockholders Agreement, such New Holder will cause his or her Shares, whether such Shares are owned by a New Holder or any subsequent transferee of a New Holder (including without limitation, a New Holder's estate, executors, administrators, heirs or devisees), (a) to be represented by each such New Holder, in person or by proxy, at any validly called meeting of the stockholders of the Company in order for such Shares to be counted as a part of the quorum of the stockholders of the Company, and (b) to be voted in any manner as R. Steven Hicks so designates, so long as R. Steven Hicks owns any voting securities of the Company or is serving as an officer of the Company. 2 3 6. Notices. Any notices or other communications required or permitted under Section 10.1 of the Stockholders Agreement shall be addressed to each New Holder at his or her address set forth on the signature pages hereto. 7. Except as herein specifically amended, the Stockholders Agreement shall continue in full force and effect in accordance with its terms. [Remainder of page intentionally left blank] 3 4 IN WITNESS WHEREOF, the parties hereto have duly executed the Supplement effective as of the date first written above. COMPANY: CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ R. STEVEN HICKS ------------------------------------- Name: R. Steven Hicks Title: President and Chief Executive Officer REQUIRED HOLDERS: /s/ R. STEVEN HICKS --------------------------------------------- Name: R. Steven Hicks CAPSTAR BROADCASTING PARTNERS, L.P. By: HM3/Capstar Partners, L.P., Its General Partner By: HM3/Capstar, Inc., Its General Partner By: /s/ THOMAS O. HICKS ------------------------------------- Name: Thomas O. Hicks Title: President and Chief Executive Officer 5 NEW HOLDERS: /s/ JASON MABRY --------------------------------------------- Name: Jason Mabry Address: ------------------------------ ------------------------------ ------------------------------ /s/ KRISTEN LEA HICKS --------------------------------------------- Name: Kristen Lea Hicks Address: ------------------------------ ------------------------------ ------------------------------ /s/ SHELLY MABRY ELLARD --------------------------------------------- Name: Shelly Mabry Ellard Address: ------------------------------ ------------------------------ ------------------------------ /s/ LARRY TAYLOR --------------------------------------------- Name: Larry Taylor as Custodian for Robert S. Hicks, Jr. under the Texas Uniform Gifts to Minors Act Address: ------------------------------ ------------------------------ ------------------------------ /s/ LARRY TAYLOR --------------------------------------------- Name: Larry Taylor as Custodian for Brandon Vaughan Hicks under the Texas Uniform Gifts to Minors Act Address: ------------------------------ ------------------------------ ------------------------------ EX-10.22.1 16 STOCKHOLDERS AGREEMENT DATED NOVEMBER 26, 1996 1 EXHIBIT 10.22.1 STOCKHOLDERS AGREEMENT THIS STOCKHOLDERS AGREEMENT (this "Stockholders Agreement") dated as of November 26, 1996, is entered into by and among Capstar Broadcasting Partners, Inc., a Delaware corporation (the "Company"), the securityholders listed on the signature pages hereof (collectively, the "Holders"), and Hicks, Muse, Tate & Furst Incorporated, a Texas corporation ("HMTF"). In consideration of the premises, mutual covenants and agreements hereinafter contained and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS Section 1.1 Definitions. "Accredited Investor" means an "Accredited Investor," as defined in Regulation D, or any successor rule then in effect. "Advice" shall have the meaning provided in Section 3.4 hereof. "Affiliate, means, with respect to any Person, any Person who, directly or indirectly, controls, is controlled by or is under common control with that Person. "Appraised Value" means, as to any Securities, the fair market value of such Securities at the date of the Purchase Notice as determined by an Independent Financial Expert selected by HMTF; provided, however, if a Holder shall object to such determination within 10 days after being notified thereof by HMTF, such Holder shall within such ten-day period select an Independent Financial Expert to determine the fair market value of such Securities on behalf of such Holder. In the event that the Independent Financial Experts selected by each of HMTF and such Holder cannot agree on the fair market value of such Securities, then the two Independent Financial Experts shall mutually select a third Independent Financial Expert to determine the fair market value of such Securities, and the value selected by such third firm shall be binding on all the parties hereto. Each such Independent Financial Expert may use any customary method of determining fair market value. The cost of the Independent Financial Expert selected by HMTF shall be paid by HMTF, the cost of the Independent Financial Expert, if any, selected by such Holder shall be paid by such Holder, and the cost of the Independent Financial Expert, if any, mutually selected by the two Independent Financial Experts appointed by each of HMTF and such Holder shall be paid one-half by HMTF and one-half by such Holder. "Authorization Date" shall have the meaning set forth in Section 5.3 hereof. "Business Day" means a day that is not a Legal Holiday. "Change of Control" means the first to occur of the following events: (i) any sale, lease, exchange, or other transfer (in one transaction or series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), other than one or more members of the HMC Group, (ii) a majority of the Board of Directors of the Company shall consist of Persons who are not Continuing Directors; or (iii) the acquisition by any Person or Group (other than one or more members of the HMC Group) of the power, directly or indirectly, 2 to vote or direct the voting of securities having more than 50% of the ordinary voting power for the election of directors of the Company. "Common Stock" means shares of the Common Stock, $0.01 par value per share, of the Company, and any capital stock into which such Common Stock thereafter may be changed. "Common Stock Equivalents" means, without duplication with any other Common Stock or Common Stock Equivalents, any rights, warrants, options, convertible securities or indebtedness, exchangeable securities or indebtedness, or other rights, exercisable for or convertible or exchangeable into, directly or indirectly, Common Stock of the Company and securities convertible or exchangeable into Common Stock of the Company, whether at the time of issuance or upon the passage of time or the occurrence of some future event; provided, however, Common Stock Equivalents shall not include any options awarded under the Company's 1996 Stock Option Plan or any shares of Common Stock issued upon exercise of such options or any securities into which such shares may be converted pursuant to such Plan. "Company" shall have the meaning set forth in the introductory paragraph hereof. "Continuing Director" means, as of the date of determination, any Person who (i) was a member of the Board of Directors of the Company on October 17, 1996, (ii) was nominated for election or elected to the Board of Directors of the Company with the affirmative vote of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election, or (iii) is a member of the HMC Group. "Co-Seller" shall have the meaning set forth in Section 4.1 hereof. "Demand Registration" means a registration of Common Stock under the Securities Act requested by a Person pursuant to a contractual right of such Person to demand that the Company initiate such a registration. "Election Notice" shall have the meaning set forth in Section 5.3 hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder. "Excluded Registration" means a registration under the Securities Act of (i) a registration to effect a Qualified IPO if such registration only includes equity securities to be issued by the Company and does not include any equity securities for the account of any other securityholder of the Company, (ii) securities registered on Form S-8 or any similar successor form and (iii) securities registered to effect the acquisition of or combination with another Person. "Fully-Diluted Common Stock" means, at any time, the then outstanding Common Stock of the Company plus (without duplication) all shares of Common Stock issuable, whether at such time or upon the passage of time or the occurrence of future events, upon the exercise, conversion, or exchange of all then outstanding Common Stock Equivalents. "HMC Group" means HMTF and its Affiliates (including Capstar L.P.) and its and their respective officers, directors, and employees (and members of their respective families and trusts for the primary benefit of such family members). -2- 3 "HMC Group Designee" shall have the meaning set forth in Section 2.1.1 hereof. "HMTF" shall have the meaning set forth in the introductory paragraph hereof. "Holders" shall have the meaning set forth in the introductory paragraph hereof and shall include any direct or indirect transferee of any such Holder who shall become a party to this Stockholders Agreement. "Independent Financial Expert" means any investment bank which is registered as a broker dealer under the Exchange Act and has aggregate net capital of at least $50 million. "Inspectors" shall have the meaning provided in Section 3.3 hereof. "Legal Holiday" shall have the meaning provided in Section 9.2 hereof. "Material Adverse Effect" shall have the meaning provided in Section 3.1.2 hereof. "NASD" shall have the meaning provided in Section 3.3 hereof. "Offered Securities" shall have the meaning provided in Section 5.3 hereof. "Option" shall have the meaning provided in Section 6.2.1 hereof. "Option Securities" shall have the meaning provided in Section 6.2.1 hereof. "Option Transaction" shall have the meaning provided in Section 6.2.2 hereof. "Participation Offer" shall have the meaning provided in Section 4.2 hereof. "Person" or "person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. "Purchase Option" shall have the meaning provided in Section 6.1. "Qualified IPO" means a firm commitment underwritten public offering of Common Stock for cash pursuant to a registration statement under the Securities Act where the aggregate proceeds to the Company (prior to deducting any underwriters' discounts and commissions from such offering and any similar prior public offerings exceed $10 million. "Records" shall have the meaning provided in Section 3.3 hereof. "Registrable Shares" means at any time the Common Stock of the Company owned by the Holders owned on the date hereof or on the date that any Holder executes this Stockholders Agreement; provided, however, that Registrable Shares shall not include any shares (i) the sale of which has been registered pursuant to the Securities Act and which shares have been sold pursuant to such registration, (ii) which have been sold to the public pursuant to Rule 144 of the SEC under the Securities Act, or (iii) issued upon the exercise of any options awarded under the Company's 1996 Stock Option Plan. -3- 4 "Registration Expenses" shall have the meaning provided in Section 3.5 hereof. "Regulation D" means Regulation D promulgated under the Securities Act by the SEC. "Required Holders" means Holders who then own beneficially more than 66- 2/3% of the aggregate number of Registrable Shares. "SEC" means the Securities and Exchange Commission. "Securities" means the Common Stock; provided, however, that Securities shall not include any shares of Common Stock issued upon the exercise of any options awarded under the Company's 1996 Stock Option Plan. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. "Seller Affiliates" shall have the meaning provided in Section 3.6.1 hereof. "Significant Sale" shall have the meaning provided in Section 4.1 hereof. "Stockholders Agreement" means this Stockholders Agreement, as such from time to time may be amended. "Subsidiary" of any Person means (i) a corporation a majority of whose outstanding shares of capital stock or other equity interests with voting power, under ordinary circumstances, to elect directors, is at the time, directly or indirectly, owned by such Person, by one or more subsidiaries of such Person or by such Person and one or more subsidiaries of such Person, and (ii) any other Person (other than a corporation) in which such Person, a subsidiary of such Person or such Person and one or more subsidiaries of such Person, directly or indirectly, at the date of determination thereof, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of the directors or other governing body of such Person. "Suspension Notice" shall have the meaning provided in Section 3.4 hereof. "Transfer" means any disposition of any Security or any interest therein that would constitute a "sale" thereof within the meaning of the Securities Act. "Transfer Notice" shall have the meaning provided in Section 5.3 hereof. "Unaccredited Holder" shall have the meaning provided in Section 6.2.3 hereof. Section 1.2 Rules of Construction. Unless the context otherwise requires (1) a term has the meaning assigned to it; (2) "or" is not exclusive; (3) words in the singular include the plural, and words in the plural include the singular; (4) provisions apply to successive events and transactions; and -4- 5 (5) "herein," "thereof" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision. ARTICLE 2 MANAGEMENT OF THE COMPANY AND CERTAIN ACTIVITIES Section 2.1 Board of Directors. 2.1.1 Board Representation. Subject to Section 2.1.3, the Board of Directors of the Company shall consist of such individuals as may be designated from time to time by the HMC Group (an "HMC Group Designee"). Each Holder shall vote his or its shares of Common Stock at any regular or special meeting of stockholders of the Company or in any written consent executed in lieu of such a meeting of stockholders and shall take all other actions necessary to give effect to the agreements contained in this Agreement (including without limitation the election of persons designated by the HMC Group to be elected as directors as described in the preceding sentence) and to ensure that the certificate of incorporation and bylaws as in effect immediately following the date hereof do not, at any time thereafter, conflict in any respect with the provisions of this Agreement. 2.1.2 Vacancies. If, prior to his election to the Board of Directors of the Company pursuant to Section 2.1.1 hereof, any HMC Group Designee shall be unable or unwilling to serve as a director of the Company, the HMC Group shall be entitled to nominate a replacement who shall then be an HMC Group Designee for purposes of this Section 2. If, following an election to the Board of Directors of the Company pursuant to Section 2.1.1 hereof, any HMC Group Designee shall resign or be removed or be unable to serve for any reason prior to the expiration of his term as a director of the Company, the HMC Group shall, within 30 days of such event, notify the Board of Directors of the Company in writing of a replacement HMC Group Designee, and either (i) the Holders shall vote their shares of Common Stock, at any regular or special meeting called for the purpose of filling positions on the Board of Directors of the Company or in any written consent executed in lieu of such a meeting of stockholders, and shall take all such other actions necessary to ensure the election to the Board of Directors of the Company of such replacement HMC Group Designee to fill the unexpired term of the HMC Group Designee who such new HMC Group Designee is replacing or (ii) the Board of Directors shall elect such replacement HMC Group Designee to fill the unexpired term of the HMC Group Designee who such new HMC Group Designee is replacing. If the HMC Group requests that any HMC Group Designee be removed as a Director (with or without cause) by written notice thereof to the Company, then the Company shall take all actions necessary to effect, and each of the Holders shall vote all its or his capital stock in favor of, such removal upon such request. 2.1.3 Termination of Rights. The right of the HMC Group to designate directors under Section 2.1.1, and the obligation of the Holders to vote their shares as provided herein, shall terminate upon the first to occur of (i) the termination or expiration of this Stockholders Agreement or this Article 2, (ii) such time as the HMC Group elects in writing to terminate its rights under this Article 2, or (iii) such time as the HMC Group cease to own any shares of Common Stock. 2.1.4 Costs and Expenses. The Company will pay all reasonable out-of- pocket expenses incurred by the designees of the HMC Group in connection with their participation in meetings of the Board of Directors (and committees thereof) of the Company and the Boards of Directors (and committees thereof) of the Subsidiaries of the Company. -5- 6 Section 2.2 Other Activities of the Holders; Fiduciary Duties. It is understood and accepted that the Holders and their Affiliates have interests in other business ventures which may be in conflict with the activities of the Company and its Subsidiaries and that, subject to applicable law, nothing in this Stockholders Agreement shall limit the current or future business activities of the Holders whether or not such activities are competitive with those of the Company and its Subsidiaries. Nothing in this Agreement, express or implied, shall relieve any officer or director of the Company or any of its Subsidiaries, or any Holder, of any fiduciary or other duties or obligations they may have to the Company's stockholders. Section 2.3 Grant of Proxy. Each Holder hereby constitutes and appoints HMTF with full power of substitution, as its true and lawful proxy and attorney-in-fact to vote any and all shares of any class or series of capital stock of the Company or any Subsidiary of the Company held by such Holder in accordance with the provisions of Section 2.1 of this Stockholders Agreement. Each Holder acknowledges that the proxy granted hereby is irrevocable, being coupled with an interest, and that such proxy will continue until the termination of such Holder's obligation to vote any shares in accordance with this Article 2. ARTICLE 3 REGISTRATION RIGHTS Section 3.1 Piggyback Registrations. 3.1.1 Right to Piggyback. Each time the Company proposes to register any of its equity securities (other than pursuant to an Excluded Registration) under the Securities Act for sale to the public (whether for the account of the Company, pursuant to a Demand Registration, or otherwise for the account of any securityholder of the Company) and the form of registration statement to be used permits the registration of Registrable Shares, the Company shall give prompt written notice to each Holder of Registrable Shares (which notice shall be given not less than 30 days prior to the effective date of the Company's registration statement), which notice shall offer each such Holder the opportunity to include any or all of its or his Registrable Shares in such registration statement, subject to the limitations contained in Section 3.1.2 hereof. Each Holder who desires to have its or his Registrable Shares included in such registration statement shall so advise the Company in writing (stating the number of shares desired to be registered) within 20 days after the date of such notice from the Company. Any Holder shall have the right to withdraw such Holder's request for inclusion of such Holder's Registrable Shares in any registration statement pursuant to this Section 3.1.1 by giving written notice to the Company of such withdrawal. Subject to Section 3.1.2 below, the Company shall include in such registration statement all such Registrable Shares so requested to be included therein; provided, however, that the Company may at any time withdraw or cease proceeding with any such registration if it shall at the same time withdraw or cease proceeding with the registration of all other equity securities originally proposed to be registered. 3.1.2 Priority on Registrations. If the Registrable Shares requested to be included in the registration statement by any Holder differ from the type of securities proposed to be registered by the Company and the managing underwriter advises the Company that due to such differences the inclusion of such Registrable Shares would materially and adversely affect the price or success of the offering (a "Material Adverse Effect"), then (i) the number of such Holder's or Holders' Registrable Shares to be included in the registration statement shall be reduced to an amount which, in the judgment of the managing underwriter, would eliminate such Material Adverse Effect or (ii) if no such reduction would, in the judgment of the managing underwriter, eliminate such Material Adverse Effect, then the Company shall have the right to exclude all such Registrable Shares from such registration statement provided no other securities of such type are included and offered for the account of any other Person in such registration statement. Any -6- 7 partial reduction in number of Registrable Shares to be included in the registration statement pursuant to clause (i) of the immediately preceding sentence shall be effected pro rata based on the ratio which such Holder's requested shares bears to the total number of shares requested to be included in such registration statement by all Persons who have requested that their shares be included in such registration statement. If the Registrable Shares requested to be included in the registration statement are of the same type as the securities being registered by the Company and the managing underwriter advises the Company that the inclusion of such Registrable Shares would cause a Material Adverse Effect, the Company will be obligated to include in such registration statement, as to each Holder, only a portion of the shares such Holder has requested be registered equal to the ratio which such Holder's requested shares bears to the total number of shares requested to be included in such registration statement by all Persons (other than (i) the Company, if such registration has been initiated by the Company for securities to be offered by the Company and (ii) by Persons exercising their right to cause a Demand Registration) who have requested that their shares be included in such registration statement. It is acknowledged by the Holders, that pursuant to the foregoing provision, the securities to be included in such registration shall be allocated (x) first, to the Company, if such registration has been initiated by the Company for securities to be offered by the Company, (y) second, to securities offered by Persons exercising their right to cause a Demand Registration, if such registration is a Demand Registration and (z) third, to the Holders and all other persons requesting securities to be included therein in accordance with the above described ratio. If as a result of the provisions of this Section 3.1.2 any Holder shall not be entitled to include all Registrable Securities in a registration that such Holder has requested to be so included, such Holder may withdraw such Holder's request to include Registrable Shares in such registration statement. No Person may participate in any registration statement hereunder unless such Person (x) agrees to sell such person's Registrable Shares on the basis provided in any underwriting arrangements approved by the Company and (y) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements, and other documents reasonably required under the terms of such underwriting arrangements; provided, however, that no such Person shall be required to make any representations or warranties in connection with any such registration other than representations and warranties as to (i) such Person's ownership of his or its Registrable Shares to be sold or transferred free and clear of all liens, claims, and encumbrances, (ii) such Person's power and authority to effect such transfer, and (iii) such matters pertaining to compliance with securities laws as may be reasonably requested; provided further, however, that the obligation of such Person to indemnify pursuant to any such underwriting arrangements shall be several, not joint and several, among such Persons selling Registrable Shares, and the liability of each such Person will be in proportion to, and provided further that such liability will be limited to, the net amount received by such Person from the sale of his or its Registrable Shares pursuant to such registration. 3.2 Holdback Agreement. Unless the managing underwriter otherwise agrees, each of the Company and the Holders agrees, and the Company agrees, in connection with any underwritten registration, to use its reasonable efforts to cause its Affiliates to agree, not to effect any public sale or private offer or distribution of any Common Stock or Common Stock Equivalents during the ten business days prior to the effectiveness under the Securities Act of any underwritten registration and during such time period after the effectiveness under the Securities Act of any underwritten registration (not to exceed 120 days) (except, if applicable, as part of such underwritten registration) as the Company and the managing underwriter may agree. 3.3 Registration Procedures. Whenever any Holder has requested that any Registrable Shares be registered pursuant to this Stockholders Agreement, the Company will use its commercially reasonable efforts to effect the registration and the sale of such Registrable Shares in accordance with the intended method of disposition thereof, and pursuant thereto the Company will as expeditiously as possible: -7- 8 (i) prepare and file with the SEC a registration statement on any appropriate form under the Securities Act with respect to such Registrable Shares and use its commercially reasonable efforts to cause such registration statement to become effective; (ii) prepare and file with the SEC such amendments, post-effective amendments, and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 180 days (or such lesser period as is necessary for the underwriters in an underwritten offering to sell unsold allotments) and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (iii) furnish to each seller of Registrable Shares and the underwriters of the securities being registered such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus), any documents incorporated by reference therein and such other documents as such seller or underwriters may reasonably request in order to facilitate the disposition of the Registrable Shares owned by such seller or the sale of such securities by such underwriters (it being understood that, subject to Section 3.4 and the requirements of the Securities Act and applicable State securities laws, the Company consents to the use of the prospectus and any amendment or supplement thereto by each seller and the underwriters in connection with the offering and sale of the Registrable Shares covered by the registration statement of which such prospectus, amendment or supplement is a part); (iv) use its commercially reasonable efforts to register or qualify such Registrable Shares under such other securities or blue sky laws of such jurisdictions as the managing underwriter reasonably requests; use its commercially reasonable efforts to keep each such registration or qualification (or exemption therefrom) effective during the period in which such registration statement is required to be kept effective; and do any and all other acts and things which may be reasonably necessary or advisable to enable each seller to consummate the disposition of the Registrable Shares owned by such seller in such jurisdictions (provided, however, that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph or (B) consent to general service of process in any such jurisdiction); (v) promptly notify each seller and each underwriter and (if requested by any such Person) confirm such notice in writing (A) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post-effective amendment, when the same has become effective, (B) of the issuance by any state securities or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Shares under state securities or "blue sky" laws or the initiation of any proceedings for that purpose, and (C) of the happening of any event which makes any statement made in a registration statement or related prospectus untrue or which requires the making of any changes in such registration statement, prospectus or documents so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and, as promptly as practicable thereafter, prepare and file with the SEC and furnish a supplement or amendment to such prospectus so that, as thereafter deliverable to the purchasers of such Registrable Shares, such prospectus will not contain any untrue statement of a material fact or omit a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; -8- 9 (vi) make generally available to the Company's securityholders an earnings statement satisfying the provisions of Section 11(a) of the Securities Act no later than 30 days after the end of the 12-month period beginning with the first day of the Company's first fiscal quarter commencing after the effective date of a registration statement, which earnings statement shall cover said 12-month period, and which requirement will be deemed to be satisfied if the Company timely files complete and accurate information on Forms 10-Q, 10-K and 8-K under the Exchange Act and otherwise complies with Rule 158 under the Securities Act; (vii) if requested by the managing underwriter or any seller promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or any seller reasonably requests to be included therein, including, without limitation, with respect to the Registrable Shares being sold by such seller, the purchase price being paid therefor by the underwriters and with respect to any other terms of the underwritten offering of the Registrable Shares to be sold in such offering, and promptly make all required filings of such prospectus supplement or post- effective amendment; (viii) as promptly as practicable after filing with the SEC of any document which is incorporated by reference into a registration statement (in the form in which it was incorporated), deliver a copy of each such document to each seller; (ix) cooperate with the sellers and the managing underwriter to facilitate the timely preparation and delivery of certificates (which shall not bear any restrictive legends unless required under applicable law) representing securities sold under any registration statement, and enable such securities to be in such denominations and registered in such names as the managing underwriter or such sellers may request and keep available and make available to the Company's transfer agent prior to the effectiveness of such registration statement a supply of such certificates; (x) promptly make available for inspection by any seller, any underwriter participating in any disposition pursuant to any registration statement, and any attorney, accountant or other agent or representative retained by any such seller or underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information requested by any such Inspector in connection with such registration statement; provided, that, unless the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, the Company shall not be required to provide any information under this subparagraph (x) if (A) the Company believes, after consultation with counsel for the Company, that to do so would cause the Company to forfeit an attorney-client privilege that was applicable to such information or (B) if either (1) the Company has requested and been granted from the SEC confidential treatment of such information contained in any filing with the SEC or documents provided supplementally or otherwise or (2) the Company reasonably determines in good faith that such Records are confidential and so notifies the Inspectors in writing unless prior to furnishing any such information with respect to (A) or (B) such Holder of Registrable Securities requesting such information agrees to enter into a confidentiality agreement in customary form and subject to customary exceptions; and provided, further that each Holder of Registrable Securities agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company at its expense, to undertake appropriate action and to prevent disclosure of the Records deemed confidential; -9- 10 (xi) furnish to each seller underwriter a signed counterpart of (A) an opinion or opinions of counsel to the Company, and (B) a comfort letter or comfort letters from the Company's independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letters, as the case may be, as the sellers or managing underwriter reasonably requests; (xii) cause the Registrable Shares included in any registration statement to be (A) listed on each securities exchange, if any, on which similar securities issued by the Company are then listed, or (B) authorized to be quoted and/or listed (to the extent applicable) on the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") or the NASDAQ National Market System if the Registrable Shares so qualify; (xiii) provide a CUSIP number for the Registrable Shares included in any registration statement not later than the effective date of such registration statement; (xiv) cooperate with each seller and each underwriter participating in the disposition of such Registrable Shares and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. ("NASD"); (xv) during the period when the prospectus is required to be delivered under the Securities Act, promptly file all documents required to be filed with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act; (xvi) notify each seller of Registrable Shares promptly of any request by the SEC for the amending or supplementing of such registration statement or prospectus or for additional information; (xvii) prepare and file with the SEC promptly any amendments or supplements to such registration statement or prospectus which, in the opinion of counsel for the Company or the managing underwriter, is required in connection with the distribution of the Registrable Shares; (xviii) enter into such agreements (including underwriting agreements in the managing underwriter's customary form) as are customary in connection with an underwritten registration; and (xix) advise each seller of such Registrable Shares, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the SEC suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for such purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued. 3.4 Suspension of Dispositions. Each Holder agrees by acquisition of any Registrable Shares that, upon receipt of any notice (a "Suspension Notice") from the Company of the happening of any event of the kind described in Section 3.3(v)(C), such Holder will forthwith discontinue disposition of Registrable Shares until such Holder's receipt of the copies of the supplemented or amended prospectus, or until it is advised in writing (the "Advice") by the Company that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the prospectus, and, if so directed by the Company, such Holder will deliver to the Company all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Shares current at the time of receipt of such notice. In the event the Company shall give any such notice, the time period regarding the effectiveness of registration statements set forth in Section 3.3(ii) hereof shall be extended by the number of days during the period from and including the date of the giving of the -10- 11 Suspension Notice to and including the date when each seller of Registrable Shares covered by such registration statement shall have received the copies of the supplemented or amended prospectus or the Advice. The Company shall use its commercially reasonable efforts and take such actions as are reasonably necessary to render the Advice as promptly as practicable. 3.5 Registration Expenses. All expenses incident to the Company's performance of or compliance with this Article 3 including, without limitation, all registration and filing fees, all fees and expenses associated with filings required to be made with the NASD (including, if applicable, the fees and expenses of any "qualified independent underwriter" as such term is defined in Schedule E of the By-Laws of the NASD, and of its counsel), as may be required by the rules and regulations of the NASD, fees and expenses of compliance with securities or "blue sky" laws (including reasonable fees and disbursements of counsel in connection with "blue sky" qualifications of the Registrable Shares), rating agency fees, printing expenses (including expenses of printing certificates for the Registrable Shares in a form eligible for deposit with Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by a holder of Registrable Shares), messenger and delivery expenses, the Company's internal expenses (including without limitation all salaries and expenses of its officers and employees performing legal or accounting duties), the fees and expenses incurred in connection with any listing of the Registrable Shares, fees and expenses of counsel for the Company and its independent certified public accountants (including the expenses of any special audit or "cold comfort" letters required by or incident to such performance), securities acts liability insurance (if the Company elects to obtain such insurance), the fees and expenses of any special experts retained by the Company in connection with such registration, and the fees and expenses of other persons retained by the Company and reasonable fees and expenses of one firm of counsel for the sellers (which shall be selected by the holders of a majority of the Registrable Shares being included in any particular registration statement) (all such expenses being herein called "Registration Expenses") will be borne by the Company whether or not any registration statement becomes effective; provided that, except as expressly otherwise provided above, in no event shall Registration Expenses include any underwriting discounts, commissions, or fees attributable to the sale of the Registrable Shares or any counsel, accountants, or other persons retained or employed by the Holders. 3.6 Indemnification. 3.6.1 The Company agrees to indemnify and reimburse, to the fullest extent permitted by law, each seller of Registrable Shares, and each of its employees, advisors, agents, representatives, partners, officers, and directors and each Person who controls such seller (within the meaning of the Securities Act or the Exchange Act) and any agent or investment advisor thereof (collectively, the "Seller Affiliates") (A) against any and all losses, claims, damages, liabilities, and expenses, joint or several (including, without limitation, attorneys' fees and disbursements except as limited by 3.6.3) based upon, arising out of, related to or resulting from any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus, or preliminary prospectus or any amendment thereof or supplement thereto, or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, (B) against any and all loss, liability, claim, damage, and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation or investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon, arising out of, related to or resulting from any such untrue statement or omission or alleged untrue statement or omission, and (C) against any and all costs and expenses (including reasonable fees and disbursements of counsel) as may be reasonably incurred in investigating, preparing, or defending against any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon, arising out of, related to or resulting from any such untrue statement or omission or alleged untrue statement or omission, to the extent that any such expense or cost -11- 12 is not paid under subparagraph (A) or (B) above; except insofar as the same are made in reliance upon and in strict conformity with information furnished in writing to the Company by such seller or any Seller Affiliate for use therein or arise from such seller's or any Seller Affiliate's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such seller or Seller Affiliate with a sufficient number of copies of the same. The reimbursements required by this Section 3.6.1 will be made by periodic payments during the course of the investigation or defense, as and when bills are received or expenses incurred. 3.6.2 In connection with any registration statement in which a seller of Registrable Shares is participating, each such seller will furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the fullest extent permitted by law, each such seller will indemnify the Company and its directors and officers and each Person who controls the Company (within the meaning of the Securities Act or the Exchange Act) against any and all losses, claims, damages, liabilities, and expenses (including, without limitation, reasonable attorneys' fees and disbursements except as limited by Section 3.6.3) resulting from any untrue statement or alleged untrue statement of a material fact contained in the registration statement, prospectus, or any preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission is contained in any information or affidavit so furnished in writing by such seller or any of its Seller Affiliates specifically for inclusion in the registration statement; provided that the obligation to indemnify will be several, not joint and several, among such sellers of Registrable Shares, and the liability of each such seller of Registrable Shares will be in proportion to, and provided further that such liability will be limited to, the net amount received by such seller from the sale of Registrable Shares pursuant to such registration statement; provided, however, that such seller of Registrable Shares shall not be liable in any such case to the extent that prior to the filing of any such registration statement or prospectus or amendment thereof or supplement thereto, such seller has furnished in writing to the Company information expressly for use in such registration statement or prospectus or any amendment thereof or supplement thereto which corrected or made not misleading information previously furnished to the Company. 3.6.3 Any Person entitled to indemnification hereunder will (A) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give such notice shall not limit the rights of such Person) and (B) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however, that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person unless (x) the indemnifying party has agreed to pay such fees or expenses, or (y) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such person. If such defense is not assumed by the indemnifying party as permitted hereunder, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld). If such defense is assumed by the indemnifying party pursuant to the provisions hereof, such indemnifying party shall not settle or otherwise compromise the applicable claim unless (1) such settlement or compromise contains a full and unconditional release of the indemnified party or (2) the indemnified party otherwise consents in writing. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless -12- 13 in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the reasonable fees and disbursements of such additional counsel or counsels. 3.6.4 Each party hereto agrees that, if for any reason the indemnification provisions contemplated by Section 3.6.1 or Section 3.6.2 are unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities, or expenses (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, liabilities, or expenses (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the actions which resulted in the losses, claims, damages, liabilities or expenses as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or indemnified party, and the parties, relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 3.6.4 were determined by pro rata allocation (even if the Holders or any underwriters or all of them were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 3.6.4. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities, or expenses (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or, except as provided in Section 3.6.3, defending any such action or claim. Notwithstanding the provisions of this Section 3.6.4, no Holder shall be required to contribute an amount greater than the dollar amount by which the proceeds received by such Holder with respect to the sale of any Registrable Shares exceeds the amount of damages which such Holder has otherwise been required to pay by reason of such statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations in this Section 3.6.4 to contribute shall be several in proportion to the amount of Registrable Shares registered by them and not joint. If indemnification is available under this Section 3.6, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Section 3.6.1 and Section 3.6.2 without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 3.6.4. 3.6.5 The indemnification and contribution provided for under this Stockholders Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director, or controlling Person of such indemnified party and will survive the transfer of securities. -13- 14 ARTICLE 4 TRANSFERS OF SECURITIES Section 4.1 Drag Along Rights. 4.1.1 Applicability. In connection with any Transfer by members of the HMC Group of shares of Common Stock representing more than 50% of the shares of Common Stock then held by the HMC Group (a "Significant Sale"), the HMC Group shall have the right to require each non-selling Holder (each, a "Co-Seller") to Transfer a portion of its Common Stock which represents the same percentage of the Fully-Diluted Common Stock held by such Co-Seller as the shares being disposed of by the HMC Group represent of the Fully-Diluted Common Stock held by the HMC Group. (For example, if the HMC Group is selling 50% of their Fully- Diluted Common Stock position, each Co-Seller shall be required to sell 50% of its Fully-Diluted Common Stock position.) All Common Stock Transferred by Holders pursuant to this Section 4.1 shall be sold at the same price and otherwise treated identically with the Common Stock being sold by the HMC Group in all respects; provided, that the Co-Seller shall not be required to make any representations or warranties in connection with such Transfer other than representations and warranties as to (i) such Co-Seller's ownership of his or its Common Stock to be Transferred free and clear of all liens, claims and encumbrances, (ii) such Co-Seller's power and authority to effect such transfer, and (iii) such matters pertaining to compliance with securities laws as the transferee may reasonably require except that the transferee may not require that each Transferring Co-Seller be an Accredited Investor. 4.1.2 Notice of Significant Sale. HMTF, on behalf of the HMC Group, shall give each Co-Seller at least 30 days' prior written notice of any Significant Sale as to which the HMC Group intends to exercise its rights under Section 4.1. If the HMC Group elects to exercise its rights under Section 4.1, the Co-Sellers shall take such actions as may be reasonably required and otherwise cooperate in good faith with the HMC Group in connection with consummating the Significant Sale (including, without limitation, the voting of any Common Stock or other voting capital stock of the Company to approve such Significant Sale). At the closing of such Significant Sale, each Co-Seller shall deliver certificates for all shares of Common Stock to be sold by such Co-Seller, duly endorsed for transfer, with the signature guaranteed, to the purchaser against payment of the appropriate purchase price. Section 4.2 Tag Along Rights. 4.2.1 Applicability. If the HMC Group desires to effect a Significant Sale and it does not elect to exercise its rights under Section 4.1 hereof, then at least 30 days prior to the closing of such Significant Sale, HMTF and the Company shall cause the HMC Group to make an offer (the "Participation Offer") to each Co-Seller to include in the proposed Significant Sale a portion of its Common Stock which represent the same percentage of such Co-Seller's Fully Diluted Common Stock as the shares being sold by the HMC Group represent of its Fully-Diluted Common Stock; provided that, if the consideration to be received by the HMC Group includes any securities, then, unless HMTF and the transferee both reasonably determine that an exemption is otherwise available under the Securities Act and all applicable state securities laws for such transaction, only Co-Sellers who have certified to the reasonable satisfaction of HMTF that they are Accredited Investors shall be entitled to participate in such transaction, unless the transferee consents otherwise. 4.2.2 Terms of Participation Offer. The Participation Offer shall describe the terms and conditions of the proposed Significant Sale and shall be conditioned upon (i) the consummation of the transactions contemplated in the Participation Offer with the transferee named therein, and (ii) each Co- Seller's execution -14- 15 and delivery of all agreements and other documents as the members of the HMC Group are required to execute and deliver in connection with such Significant Sale (provided that the Co-Seller shall not be required to make any representations or warranties in connection with such sale or transfer other than representations and warranties as to (A) such Co-Seller's ownership of his Common Stock to be sold or transferred free and clear of all liens, claims, and encumbrances, (B) such Co-Seller's power and authority to effect such transfer and (C) such matters pertaining to compliance with securities laws as the transferee may reasonably require). If any Co-Seller shall accept the Participation Offer, HMTF and the Company shall cause the HMC Group to reduce, to the extent necessary, the number of shares of Common Stock it otherwise would have sold in the proposed transfer so as to permit those Co-Sellers who have accepted the Participation Offer to sell the number of shares of Common Stock that they are entitled to sell under this Section 4.2, and HMTF shall cause the HMC Group to transfer and such Co-Sellers shall transfer the number of shares Common Stock specified in the Participation Offer to the proposed transferee in accordance with the terms of such transfer as set forth in the Participation Offer. Section 4.3 Certain Events Not Deemed Transfers. In no event shall any exchange, reclassification, or other conversion of shares into any cash, securities, or other property pursuant to a merger or consolidation of the Company or any Subsidiary with, or any sale or transfer by the Company or any Subsidiary of all or substantially all its assets to, any Person constitute a Significant Sale of shares of Common Stock by the HMC Group for purposes of Section 4.1 or 4.2. In addition, Sections 4.1 and 4.2 hereof shall not apply to any transfer, sale, or disposition of shares of Common Stock solely among members of the HMC Group. Section 4.4 Transfer and Exchange. When Securities are presented to the Company with a request to register the transfer of such Securities or to exchange such Securities for Securities of other authorized denominations, the Company shall register the transfer or make the exchange as requested if the requirements of this Stockholders Agreement for such transaction are met; provided, however, that the Securities surrendered for transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Company, duly executed by the Holder thereof or its attorney and duly authorized in writing. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith. Section 4.5 Replacement Securities. If a mutilated Security is surrendered to the Company or if the Holder of a Security claims and submits an affidavit or other evidence, satisfactory to the Company, to the effect that the Security has been lost, destroyed or wrongfully taken, the Company shall issue a replacement Security if the Company's requirements are met. If required by the Company, such Securityholder must provide an indemnity bond, or other form of indemnity, sufficient in the judgment of the Company to protect the Company against any loss which may be suffered. The Company may charge such Securityholder for its reasonable out-of-pocket expenses in replacing a Security which has been mutilated, lost, destroyed or wrongfully taken. ARTICLE 5 LIMITATION ON TRANSFERS Section 5.1 Restrictions on Transfer. The Securities shall not be Transferred or otherwise conveyed, assigned or hypothecated before satisfaction of (i) the conditions specified in this Section 5.1 and Sections 5.2 through 5.3, which conditions are intended to ensure compliance with the provisions of the Securities Act with respect to the Transfer of any Security and (ii) if applicable, Article 4 hereof. Any -15- 16 purported Transfer in violation of this Article 5 and/or, if applicable, Article 4 hereof shall be void ab initio and of no force or effect. Except for Transfers made pursuant to Sections 4.1 or 4.2 hereof (it being understood that transactions pursuant to such Sections are not subject to this Article 5) and except for Transfers to the public pursuant to an effective registration statement or sales to the public pursuant to Rule 144 under the Securities Act otherwise permitted hereunder, each Holder will cause any proposed transferee of any Security or any interest therein held by it to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Stockholders Agreement. Each Holder shall not Transfer, convey, assign or hypothecate any Securities to any Affiliate of such Holder or any member of such Holder's family unless such Holder shall have and retain all voting rights with respect to such Securities. Section 5.2 Restrictive Legends. 5.2.1 Securities Act Legend. Except as otherwise provided in Section 5.4 hereof, each Security held by a Holder, and each Security issued to any subsequent transferee of such Security, shall be stamped or otherwise imprinted with a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH OFFER, SALE, PLEDGE, TRANSFER, OR OTHER DISPOSITION WILL NOT VIOLATE APPLICABLE FEDERAL OR STATE SECURITIES LAWS. 5.2.2 Other Legends. Each Security issued to each Holder or a subsequent transferee shall include a legend in substantially the following form: THIS SECURITY IS SUBJECT TO RESTRICTIONS ON TRANSFER, VOTING AND OTHER TERMS AND CONDITIONS SET FORTH IN THE STOCKHOLDERS AGREEMENT DATED AS OF OCTOBER 16, 1996, A COPY OF WHICH MAY BE OBTAINED FROM CAPSTAR BROADCASTING PARTNERS, INC. AT ITS PRINCIPAL EXECUTIVE OFFICES. Section 5.3 Right of First Refusal. 5.3.1 Right of First Refusal. Prior to any Transfer or attempted Transfer by any Holder of any Securities or Common Stock Equivalents (the "Offered Securities") other than pursuant to a registration under the Securities Act, the Holder of such Offered Securities shall (i) give prior written notice (a "Transfer Notice") to HMTF of such Holder's intention to effect such Transfer, describing the terms and conditions of the proposed Transfer, including the identity of the prospective transferee(s), the number of shares of Offered Securities such Holder desires to sell and the purchase price. After receipt of the Transfer Notice, HMTF (or as provided in Section 5.3.3, an assignee of HMTF who is a member of the HMC Group) shall have the option for 15 days from the date of receipt of the Transfer Notice to elect to purchase all, but not less than all, of the Offered Securities upon the same terms and conditions as those set forth in the Transfer Notice by delivering a written notice (the "Election Notice") of such election to such Holder within such 15-day period. The Holder shall not consummate such Transfer until the earlier to occur of the lapse of the 15-day period or the date on which HMTF (acting for itself or if applicable, its assignee) notifies such Holder in writing that it will not exercise its rights under this Section 5.3 (the "Authorization Date"). If neither HMTF (nor any assignee) has elected to purchase all of the Offered Securities or has failed to make a timely -16- 17 election, such Holder may Transfer all, but not less than all, of the Offered Securities to the prospective transferee(s) thereof specified in the Transfer Notice, at a price and on terms no more favorable to such prospective transferee(s) than as specified in the Transfer Notice, during the 30-day period immediately following the Authorization Date, provided that, if required by the Company, such Holder shall either (i) provide to the Company an opinion reasonably satisfactory to the Company (or supply such other evidence reasonably satisfactory to the Company) that the proposed Transfer may be effected without registration under the Securities Act, or (ii) certify to the Company that the Holder reasonably believes that each proposed transferee is a "qualified institutional buyer" and that such Holder has taken reasonable steps to make each proposed transferee aware that such Holder may rely on Rule 144A under the Securities Act in effecting such Transfer. Each Security issued upon such Transfer shall bear the restrictive legend set forth in Section 5.2, unless in the reasonable judgment of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. If the Offered Securities are not so transferred within such 30-day period, such Offered Securities must be reoffered to HMTF in accordance with the provisions of this Section 5.3 if such Holder still desires to Transfer the Offered Securities. 5.3.2 Closing. If HMTF (or an assignee) exercises the right to purchase the Offered Securities by timely delivery of the Election Notice, unless otherwise agreed by the Holder of the Offered Securities and HMTF, (acting for itself, or if applicable, its assignee) the closing will take place at the offices of the Company in Dallas, Texas on the fifth business day after the date of the Election Notice. At the closing, HMTF (or, if applicable, its assignee) will pay the purchase price set forth in the Transfer Notice in cash (by certified or cashier's check) solely upon such Holder's delivery to HMTF (or, if applicable, its assignee), of valid certificates or agreements evidencing all of the Offered Securities then being purchased pursuant to the Election Notice. Certificates or agreements representing the Offered Securities will be duly endorsed (with signature guaranteed) for transfer to HMTF (or, if applicable, its assignee). By delivery of such certificates or agreements to HMTF (or, if applicable, its assignee) such Holder will be deemed to represent and warrant to HMTF (or, if applicable, its assignee) that the transferred Offered Securities are owned by such Holder free and clear of all liens, adverse claims, and other encumbrances other than as provided in this Stockholders Agreement. The Holder will promptly perform, whether before or after any such closing, such additional acts (including without limitation executing and delivering additional documents) as are reasonably required by either such party to effect more fully the transactions contemplated by this Section 5.3. 5.3.3 Assignment. The rights of HMTF under this Section 5.3 may be assigned or transferred in whole or in part by HMTF, without any consent or other action on the part of any other party hereto, to any one or more members of the HMC Group. Section 5.4 Termination of Certain Restrictions. Notwithstanding the foregoing provisions of this Section 5, the restrictions imposed by Section 5.3.1 upon the transferability of the Securities and the legend requirements of Section 5.2.1 shall terminate as to any Security (i) when and so long as such Security shall have been effectively registered under the Securities Act and disposed of pursuant thereto or disposed pursuant to the provisions of Rule 144 or (ii) when the Company shall have received an opinion of counsel reasonably satisfactory to it that such Security may be transferred without registration thereof under the Securities Act and that such legend may be removed. Whenever the restrictions imposed by Section 5.2 shall terminate as to any Security, the Holder thereof shall be entitled to receive from the Company, at the Company's expense, a new Security not bearing the restrictive legend set forth in Section 5.2. -17- 18 ARTICLE 6 PURCHASE OPTION Section 6.1. Purchase Option. 6.1.1 Purchase Option. If (i), and at such time as, a Holder is no longer a director, officer or employee of the Company or any Subsidiary of the Company, for any reason at any time or (ii) a Change of Control occurs, the Company shall have the option (the "Purchase Option") to purchase, and if the Purchase Option is exercised, such Holder (or the executor or administrator of such Holder's estate, in the event of such Holder's death, or such Holder's legal representative in the event of his incapacity) (hereinafter, collectively with such Holder, the "Grantor") shall sell to HMTF, (or as provided in Section 6.1.4 an assignee of HMTF) all or any portion (at the option of HMTF acting for itself or, if applicable, its assignee) of the shares of Common Stock and/or Common Stock Equivalents held by the Grantor (such shares of Common Stock and/or Common Stock Equivalents collectively being referred to as the "Purchasable Securities"), subject to HMTF's (or, if applicable, its assignee) compliance with the conditions hereinafter set forth. HMTF (acting for itself or, if applicable, its assignee) shall give notice (the "Purchase Notice") in writing to the Grantor of the exercise of the Purchase Option within one year from the date such Holder is no longer a director, officer or employee of the Company or any Subsidiary of the Company or such Change of Control. Such Purchase Notice shall state the number of Purchasable Securities to be purchased and the exercise price for each Purchasable Security (on a per share basis or, in the case of securities other than capital stock, other applicable denomination). If no notice is given within the time limit specified above, the Purchase Option shall terminate. 6.1.2 Closing. Unless otherwise agreed by the Grantor and HMTF, (acting for itself or, if applicable, its assignee) the closing of each exercise of the Purchase Option will take place at the offices of the Company in Dallas, Texas, on the fifth business day after the Purchase Notice is mailed or delivered in accordance with this Section 6.1. At the closing, HMTF (of, if applicable, its assignee) will pay the exercise price to the Grantor in cash (by certified or cashier's check) solely upon such Grantor's delivering to HMTF (or, if applicable, its assignee) valid certificates or agreements evidencing all Purchasable Securities then being purchased pursuant to the exercise of the Purchase Option. Certificates or agreements representing the Purchasable Securities will be duly endorsed (with signature guaranteed) for transfer to HMTF (or, if applicable, its assignee). Upon delivery of such certificates or agreements to HMTF(or, if applicable, its assignee) , the Grantor will be deemed to represent and warrant to HMTF (or, if applicable, its assignee) that the transferred Purchasable Securities are owned by the Grantor free and clear of all liens, adverse claims, and other encumbrances other than as provided in this Stockholders Agreement. In the event that, notwithstanding the foregoing, the Grantor shall have failed to obtain the release of any lien, adverse claim or other encumbrance on any Purchasable Securities by the scheduled closing date (at the option of HMTF acting for itself or, if applicable, its assignee) the closing shall nevertheless occur on such scheduled closing date, with the exercise price being reduced to the extent of all unpaid indebtedness for which such Purchasable Securities are then encumbered. Payment of the exercise price for the Purchasable Securities is not required in order to effect the timely exercise of the Purchase Option. In order to ensure the transfer of the Purchasable Securities purchased upon exercise of the Purchase Option, the Grantor hereby appoints HMTF as his or its attorney in fact for the purpose of effecting any such transfer, and the Grantor acknowledges and agrees that such power of attorney is coupled with an interest and is irrevocable. Moreover, HMTF (or, if applicable, its assignee) and the Grantor will promptly perform, whether before or after any Purchase Option closing, such additional acts (including without limitation executing and delivering additional documents) as are reasonably required by either such party to effect more fully the transactions contemplated hereby. -18- 19 6.1.3 Exercise Price. The exercise price for each Purchasable Security will equal the Appraised Value per share (or, in the case of securities other than capital stock, other applicable denomination) to be paid in connection with the exercise of the Purchase Option. 6.1.4 Assignment of Purchase Option. The Purchase Option may be assigned or transferred in whole or in part by HMTF to any one or more members of the HMC Group without any consent or other action on the part of any other party hereto. Section 6.2 Option by Certain Unaccredited Holders. 6.2.1 Grant of Option. Upon the occurrence of an Option Transaction (as defined in Section 6.2.2 hereof) with respect to the Company, each Holder shall be deemed to have granted to HMTF, an option ("Option") to purchase, upon the terms and conditions set forth herein, all Securities held by such Holder and all shares, notes, or other securities now or hereafter issued or issuable in respect of any such Securities (whether issued or issuable by the Company or any other person or entity) (collectively, the "Option Securities"). 6.2.2 Option Transaction. The Option may be exercised only if (a) the Company is engaged in or proposes to engage in a transaction in which any shares, notes, or other securities will be issued to such Holder in a transaction constituting a "sale" within the meaning of Section 2(3) of the Securities Act (whether through a merger, consolidation, exchange, or purchase), (b) the Holder is not an Accredited Investor at the time of the respective transaction (an "Unaccredited Holder"), (c) no security holder (except for such Unaccredited Holder or any other person granting a similar option to HMTF) of the Company involved in the respective transaction fails at the time of such transaction to qualify as an Accredited Investor, and (d) the issuer of the shares, notes, or other securities involved in such transaction (as conclusively evidenced by any notice signed in good faith by an executive officer or other authorized representative of HMTF) has not prepared and is not expected to prepare in connection with such transaction appropriate disclosure documents that are sufficient to register such shares, notes, or other securities under the Securities Act or to exempt such registration in accordance with Regulation D. Each transaction for which the Option may be exercised as provided in this Section 6.2.2 is herein referred to as an "Option Transaction." 6.2.3 Exercise of Option. HMTF may exercise the Option solely with respect to all, but not less than all, of such Unaccredited Holder's Option Securities involved in the respective Option Transaction. The Option may be exercised with respect to such Option Securities at any time before the consummation of the respective Option Transaction for which the Option is then exercisable. The exercise of the Option will be timely and effectively made if HMTF provides written notice of such exercise to such Unaccredited Holder before such consummation of the respective Option Transaction. The earliest date on which such notice is so mailed or delivered will constitute the respective exercise date of the Option to which such notice relates. 6.2.4 Closing. Unless otherwise agreed by HMTF and such Unaccredited Holder, the closing of each exercise of the Option will take place at the offices of the Company in Dallas, Texas, on the fifth business day after notice of the Option's exercise is mailed or delivered in accordance with Section 6.2.3. At the closing, HMTF will pay the exercise price to such Unaccredited Holder in cash (by certified or cashier's check) solely upon such Unaccredited Holder's delivering to HMTF valid certificates evidencing all Option Securities then being purchased pursuant to the exercise of the Option. Such certificates will be duly endorsed (with signature guaranteed) for transfer to HMTF, and upon delivery of such certificates to HMTF, such Unaccredited Holder will be deemed to represent and warrant to HMTF that the transferred Option Securities are owned by such Unaccredited Holder free and clear of all liens, adverse claims, and -19- 20 other encumbrances other than as provided in this Stockholders Agreement. Payment of the exercise price for the Option Securities is not required in order to effect the timely exercise of the Option. In order to ensure the transfer of the Option Securities purchased upon exercise of the Option, each Unaccredited Holder hereby severally appoints HMTF as his or its attorney in fact for the purpose of effecting any such transfer, and each Unaccredited Holder acknowledges and agrees that such power of attorney is coupled with an interest and is irrevocable. Moreover, HMTF and each Unaccredited Holder will promptly perform, whether before or after any Option closing, such additional acts (including without limitation executing and delivering additional documents) as are reasonably required by either such party to effect more fully the transactions contemplated hereby. 6.2.5 Exercise Price. The exercise price for each Option Security will equal the Appraised Value per share (or, in the case of securities other than capital stock, other applicable denomination) to be paid in connection with the Option Transaction. 6.2.6 Assignment of Option. The Option may be assigned or transferred in whole or in part by HMTF to any one or more members of the HMC Group without any consent or other action on the part of any Holder, and all references herein to "HMTF" will include without limitation each assignee or transferee of all or any part of the Option. ARTICLE 7 TERMINATION The provisions of this Agreement shall terminate on the tenth anniversary of the date of this Stockholders Agreement; provided, however, that Sections 4.1 and 4.2 and Articles 2, 5 (other than Sections 5.2 and 5.4) and 6 of this Agreement shall terminate upon the consummation prior to the expiration of such 10-year period of a Qualified IPO. ARTICLE 8 MISCELLANEOUS Section 8.1 Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows (or at such other address as may be substituted by notice given as herein provided): If to the Company: Capstar Broadcasting Partners, Inc. 600 Congress Avenue, Suite 1270 Austin, Texas 78701 Attention: R. Steven Hicks Copies to: Vinson & Elkins L.L.P. 3700 Trammell Crow Center 2001 Ross Avenue -20- 21 Dallas, Texas 75201 Attention: Michael D. Wortley If to HMTF: Hicks, Muse, Tate & Furst Incorporated 200 Crescent Court, Suite 1600 Dallas, Texas 75201 Attention: Thomas 0. Hicks John R. Muse Jack D. Furst Lawrence D. Stuart, Jr. Hicks, Muse, Tate & Furst Incorporated 1325 Avenue of the Americas 25th Floor New York, New York 10019 Attention: Charles W. Tate Alan B. Menkes Michael J. Levitt Copies to: Vinson & Elkins L.L.P. 3700 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 Attention: Michael D. Wortley If to any Holder, at its address listed on the signature pages hereof. Any notice or communication hereunder shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five calendar days after mailing if sent by registered or certified mail (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Section 8.2 Legal Holidays. A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions at such place are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest on the amount of such payment shall accrue for the intervening period. Section 8.3 Governing Law; Jurisdiction. THIS STOCKHOLDERS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. -21- 22 Section 8.4 Successors and Assigns. Whether or not an express assignment has been made pursuant to the provisions of this Stockholders Agreement, provisions of this Stockholders Agreement that are for the Holders' benefit as the holders of any Securities are also for the benefit of, and enforceable by, all subsequent holders of Securities, except as otherwise expressly provided herein. This Stockholders Agreement shall be binding upon the Company, each Holder, and their respective successors and assigns. Section 8.5 Duplicate Originals. All parties may sign any number of copies of this Stockholders Agreement. Each signed copy shall be an original, but all of them together shall represent the same agreement. Section 8.6 Severability. In case any provision in this Stockholders Agreement shall be held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and the remaining provisions shall not in any way be affected or impaired thereby. Section 8.7 No Waivers; Amendments. 8.7.1 No failure or delay on the part of the Company or any Holder in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Company or any Holder at law or in equity or otherwise. 8.7.2 Any provision of this Stockholders Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Company and the Required Holders; provided that no such amendment or waiver shall, (i) unless signed by all of the Holders, amend the provisions of Section 2.1, (ii) unless signed by all of the Holders affected, (A) amend the provisions of this Section 8.7.2 or (B) change the number of Holders which shall be required for the Holders or any of them to take any action under this Section 8.7.2 or any other provision of this Stockholders Agreement, and (iii) unless signed by a majority in interest of the Holders who are not members of the HMC Group, amend Article 3, Section 4.1, Section 4.2 or Articles 5 or 6, or grant a waiver thereunder. Section 8.8 Third Parties. Each member of the HMC Group is an intended third party beneficiary of this Stockholders Agreement and, to the extent applicable, bound by the provisions thereof including without limitation Article III and Section 4.2 hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -22- 23 SIGNATURES TO STOCKHOLDERS AGREEMENT IN WITNESS WHEREOF, the parties hereto have caused this Stockholders Agreement to be duly executed, all as of the date first written above. CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ R. STEVEN HICKS --------------------------------- Name: R. Steven Hicks Title: Chief Executive Officer and President HICKS, MUSE, TATE & FURST INCORPORATED By: /s/ MICHAEL D. SALIM ---------------------------------- Name: Michael D. Salim Title: Chief Financial Officer 24 SIGNATURES TO STOCKHOLDERS AGREEMENT NAME OF HOLDER: /s/ CHARLES DITORO --------------------------------- Charles DiToro Address: 1758 SW Crane Creek Circle Palm City, FL 34990 25 SIGNATURES TO STOCKHOLDERS AGREEMENT NAME OF HOLDER: /s/ JUDY JENNINGS --------------------------------- Judy Jennings Address: 15934 Lone Oak Drive Catlettsburg, KY 40129-9017 26 SIGNATURES TO STOCKHOLDERS AGREEMENT NAME OF HOLDER: /s/ HANK KESTENBAUM --------------------------------- Hank Kestenbaum Address: 4812 Peregrine Point Circle West Sarasota, FL 34231 27 SIGNATURES TO STOCKHOLDERS AGREEMENT NAME OF HOLDER: /s/ PATIA GAUGH --------------------------------- Patia Gaugh Address: 22-11 36th Street Astoria, NY 11105 28 SIGNATURES TO STOCKHOLDERS AGREEMENT NAME OF HOLDER: /s/ SHARON CHAMBERS --------------------------------- Sharon Chambers Address: 95 Oakey Drive Kenell Park, NJ 08824 29 SIGNATURES TO STOCKHOLDERS AGREEMENT NAME OF HOLDER: /s/ JAY STERIN --------------------------------- Jay Sterin Address: 95 Beach Hill Drive Newark, DE 19711 30 SIGNATURES TO STOCKHOLDERS AGREEMENT NAME OF HOLDER: /s/ JAMES T. SHEA --------------------------------- James T. Shea Address: 3755 Fox Run Drive Allentown, PA 18103 31 SIGNATURES TO STOCKHOLDERS AGREEMENT NAME OF HOLDER: /s/ RICH LEWIS --------------------------------- Rich Lewis Address: 3363 Coville Road Allentown, PA 18104 32 SIGNATURES TO STOCKHOLDERS AGREEMENT NAME OF HOLDER: /s/ JAMES J. SULLIVAN --------------------------------- James J. Sullivan Address: 9 Lakeside Avenue Darien, CT 06820 33 SIGNATURES TO STOCKHOLDERS AGREEMENT NAME OF HOLDER: /s/ SCOTT BACHERMAN --------------------------------- Scott Bacherman Address: 71 Wright Street Westport, CT 06880 34 SIGNATURES TO STOCKHOLDERS AGREEMENT NAME OF HOLDER: /s/ MARC BERMAN --------------------------------- Marc Berman Address: 39 High Ridge Road Redding, CT 06896 EX-10.22.2 17 1ST AMENDMENT TO STOCK HOLDERS AGREEMENT 1 EXHIBIT 10.22.2 FIRST AMENDMENT TO STOCKHOLDERS AGREEMENT THIS FIRST AMENDMENT (the "First Amendment") to the Stockholders Agreement dated as of November 26, 1996, by and among Capstar Broadcasting Partners, Inc., a Delaware corporation ("the "Company"), the securityholders listed on the signature pages thereto, and Hicks, Muse, Tate & Furst Incorporated, a Texas corporation ("HMTF") (the "Stockholders Agreement"), is entered into as of January 27, 1997, by and among the Company and the Holders (as defined in the Stockholders Agreement). RECITALS: WHEREAS, the Company and the Holders desire to amend the Stockholders Agreement as provided herein pursuant to Section 8.7.2 of the Stockholders Agreement; and WHEREAS, any capitalized term used herein, and not otherwise defined herein, shall have the meaning set forth in the Stockholders Agreement. AGREEMENTS: NOW, THEREFORE, in consideration of the foregoing and the agreements herein contained, the parties hereto covenant and agree as follows: 1. A new Section 8.9 is hereby added to the Stockholders Agreement to read as follows: Section 8.9. Additional Holders. From time to time, additional securityholders of the Company may become "Holders" under this Stockholders Agreement, without the consent of any other Holder, upon the execution by the President of the Company (the "President") and such party of a supplement to this Stockholders Agreement in substantially the same form as Exhibit A attached hereto (each, a "SUPPLEMENT"). Each Holder and HMTF hereby consents to the execution of Supplements by the President and irrevocably agrees that the President's execution of a Supplement shall be binding on each of the Holders and HMTF as if it had executed such Supplement. 2. Article 6 is hereby amended and restated as follows: 2 ARTICLE 6 PURCHASE OPTION Section 6.1 Purchase Option. 6.1.1 Purchase Option. Unless Section 4.1 or 4.2 is otherwise applicable, if (i), and at such time as, R. Steven Hicks' is no longer a director, officer or employee of the Company or any Subsidiary of the Company, for any reason at any time or (ii) a Change of Control occurs, the HMTF shall have the option (the "Purchase Option") to purchase, and if the Purchase Option is exercised, R. Steven Hicks (or the executor or administrator of R. Steven Hicks' estate, in the event of R. Steven Hicks' death, or R. Steven Hicks' legal representative in the event of his incapacity) (hereinafter, collectively with R. Steven Hicks, the "Grantor") shall sell to HMTF, (or as provided in Section 6.1.4 an assignee of HMTF) all or any portion (at the option of HMTF acting for itself or, if applicable, its assignee) of the shares of Common Stock, Warrants and/or Common Stock Equivalents held by the Grantor (such shares of Common Stock, Warrants and/or Common Stock Equivalents collectively being referred to as the "Purchasable Securities"), subject to HMTF's (or, if applicable, its assignee) compliance with the conditions hereinafter set forth. HMTF (acting for itself or, if applicable, its assignee) shall give notice (the "Purchase Notice") in writing to the Grantor of the exercise of the Purchase Option within 120 days from the date R. Steven Hicks is no longer a director, officer or employee of the Company or any Subsidiary of the Company or such Change of Control. Such Purchase Notice shall state the number of Purchasable Securities to be purchased and the exercise price for each Purchasable Security (on a per share basis or, in the case of securities other than capital stock, other applicable denomination). If no notice is given within the time limit specified above, the Purchase Option shall terminate. 6.1.2 Closing. Unless otherwise agreed by the Grantor and HMTF, (acting for itself or, if applicable, its assignee) the closing of each exercise of the Purchase Option will take place at the offices of the Company in Dallas, Texas, on the fifth business day after the Purchase Notice is mailed or delivered in accordance with this Section 6.1. At the closing, HMTF (of, if applicable, its assignee) will pay the exercise price to the Grantor in cash (by certified or cashier's check) solely upon such Grantor's delivering to HMTF (or, if applicable, its assignee) valid certificates or agreements evidencing all Purchasable Securities then being purchased pursuant to the exercise of the Purchase Option. Certificates or agreements representing the Purchasable Securities will be duly endorsed (with signature guaranteed) for transfer to HMTF (or, if applicable, its assignee). Upon delivery of such certificates or agreements to HMTF(or, if applicable, its assignee) , the Grantor will be deemed to represent and warrant to HMTF (or, if applicable, its assignee) that the transferred Purchasable Securities are owned by the Grantor free and clear of all liens, adverse claims, and other encumbrances other than as provided in this Stockholders Agreement. In the event that, notwithstanding the foregoing, the Grantor shall have failed to obtain the release of any lien, adverse claim or other encumbrance on any Purchasable Securities by the scheduled closing date (at the option of HMTF acting for itself or, if applicable, its assignee) the closing shall nevertheless occur on such scheduled closing date, 2 3 with the exercise price being reduced to the extent of all unpaid indebtedness for which such Purchasable Securities are then encumbered. Payment of the exercise price for the Purchasable Securities is not required in order to effect the timely exercise of the Purchase Option. In order to ensure the transfer of the Purchasable Securities purchased upon exercise of the Purchase Option, the Grantor hereby appoints HMTF as his or its attorney in fact for the purpose of effecting any such transfer, and the Grantor acknowledges and agrees that such power of attorney is coupled with an interest and is irrevocable. Moreover, HMTF (or, if applicable, its assignee) and the Grantor will promptly perform, whether before or after any Purchase Option closing, such additional acts (including without limitation executing and delivering additional documents) as are reasonably required by either such party to effect more fully the transactions contemplated hereby. 6.1.3 Exercise Price. The exercise price for each Purchasable Security will equal the Appraised Value per share (or, in the case of securities other than capital stock, other applicable denomination). 6.1.4 Assignment of Purchase Option. The Purchase Option may be assigned or transferred in whole or in part by HMTF to any one or more members of the HMC Group without any consent or other action on the part of any other party hereto. 3. Except as herein specifically amended, the Stockholders Agreement shall continue in full force and effect in accordance with its terms. [Remainder of page intentionally left blank] 3 4 IN WITNESS WHEREOF, the parties hereto have duly executed this First Amendment effective as of the date first written above. COMPANY: CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ R. STEVEN HICKS ------------------------------------- Name: R. Steven Hicks Title: President and Chief Executive Officer HOLDERS: /s/ JAMES T. SHEA -------------------------------------------- James T. Shea /s/ JAMES J. SULLIVAN -------------------------------------------- James J. Sullivan /s/ CHARLES DITORO -------------------------------------------- Charles DiToro /s/ JUDY JENNINGS -------------------------------------------- Judy Jennings /s/ HANK KESTENBAUM -------------------------------------------- Hank Kestenbaum /s/ PATIA GAUGH -------------------------------------------- Patia Gaugh /s/ SHARON CHAMBERS -------------------------------------------- Sharon Chambers /s/ JAY STERIN -------------------------------------------- Jay Sterin /s/ RICH LEWIS -------------------------------------------- Rich Lewis /s/ MARC BERMAN -------------------------------------------- Marc Berman /s/ SCOTT BACHERMAN -------------------------------------------- Scott Bacherman 5 EXHIBIT A SUPPLEMENT TO STOCKHOLDERS AGREEMENT This Supplement (this "SUPPLEMENT") to the Stockholders Agreement dated as of November 26, 1996, by and among Capstar Broadcasting Partners, Inc., a Delaware corporation (the "COMPANY"), the securityholders listed on the signature pages thereto, and Hicks, Muse, Tate & Furst Incorporated, a Texas corporation, as amended or supplemented (the "STOCKHOLDERS AGREEMENT"), is entered into as of _________________, 199__, between ________________________ (the "NEW HOLDER"), and the President of the Company, pursuant to the terms of the Stockholders Agreement. AGREEMENTS For valuable consideration, whose receipt and sufficiency are hereby acknowledged, New Holder is added as a "Holder" under the Stockholders Agreement and New Holder hereby agrees that it shall be bound by the terms thereof. Executed as of the date first written above. NEW HOLDER: ------------------------------------- ------------------------------------- Address: ------------------------------------- ------------------------------------- PRESIDENT: ------------------------------------- ---------------------------,President EX-10.23.1 18 STOCK PLEDGE/SECURITY AGREEMENT/POWER OF ATTORNEY 1 EXHIBIT 10.23.1 STOCK PLEDGE, SECURITY AGREEMENT AND POWER OF ATTORNEY THIS STOCK PLEDGE, SECURITY AGREEMENT and POWER OF ATTORNEY (this "Agreement"), is entered into as of February 20, 1997, by Claude C. Turner (otherwise known as Dex Allen) ("Pledgor"), in favor of Capstar Broadcasting Partners, Inc., a Delaware corporation ("Pledgee"), whose principal place of business for notice hereunder is 600 Congress Avenue, Suite 1400, Austin, Texas 78701. RECITALS: Pledgor desires to purchase and Pledgee desires to sell 363,636 shares of Class A Common Stock, par value $0.01 per share (the "Common Stock"), of Pledgee. Pledgee has loaned $200,000 to Pledgor, as evidenced by that certain promissory note of even date herewith (the "Note") in order to purchase the 181,818 shares of Common Stock; and It is a condition to the making of such loan that Pledgor deliver to Pledgee this Agreement for the purpose of securing the repayment of the Note; AGREEMENTS: In order to induce Pledgee to loan monies to Pledgor and for other good and valuable consideration, whose receipt and sufficiency are hereby acknowledged, Pledgor agrees as follows: Section 1. PLEDGE. Pledgor hereby pledges to Pledgee and grants to Pledgee a security interest in 181,818 shares of the Common Stock (the "Pledged Shares"), and all dividends, cash, instruments, securities and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any of the Pledged Shares. Section 2. SECURITY FOR OBLIGATIONS. This Agreement secures the payment of all principal from time to time outstanding under the Note and all interest thereon and all other obligations of Pledgor now or hereafter existing thereunder (collectively, the "Obligations"). Section 3. DELIVERY OF PLEDGED SHARES. All certificates or instruments representing or evidencing the Pledged Shares shall be delivered to and held by or on behalf of Pledgee pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank. Pledgee shall have the right to register in the name of Pledgee or any of Pledgee's nominees any or all of the Pledged Shares, subject only to 2 the revocable rights specified in Section 6(a). Pledgee shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Shares for certificates or instruments of smaller or larger denominations. Section 4. REPRESENTATIONS AND WARRANTIES. Except as pursuant to that certain Stockholders Agreement dated as of November 26, 1996, as such may be amended, to which Pledgor is a party as of the date hereof (the "Stockholders Agreement"), Pledgor represents and warrants that he is the legal and beneficial owner of the Pledged Shares free and clear of any lien, security interest, restriction on transfer, voting rights restriction, option or other charge or encumbrance, and that Pledgor has full right and power to transfer the Pledged Shares to the Pledgee free and clear of any interests described herein. Section 5. FURTHER ASSURANCES. Pledgor agrees that at any time and from time to time, at the expense of Pledgor, Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, as may be reasonably requested by Pledgee in order to perfect and protect any security interest granted hereby or to enable Pledgee to exercise and enforce its rights and remedies hereunder with respect to any Pledged Shares. Section 6. VOTING RIGHTS; DIVIDENDS; ETC. a. So long as no Event of Default (as hereinafter defined) shall have occurred and be continuing and in accordance with the terms and conditions of the Stockholders Agreement, Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Shares or any part thereof for any purpose not inconsistent with the terms of this Agreement, and Pledgee shall execute and deliver (or cause to be executed and delivered) to Pledgor all such proxies and other instruments as Pledgor may reasonably request for the purpose of enabling Pledgor to exercise such voting and other rights. b. Upon the occurrence of any Event of Default, all the rights of Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 6.(a) hereof shall cease, and all such rights shall thereupon become vested in Pledgee who shall thereupon have the sole right to exercise such voting and other consensual rights. c. Any and all dividends, distributions and interest paid in respect of the Pledged Shares, including without limitation any and all i. dividends and interest paid or payable other than in cash in respect of, any instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Shares, ii. dividends and other distributions paid or payable in cash in respect of any Pledged Shares in connection with a partial or total liquidation or dissolution or in connection with the reduction of capital, capital surplus or paid-in surplus, and 3 iii. cash paid, payable or otherwise distributed in respect of principal, or in the redemption of, or in exchange for, any Pledged Shares, shall be, and shall be forthwith delivered to Pledgee to be held by Pledgee as, Pledged Shares and shall, if received by Pledgor, be received in trust for the benefit of Pledgee, be segregated from the other property or funds of Pledgor and be forthwith delivered to Pledgee as Pledged Shares in the same form as so received (with any necessary endorsement). Section 7. TRANSFERS AND OTHER LIENS. Except as set forth below, Pledgor agrees that it will not sell or otherwise dispose of, or grant any option with respect to, any of the Pledged Shares or create or permit to exist any lien, security interest, or other charge or encumbrance upon or with respect to any of the Pledged Shares, except for the security interest created by this Agreement. Pledgor may sell, upon the prior written consent of Pledgee, any or all of the Pledged Shares free and clear of the lien created hereby (and Pledgee will release such lien and deliver certificates representing the Pledged Shares to be so sold) if such sale is pursuant to the terms and conditions of the Stockholders Agreement, sale is a bona fide arms' length transaction with a party unrelated to Pledgor, such sale is for all cash and the proceeds of such sale are applied in payment of the Obligations (with any proceeds remaining after payment in full of all the Obligations to be retained by Pledgor). The foregoing provision shall not operate to relieve Pledgor from compliance with any right of first refusal in favor of Pledgee that may exist in connection with such sale. Section 8. EVENTS OF DEFAULT. Any of the following events shall constitute an event of default ("Event of Default") under this Agreement: a. the default by Pledgor in the payment of any principal of or interest on the Note when the same shall become due, either by the terms thereof or as otherwise provided herein, and such default is not cured by Pledgor within any applicable grace period; b. the default by Pledgor in the performance of any other covenant, condition or term of the Obligations in accordance with the terms thereof, and such default is not cured by Pledgor within any applicable grace period; c. the default by Pledgor in the performance of any covenant, condition or term of this Agreement, the Note or of any other instrument evidencing, securing or relating to the Obligations, and such default is not cured by Pledgor within any applicable grace period; d. any representation or warranty made in writing by Pledgor in this Agreement or in the Note or any other instrument evidencing, securing or relating to the Obligations shall be false or misleading in any material respect on the date as of which made; e. any petition in bankruptcy is filed by or against Pledgor or any proceeding in bankruptcy or similar proceeding under the laws or regulations of any applicable jurisdiction relating to the relief of debtors is commenced by or against Pledgor, or any action is taken in furtherance of the foregoing; 3 4 f. if Pledgor makes any assignment for the benefit of her or its creditors; g. any receiver or other court or government official is appointed to take possession or control of any of Pledgor's property; or h. any order of attachment, lien, distraint, garnishment or other levy is issued against any of Pledgor's funds or other property and remains unstayed for a period of 30 days. Section 9. REASONABLE CARE. Pledgee shall be deemed to have exercised reasonable care in the custody and the preservation of the Pledged Shares in Pledgee's possession, if the Pledged Shares are accorded treatment substantially equal to that which Pledgee accords Pledgee's own property, it being understood that Pledgee shall have no responsibility for ascertaining or taking action with respect to costs, conversions, changes, maturities, tenders or other matters relative to any Pledged Shares, whether or not Pledgee has or is deemed to have knowledge of such matters, or taking any necessary steps to preserve rights against any parties with respect to any Pledged Shares. Section 10. REMEDIES UPON DEFAULT. If any Event of Default shall have occurred and be continuing: a. Pledgee may elect to declare all or any part of the Obligations secured hereby immediately due and payable in full, without notice, demand, presentment, notice of intent to accelerate, notice of acceleration or any other notice, all of which Pledgor hereby expressly waives (except such notice as may be required by law and cannot be waived). b. Pledgee may exercise in respect of the Pledged Shares, in addition to other rights and remedies provided for herein or otherwise available to Pledgee, all the rights and remedies of a secured party in default under all applicable laws in effect in the State of Texas at that time and Pledgee may also, without notice except as specified below, sell the Pledged Shares or any part thereof in one or more parcels in a public or private sale, at any exchange, broker's board, for cash, on credit or for future delivery and upon such other terms as Pledgee may deem commercially reasonable period. Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days notice to Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Pledgee shall not be obligated to make any sale of the Pledged Shares regardless of notice of sale having been given. Pledgee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. c. Any cash held by Pledgee as Pledged Shares and all cash proceeds received by Pledgee in respect of any sale of, collection from, or other realization of all or any part of Pledged Shares, may, in the discretion of Pledgee, be held by Pledgee as collateral for, and/or then or at any time thereafter applied in whole or in part by Pledgee against all or any part of the Obligations. Any surplus of such cash or cash proceeds held by Pledgee and remaining after payment in full of all the 4 5 Obligations shall be paid over to Pledgor or to whomsoever may be lawfully entitled to receive such surplus. Section 11. EXPENSES. Pledgor shall upon demand pay to Pledgee any and all reasonable expenses (including reasonable attorneys' fees and legal expenses) incurred by Pledgee in connection with protecting Pledgee against the claims or interests of any third person with respect to the Pledged Shares, and in exercising any right or remedy conferred by this Agreement or by law. Section 12. AMENDMENTS. No amendment or waiver of any provision of this Agreement shall in any event be effective unless the same shall be in writing and signed by both Pledgor and Pledgee. Section 13. RETURN OF THE PLEDGED SHARES. Upon the full payment and performance of the Obligations, this Agreement and the pledge effected hereby shall be null and void and the Pledged Shares shall promptly be returned to Pledgor by Pledgee. Section 14. CONTINUING SECURITY AGREEMENT. This Agreement shall create a continuing security interest in the Pledged Shares and shall remain in full force and effect until payment in full of the Obligations and be binding upon Pledgor, his successors and assigns. Section 15. GOVERNING LAW; TERMS. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas. Executed as of the date first written above. PLEDGOR: /s/ Claude C. Turner ---------------------------------------- Claude C. Turner (otherwise known as Dex Allen) PLEDGEE: By: /s/ William S. Banowsky, Jr. ------------------------------------ William S. Banowsky, Jr. Executive Vice President 5 EX-10.23.2 19 9% PROMISSORY NOTE DATED FEBRUARY 20, 1997 1 EXHIBIT 10.23.2 PROMISSORY NOTE $200,000 Austin, Texas February 20, 1997 FOR VALUE RECEIVED, Claude C. Turner (otherwise known as Dex Allen) ("Maker") promises to pay to the order of Capstar Broadcasting Partners, Inc. ("Payee") at such address in Austin, Texas as specified below, the principal sum of TWO HUNDRED THOUSAND AND 00/100 DOLLARS ($200,000) together with interest thereon at the rate of nine percent (9.0%) per annum, payable as hereinafter provided. Accrued interest is due and payable on March 31, 1997 and on the last day of each and every succeeding calendar month thereafter during the term hereof and at maturity; provided, however, that if the principal of this Note is prepaid in whole or in part, at any time after the date hereof, all accrued and unpaid interest with respect to such principal amount prepaid is due and payable on the date of such prepayment. Principal and any unpaid accrued interest is due and payable at the time of maturity, which shall be the earlier to occur of (i) the Closing Date (as such term is defined in that certain Asset Purchase Agreement between Commonwealth Broadcasting of Arizona, L.L.C. and Community Acquisition Company, Inc. dated January 27, 1997) or (ii) October 31, 1997. Maker shall have the right to prepay this Note in whole or in part at any time without penalty or premium. All amounts paid hereunder shall be applied first to all interest then accrued and unpaid hereunder, and the balance, if any, to principal. All past due principal and interest on this Note shall bear interest at the maximum rate permitted by law from maturity until paid. All sums called for, payable or to be paid hereunder shall be paid in lawful money of the United States of America which at the time of payment is legal tender for the payment of public and private debts therein. If default is made in the payment of this Note at maturity (regardless of how its maturity may be brought about) or the same is placed in the hands of an attorney for collection, or if suit is filed hereon, or proceedings are had in bankruptcy, probate, receivership, reorganization, or other judicial proceedings for the establishment or collection of any amount called for hereunder, or any amount payable or to be payable hereunder is collected through any such proceedings, Maker agrees to pay the holder of this Note a reasonable amount as attorney's or collection fees. 2 Maker hereby waives presentment and demand for payment, notice of intent to accelerate maturity, notice of acceleration of maturity, protest or notice of protest and non-payment, bringing of suit and diligence in taking any action to collect any sums owing hereunder and in proceeding against any of the rights and properties securing payment hereof, and agrees that its liability on this Note shall not be affected by any release of or change in any security for the payment of this Note. In the event of a default in the performance of any agreement or covenant contained in any instrument securing payment hereof, without the giving of any notice of any kind, the holder of this Note shall have the right and option, to declare the unpaid balance of principal and accrued interest on this Note at once due and payable and to foreclose or require foreclosure of any and all liens securing payment hereof, and to exercise any and all other rights and remedies it may have. Failure to exercise this option upon any default shall not constitute a waiver of the right to exercise it in the event of any subsequent default. Payment of this Note is secured by a Stock Pledge Agreement between Maker and Payee of even date herewith pursuant to which Maker pledges to Payee and grants to Payee a security interest in 181,818 shares of Class A Common Stock, par value $0.01 per share (the "Pledged Shares"), of Payee, and all dividends, cash, instruments, securities and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any of the Pledged Shares. All notices permitted hereunder shall be given to the addressee at the following address: if to Payee, at the address provided below; if to Maker, 600 Congress Avenue, Suite 1400, Austin, Texas 78701. All notices given hereunder shall be in writing and shall be considered properly given if mailed by first-class United States mail, postage prepaid, registered or certified with return receipt requested, or by delivering same in person to the addressee, or by prepaid telegram. Any notice given in accordance herewith shall be effective upon receipt at the address of the addressee. It is expressly stipulated and agreed to be the intent of Maker and Payee to at all times comply with the usury and other laws applicable to this Note and the instruments securing the payment hereof (the "Security Instruments") and any subsequent revisions, repeals, or judicial interpretations thereof, to the extent any of the same are applicable hereto. If such laws are ever revised, repealed, or judicially interpreted so as to render usurious any amount called for under this Note or under any of the Security Instruments, or contracted for, charged, or received with respect to the indebtedness evidenced by this Note, or if Payee's exercise of the option herein contained to accelerate the maturity of this Note or if any prepayment by Maker results in Maker having paid any interest in excess of that permitted by law, then it is Maker's and Payee's express intent that all excess amounts theretofore collected by Payee be credited on the principal balance of this Note (or, if the Note has been paid in full, refunded to Maker), and the provisions of this Note and the Security Instruments immediately be deemed reformed and the amounts thereafter collectable hereunder and thereunder reduced, without the necessity of the execution of any new document, so as to comply with the then applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder. 3 THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EXECUTED as of the date first written above. /s/ Claude C. Turner --------------------------------------- Claude C. Turner (otherwise known as Dex Allen) Address: Commonwealth Broadcasting 2550 Fifth Avenue, 11th Floor San Diego, CA 92103 3 EX-10.24.1 20 9% PROMISSORY NOTE EXECUTED BY DAVID J. BENJAMIN 1 EXHIBIT 10.24.1 PROMISSORY NOTE $396,363.64 Austin, Texas February 20, 1997 FOR VALUE RECEIVED, David J. Benjamin, III ("Maker") promises to pay to the order of Capstar Broadcasting Partners, Inc. ("Payee") at its banking quarters in New York, New York, the principal sum of THREE HUNDRED NINETY SIX THOUSAND THREE HUNDRED SIXTY THREE AND 64/100 DOLLARS ($396,363.64) together with interest thereon at the rate of nine percent (9.0%) per annum, payable as hereinafter provided. Principal and accrued interest is due and payable in full at the time of maturity which shall be the earlier to occur of (i) the Closing Date (as such term is defined in that certain Asset Purchase Agreement between Community Pacific Broadcasting Company L.P. and Community Acquisition Company, Inc. dated December 26, 1996, as amended) or (ii) November 10, 1997. Maker shall have the right to prepay this Note in whole or in part at any time without penalty or premium. All amounts paid hereunder shall be applied first to all interest then accrued and unpaid hereunder, and the balance, if any, to principal. All past due principal and interest on this Note shall bear interest at the maximum rate permitted by law from maturity until paid. All sums called for, payable or to be paid hereunder shall be paid in lawful money of the United States of America which at the time of payment is legal tender for the payment of public and private debts therein. If default is made in the payment of this Note at maturity (regardless of how its maturity may be brought about) or the same is placed in the hands of an attorney for collection, or if suit is filed hereon, or proceedings are had in bankruptcy, probate, receivership, reorganization, or other judicial proceedings for the establishment or collection of any amount called for hereunder, or any amount payable or to be payable hereunder is collected through any such proceedings, Maker agrees to pay the holder of this Note a reasonable amount as attorney's or collection fees. Maker hereby waives presentment and demand for payment, notice of intent to accelerate maturity, notice of acceleration of maturity, protest or notice of protest and non-payment, bringing of suit and diligence in taking any action to collect any sums owing hereunder and in proceeding against any of the rights and properties securing payment hereof, and agrees that its liability on this Note shall not be affected by any release of or change in any security for the payment of this Note. In the event of a default in the performance of any agreement or covenant contained in any instrument securing payment hereof, without the giving of any notice of any kind, the holder of this 2 Note shall have the right and option, to declare the unpaid balance of principal and accrued interest on this Note at once due and payable and to foreclose or require foreclosure of any and all liens securing payment hereof, and to exercise any and all other rights and remedies it may have. Failure to exercise this option upon any default shall not constitute a waiver of the right to exercise it in the event of any subsequent default. Payment of this Note is secured by a Stock Pledge Agreement between Maker and Payee of even date herewith pursuant to which Maker pledges to Payee and grants to Payee a security interest in 363,636 shares of common stock, par value $0.01 per share (the "Pledged Shares"), of Payee, and all dividends, cash, instruments, securities and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any of the Pledged Shares. All notices permitted hereunder shall be given to the addressee at the following address: if to Payee, at the address provided below; if to Maker, 600 Congress Avenue, Suite 1400, Austin, Texas 78701. All notices given hereunder shall be in writing and shall be considered properly given if mailed by first-class United States mail, postage prepaid, registered or certified with return receipt requested, or by delivering same in person to the addressee, or by prepaid telegram. Any notice given in accordance herewith shall be effective upon receipt at the address of the addressee. It is expressly stipulated and agreed to be the intent of Maker and Payee to at all times comply with the usury and other laws applicable to this Note and the instruments securing the payment hereof (the "Security Instruments") and any subsequent revisions, repeals, or judicial interpretations thereof, to the extent any of the same are applicable hereto. If such laws are ever revised, repealed, or judicially interpreted so as to render usurious any amount called for under this Note or under any of the Security Instruments, or contracted for, charged, or received with respect to the indebtedness evidenced by this Note, or if Payee's exercise of the option herein contained to accelerate the maturity of this Note or if any prepayment by Maker results in Maker having paid any interest in excess of that permitted by law, then it is Maker's and Payee's express intent that all excess amounts theretofore collected by Payee be credited on the principal balance of this Note (or, if the Note has been paid in full, refunded to Maker), and the provisions of this Note and the Security Instruments immediately be deemed reformed and the amounts thereafter collectable hereunder and thereunder reduced, without the necessity of the execution of any new document, so as to comply with the then applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder. EXECUTED as of the date first written above. /s/ David J. Benjamin, III -------------------------------- David J. Benjamin, III Address: Community Pacific Broadcasting 2511 Garden Road Suite A-104 Monterey, CA 93940 EX-10.24.2 21 STOCK PLEDGE, SECURITY AGREEMENT & POWER OF ATTORN 1 EXHIBIT 10.24.2 STOCK PLEDGE, SECURITY AGREEMENT AND POWER OF ATTORNEY THIS STOCK PLEDGE, SECURITY AGREEMENT and POWER OF ATTORNEY (this "Agreement"), is entered into as of February 20, 1997, by David J. Benjamin, III ("Pledgor"), in favor of Capstar Broadcasting Partners, Inc., a Delaware corporation ("Pledgee"), whose principal place of business for notice hereunder is 600 Congress Avenue, Suite 1400, Austin, Texas 78701. RECITALS: Pledgor desires to purchase and Pledgee desires to sell 363,636 shares of Class A Common Stock, par value $0.01 per share (the "Common Stock"), of Pledgee. Pledgee has loaned $396,363.64 to Pledgor, as evidenced by that certain promissory note of even date herewith (the "Note") in order to purchase the 363,636 shares of Common Stock; and It is a condition to the making of such loan that Pledgor deliver to Pledgee this Agreement for the purpose of securing the repayment of the Note; AGREEMENTS: In order to induce Pledgee to loan monies to Pledgor and for other good and valuable consideration, whose receipt and sufficiency are hereby acknowledged, Pledgor agrees as follows: Section 1. PLEDGE. Pledgor hereby pledges to Pledgee and grants to Pledgee a security interest in 363,636 shares of the Common Stock (the "Pledged Shares"), and all dividends, cash, instruments, securities and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any of the Pledged Shares. Section 2. SECURITY FOR OBLIGATIONS. This Agreement secures the payment of all principal from time to time outstanding under the Note and all interest thereon and all other obligations of Pledgor now or hereafter existing thereunder (collectively, the "Obligations"). Section 3. DELIVERY OF PLEDGED SHARES. All certificates or instruments representing or evidencing the Pledged Shares shall be delivered to and held by or on behalf of Pledgee pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly 2 executed instruments of transfer or assignment in blank. Pledgee shall have the right to register in the name of Pledgee or any of Pledgee's nominees any or all of the Pledged Shares, subject only to the revocable rights specified in Section 6(a). Pledgee shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Shares for certificates or instruments of smaller or larger denominations. Section 4. REPRESENTATIONS AND WARRANTIES. Except as pursuant to that certain Stockholders Agreement dated as of November 26, 1996, as such may be amended, to which Pledgor is a party as of the date hereof (the "Stockholders Agreement"), and that certain Mandatory Buyback Agreement of even date herewith (the "Buyback Agreement"), Pledgor represents and warrants that he is the legal and beneficial owner of the Pledged Shares free and clear of any lien, security interest, restriction on transfer, voting rights restriction, option or other charge or encumbrance, and that Pledgor has full right and power to transfer the Pledged Shares to the Pledgee free and clear of any interests described herein. Section 5. FURTHER ASSURANCES. Pledgor agrees that at any time and from time to time, at the expense of Pledgor, Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, as may be reasonably requested by Pledgee in order to perfect and protect any security interest granted hereby or to enable Pledgee to exercise and enforce its rights and remedies hereunder with respect to any Pledged Shares. Section 6. VOTING RIGHTS; DIVIDENDS; ETC. (a) So long as no Event of Default (as hereinafter defined) shall have occurred and be continuing and in accordance with the terms and conditions of the Stockholders Agreement, Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Shares or any part thereof for any purpose not inconsistent with the terms of this Agreement, and Pledgee shall execute and deliver (or cause to be executed and delivered) to Pledgor all such proxies and other instruments as Pledgor may reasonably request for the purpose of enabling Pledgor to exercise such voting and other rights. (b) Upon the occurrence of any Event of Default, all the rights of Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 6.(a) hereof shall cease, and all such rights shall thereupon become vested in Pledgee who shall thereupon have the sole right to exercise such voting and other consensual rights. (c) Any and all dividends, distributions and interest paid in respect of the Pledged Shares, including without limitation any and all (1) dividends and interest paid or payable other than in cash in respect of, any instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Shares, 3 (2) dividends and other distributions paid or payable in cash in respect of any Pledged Shares in connection with a partial or total liquidation or dissolution or in connection with the reduction of capital, capital surplus or paid-in surplus, and (3) cash paid, payable or otherwise distributed in respect of principal, or in the redemption of, or in exchange for, any Pledged Shares, shall be, and shall be forthwith delivered to Pledgee to be held by Pledgee as, Pledged Shares and shall, if received by Pledgor, be received in trust for the benefit of Pledgee, be segregated from the other property or funds of Pledgor and be forthwith delivered to Pledgee as Pledged Shares in the same form as so received (with any necessary endorsement). Section 7. TRANSFERS AND OTHER LIENS. Except as set forth below, Pledgor agrees that it will not (a) sell or otherwise dispose of, or grant any option with respect to, any of the Pledged Shares or (b) create or permit to exist any lien, security interest, or other charge or encumbrance upon or with respect to any of the Pledged Shares, except for the security interest created by this Agreement. Pledgor may sell, upon the prior written consent of Pledgee, any or all of the Pledged Shares free and clear of the lien created hereby (and Pledgee will release such lien and deliver certificates representing the Pledged Shares to be so sold) if (1) such sale is pursuant to the terms and conditions of the Stockholders Agreement, (2) sale is a bona fide arms' length transaction with a party unrelated to Pledgor, (3) such sale is for all cash and (4) the proceeds of such sale are applied in payment of the Obligations (with any proceeds remaining after payment in full of all the Obligations to be retained by Pledgor). The foregoing provision shall not operate to relieve Pledgor from compliance with any right of first refusal in favor of Pledgee that may exist in connection with such sale. Section 8. EVENTS OF DEFAULT. Any of the following events shall constitute an event of default ("Event of Default") under this Agreement: (a) the default by Pledgor in the payment of any principal of or interest on the Note when the same shall become due, either by the terms thereof or as otherwise provided herein, and such default is not cured by Pledgor within any applicable grace period; (b) the default by Pledgor in the performance of any other covenant, condition or term of the Obligations in accordance with the terms thereof, and such default is not cured by Pledgor within any applicable grace period; (c) the default by Pledgor in the performance of any covenant, condition or term of this Agreement, the Note or of any other instrument evidencing, securing or relating to the Obligations, and such default is not cured by Pledgor within any applicable grace period; (d) the default by Pledgor in the performance of any covenant, condition or term of the Buyback Agreement; 3 4 (e) any representation or warranty made in writing by Pledgor in this Agreement or in the Note or any other instrument evidencing, securing or relating to the Obligations shall be false or misleading in any material respect on the date as of which made; (f) any petition in bankruptcy is filed by or against Pledgor or any proceeding in bankruptcy or similar proceeding under the laws or regulations of any applicable jurisdiction relating to the relief of debtors is commenced by or against Pledgor, or any action is taken in furtherance of the foregoing; (g) if Pledgor makes any assignment for the benefit of her or its creditors; (h) any receiver or other court or government official is appointed to take possession or control of any of Pledgor's property; or (i) any order of attachment, lien, distraint, garnishment or other levy is issued against any of Pledgor's funds or other property and remains unstayed for a period of 30 days. Section 9. REASONABLE CARE. Pledgee shall be deemed to have exercised reasonable care in the custody and the preservation of the Pledged Shares in Pledgee's possession, if the Pledged Shares are accorded treatment substantially equal to that which Pledgee accords Pledgee's own property, it being understood that Pledgee shall have no responsibility for (a) ascertaining or taking action with respect to costs, conversions, changes, maturities, tenders or other matters relative to any Pledged Shares, whether or not Pledgee has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any parties with respect to any Pledged Shares. Section 10. REMEDIES UPON DEFAULT. If any Event of Default shall have occurred and be continuing: (a) Pledgee may elect to declare all or any part of the Obligations secured hereby immediately due and payable in full, without notice, demand, presentment, notice of intent to accelerate, notice of acceleration or any other notice, all of which Pledgor hereby expressly waives (except such notice as may be required by law and cannot be waived). (b) Pledgee may exercise in respect of the Pledged Shares, in addition to other rights and remedies provided for herein or otherwise available to Pledgee, all the rights and remedies of a secured party in default under all applicable laws in effect in the State of Texas at that time and Pledgee may also, without notice except as specified below, sell the Pledged Shares or any part thereof in one or more parcels in a public or private sale, at any exchange, broker's board, for cash, on credit or for future delivery and upon such other terms as Pledgee may deem commercially reasonable period. Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days notice to Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Pledgee shall not be obligated to make any sale of the Pledged Shares regardless of notice of sale having been given. Pledgee may adjourn 4 5 any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (c) Any cash held by Pledgee as Pledged Shares and all cash proceeds received by Pledgee in respect of any sale of, collection from, or other realization of all or any part of Pledged Shares, may, in the discretion of Pledgee, be held by Pledgee as collateral for, and/or then or at any time thereafter applied in whole or in part by Pledgee against all or any part of the Obligations. Any surplus of such cash or cash proceeds held by Pledgee and remaining after payment in full of all the Obligations shall be paid over to Pledgor or to whomsoever may be lawfully entitled to receive such surplus. Section 11. EXPENSES. Pledgor shall upon demand pay to Pledgee any and all reasonable expenses (including reasonable attorneys' fees and legal expenses) incurred by Pledgee in connection with protecting Pledgee against the claims or interests of any third person with respect to the Pledged Shares, and in exercising any right or remedy conferred by this Agreement or by law. Section 12. AMENDMENTS. No amendment or waiver of any provision of this Agreement shall in any event be effective unless the same shall be in writing and signed by both Pledgor and Pledgee. Section 13. RETURN OF THE PLEDGED SHARES. Upon the full payment and performance of the Obligations, this Agreement and the pledge effected hereby shall be null and void and the Pledged Shares shall promptly be returned to Pledgor by Pledgee. Section 14. CONTINUING SECURITY AGREEMENT. This Agreement shall create a continuing security interest in the Pledged Shares and shall (a) remain in full force and effect until payment in full of the Obligations and (b) be binding upon Pledgor, his successors and assigns. Section 15. GOVERNING LAW; TERMS. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas. 5 6 Executed as of the date first written above. PLEDGOR: /s/ David J. Benjamin, III -------------------------------------------- David J. Benjamin, III PLEDGEE: CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ William S. Banowsky, Jr. ----------------------------------------- Name: William S. Banowsky, Jr. Title: Executive Vice President 6 EX-10.25 22 MANDATORY BUYBACK AGREEMENT 1 EXHIBIT 10.25 CAPSTAR BROADCASTING PARTNERS, INC. 600 CONGRESS AVENUE, SUITE 1400 AUSTIN, TEXAS 78701 February 20, 1997 Mr. David J. Benjamin, III Community Pacific Broadcasting 2511 Garden Road, Suite A-104 Monterey, CA 93940 Re: MANDATORY BUYBACK AGREEMENT Dear Mr. Benjamin: This letter will confirm the understanding that David J. Benjamin, III and Capstar Broadcasting Partners, Inc., a Delaware corporation ("Capstar"), have reached with respect to the purchase by Benjamin and the sale by Capstar of 363,636 shares of Class A Common Stock, par value $0.01 per share (the "Acquired Stock"), of Capstar pursuant to that certain Subscription Agreement For Capstar Broadcasting Partners, Inc. of even date herewith. 1. MANDATORY BUYBACK OF ACQUIRED STOCK. 1.1 Mandatory Buyback of Acquired Stock. In the event that (a) the Asset Purchase Agreement between Community Pacific Broadcasting Company L.P. and Community Acquisition Company, Inc. dated December 26, 1996, as such may be amended (the "Asset Purchase Agreement"), is terminated for any reason by any party or (b) the Closing (as such term is defined in the Asset Purchase Agreement) does not occur on or before November 10, 1997 (unless such date is otherwise extended by the mutual agreement of parties hereto), Benjamin agrees to sell and Capstar agrees to purchase the Acquired Stock (x) on the fifth business day from the date of the occurrence of the event described in (a) or (y) on the date of the occurrence of the event described in (b) above (the "Closing Date"). In the event that the parties hereto agree to extend the November 10, 1997 date provided in clause (b) above, then the parties shall also amend the Promissory Note (as hereinafter defined) as may be necessary to reflect such extended date. 1.2. Purchase Price. The purchase price of the Acquired Stock shall be (a) the release and forgiveness of the obligations evidenced by that certain promissory note of even date herewith 2 executed by Benjamin and payable to Capstar in the principal sum of $396,363.64 (the "Promissory Note") and (b) the payment to Benjamin of $3,636.36.. 1.3 Closing. The closing will take place on the Closing Date at the offices of Capstar in Dallas, Texas. At the closing, (a) Benjamin will duly endorse the certificate(s) evidencing all of the Acquired Stock for transfer to Capstar (or, if applicable, its assignee) and (b) Capstar will deliver the Promissory Note to Benjamin marked "canceled" and will tender payment of the cash portion of the purchase price in immediately available funds. At the closing, Benjamin will be deemed to represent and warrant to Capstar (or, if applicable, its assignee) that the transferred Acquired Stock is owned by Benjamin free and clear of all liens, adverse claims and other encumbrances other then as provided in (i) that certain Stockholders Agreement dated November 26, 1996, as amended (the "Stockholders Agreement"), to which Benjamin is a party and (ii) that certain Stock Pledge, Security Agreement and Power of Attorney of even date herewith between Benjamin and Capstar. Benjamin agrees to promptly perform, whether before or after any such closing, such additional act (including without limitation executing and delivering additional documents) as are reasonably required by Capstar to effect more fully the transactions effected by this Section 1. 2. ASSIGNMENT. The rights of Capstar under this letter agreement may be assigned or transferred in whole or in part by Capstar, without any consent or other action on the part of Benjamin, to any one or more affiliates of Capstar. All references herein to "Capstar" will include without limitation each such assignee or transferee. 3. PURCHASE OPTION. Capstar and Benjamin mutually agree that the provisions of Article 6 of the Stockholders Agreement shall be held in abeyance until such time as Benjamin becomes a director, officer or employee of Capstar as of the Closing. 3 4. GOVERNING LAW; JURISDICTION. THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THIS STATE OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ William S. Banowsky, Jr. ----------------------------------- William S. Banowsky, Jr. Executive Vice President Accepted and agreed to in all respects as of the 20th day of February, 1997 /s/ David J. Benjamin, III - -------------------------------------- David J. Benjamin, III EX-10.26 23 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.26 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of February 20, 1997, is entered into by and among Capstar Broadcasting Partners, Inc., a Delaware corporation (the "Company") and Frank D. Osborn ("Osborn"). In consideration of the premises, mutual covenants and agreements hereinafter contained and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS Section 1.1 Definitions. "Advice" shall have the meaning provided in Section 2.3 hereof. "Affiliate, means, with respect to any Person, any Person who, directly or indirectly, controls, is controlled by or is under common control with that Person. "Agreement" means this Registration Rights Agreement, as such from time to time may be amended. "Appraised Value" means, as to any Purchasable Securities, the fair market value of such Purchasable Securities at the date of the Purchase Notice as determined by an Independent Financial Expert selected by the Company within 10 days after the giving of a Purchase Notice; provided, however, if Osborn shall object to such determination within 10 days after being notified thereof by the Company, Osborn shall within 10 days of such notice select an Independent Financial Expert to determine the fair market value of such Purchasable Securities on behalf of Osborn. In the event that the Independent Financial Experts selected by each of the Company and Osborn cannot agree on the fair market value of such Purchasable Securities, then the two Independent Financial Experts shall promptly mutually select a third Independent Financial Expert to determine the fair market value of such Purchasable Securities, and the value selected by such third firm shall be binding on all the parties hereto. Each such Independent Financial Expert may use any customary method of determining fair market value. The cost of the Independent Financial Expert selected by the Company shall be paid by the Company, the cost of the Independent Financial Expert, if any, selected by Osborne shall be paid by Osborn, and the cost of the Independent Financial Expert, if any, mutually selected by the two Independent Financial Experts appointed by each of the Company and Osborn shall be paid one-half by the Company and one-half by Osborn. In determining the Appraised Value, the Independent Financial Expert may assume that the Common Stock of the Company is publicly traded and that the Common Stock constituting the Purchasable Securities is freely tradable and no minority position discount shall be made. "Business Day" means a day that is not a Legal Holiday. "Capstar L.P." means Capstar Broadcasting Partners, L.P., a Delaware limited partnership. "Change of Control" means the first to occur of the following events: (i) any sale, lease, exchange, or other transfer (in one transaction or series of related transactions) of all or substantially all of the assets 2 of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), other than one or more members of the HMC Group, (ii) a majority of the Board of Directors of the Company shall consist of Persons who are not Continuing Directors; or (iii) the acquisition by any Person or Group (other than one or more members of the HMC Group) of the power, directly or indirectly, to vote or direct the voting of securities having more than 50% of the ordinary voting power for the election of directors of the Company. "Common Stock" means shares of the Common Stock, $0.01 par value per share, of the Company, and any capital stock into which such Common Stock thereafter may be changed. "Common Stock Equivalents" means without duplication with any other Common Stock or Common Stock Equivalents, any rights, warrants, options, convertible securities or indebtedness, exchangeable securities or indebtedness, or other rights, exercisable for or convertible or exchangeable into, directly or indirectly, Common Stock of the Company and securities convertible or exchangeable into Common Stock of the Company, whether at the time of issuance or upon the passage of time or the occurrence of some future event. "Company" shall have the meaning set forth in the introductory paragraph hereof. "Continuing Director" means, as of the date of determination, any Person who (i) was a member of the Board of Directors of the Company as of the date of this Agreement, (ii) was nominated for election or elected to the Board of Directors of the Company with the affirmative vote of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election, or (iii) is a member of the HMC Group. "Demand Registration" shall have the meaning set forth in Section 2.1.1 hereof. "Demand Request" shall have the meaning set forth in Section 2.1.1. hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder. "HMC Group" means HMTF and its Affiliates (including Capstar L.P.) and its and their respective officers, directors, and employees (and members of their respective families and trusts for the primary benefit of such family members). "HMTF" means Hicks, Muse, Tate & Furst Incorporated, a Texas corporation. "Independent Financial Expert" means any investment bank which is registered as a broker dealer under the Exchange Act and has aggregate net capital of at least $50 million. "Inspectors" shall have the meaning provided in Section 2.2 hereof. "Legal Holiday" shall have the meaning provided in Section 4.2 hereof. "NASD" shall have the meaning provided in Section 2.2 hereof. "Option Shares" means at any time shares of Common Stock issuable to Osborn under any Common Stock Equivalents then owned by Osborn. -2- 3 "Person" or "person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. "Purchasable Securities" shall have the meaning in Section 3.1.1. "Purchase Option" shall have the meaning provided in Section 3.1.1. "Purchase Notice" shall have the meaning in Section 3.1.1. "Qualified IPO" means a firm commitment underwritten public offering of Common Stock for cash pursuant to a registration statement under the Securities Act; provided that the term "Qualified IPO" shall not include a public offering made pursuant to a Demand Request. "Records" shall have the meaning provided in Section 2.2 hereof. "Registrable Shares" means at any time (i) the Common Stock of the Company then owned by Osborn, whether owned on the date hereof or acquired hereafter and (ii) the Option Shares; provided, however, that Registrable Shares shall not include any shares that have been assigned or transferred by Osborn to any other Person. "Registration Expenses" shall have the meaning provided in Section 2.4 hereof. "Required Filing Date, shall have the meaning provided in Section 2.1.1(b) hereof. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. "Seller Affiliates" shall have the meaning provided in Section 2.5.1 hereof. "Suspension Notice" shall have the meaning provided in Section 2.3 hereof. Section 1.2 Rules of Construction. Unless the context otherwise requires (1) a term has the meaning assigned to it; (2) "or" is not exclusive; (3) words in the singular include the plural, and words in the plural include the singular; (4) provisions apply to successive events and transactions; and (5) "herein," "thereof" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision. -3- 4 ARTICLE 2 REGISTRATION RIGHTS Section 2.1 Demand Registration. 2.1.1 Request for Registration. (a) At any time within 30 days after the tenth anniversary of the date of this Agreement, Osborn may request the Company, in writing (a "Demand Request"), to effect the registration under the Securities Act of all or part of his Registrable Shares (a "Demand Registration"); provided that the right of Osborn to make a Demand Request shall terminate upon the first to occur of a Qualified IPO, or a Change of Control. (b) The Demand Request shall specify the number of Registrable Shares proposed to be sold. Subject to Section 2.1.5 and Section 2.1.6, the Company shall file the Demand Registration within 90 days after receiving a Demand Request (the "Required Filing Date") and shall use all commercially reasonable efforts to cause the same to be declared effective by the SEC as promptly as practicable after such filing; provided, that the Company need effect only one Demand Registration. 2.1.2 Effective Registration and Expenses. A registration will not count as a Demand Registration until it has become effective (unless Osborn has withdrawn all of his Registrable Shares and the Company has performed its obligations hereunder in all material respects, in which case such demand will count as a Demand Registration); provided, that if, after it has become effective, an offering of Registrable Shares pursuant to a registration is interfered with by any stop order, injunction, or other order or requirement of the SEC or other governmental agency or court, such registration will be deemed not to have been effected and will not count as a Demand Registration and Osborn shall thereafter have the right at any time within 30 days after such interference shall have been resolved to make a second Demand Request for a Demand Registration. 2.1.3 Selection of Underwriters. The offering of Registrable Shares pursuant to a Demand Registration shall be in the form of a "firm commitment" underwritten offering. Osborn shall select the investment banking firm or firms to manage the underwritten offering; provided that such selection shall be subject to the consent of the Company, which consent shall not be unreasonably withheld. 2.1.4 Priority on Demand Registrations. No securities to be sold for the account of any Person (including the Company) other than Osborn shall be included in a Demand Registration unless the managing underwriter or underwriters shall advise the Company or Osborn in writing that the inclusion of such securities will not materially and adversely affect the price or success of the Demand Registration. 2.1.5 Deferral of Filing. The Company may defer the filing (but not the preparation) of a registration statement required by Section 2.1 until a date not later than 180 days after the Required Filing Date (or, if longer, 180 days after the effective date of the registration statement contemplated by clause (ii) below) if (i) at the time the Company receives the Demand Request, the Company or any of its Subsidiaries are engaged in confidential negotiations or other confidential business activities, disclosure of which would be required in such registration statement (but would not be required if such registration statement were not filed), and the Board of Directors of the Company determines in good faith that such disclosure would be materially detrimental to the Company and its stockholders or would have a material adverse effect on any -4- 5 such confidential negotiations or other confidential business activities, or (ii) prior to receiving the Demand Request, the Board of Directors had determined to effect a registered underwritten public offering of the Company's securities for the Company's account and the Company had taken substantial steps (including, but not limited to, selecting a managing underwriter for such offering) and is proceeding with reasonable diligence to effect such offering. A deferral of the filing of a registration statement pursuant to this Section 2.1.5 shall be lifted, and the requested registration statement shall be filed forthwith, if, in the case of a deferral pursuant to clause (i) of the preceding sentence, the negotiations or other activities are disclosed or terminated, or, in the case of a deferral pursuant to clause (ii) of the preceding sentence, the proposed registration for the Company's account is abandoned. In order to defer the filing of a registration statement pursuant to this Section 2.1.5, the Company shall promptly (but in any event within 10 days), upon determining to seek such deferral, deliver to Osborn a certificate signed by an executive officer of the Company stating that the Company is deferring such filing pursuant to this Section 2.1.5 and a general statement of the reason for such deferral and an approximation of the anticipated delay. The Company may defer the filing of the registration statement pursuant to this Section 2.1.5 only once. Section 2.1.6 No Obligation to Proceed. Notwithstanding any provision contained herein to the contrary, the Company's obligations hereunder to effect a Demand Registration pursuant to a Demand Request made hereunder shall terminate in full upon the giving of a Purchase Notice pursuant to Section 3.1 or upon the Company effecting a Qualified IPO after the receipt of the Demand Request within the deferral period as contemplated by clause (ii) of Section 2.1.5. 2.2 Registration Procedures. Whenever Osborn has requested that any Registrable Shares be registered pursuant to this Agreement, the Company will use its commercially reasonable efforts to effect the registration and the sale of such Registrable Shares in accordance with the intended method of disposition thereof, and pursuant thereto the Company will as expeditiously as possible: (i) prepare and file with the SEC a registration statement on any appropriate form under the Securities Act with respect to such Registrable Shares and use its commercially reasonable efforts to cause such registration statement to become effective; (ii) prepare and file with the SEC such amendments, post-effective amendments, and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 180 days (or such lesser period as is necessary for the underwriters in an underwritten offering to sell unsold allotments) and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (iii) furnish to the seller of Registrable Shares and the underwriters of the securities being registered such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus), any documents incorporated by reference therein and such other documents as the seller or underwriters may reasonably request in order to facilitate the disposition of the Registrable Shares owned by the seller or the sale of such securities by such underwriters (it being understood that, subject to Section 2.3 and the requirements of the Securities Act and applicable State securities laws, the Company consents to the use of the prospectus and any amendment or supplement thereto by each seller and the underwriters in connection with the offering and sale of the Registrable Shares covered by the registration statement of which such prospectus, amendment or supplement is a part); -5- 6 (iv) use its commercially reasonable efforts to register or qualify such Registrable Shares under such other securities or blue sky laws of such jurisdictions as the managing underwriter reasonably requests; use its commercially reasonable efforts to keep each such registration or qualification (or exemption therefrom) effective during the period in which such registration statement is required to be kept effective; and do any and all other acts and things which may be reasonably necessary or advisable to enable the seller to consummate the disposition of the Registrable Shares owned by the seller in such jurisdictions (provided, however, that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph or (B) consent to general service of process in any such jurisdiction); (v) promptly notify the seller and each underwriter and (if requested by any such Person) confirm such notice in writing (A) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post-effective amendment, when the same has become effective, (B) of the issuance by any state securities or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Shares under state securities or "blue sky" laws or the initiation of any proceedings for that purpose, and (C) of the happening of any event which makes any statement made in a registration statement or related prospectus untrue or which requires the making of any changes in such registration statement, prospectus or documents so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and, as promptly as practicable thereafter, prepare and file with the SEC and furnish a supplement or amendment to such prospectus so that, as thereafter deliverable to the purchasers of such Registrable Shares, such prospectus will not contain any untrue statement of a material fact or omit a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (vi) make generally available to the Company's securityholders an earnings statement satisfying the provisions of Section 11(a) of the Securities Act no later than 30 days after the end of the 12-month period beginning with the first day of the Company's first fiscal quarter commencing after the effective date of a registration statement, which earnings statement shall cover said 12-month period, and which requirement will be deemed to be satisfied if the Company timely files complete and accurate information on Forms 10-Q, 10-K and 8-K under the Exchange Act and otherwise complies with Rule 158 under the Securities Act; (vii) if requested by the managing underwriter or the seller promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or the seller reasonably requests to be included therein, including, without limitation, with respect to the Registrable Shares being sold by the seller, the purchase price being paid therefor by the underwriters and with respect to any other terms of the underwritten offering of the Registrable Shares to be sold in such offering, and promptly make all required filings of such prospectus supplement or post- effective amendment; (viii) as promptly as practicable after filing with the SEC of any document which is incorporated by reference into a registration statement (in the form in which it was incorporated), deliver a copy of each such document to the seller; (ix) cooperate with the seller and the managing underwriter to facilitate the timely preparation and delivery of certificates (which shall not bear any restrictive legends unless required under applicable law) representing securities sold under any registration statement, and enable such securities to be in such denominations and registered in such names as the managing underwriter or the seller may request and keep -6- 7 available and make available to the Company's transfer agent prior to the effectiveness of such registration statement a supply of such certificates; (x) promptly make available for inspection by the seller, any underwriter participating in any disposition pursuant to any registration statement, and any attorney, accountant or other agent or representative retained by any such seller or underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information requested by any such Inspector in connection with such registration statement; provided, that, unless the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, the Company shall not be required to provide any information under this subparagraph (x) if (A) the Company believes, after consultation with counsel for the Company, that to do so would cause the Company to forfeit an attorney-client privilege that was applicable to such information or (B) if either (1) the Company has requested and been granted from the SEC confidential treatment of such information contained in any filing with the SEC or documents provided supplementally or otherwise or (2) the Company reasonably determines in good faith that such Records are confidential and so notifies the Inspectors in writing unless prior to furnishing any such information with respect to (A) or (B) such holder of Registrable Securities requesting such information agrees to enter into a confidentiality agreement in customary form and subject to customary exceptions; and provided, further that each holder of Registrable Securities agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company at its expense, to undertake appropriate action and to prevent disclosure of the Records deemed confidential; (xi) furnish to the underwriter a signed counterpart of (A) an opinion or opinions of counsel to the Company, and (B) a comfort letter or comfort letters from the Company's independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letters, as the case may be, as the managing underwriter reasonably requests; (xii) cause the Registrable Shares included in any registration statement to be (A) listed on each securities exchange, if any, on which any securities issued by the Company are then listed, or (B) authorized to be quoted and/or listed (to the extent applicable) on the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") or the NASDAQ National Market System if the Registrable Shares so qualify; (xiii) provide a CUSIP number for the Registrable Shares included in any registration statement not later than the effective date of such registration statement; (xiv) cooperate with the seller and each underwriter participating in the disposition of such Registrable Shares and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. ("NASD"); (xv) during the period when the prospectus is required to be delivered under the Securities Act, promptly file all documents required to be filed with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act; (xvi) notify the seller of Registrable Shares promptly of any request by the SEC for the amending or supplementing of such registration statement or prospectus or for additional information; -7- 8 (xvii) prepare and file with the SEC promptly any amendments or supplements to such registration statement or prospectus which, in the opinion of counsel for the Company or the managing underwriter, is required in connection with the distribution of the Registrable Shares; (xviii) enter into such agreements (including underwriting agreements in the managing underwriter's customary form) as are customary in connection with an underwritten registration; and (xix) advise the seller of such Registrable Shares, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the SEC suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for such purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued. 2.3 Suspension of Dispositions. Upon receipt of any notice (a "Suspension Notice") from the Company of the happening of any event of the kind described in Section 2.2(v)(C), Osborn will forthwith discontinue disposition of Registrable Shares until such Osborn's receipt of the copies of the supplemented or amended prospectus, or until he is advised in writing (the "Advice") by the Company that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the prospectus, and, if so directed by the Company, Osborn will deliver to the Company all copies, other than permanent file copies then in Osborn's possession, of the prospectus covering such Registrable Shares current at the time of receipt of such notice. In the event the Company shall give any such notice, the time period regarding the effectiveness of registration statements set forth in Section 2.2(ii) hereof shall be extended by the number of days during the period from and including the date of the giving of the Suspension Notice to and including the date when each seller of Registrable Shares covered by such registration statement shall have received the copies of the supplemented or amended prospectus or the Advice. The Company shall use its commercially reasonable efforts and take such actions as are reasonably necessary to render the Advice as promptly as practicable. 2.4 Registration Expenses. All expenses incident to the Company's performance of or compliance with this Article 2 including, without limitation, all registration and filing fees, all fees and expenses associated with filings required to be made with the NASD (including, if applicable, the fees and expenses of any "qualified independent underwriter" as such term is defined in Schedule E of the By-Laws of the NASD, and of its counsel), as may be required by the rules and regulations of the NASD, fees and expenses of compliance with securities or "blue sky" laws (including reasonable fees and disbursements of counsel in connection with "blue sky" qualifications of the Registrable Shares), rating agency fees, printing expenses (including expenses of printing certificates for the Registrable Shares in a form eligible for deposit with Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by Osborn), messenger and delivery expenses, the Company's internal expenses (including without limitation all salaries and expenses of its officers and employees performing legal or accounting duties), the fees and expenses incurred in connection with any listing of the Registrable Shares, fees and expenses of counsel for the Company and its independent certified public accountants (including the expenses of any special audit or "cold comfort" letters required by or incident to such performance), securities acts liability insurance (if the Company elects to obtain such insurance), the fees and expenses of any special experts retained by the Company in connection with such registration, and the reasonable fees and expenses of one firm of counsel for Osborn (all such expenses being herein called "Registration Expenses") will be borne by the Company whether or not any registration statement becomes effective; provided that, except as expressed otherwise provided above, in no event shall Registration Expenses include any underwriting discounts, commissions, or fees attributable to the sale of the Registrable Shares or any counsel, accountants, or other persons retained or employed by Osborn. -8- 9 2.5 Indemnification. 2.5.1 The Company agrees to indemnify and reimburse, to the fullest extent permitted by law, Osborn as a seller of Registrable Shares, and each of his employees, advisors, agents and representatives and any agent or investment advisor thereof (collectively, the "Seller Affiliates") (A) against any and all losses, claims, damages, liabilities, and expenses, joint or several (including, without limitation, attorneys' fees and disbursements except as limited by 2.5.3) based upon, arising out of, related to or resulting from any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus, or preliminary prospectus or any amendment thereof or supplement thereto, or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, (B) against any and all loss, liability, claim, damage, and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation or investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon, arising out of, related to or resulting from any such untrue statement or omission or alleged untrue statement or omission, and (C) against any and all costs and expenses (including reasonable fees and disbursements of counsel) as may be reasonably incurred in investigating, preparing, or defending against any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon, arising out of, related to or resulting from any such untrue statement or omission or alleged untrue statement or omission, to the extent that any such expense or cost is not paid under subparagraph (A) or (B) above; except insofar as the same are made in reliance upon and in strict conformity with information furnished in writing to the Company by Osborn or any Seller Affiliate for use therein or arise from Osborn's or any Seller Affiliate's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished Osborn or Seller Affiliate with a sufficient number of copies of the same. The reimbursements required by this Section 2.5.1 will be made by periodic payments during the course of the investigation or defense, as and when bills are received or expenses incurred. 2.5.2 In connection with any registration statement of Registrable Shares, Osborn will furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the fullest extent permitted by law, Osborn will indemnify the Company and its directors and officers and each Person who controls the Company (within the meaning of the Securities Act or the Exchange Act) against any and all losses, claims, damages, liabilities, and expenses (including, without limitation, reasonable attorneys' fees and disbursements except as limited by Section 2.5.3) resulting from any untrue statement or alleged untrue statement of a material fact contained in the registration statement, prospectus, or any preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission is contained in any information or affidavit so furnished in writing by Osborn or any of his Seller Affiliates specifically for inclusion in the registration statement; provided that the liability of Osborn will be limited to, the net amount received by Osborn from the sale of Registrable Shares pursuant to such registration statement; provided, however, that Osborn shall not be liable in any such case to the extent that prior to the filing of any such registration statement or prospectus or amendment thereof or supplement thereto, Osborn has furnished in writing to the Company information expressly for use in such registration statement or prospectus or any amendment thereof or supplement thereto which corrected or made not misleading information previously furnished to the Company. 2.5.3 Any Person entitled to indemnification hereunder will (A) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to -9- 10 give such notice shall not limit the rights of such Person) and (B) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however, that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person unless (X) the indemnifying party has agreed to pay such fees or expenses, or (Y) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such person. If such defense is not assumed by the indemnifying party as permitted hereunder, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld). If such defense is assumed by the indemnifying party pursuant to the provisions hereof, such indemnifying party shall not settle or otherwise compromise the applicable claim unless (1) such settlement or compromise contains a full and unconditional release of the indemnified party or (2) the indemnified party otherwise consents in writing. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the reasonable fees and disbursements of such additional counsel or counsels. 2.5.4 Each party hereto agrees that, if for any reason the indemnification provisions contemplated by Section 2.5.1 or Section 2.5.2 are unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities, or expenses (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, liabilities, or expenses (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the actions which resulted in the losses, claims, damages, liabilities or expenses as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or indemnified party, and the parties, relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 2.5.4 were determined by pro rata allocation (even if Osborn or any underwriters or all of them were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 2.5.4. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities, or expenses (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or, except as provided in Section 2.5.3, defending any such action or claim. Notwithstanding the provisions of this Section 2.5.4, Osborn shall not be required to contribute an amount greater than the dollar amount by which the proceeds received by Osborn with respect to the sale of any Registrable Shares exceeds the amount of damages which Osborn has otherwise been required to pay by reason of such statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. If indemnification is available under this Section 2.5, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Section 2.5.1 and Section 2.5.2 without regard to the relative -10- 11 fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 2.5.4. 2.5.5 The indemnification and contribution provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director, or controlling Person of such indemnified party and will survive the transfer of the Registrable Shares. ARTICLE 3 PURCHASE OPTION Section 3.1. Purchase Option. 3.1.1 Purchase Option. After the Company's receipt of a Demand Request, the Company shall have the option (the "Purchase Option") to purchase, and if the Purchase Option is exercised, Osborn (or the executor or administrator of Osborn's estate, in the event of his death, or Osborn's legal representative in the event of his incapacity) (hereinafter, collectively with Osborn, the "Grantor") shall sell to the Company, (or as provided in Section 3.1.4 an assignee of the Company) all of the shares of Common Stock and Common Stock Equivalents held by the Grantor (such shares of Common Stock and Common Stock Equivalents collectively being referred to as the "Purchasable Securities"), subject to the Company's (or, if applicable, its assignee) compliance with the conditions hereinafter set forth. The Company (acting for itself or, if applicable, its assignee) shall give notice (the "Purchase Notice") in writing to the Grantor of the exercise of the Purchase Option within 30 days after the Company' receipt of a Demand Request. If no Purchase Notice is given within the time limit specified above, the Purchase Option shall terminate. 3.1.2 Closing. Unless otherwise agreed by the Grantor and the Company, (acting for itself or, if applicable, its assignee) the closing of an exercise of the Purchase Option will take place at the offices of the Company in Dallas, Texas, on the fifth Business Day after the purchase price has been established as contemplated by Section 3.1.3. At the closing, the Company (of, if applicable, its assignee) will pay the purchase price to the Grantor in cash (by certified or cashier's check) upon the Grantor's delivering to the Company (or, if applicable, its assignee) valid certificates or agreements evidencing all Purchasable Securities being purchased pursuant to the exercise of the Purchase Option. Certificates or agreements representing the Purchasable Securities will be duly endorsed (with signature guaranteed) for transfer to the Company (or, if applicable, its assignee). Upon delivery of such certificates or agreements to the Company if applicable, its assignee) , the Grantor will be deemed to represent and warrant to the Company (or, if applicable, its assignee) that the transferred Purchasable Securities are owned by the Grantor free and clear of all liens, adverse claims, and other encumbrances other than those arising under any Stockholders Agreement or similar agreement between Osborn and the Company. The occurrence of the closing shall be conditioned upon such representation and warranty being true and correct as of the closing date. The Company (or, if applicable, its assignee) and the Grantor will promptly perform, whether before or after any Purchase Option closing, such additional acts (including without limitation executing and delivering additional documents) as are reasonably required by either such party to effect more fully the transactions contemplated hereby. 3.1.3 Exercise Price. Unless the Company (or, if applicable, its assignee) and Grantor otherwise agree, the purchase price for the Purchasable Securities will equal the Appraised Value thereof. -11- 12 3.1.4 Assignment of Purchase Option. The Purchase Option may be assigned or transferred in whole or in part by the Company to any one or more members of the HMC Group without any consent or other action on the part of any other party hereto. ARTICLE 4 MISCELLANEOUS Section 4.1 Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows (or at such other address as may be substituted by notice given as herein provided): If to the Company: Capstar Broadcasting Partners, Inc. 200 Crescent Court, Suite 1600 Dallas, Texas 75201 Attention: President Copies to: Vinson & Elkins L.L.P. 3700 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 Attention: Michael D. Wortley If to Osborn: Frank D. Osborn 174 Hamlock Hill Road New Canaan, Connecticut Any notice or communication hereunder shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five calendar days after mailing if sent by registered or certified mail (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Section 4.2 Legal Holidays. A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions at such place are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest on the amount of such payment shall accrue for the intervening period. -12- 13 Section 4.3 Governing Law; Jurisdiction. THIS STOCKHOLDERS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Section 4.4 Successors and Assigns of Osborn. The provisions of this Agreement that are for Osborn's benefit are personal in nature and shall not be assignable but may be enforced by the executor or administrator of Osborn's estate, in the event of his death or Osborn's legal representative in the event of his incapacity. Except as otherwise provided in this Section 4.4, this Agreement shall be binding upon the parties hereto and their respective successors and assigns. Section 4.5 Duplicate Originals. All parties may sign any number of copies of this Agreement. Each signed copy shall be an original, but all of them together shall represent the same agreement. Section 4.6 Severability. In case any provision in this Agreement shall be held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and the remaining provisions shall not in any way be affected or impaired thereby. Section 4.7 No Waivers; Amendments. 4.7.1 No failure or delay on the part of the Company or Osborne in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Company or Osborn at law or in equity or otherwise. 4.7.2 Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Company and Osborn. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -13- 14 SIGNATURES TO AGREEMENT IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, all as of the date first written above. CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------ Name: William S. Banowsky, Jr. ---------------------------- Title: Executive Vice President --------------------------- /s/ FRANK D. OSBORN --------------------------------- Frank D. Osborn EX-10.27 24 WARRANT DATED OCTOBER 16, 1996 1 EXHIBIT 10.27 THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL IN REASONABLY ACCEPTABLE FORM AND SCOPE REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION, QUALIFICATION OR OTHER SUCH ACTIONS ARE NOT REQUIRED UNDER ANY SUCH LAWS. THE OFFERING OF THIS SECURITY HAS NOT BEEN REVIEWED OR APPROVED BY ANY STATE'S SECURITIES ADMINISTRATOR. THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER ARE ALSO SUBJECT TO A STOCKHOLDERS AGREEMENT, DATED AS OF OCTOBER 16, 1996, BY AND AMONG THE COMPANY AND THE OTHER PARTIES LISTED THEREIN, COPIES OF WHICH ARE ON FILE WITH THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE. Dated: October 16, 1996 WARRANT To Purchase 9,300,000 Shares of Common Stock CAPSTAR BROADCASTING PARTNERS, INC. EXPIRING OCTOBER 16, 2006. THIS IS TO CERTIFY THAT, for value received, R. Steven Hicks, or registered assigns as a holder of this Warrant (the "Holder") is entitled to purchase from Capstar Broadcasting Partners, Inc., a Delaware corporation (the "Company") at any time or from time to time prior to 5:00 p.m., Dallas, Texas time, October 16, 2006 at the place where the Warrant Agency (as hereinafter defined) is located, at the Exercise Price (as hereinafter defined) 7,440,000 shares of common stock, par value $.01 per share, (the "Common Stock") of the Company (the "A Warrant") and at the Exercise Price 1,860,000 shares of the Common Stock (the "B Warrant", and, collectively with the A Warrant, the "Warrant"), all subject to adjustment and upon the terms and conditions as hereinafter provided; provided, however, in no event may the B Warrant be exercised by the Holder prior to the occurrence of a Triggering Event (as hereinafter defined). The Holder shall designate at the time of exercise whether the Holder is exercising an A Warrant or a B Warrant and the number of shares of Common Stock to be purchased respectively thereunder. Certain terms used in this Warrant are defined in Article V. 2 ARTICLE I EXERCISE OF WARRANTS 1.1 Method of Exercise. To exercise this Warrant in whole or in part, the Holder shall deliver to the Company, at the Warrant Agency, (a) this Warrant, (b) a written notice, in substantially the form of the Subscription Notice attached hereto as Annex A, of such Holder's election to exercise this Warrant, which notice shall specify (i) whether the Holder is exercising an A Warrant and/or a B Warrant, (ii) the number of shares of Common Stock to be purchased under an A Warrant and/or a B Warrant, as applicable, (iii) the denominations of the share certificate or certificates desired, and (iv) the name or names in which such certificates are to the registered, (c) if the Common Stock to be received upon the exercise of this Warrant has not been registered under the Securities Act, a written certification in substantially the form of the Certification attached hereto as Annex B, and (d) payment of the Exercise Price with respect to such shares. Such payment may be made, at the option of the Holder, by cash, money order, certified or bank cashier's check or wire transfer. The Company shall, as promptly as practicable and in any event within five Business Days thereafter, execute and deliver or cause to be executed and delivered, in accordance with such notice, a certificate or certificates representing the aggregate number of shares of Common Stock specified in said notice. The share certificate or certificates so delivered shall be in such denominations as may be specified in such notice or, if such notice shall not specify denominations, shall be in the amount of the number of shares of Common Stock for which the Warrant is being exercised, and shall be issued in the name of the Holder or such other name or names as shall be designated in such notice. Such certificate or certificates shall be deemed to have been issued, and such Holder or any other Person so designated to be named therein shall be deemed for all purposes to have become a holder of record of such shares, as of the date the aforementioned notice is received by the Company. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the certificate or certificates, deliver to the Holder a new Warrant evidencing the rights to purchase the remaining shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder, appropriate notation may be made on this Warrant which shall then be returned to the Holder. The Company shall pay all expenses, taxes (if any) and other charges payable in connection with the preparation, issuance and delivery of share certificates and new Warrant, except that, if share certificates or new Warrant shall be registered in a name or names other than the name of the Holder, funds sufficient to pay all transfer taxes payable as a result of such transfer shall be paid by the Holder at the time of delivering the aforementioned notice of exercise or promptly upon receipt of a written request of the Company for payment. 1.2 Shares To Be Fully Paid and Nonassessable. All shares of Common Stock issued upon the exercise of this Warrant shall be validly issued, fully paid and nonassessable and free from all preemptive rights of any stockholder, and from all taxes. 2 3 1.3 No Fractional Shares To Be Issued. The Company shall not be required to issue fractions of shares of Common Stock upon exercise of this Warrant. If any fraction of a share would, but for this Section, be issuable upon any exercise of this Warrant, in lieu of such fractional share the Company shall pay to the Holder, in cash, an amount equal to such fraction of the Fair Market Value per share of Common Stock of the Company on the Business Day immediately prior to the date of such exercise. 1.4 Share Legend. Each certificate for shares of Common Stock issued upon exercise of this Warrant, unless at the time of exercise such shares are registered under the Securities Act, shall bear the following legend: "This security has not been registered under the Securities Act of 1933, as amended, or under the securities laws of any state or other jurisdiction and may not be sold, offered for sale or otherwise transferred unless registered or qualified under said Act and applicable state securities laws or unless the Company receives an opinion of counsel in reasonably acceptable form and scope reasonably satisfactory to the Company that registration, qualification or other such actions are not required under any such laws. The offering of this security has not been reviewed or approved by any state securities administrator. Any certificate issued at any time in exchange or substitution for any certificate bearing such legend (except a new certificate issued upon completion of a public distribution pursuant to a registration statement under the Securities Act) shall also bear such legend unless, in the opinion of counsel selected by the holder of such certificate and reasonably acceptable to the Company, the securities represented thereby are no longer subject to restrictions on resale under the Securities Act. 1.5 Reservation; Authorization. The Company has reserved and will keep available for issuance upon exercise of this Warrant the total number of shares of Common Stock deliverable upon exercise of this Warrant from time to time outstanding. The issuance of such shares has been duly and validly authorized and, when issued and sold in accordance with this Warrant, such shares will be duly and validly issued, fully paid and nonassessable. 3 4 ARTICLE II WARRANT AGENCY; TRANSFER, EXCHANGE AND REPLACEMENT OF WARRANTS 2.1 Warrant Agency. At any time after a public offering of Common Stock registered under the Securities Act, the Company may promptly appoint and thereafter maintain, at its own expense, an agency in New York, New York, which agency may be the Company's then existing transfer agent (the "Warrant Agency"), for certain purposes specified herein, and shall give prompt notice of such appointment (and appointment of any successor Warrant Agency) to the Holder. Until an independent Warrant Agency is so appointed, the Company shall perform the obligations of the Warrant Agency provided herein at its address as specified on the signature page hereto or such other address as the Company shall specify by notice to the Holder. 2.2 Ownership of Warrant. The Company may deem and treat the Person in whose name this Warrant is registered as the Holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by any Person other than the Warrant Agency) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer as provided in this Article II. 2.3 Transfer of Warrant. The Company agrees to maintain at the Warrant Agency books for the registration of transfers of the Warrants, and transfer of this Warrant and all rights hereunder shall be registered, in whole or in part, on such books, upon surrender of this Warrant at the Warrant Agency, together with a written assignment of this Warrant duly executed by the Holder or his duly authorized agent or attorney, with (unless the Holder is the original Holder or another institutional investor) signatures guaranteed by a bank or trust company or a broker or dealer registered with the NASD, and funds sufficient to pay any transfer taxes payable upon such transfer. Upon surrender the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in the instrument of assignment, and this Warrant shall promptly be canceled. The Warrant Agency shall not be required to register any transfers if the Holder fails to furnish to the Company, after a request therefor, an opinion of counsel (who may be an employee of such Holder) reasonably satisfactory to the Company that such transfer is exempt from the registration requirements of the Securities Act and applicable blue sky laws. 2.4 Division of Warrant. This Warrant may be divided upon surrender hereof to the Warrant Agency, together with a written notice specifying the names and denominations in which the new Warrants are to be issued, signed by the Holder. Subject to compliance with Section 2.3 as to any transfer which may be involved in the division, the Company shall execute and deliver new Warrants in exchange for the Warrant or Warrants to be divided in accordance with such notice. 4 5 2.5 Loss, Theft, Destruction or Mutilation of Warrants. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same aggregate number of shares of Common Stock as provided for in such lost, stolen, destroyed or mutilated Warrant. 2.6 Expenses of Delivery of Warrants. The Company shall pay all expenses, taxes (other than transfer taxes) and other charges payable in connection with the preparation, issuance and delivery of this Warrant and the Common Stock issuable hereunder. ARTICLE III CERTAIN RIGHTS 3.1 Stockholders Agreement. This Warrant and the Common Stock issuable upon exercise of this Warrant is subject to a Stockholders Agreement dated as of October 16, 1996, by and among the Company and the other parties listed therein (the "Stockholders Agreement"). The Company shall keep a copy of the Stockholders Agreement, and any amendments thereto, at the Warrant Agency and shall furnish copies thereof to the Holder upon request. 3.2 Notice of Fair Market Value. Upon each determination of Fair Market Value hereunder (other than a determination relating solely to setting the value of fractional shares), the Company shall promptly give notice thereof to the Holder. ARTICLE IV ANTIDILUTION PROVISIONS 4.1 Adjustments Generally. The Exercise Price and the number of shares of Common Stock (or other securities or property) issuable upon exercise of this warrant shall be subject to adjustment from time to time upon the occurrence of certain events, as provided in this Article IV. 4.2 Common Stock Reorganization. If the Company shall after the date of issuance of this Warrant subdivide its outstanding shares of Common Stock into a greater number of shares or consolidate its outstanding shares of Common Stock into a smaller number of shares (any such event being called a "Common Stock Reorganization"), then (a) the Exercise Price shall each be adjusted, effective immediately after the record date at which the holders of shares of Common Stock are determined for purposes of such Common Stock Reorganization, to a price determined by 5 6 multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on such record date before giving effect to such Common Stock Reorganization and the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such Common Stock Reorganization, and (b) the number of shares of Common Stock subject to purchase upon exercise of the A Warrant and the B Warrant shall each be adjusted, effective at such time, to a number determined by multiplying the number of shares of Common Stock subject to purchase immediately before such Common Stock Reorganization by a fraction, the numerator of which shall be the number of shares outstanding after giving effect to such Common Stock Reorganization and the denominator of which shall be the number of shares of Common Stock outstanding immediately before such Common Stock Reorganization. 4.3 Capital Reorganization. If after the date of issuance of this Warrant there shall be any consolidation or merger to which the Company is a party, other than a consolidation or a merger in which the Company is a continuing corporation and which does not result in any reclassification of, or change (other than a Common Stock Reorganization or a change in par value), in, outstanding shares of Common Stock, or any sale or conveyance of the property of the Company as an entirety or substantially as an entirety (any such event being called a "Capital Reorganization"), then, effective upon the effective date of such Capital Reorganization, the Holder shall have the right to purchase, upon exercise of this Warrant, the kind and amount of shares of stock and other securities and property (including cash) which the Holder would have owned or have been entitled to receive after such Capital Reorganization if this Warrant had been exercised immediately prior to such Capital Reorganization. As a condition to effecting any Capital Reorganization, the Company or the successor or surviving corporation, as the case may be, shall execute and deliver to the Holder an agreement as to the Holder's rights in accordance with this Section 4.2, providing for subsequent adjustments as nearly equivalent as may be practicable to the adjustments provided for in this Article IV. The provisions of this Section 4.2 shall similarly apply to successive Capital Reorganizations. 4.4 Certain Other Events. If any event occurs after the date of issuance of this Warrant as to which the foregoing provisions of this Article IV are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board of Directors of the Company (the "Board"), fairly protect the purchase rights of the Holder in accordance with the essential intent and principles of such provisions, then the Board shall make such adjustments in the application of such provisions, in accordance with such essential intent and principles, as shall be reasonably necessary, in the good faith opinion of the Board, to protect such purchase rights as aforesaid. 4.5 Adjustment Rules. (a) Any adjustments pursuant to this Article IV shall be made successively whenever an event referred to herein shall occur. (b) If the Company shall set a record date to determine the holders of shares of Common Stock for purposes of a Common Stock Reorganization or Capital Reorganization, and shall legally 6 7 abandon such action prior to effecting such action, then no adjustment shall be made pursuant to this Article IV in respect of such action. (c) No adjustment in the amount of shares purchasable upon exercise of this Warrant or in the Exercise Price shall be made hereunder unless such adjustment increases or decreases such amount or price by one percent or more, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall serve to adjust such amount or price by one percent or more. (d) No adjustment in the Exercise Price shall be made hereunder if such adjustment would reduce the exercise price to an amount below par value of the Common Stock, which par value shall initially be $.01 per share of Common Stock. 4.6 Notice of Adjustment. The Company shall give the Holder reasonable notice of the record date or effective date, as the case may be, of any action which requires or might require an adjustment or readjustment pursuant to this Article IV. Such notice shall describe such event in reasonable detail and specify the record date or effective date, as the case may be, and, if determinable, the required adjustment and the computation thereof. If the required adjustment is not determinable at the time of such notice, the Company shall give reasonable notice to the Holder of such adjustment and computation promptly after such adjustment becomes determinable. ARTICLE V DEFINITIONS The following terms, as used in this Warrant, have the following respective meanings: "Affiliate", means, with respect to any Person, any Person who, directly or indirectly, controls, is controlled by or is under common control with that Person. "Business Day" shall mean (a) if any class of Common Stock is listed or admitted to trading on a national securities exchange, a day on which the principal national securities exchange on which such class of Common Stock is listed or admitted to trading is open for business or (b) if no class of Common Stock is so listed or admitted to trading, a day on which the New York Stock Exchange is open for business. "Capital Reorganization" shall have the meaning set forth in Section 4.3. "Closing Price" with respect to any security on any day means (a) if such security is listed or admitted for trading on a national securities exchange, the reported last sales price regular way or, if no such reported sale occurs on such day, the average of the closing bid and asked prices 7 8 regular way on such day, in each case as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such class of security is listed or admitted to trading, or (b) if such security is not listed or admitted to trading on any national securities exchange, the last quoted sales price, or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market on such day as reported by NASDAQ or any comparable system then in use or, if not so reported, as reported by any New York Stock Exchange member firm reasonably selected by the Company for such purpose. "Common Stock" shall have the meaning set forth in the first paragraph of this Warrant. "Common Stock Reorganization" shall have the meaning set forth in Section 4.2. "Company" shall have the meaning set forth in the first paragraph of this Warrant. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and any similar or successor federal statute, and the rules and regulations of the Securities and Exchange Commission (or its successor) thereunder, all as the same shall be in effect at the time. "Exercise Price" means a per share price of $1.00 as increased by an annual rate of interest equal to 8% per year (calculated on the basis of a 365 day year and actual days lapsed) calculated commencing as of October 16, 1996 and as of and including the last calendar day immediately prior to the date of such exercise of the Warrant. "Fair Market Value" means the fair market value of the business or property in question, as determined in good faith by the Board, provided, however, that the Fair Market Value of any security for which a Closing Price is available shall be the Market Price of such security. "Holder" shall have the meaning set forth in the first paragraph of this Warrant. The term Holders shall refer to all Holders of Warrants. "HMC Group" means HMTF and its Affiliates and its and their respective officers, directors, and employees (and members of their respective families (other than R. Steven Hicks) and trusts for the primary benefit of such family members). "HMTF" means Hicks, Muse, Tate & Furst Incorporated. "Initial Investment" means the 90,000,000 shares of Common Stock held by Capstar Broadcasting Partners, L.P. on October 16, 1996. "Initial Investment Amount" means $90,000,000 paid by Capstar Broadcasting Partners, L.P. to the Company in connection with its Initial Investment. 8 9 "Market Price", with respect to any security on any day means the average of the daily Closing-Prices of a share or unit of such security for the 20 consecutive Business Days ending on the most recent Business Day for which a Closing Price is available; provided, however, that in the event that, in the case of Common Stock, the Market Price is determined during a period following the announcement by the Company of any subdivision, combination or reclassification of Common Stock or the record date for such subdivision, combination or reclassification, then, and in each such case, the Market Price shall be appropriately adjusted to reflect the current market price per share equivalent of Common Stock. "NASD" means The National Association of Securities Dealers, Inc. "NASDAQ" means The National Association of Securities Dealers, Inc. Automated Quotation System. "Person" or "person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. "Readily Marketable Securities" means any securities listed or traded on the New York Stock Exchange, American Stock Exchange, NASDAQ National Market which, as a matter of law, shall, at the time of acquisition, be freely saleable in unlimited quantities by the HMC Group to the public, either pursuant to an effective registration statement under the Securities Act or without the necessity of such registration or subject to a contractual demand registration right which is exercisable within a period of one year from the date of acquisition. "Securities Act,, shall mean the Securities Act of 1933, as amended, and any similar or successor federal statute, and the rules and regulations of the Securities and Exchange Commission (or its successor) thereunder, all as the same shall be in effect at the time. "Shareholders Agreement" shall have the meaning set forth in Section 3.1. "Target IRR" means that the HMC Group has received distributions from, and/or consideration realized from the sale, exchange or other disposition to a non-Affiliate of, the Initial Investment, in the form of cash and/or Readily Marketable Securities, in such amount as may be necessary to result in an internal rate of return of at least 30%, calculated in accordance with generally accepted financial practice, on the Initial Investment Amount determined commencing as of October 16, 1996. "Triggering Event" means a date upon which the Target IRR is achieved. "Warrant Agency" shall have the meaning set forth in Section 2.1. 9 10 "Warrant" shall have the meaning set forth in the first paragraph of this Warrant. The term Warrants shall refer to the Warrants resulting in any subdivision of this Warrant. ARTICLE VI MISCELLANEOUS 6.1 Notices. All notices, requests, consents and other communications provided for herein shall be in writing and shall be effective upon delivery in person, faxed or telecopied, or mailed by certified or registered mail, return receipt requested, postage pre-paid, to the addresses specified on the signature pages hereto or, in any case, at such other address or addresses as shall have been furnished in writing to the Company (in the case of a Holder) or to the Holder (in the case of the Company) in accordance with the provisions of this paragraph. 6.2 Waivers; Amendments. No failure or delay of the Holder in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Holder are cumulative and not exclusive of any rights or remedies which it would otherwise have. The provisions of this Warrant may be amended, modified or waived with (and only with) the written consent of the Company and Holders who collectively hold Warrants to purchase a majority of the Common Stock subject to purchase upon exercise of such Warrants at the time outstanding. Any such amendment, modification or waiver effected pursuant to this Section shall be binding upon the Holders, upon each future Holder thereof and upon the Company. In the event of any such amendment, modification or waiver the Company shall give prompt notice thereof to all Holders and, if appropriate, notation thereof shall be made on all Warrants thereafter surrendered for registration of transfer or exchange. No notice or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances. 6.3 Governing Law. This Warrant shall be construed in accordance with and governed by the laws of the State of Delaware. 6.4 Severability. In case any one or more of the provisions contained in this Warrant shall be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 10 11 6.5 Section Headings. The sections headings used herein are for convenience of reference only, are not part of this Warrant and are not to affect the construction of or be taken into consideration in interpreting this Warrant. 6.6 No Rights as Stockholder. This Warrant shall not entitle the Holder to any rights as a stockholder of the Company. 11 12 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed in its corporate name by one of its officers thereunto duly authorized, all as of the day and year first above written. CAPSTAR BROADCASTING PARTNERS, INC. Address: By: /s/ ERIC C. NEUMAN ---------------------------------- Name: - ------------------------------------ -------------------------------- Title: - ------------------------------------ ------------------------------- - ------------------------------------ ACCEPTED AND AGREED TO: /s/ R. STEVEN HICKS - ------------------------------------ Name: R. Steven Hicks Address: 600 Congress Avenue Suite 1270 Austin, TX 78701 12 13 ANNEX A SUBSCRIPTION NOTICE (To be executed upon exercise of Warrant) TO CAPSTAR BROADCASTING PARTNERS, L.P.: The undersigned hereby irrevocably elects to exercise the attached Warrant and to purchase thereunder, in exercise of the [ ] A Warrant for _____ shares of Common Stock and/or [ ] B Warrant for _________ shares of Common Stock in payment of an Exercise Price in an amount equal to $__________. Please issue a certificate or certificates for such shares of Common Stock in the following name or names and denominations: If said number of shares shall not be all the shares issuable upon exercise of the attached Warrant, a new Warrant is to be issued in the name of the undersigned for the balance remaining of such shares less any fraction of a share paid in cash. Dated: ___________________, ______ ------------------------------------- Note: The above signature should correspond exactly with the name on the face of the attached Warrant or with the name of the assignee appearing in the assignment form below. 13 14 ANNEX B CERTIFICATION The undersigned hereby certifies to Capstar Broadcasting Partners, L.P. that he, she or it is: a. an "accredited investor" as that term is defined in Regulation D promulgated pursuant to the Securities Act or any successor regulation, as such provisions may be in effect on the date hereof, and is an "accredited investor" pursuant to Section of such provision; and b. is knowledgeable, sophisticated and experienced in business and financial matters and in securities similar to the Common Stock; is aware of the limitation on the transfer of the Common Stock imposed by applicable securities laws and any limitations on transfer imposed by contracts with the Company or others; and has had access to, or been furnished with, all information about the Common Stock and the Company deemed necessary to conclude that he, she or it has the ability to bear the economic risk of the investment in the Common Stock and to afford the complete loss of such investment. IN WITNESS WHEREOF, the undersigned has executed this CERTIFICATION this _____ day of ________________, _____. For Individuals: For Entities: - --------------------------------- ------------------------------ Signature Printed Name of Entity By: - --------------------------------- --------------------------- Printed Name Name: ------------------------- Title: ------------------------ 14 EX-10.28 25 WARRANT DATED FEBRUARY 20, 1997 1 EXHIBIT 10.28 THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL IN REASONABLY ACCEPTABLE FORM AND SCOPE REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION, QUALIFICATION OR OTHER SUCH ACTIONS ARE NOT REQUIRED UNDER ANY SUCH LAWS. THE OFFERING OF THIS SECURITY HAS NOT BEEN REVIEWED OR APPROVED BY ANY STATE'S SECURITIES ADMINISTRATOR. THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER ARE ALSO SUBJECT TO A STOCKHOLDERS AGREEMENT, DATED AS OF OCTOBER 16, 1996, BY AND AMONG THE COMPANY AND THE OTHER PARTIES LISTED THEREIN, COPIES OF WHICH ARE ON FILE WITH THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE. Dated: February 20, 1997 WARRANT To Purchase 2,553,182 Shares of Common Stock CAPSTAR BROADCASTING PARTNERS, INC. EXPIRING FEBRUARY 20, 2007 THIS IS TO CERTIFY THAT, for value received, R. Steven Hicks, or registered assigns as a holder of this Warrant (the "Holder") is entitled to purchase from Capstar Broadcasting Partners, Inc., a Delaware corporation (the "Company") at any time or from time to time prior to 5:00 p.m., Dallas, Texas time, February 20, 2007 at the place where the Warrant Agency (as hereinafter defined) is located, at the Exercise Price (as hereinafter defined) 2,042,546 shares of common stock, par value $.01 per share, (the "Common Stock") of the Company (the "A Warrant") and at the Exercise Price 510,636 shares of the Common Stock (the "B Warrant", and, collectively with the A Warrant, the "Warrant"), all subject to adjustment and upon the terms and conditions as hereinafter provided; provided, however, in no event may the B Warrant be exercised by the Holder prior to the occurrence of a Triggering Event (as hereinafter defined). The Holder shall designate at the time of exercise whether the Holder is exercising an A Warrant or a B Warrant and the number of shares of Common Stock to be purchased respectively thereunder. Certain terms used in this Warrant are defined in Article V. 2 ARTICLE I EXERCISE OF WARRANTS 1.1 Method of Exercise. To exercise this Warrant in whole or in part, the Holder shall deliver to the Company, at the Warrant Agency, (a) this Warrant, (b) a written notice, in substantially the form of the Subscription Notice attached hereto as Annex A, of such Holder's election to exercise this Warrant, which notice shall specify (i) whether the Holder is exercising an A Warrant and/or a B Warrant, (ii) the number of shares of Common Stock to be purchased under an A Warrant and/or a B Warrant, as applicable, (iii) the denominations of the share certificate or certificates desired, and (iv) the name or names in which such certificates are to the registered, (c) if the Common Stock to be received upon the exercise of this Warrant has not been registered under the Securities Act, a written certification in substantially the form of the Certification attached hereto as Annex B, and (d) payment of the Exercise Price with respect to such shares. Such payment may be made, at the option of the Holder, by cash, money order, certified or bank cashier's check or wire transfer. The Company shall, as promptly as practicable and in any event within five Business Days thereafter, execute and deliver or cause to be executed and delivered, in accordance with such notice, a certificate or certificates representing the aggregate number of shares of Common Stock specified in said notice. The share certificate or certificates so delivered shall be in such denominations as may be specified in such notice or, if such notice shall not specify denominations, shall be in the amount of the number of shares of Common Stock for which the Warrant is being exercised, and shall be issued in the name of the Holder or such other name or names as shall be designated in such notice. Such certificate or certificates shall be deemed to have been issued, and such Holder or any other Person so designated to be named therein shall be deemed for all purposes to have become a holder of record of such shares, as of the date the aforementioned notice is received by the Company. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the certificate or certificates, deliver to the Holder a new Warrant evidencing the rights to purchase the remaining shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder, appropriate notation may be made on this Warrant which shall then be returned to the Holder. The Company shall pay all expenses, taxes (if any) and other charges payable in connection with the preparation, issuance and delivery of share certificates and new Warrant, except that, if share certificates or new Warrant shall be registered in a name or names other than the name of the Holder, funds sufficient to pay all transfer taxes payable as a result of such transfer shall be paid by the Holder at the time of delivering the aforementioned notice of exercise or promptly upon receipt of a written request of the Company for payment. 1.2 Shares To Be Fully Paid and Nonassessable. All shares of Common Stock issued upon the exercise of this Warrant shall be validly issued, fully paid and nonassessable and free from all preemptive rights of any stockholder, and from all taxes. 1.3 No Fractional Shares To Be Issued. The Company shall not be required to issue fractions of shares of Common Stock upon exercise of this Warrant. If any fraction of a share would, but for this Section, be issuable upon any exercise of this Warrant, in lieu of such fractional share the Company shall pay to the Holder, in cash, an amount equal to such fraction of the Fair Market Value per share of Common Stock of the Company on the Business Day immediately prior to the date of such exercise. 2 3 1.4 Share Legend. Each certificate for shares of Common Stock issued upon exercise of this Warrant, unless at the time of exercise such shares are registered under the Securities Act, shall bear the following legend: "This security has not been registered under the Securities Act of 1933, as amended, or under the securities laws of any state or other jurisdiction and may not be sold, offered for sale or otherwise transferred unless registered or qualified under said Act and applicable state securities laws or unless the Company receives an opinion of counsel in reasonably acceptable form and scope reasonably satisfactory to the Company that registration, qualification or other such actions are not required under any such laws. The offering of this security has not been reviewed or approved by any state securities administrator. Any certificate issued at any time in exchange or substitution for any certificate bearing such legend (except a new certificate issued upon completion of a public distribution pursuant to a registration statement under the Securities Act) shall also bear such legend unless, in the opinion of counsel selected by the holder of such certificate and reasonably acceptable to the Company, the securities represented thereby are no longer subject to restrictions on resale under the Securities Act. 1.5 Reservation; Authorization. The Company has reserved and will keep available for issuance upon exercise of this Warrant the total number of shares of Common Stock deliverable upon exercise of this Warrant from time to time outstanding. The issuance of such shares has been duly and validly authorized and, when issued and sold in accordance with this Warrant, such shares will be duly and validly issued, fully paid and nonassessable. ARTICLE II WARRANT AGENCY; TRANSFER, EXCHANGE AND REPLACEMENT OF WARRANTS 2.1 Warrant Agency. At any time after a public offering of Common Stock registered under the Securities Act, the Company may promptly appoint and thereafter maintain, at its own expense, an agency in New York, New York, which agency may be the Company's then existing transfer agent (the "Warrant Agency"), for certain purposes specified herein, and shall give prompt notice of such appointment (and appointment of any successor Warrant Agency) to the Holder. Until an independent Warrant Agency is so appointed, the Company shall perform the obligations of the Warrant Agency provided herein at its address as specified on the signature page hereto or such other address as the Company shall specify by notice to the Holder. 2.2 Ownership of Warrant. The Company may deem and treat the Person in whose name this Warrant is registered as the Holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by any Person other than the Warrant Agency) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer as provided in this Article II. 2.3 Transfer of Warrant. The Company agrees to maintain at the Warrant Agency books for the registration of transfers of the Warrants, and transfer of this Warrant and all rights hereunder shall be registered, in whole or in part, on such books, upon surrender of this Warrant at the Warrant 3 4 Agency, together with a written assignment of this Warrant duly executed by the Holder or his duly authorized agent or attorney, with (unless the Holder is the original Holder or another institutional investor) signatures guaranteed by a bank or trust company or a broker or dealer registered with the NASD, and funds sufficient to pay any transfer taxes payable upon such transfer. Upon surrender the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in the instrument of assignment, and this Warrant shall promptly be canceled. The Warrant Agency shall not be required to register any transfers if the Holder fails to furnish to the Company, after a request therefor, an opinion of counsel (who may be an employee of such Holder) reasonably satisfactory to the Company that such transfer is exempt from the registration requirements of the Securities Act and applicable blue sky laws. 2.4 Division of Warrant. This Warrant may be divided upon surrender hereof to the Warrant Agency, together with a written notice specifying the names and denominations in which the new Warrants are to be issued, signed by the Holder. Subject to compliance with Section 2.3 as to any transfer which may be involved in the division, the Company shall execute and deliver new Warrants in exchange for the Warrant or Warrants to be divided in accordance with such notice. 2.5 Loss, Theft, Destruction or Mutilation of Warrants. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same aggregate number of shares of Common Stock as provided for in such lost, stolen, destroyed or mutilated Warrant. 2.6 Expenses of Delivery of Warrants. The Company shall pay all expenses, taxes (other than transfer taxes) and other charges payable in connection with the preparation, issuance and delivery of this Warrant and the Common Stock issuable hereunder. ARTICLE III CERTAIN RIGHTS 3.1 Stockholders Agreement. This Warrant and the Common Stock issuable upon exercise of this Warrant is subject to a Stockholders Agreement dated as of October 16, 1996, as amended, by and among the Company and the other parties listed therein (the "Stockholders Agreement"). The Company shall keep a copy of the Stockholders Agreement, and any amendments thereto, at the Warrant Agency and shall furnish copies thereof to the Holder upon request. 3.2 Notice of Fair Market Value. Upon each determination of Fair Market Value hereunder (other than a determination relating solely to setting the value of fractional shares), the Company shall promptly give notice thereof to the Holder. 4 5 ARTICLE IV ANTIDILUTION PROVISIONS 4.1 Adjustments Generally. The Exercise Price and the number of shares of Common Stock (or other securities or property) issuable upon exercise of this warrant shall be subject to adjustment from time to time upon the occurrence of certain events, as provided in this Article IV. 4.2 Common Stock Reorganization. If the Company shall after the date of issuance of this Warrant subdivide its outstanding shares of Common Stock into a greater number of shares or consolidate its outstanding shares of Common Stock into a smaller number of shares (any such event being called a "Common Stock Reorganization"), then (a) the Exercise Price shall each be adjusted, effective immediately after the record date at which the holders of shares of Common Stock are determined for purposes of such Common Stock Reorganization, to a price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on such record date before giving effect to such Common Stock Reorganization and the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such Common Stock Reorganization, and (b) the number of shares of Common Stock subject to purchase upon exercise of the A Warrant and the B Warrant shall each be adjusted, effective at such time, to a number determined by multiplying the number of shares of Common Stock subject to purchase immediately before such Common Stock Reorganization by a fraction, the numerator of which shall be the number of shares outstanding after giving effect to such Common Stock Reorganization and the denominator of which shall be the number of shares of Common Stock outstanding immediately before such Common Stock Reorganization. 4.3 Capital Reorganization. If after the date of issuance of this Warrant there shall be any consolidation or merger to which the Company is a party, other than a consolidation or a merger in which the Company is a continuing corporation and which does not result in any reclassification of, or change (other than a Common Stock Reorganization or a change in par value), in, outstanding shares of Common Stock, or any sale or conveyance of the property of the Company as an entirety or substantially as an entirety (any such event being called a "Capital Reorganization"), then, effective upon the effective date of such Capital Reorganization, the Holder shall have the right to purchase, upon exercise of this Warrant, the kind and amount of shares of stock and other securities and property (including cash) which the Holder would have owned or have been entitled to receive after such Capital Reorganization if this Warrant had been exercised immediately prior to such Capital Reorganization. As a condition to effecting any Capital Reorganization, the Company or the successor or surviving corporation, as the case may be, shall execute and deliver to the Holder an agreement as to the Holder's rights in accordance with this Section 4.2, providing for subsequent adjustments as nearly equivalent as may be practicable to the adjustments provided for in this Article IV. The provisions of this Section 4.2 shall similarly apply to successive Capital Reorganizations. 4.4 Certain Other Events. If any event occurs after the date of issuance of this Warrant as to which the foregoing provisions of this Article IV are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board of Directors of the Company (the "Board"), fairly protect the purchase rights of the Holder in accordance with the essential intent and principles of such provisions, then the Board shall make such adjustments in the application of such 5 6 provisions, in accordance with such essential intent and principles, as shall be reasonably necessary, in the good faith opinion of the Board, to protect such purchase rights as aforesaid. 4.5 Adjustment Rules. (a) Any adjustments pursuant to this Article IV shall be made successively whenever an event referred to herein shall occur. (b) If the Company shall set a record date to determine the holders of shares of Common Stock for purposes of a Common Stock Reorganization or Capital Reorganization, and shall legally abandon such action prior to effecting such action, then no adjustment shall be made pursuant to this Article IV in respect of such action. (c) No adjustment in the amount of shares purchasable upon exercise of this Warrant or in the Exercise Price shall be made hereunder unless such adjustment increases or decreases such amount or price by one percent or more, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall serve to adjust such amount or price by one percent or more. (d) No adjustment in the Exercise Price shall be made hereunder if such adjustment would reduce the exercise price to an amount below par value of the Common Stock, which par value shall initially be $.01 per share of Common Stock. 4.6 Notice of Adjustment. The Company shall give the Holder reasonable notice of the record date or effective date, as the case may be, of any action which requires or might require an adjustment or readjustment pursuant to this Article IV. Such notice shall describe such event in reasonable detail and specify the record date or effective date, as the case may be, and, if determinable, the required adjustment and the computation thereof. If the required adjustment is not determinable at the time of such notice, the Company shall give reasonable notice to the Holder of such adjustment and computation promptly after such adjustment becomes determinable. ARTICLE V DEFINITIONS The following terms, as used in this Warrant, have the following respective meanings: "Affiliate", means, with respect to any Person, any Person who, directly or indirectly, controls, is controlled by or is under common control with that Person. "Business Day" shall mean (a) if any class of Common Stock is listed or admitted to trading on a national securities exchange, a day on which the principal national securities exchange on which such class of Common Stock is listed or admitted to trading is open for business or (b) if no class of Common Stock is so listed or admitted to trading, a day on which the New York Stock Exchange is open for business. "Capital Reorganization" shall have the meaning set forth in Section 4.3. "Closing Price" with respect to any security on any day means (a) if such security is listed or admitted for trading on a national securities exchange, the reported last sales price regular way 6 7 or, if no such reported sale occurs on such day, the average of the closing bid and asked prices regular way on such day, in each case as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such class of security is listed or admitted to trading, or (b) if such security is not listed or admitted to trading on any national securities exchange, the last quoted sales price, or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market on such day as reported by NASDAQ or any comparable system then in use or, if not so reported, as reported by any New York Stock Exchange member firm reasonably selected by the Company for such purpose. "Common Stock" shall have the meaning set forth in the first paragraph of this Warrant. "Common Stock Reorganization" shall have the meaning set forth in Section 4.2. "Company" shall have the meaning set forth in the first paragraph of this Warrant. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and any similar or successor federal statute, and the rules and regulations of the Securities and Exchange Commission (or its successor) thereunder, all as the same shall be in effect at the time. "Exercise Price" means a per share price of $1.10 as increased by an annual rate of interest equal to 8% per year (calculated on the basis of a 365 day year and actual days lapsed) calculated commencing as of February 20, 1997 and as of and including the last calendar day immediately prior to the date of such exercise of the Warrant. "Fair Market Value" means the fair market value of the business or property in question, as determined in good faith by the Board, provided, however, that the Fair Market Value of any security for which a Closing Price is available shall be the Market Price of such security. "Holder" shall have the meaning set forth in the first paragraph of this Warrant. The term Holders shall refer to all Holders of Warrants. "HMC Group" means HMTF and its Affiliates and its and their respective officers, directors, and employees (and members of their respective families (other than R. Steven Hicks) and trusts for the primary benefit of such family members). "HMTF" means Hicks, Muse, Tate & Furst Incorporated. "Market Price", with respect to any security on any day means the average of the daily Closing-Prices of a share or unit of such security for the 20 consecutive Business Days ending on the most recent Business Day for which a Closing Price is available; provided, however, that in the event that, in the case of Common Stock, the Market Price is determined during a period following the announcement by the Company of any subdivision, combination or reclassification of Common Stock or the record date for such subdivision, combination or reclassification, then, and in each such case, the Market Price shall be appropriately adjusted to reflect the current market price per share equivalent of Common Stock. "NASD" means The National Association of Securities Dealers, Inc. 7 8 "NASDAQ" means The National Association of Securities Dealers, Inc. Automated Quotation System. "Person" or "person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. "Readily Marketable Securities" means any securities listed or traded on the New York Stock Exchange, American Stock Exchange, NASDAQ National Market which, as a matter of law, shall, at the time of acquisition, be freely saleable in unlimited quantities by the HMC Group to the public, either pursuant to an effective registration statement under the Securities Act or without the necessity of such registration or subject to a contractual demand registration right which is exercisable within a period of one year from the date of acquisition. "Second Investment" means the 31,818,181 shares of Common Stock acquired and held by Capstar Broadcasting Partners, L.P. on February 20, 1997. "Second Investment Amount" means $35,000,000 paid by Capstar Broadcasting Partners, L.P. to the Company in connection with its Second Investment. "Securities Act,, shall mean the Securities Act of 1933, as amended, and any similar or successor federal statute, and the rules and regulations of the Securities and Exchange Commission (or its successor) thereunder, all as the same shall be in effect at the time. "Stockholders Agreement" shall have the meaning set forth in Section 3.1. "Target IRR" means that the HMC Group has received distributions from, and/or consideration realized from the sale, exchange or other disposition to a non-Affiliate of, the Second Investment, in the form of cash and/or Readily Marketable Securities, in such amount as may be necessary to result in an internal rate of return of at least 30%, calculated in accordance with generally accepted financial practice, on the Second Investment Amount determined commencing as of February 20, 1997. "Triggering Event" means a date upon which the Target IRR is achieved. "Warrant Agency" shall have the meaning set forth in Section 2.1. "Warrant" shall have the meaning set forth in the first paragraph of this Warrant. The term Warrants shall refer to the Warrants resulting in any subdivision of this Warrant. ARTICLE VI MISCELLANEOUS 6.1 Notices. All notices, requests, consents and other communications provided for herein shall be in writing and shall be effective upon delivery in person, faxed or telecopied, or mailed by certified or registered mail, return receipt requested, postage pre-paid, to the addresses specified on the signature pages hereto or, in any case, at such other address or addresses as shall 8 9 have been furnished in writing to the Company (in the case of a Holder) or to the Holder (in the case of the Company) in accordance with the provisions of this paragraph. 6.2 Waivers; Amendments. No failure or delay of the Holder in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Holder are cumulative and not exclusive of any rights or remedies which it would otherwise have. The provisions of this Warrant may be amended, modified or waived with (and only with) the written consent of the Company and Holders who collectively hold Warrants to purchase a majority of the Common Stock subject to purchase upon exercise of such Warrants at the time outstanding. Any such amendment, modification or waiver effected pursuant to this Section shall be binding upon the Holders, upon each future Holder thereof and upon the Company. In the event of any such amendment, modification or waiver the Company shall give prompt notice thereof to all Holders and, if appropriate, notation thereof shall be made on all Warrants thereafter surrendered for registration of transfer or exchange. No notice or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances. 6.3 Governing Law. This Warrant shall be construed in accordance with and governed by the laws of the State of Delaware. 6.4 Severability. In case any one or more of the provisions contained in this Warrant shall be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 6.5 Section Headings. The sections headings used herein are for convenience of reference only, are not part of this Warrant and are not to affect the construction of or be taken into consideration in interpreting this Warrant. 6.6 No Rights as Stockholder. This Warrant shall not entitle the Holder to any rights as a stockholder of the Company. 9 10 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed in its corporate name by one of its officers thereunto duly authorized, all as of the day and year first above written. CAPSTAR BROADCASTING PARTNERS, INC. Address: By: /s/ WILLIAM S. BANOWSKY, JR. 600 Congress Avenue --------------------------------- Suite 1400 Name: William S. Banowsky, Jr. Austin, Texas 75201 Title: Executive Vice President and General Counsel ACCEPTED AND AGREED TO: /s/ R. STEVEN HICKS - ----------------------------------------------------- Name: R. Steven Hicks Address: 600 Congress Avenue Suite 1400 Austin, TX 78701 11 ANNEX A SUBSCRIPTION NOTICE (To be executed upon exercise of Warrant) TO CAPSTAR BROADCASTING PARTNERS, L.P.: The undersigned hereby irrevocably elects to exercise the attached Warrant and to purchase thereunder, in exercise of the [ ] A Warrant for _____ shares of Common Stock and/or [ ] B Warrant for _________ shares of Common Stock in payment of an Exercise Price in an amount equal to $__________. Please issue a certificate or certificates for such shares of Common Stock in the following name or names and denominations: If said number of shares shall not be all the shares issuable upon exercise of the attached Warrant, a new Warrant is to be issued in the name of the undersigned for the balance remaining of such shares less any fraction of a share paid in cash. Dated: ___________________, ______ -------------------------------- Note: The above signature should correspond exactly with the name on the face of the attached Warrant or with the name of the assignee appearing in the assignment form below. 12 ANNEX B CERTIFICATION The undersigned hereby certifies to Capstar Broadcasting Partners, L.P. that he, she or it is: a. an "accredited investor" as that term is defined in Regulation D promulgated pursuant to the Securities Act or any successor regulation, as such provisions may be in effect on the date hereof, and is an "accredited investor" pursuant to Section of such provision; and b. is knowledgeable, sophisticated and experienced in business and financial matters and in securities similar to the Common Stock; is aware of the limitation on the transfer of the Common Stock imposed by applicable securities laws and any limitations on transfer imposed by contracts with the Company or others; and has had access to, or been furnished with, all information about the Common Stock and the Company deemed necessary to conclude that he, she or it has the ability to bear the economic risk of the investment in the Common Stock and to afford the complete loss of such investment. IN WITNESS WHEREOF, the undersigned has executed this CERTIFICATION this _____ day of ________________, _____. For Individuals: For Entities: - --------------------------------- ------------------------------ Signature Printed Name of Entity By: - --------------------------------- --------------------------- Printed Name Name: ---------------------- Title: --------------------- EX-11.1 26 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 Exhibit 11.1 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
YEAR ENDED DECEMBER 31, 1996 ----------------- Computation for statement of earnings: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,756,453) ============ Computation for weighted average common shares outstanding: Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . 93,691,842 Incremental common shares applicable to common stock options and warrant based on the estimated fair value of the stock . . . . . . . . . 1,016,130 Common stock options and warrant excluded based on antidilutive effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,016,130) Weighted average common shares . . . . . . . . . . . . . . . . . . . . . . . . 93,691,842 ============ Primary and fully diluted loss per common share . . . . . . . . . . . . . . . . . . . $ (0.04) ============
EX-11.2 27 STATEMENT RE: COMPUTATION OF HISTROICAL PRO FORMA 1 EXHIBIT 11.2 STATEMENT RE COMPUTATION OF HISTORICAL PRO FORMA EARNINGS PER SHARE EARNINGS (AFTER GIVING EFFECT TO THE RECAPITALIZATION)
YEAR ENDED DECEMBER 31, 1996 ----------------- Computation for statement of earnings: Net loss ............................................................. $ (3,756,453) ============ Computation for weighted average common shares outstanding: Weighted average common shares outstanding ........................... 9,369,184 Incremental common shares applicable to common stock options and warrant based on the estimated fair value of the stock ......... 101,613 Common stock options and warrant excluded based on antidilutive effect ................................................ (101,613) Weighted average common shares ....................................... 9,369,184 ============ Primary and fully diluted loss per common share ........................... $ (0.40) ============
EX-21.1 28 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 LIST OF SUBSIDIARIES OF THE COMPANY 1. The following entities are wholly-owned subsidiaries of the Company: a. Commodore Media, Inc., a Delaware corporation. b. Point Madison Acquisition Company, Inc., a Delaware corporation c. OCC Holding Corporation, a Delaware corporation d. Pacific Star Communications, Inc., a Delaware corporation e. Capstar Broadcasting-Florida, Inc., a Delaware corporation 2. Atlantic Star Communications, Inc., a Delaware corporation, is a wholly-owned subsidiary of Commodore Media, Inc. 3. The following entities are wholly-owned subsidiaries of Atlantic Star Communications, Inc.: a. Commodore Media of Delaware, Inc., a Delaware corporation. b. Commodore Media of Pennsylvania, Inc., a Delaware corporation. c. Commodore Media of Florida, Inc., a Delaware corporation. d. Commodore Media of Kentucky, Inc., a Delaware corporation. e. Commodore Media of Norwalk, Inc., a Delaware corporation. f. Commodore Media of Westchester, Inc., a Delaware corporation. 4. Danbury Broadcasting, Inc., a Connecticut corporation, is a wholly-owned subsidiary of Commodore Media of Norwalk, Inc. 5. Southern Star Communications, Inc., a Delaware corporation, is a wholly-owned subsidiary of the Commodore Media, Inc. 6. The following entities are wholly-owned subsidiaries of Southern Star Communications, Inc.: a. Atlantic City Broadcasting Corp., a Delaware corporation. b. Breadbasket Broadcasting Corporation, a Delaware corporation. c. Houndstooth Broadcasting Corporation, a Delaware corporation. d. O.C.C., Inc., a Delaware corporation. e. Osborn Entertainment Enterprises Corporation, a Delaware corporation. f. SNG Holdings, Inc., a Delaware corporation. g. Southeast Radio Holding Corp., a Delaware corporation. h. Ameron Broadcasting Corporation, a Delaware corporation. i. WNOK Acquisition Company, Inc., a Delaware corporation. 2 7. The following entities are wholly-owned subsidiaries of O.C.C., Inc.: a. Ladner Communications Holding Corp., a Delaware corporation. b. Mountain Radio Corporation, a Delaware corporation. c. Orange Communications, Inc., a Delaware corporation. d. RKZ Television, Inc., a Delaware corporation. e. Yellow Brick Radio Corporation, a Delaware corporation. 8. The following entities are wholly-owned subsidiaries of Osborn Entertainment Enterprises Corporation: a. Jamboree in the Hills, Inc., a Delaware corporation. b. Music Hall Club, Inc., a West Virginia corporation. 9. The following entities are wholly-owned subsidiaries of SNG Holdings, Inc.: a. Great American East, Inc., a North Carolina corporation. b. Nelson Broadcasting Corporation, a Delaware corporation. c. Short Broadcasting Corporation, a Delaware corporation. 10. The following entities are wholly-owned subsidiaries of Southeast Radio Holding Corp.: a. Asheville Broadcasting Corp., a Delaware corporation. b. Corkscrew Broadcasting Corporation, a Delaware corporation. c. Daytona Beach Broadcasting Corp., a Delaware corporation. d. Rainbow Broadcasting Corporation, a Delaware corporation. 11. The following entities are wholly-owned subsidiaries of Ladner Communications Holding Corp.: a. Beatrice Broadcasting Corporation, a Delaware corporation. b. Currey Broadcasting Corporation, a Delaware corporation. c. Osborn Sound & Communications Corp., a Delaware corporation. d. Waite Broadcasting Corp., a Delaware corporation. 12. Capstar Acquisition Company, Inc., a Delaware corporation, and Benchmark Communications, Inc., a Delaware corporation, are wholly-owned subsidiaries of Commodore Media, Inc. EX-23.2 29 CONSENT OF COOPERS & LYBRAND LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 (File No. ) of our report dated February 14, 1997, on our audit of the consolidated financial statements and financial statement schedules of Capstar Broadcasting Partners, Inc. We also consent to the reference to our firm under the caption "Experts". /s/ COOPERS & LYBRAND L.L.P. Austin, Texas April 15, 1997 EX-23.3 30 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.3 CONSENT OF ERNST & YOUNG LLP We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated (i) February 10, 1997 with respect to the consolidated financial statements of Commodore Media, Inc. and Subsidiaries, the Predecessor Company of Capstar Broadcasting Partners, Inc., and (ii) February 3, 1997 with respect to the consolidated financial statements of Osborn Communications Corporation, both included in the Registration Statement (Form S-1) and related Prospectus of Capstar Broadcasting Partners, Inc. for the registration of Class A Common Stock. /s/ ERNST & YOUNG LLP New York, New York April 11, 1997 EX-23.4 31 CONSENT OF COOPERS & LYBRAND L.L.P. 1 EXHIBIT 23.4 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 of our report dated February 8, 1997, on our audits of the combined financial statements of Benchmark Communications Radio Limited Partnership. We also consent to the reference to our firm under the caption "Experts". /s/ COOPERS & LYBRAND L.L.P. Dallas, Texas April 15, 1997 EX-23.5 32 CONSENT OF COOPERS & LYBRAND L.L.P. 1 EXHIBIT 23.5 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 (File No. ) of our report dated February 3, 1997, on our audit of the financial statements of Midcontinent Broadcasting Co. of Wisconsin, Inc. We also consent to the reference to our firm under the caption "Experts". /s/ COOPERS & LYBRAND L.L.P. Milwaukee, Wisconsin April 15, 1997 EX-23.6 33 CONSENT OF COOPERS & LYBRAND L.L.P. 1 EXHIBIT 23.6 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 (File No. ) of our report dated February 3, 1997, on our audit of the financial statements of Point Communications Limited Partnership. We also consent to the reference to our firm under the caption "Experts". /s/ COOPERS & LYBRAND L.L.P. Milwaukee, Wisconsin April 15, 1997 EX-23.7 34 CONSENT OF COOPERS & LYBRAND L.L.P. 1 EXHIBIT 23.7 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 (File No. ) of our report dated February 13, 1997, on our audit of the financial statements of Community Pacific Broadcasting Company L.P. We also consent to the reference to our firm under the caption "Experts". /s/ COOPERS & LYBRAND L.L.P. San Jose, California April 15, 1997 EX-23.8 35 CONSENT OF HOLTZ RUBENSTIEN & CO., L.L.P. 1 EXHIBIT 23.8 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 (File No. ) of our report dated February 12, 1996, on our audits of the financial statements of Q Broadcasting, Inc. We also consent to the reference to our firm under the caption "Experts". /s/ HOLTZ RUBENSTEIN & CO., L.L.P. Melville, New York April 14, 1997 EX-23.9 36 CONSENT OF PANETH, HABER & ZIMMERMAN L.L.P. 1 EXHIBIT 23.9 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 (File No. ) of our report dated August 18, 1995, on our audit of the financial statements of Danbury Broadcasting, Inc. We also consent to the reference to our firm under the caption "Experts". /s/ PANETH, HABER & ZIMMERMAN L.L.P. New York, NY April 14, 1997 EX-23.10 37 CONSENT OF BROWN, EDWARD & CO., L.L.P. 1 EXHIBIT 23.10 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 (File No. ) of our report dated May 1, 1996, on our audit of the financial statements of Adventure Communications-Huntington (Division of Adventure Communications, Inc.). We also consent to the reference to our firm under the caption "Experts". /s/ BROWN, EDWARDS & CO., LLP Bluefield, West Virginia April 14, 1997 EX-27.1 38 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 5,028,014 0 8,913,390 838,081 0 14,385,304 15,628,361 173,338 238,568,064 9,045,293 0 0 0 941,550 90,200,997 238,568,064 0 11,133,586 0 7,714,503 843,071 0 5,035,142 (3,756,453) 0 0 0 0 0 (3,756,453) 0 0
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