-----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, HJ3TWjbskMjaB7nj3stK37koUsPDPPbaYysJcaZTSFsNnrJWnf6mQyEVW3bFZtM4 1dQ9aog/mwb3lX1X43dFJg== 0000950134-97-005186.txt : 19970709 0000950134-97-005186.hdr.sgml : 19970709 ACCESSION NUMBER: 0000950134-97-005186 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 45 FILED AS OF DATE: 19970708 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPSTAR BROADCASTING PARTNERS INC CENTRAL INDEX KEY: 0001026516 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 752672663 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-25683 FILM NUMBER: 97637247 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-4/A 1 AMENDMENT NO.1 TO FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 8, 1997 REGISTRATION NO. 333-25683 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-4 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 or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
R. STEVEN HICKS 600 CONGRESS AVENUE CAPSTAR BROADCASTING PARTNERS, INC. SUITE 1400 600 CONGRESS AVENUE AUSTIN, TEXAS 78701 SUITE 1400 (512) 404-6840 AUSTIN, TEXAS 78701 (Address, including zip code, and telephone (512) 404-6840 number, Name, address, including zip code, and including area code, of registrant's telephone number, principal executive offices) including area code, of agent for service)
------------------------ Copies to: WILLIAM S. BANOWSKY, JR. JEFFREY A. CHAPMAN CAPSTAR BROADCASTING PARTNERS, INC. P. GREGORY HIDALGO 600 CONGRESS AVENUE ANDREW M. WRIGHT SUITE 1400 VINSON & ELKINS L.L.P. AUSTIN, TEXAS 78701 3700 TRAMMELL CROW CENTER (512) 404-6840 2001 ROSS AVENUE DALLAS, TEXAS 75201-2975 (214) 220-7700
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement ------------------------ If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] ------------------------ 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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 EXPLANATORY NOTE The Prospectus included herein assumes that the Benchmark Acquisition, the GulfStar Merger, the Cavalier Acquisition, the Madison Acquisition and the Emerald City Acquisition (all as defined in such Prospectus) have been consummated. The Prospectus included herein also assumes that the New Credit Facility (as defined in such Prospectus) has been entered into. It is anticipated that such acquisitions and merger will be consummated and the New Credit Facility will be entered into prior to the time that this registration statement becomes effective. 3 PROSPECTUS OFFER FOR ALL OUTSTANDING 12 3/4% SENIOR DISCOUNT NOTES DUE 2009 IN EXCHANGE FOR 12 3/4% SENIOR DISCOUNT NOTES DUE 2009 CAPSTAR BROADCASTING PARTNERS, INC. ------------------------ Capstar Broadcasting Partners, Inc. (the "Company") is offering upon the terms and subject to the conditions set forth in this Prospectus and the accompanying letter of transmittal (the "Letter of Transmittal") (which together constitute the "Exchange Offer") to exchange $1,000 principal amount at maturity of its registered 12 3/4% Senior Discount Notes due 2009 (the "New Notes") for each $1,000 principal amount at maturity of its unregistered 12 3/4% Senior Discount Notes due 2009 (the "Old Notes") of which an aggregate principal amount at maturity of $277,000,000 is outstanding. The form and terms of the New Notes are identical to the form and terms of the Old Notes except that the offer and sale of the New Notes has been registered under the Securities Act of 1933 (the "Securities Act") and the New Notes will not bear any legends restricting their transfer. The New Notes will evidence the same debt as the Old Notes and will be issued pursuant to, and entitled to the benefits of, the Notes Indenture (as defined) governing the Old Notes. The Exchange Offer is being made in order to satisfy certain contractual obligations of the Company. See "The Exchange Offer" and "Description of the New Notes." The New Notes and the Old Notes are sometimes collectively referred to herein as the "Notes." The yield to maturity of the Notes is 12 3/4% (computed on a semi-annual bond equivalent basis), calculated from February 20, 1997. No interest on the Notes will accrue until February 1, 2002. Thereafter, interest will accrue on the Notes at an annual rate of 12 3/4% and will be payable semi-annually in cash on February 1 and August 1 of each year, commencing August 1, 2002. The Notes are redeemable, in whole or in part, at the option of the Company, on or after February 1, 2002, at the redemption prices set forth herein, plus accrued and unpaid interest to the date of redemption. In addition, at any time before February 1, 2001, the Company may, at its option, redeem up to 25% of the aggregate principal amount at maturity of the Notes with the net proceeds of one or more Public Equity Offerings (as defined) or Major Asset Sales (as defined), at the redemption prices set forth herein; provided, however, that after any such redemption there is outstanding at least 75% of the aggregate principal amount at maturity of the Notes. Upon the occurrence of a Change of Control (as defined), the Company will, subject to certain conditions, offer to purchase all of the then outstanding Notes at a price equal to (i) 101% of the Accreted Value (as defined) on the Change of Control Payment Date (as defined) if the Change of Control Payment Date is on or before February 1, 2002 and (ii) 101% of the aggregate principal at maturity, plus accrued and unpaid interest, if any, thereon to the Change of Control Payment Date if the Change of Control Payment Date is after February 1, 2002. In addition, prior to February 1, 2002, upon the occurrence of a Change of Control, the Company will have the option to redeem the Notes in whole but not in part (a "Change of Control Redemption") at a redemption price equal to 100% of the Accreted Value thereof plus the Applicable Premium (as defined). The Company is a holding company which conducts, or will conduct, substantially all of its operations through its direct subsidiary, Capstar Radio Broadcasting Partners, Inc. (formerly named Commodore Media, Inc.) (referred to herein as either "Commodore" or "Capstar Radio") and Capstar Radio's subsidiaries, Atlantic Star Communications, Inc. (formerly named Commodore Holdings, Inc.) ("Atlantic Star"), Southern Star Communications, Inc. (formerly named Osborn Communications Corporation) (referred to herein as either "Osborn" or "Southern Star"), GulfStar Communications, Inc. ("GulfStar"), Central Star Communications, Inc. (Continued on next page) ------------------------ FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NEW NOTES, SEE "RISK FACTORS" ON PAGE 17 HEREIN. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. , 1997 4 (Continued from previous page) ("Central Star"), and Pacific Star Communications, Inc. ("Pacific Star"). The Notes are general unsecured obligations of the Company and rank pari passu in right of payment with all Senior Debt (as defined) of the Company and senior in right of payment to all existing and future subordinated Indebtedness (as defined) of the Company. In addition, all existing and future Indebtedness of the Company's subsidiaries is, or will be, structurally senior to the Notes. As of March 31, 1997, on a pro forma basis after giving effect to the Completed Transactions (as defined) and the Financing (as defined) and the application of the net proceeds therefrom, there would have been (i) no Indebtedness of the Company other than the Notes outstanding, (ii) no Indebtedness of the Company that would have ranked pari passu in right of payment to the Notes, and (iii) approximately $293.1 million of Indebtedness of the Company's subsidiaries, including current payables. Capstar Radio entered into the New Credit Facility (as defined) in July 1997, which is secured by the assets of the Company's subsidiaries (other than Capstar Radio). The Company has guaranteed the Indebtedness under the New Credit Facility. As of July 31, 1997, $ million in principal amount was outstanding under the New Credit Facility and $ million was available for borrowing thereunder. The Company's guarantee of the New Credit Facility constitutes Indebtedness that is pari passu with the Notes. See "Description of Other Indebtedness -- New Credit Facility." The Exchange Offer will expire at 5:00 p.m., New York City time, , 1997, or such later date and time to which it is extended (the "Expiration Date"). Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer in exchange for Old Notes must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 90 days after the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "The Exchange Offer" and "Plan of Distribution." The Old Notes are designated for trading in the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") market. To the extent Old Notes are tendered and accepted in the Exchange Offer, the principal amount of outstanding Old Notes will decrease with a resulting decrease in the liquidity in the market therefor. Following the consummation of the Exchange Offer, holders of Old Notes who were eligible to participate in the Exchange Offer but who did not tender their Old Notes will not be entitled to certain rights under the Registration Rights Agreement (as defined) and such Old Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity in the market for the Old Notes could be adversely affected. No assurance can be given as to the liquidity of the trading market for either the Old Notes or the New Notes. 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. In June 1997, Capstar Broadcasting Corporation ("Capstar Broadcasting") acquired all of the issued and outstanding common stock of the Company in exchange for common stock of Capstar Broadcasting. Unless otherwise specified, this Prospectus assumes the consummation of the Pending Transactions (as defined). As used in this Prospectus, unless otherwise specified, the "Company" means Capstar Broadcasting Partners, Inc. and its subsidiaries after giving effect to the consummation of the Pending Transactions. The Company conducts, or will conduct, its business through its direct subsidiary, Capstar Radio and Capstar Radio's subsidiaries, Atlantic Star, Southern Star, GulfStar, Central Star and Pacific Star. Certain capitalized terms used in this Prospectus are defined herein under the caption "Glossary of Certain Terms and Market and Industry Data." THE COMPANY The Company is the largest radio broadcaster in the United States operating exclusively in mid-sized markets. On a pro forma basis after giving effect to the Pending Transactions, the Company will own and operate or provide services to 233 radio broadcasting stations in 62 mid-sized markets located throughout the United States. These stations comprise the leading radio group, in terms of revenue share and/or audience share, in 41 markets. On a pro forma basis after giving effect to the Completed Transactions (as defined) and the Pending Transactions and the financing thereof, including the Financing, as if they had occurred on January 1, 1996, the Company would have had net revenue, EBITDA (as defined) and a net loss of $296.6 million, $67.5 million and $28.8 million, respectively, for the twelve-month period ended March 31, 1997, and EBITDA as adjusted for estimated cost savings of $85.0 million. The Company has entered into 16 agreements to acquire 88 additional stations, including 16 stations for which the Company currently provides services pursuant to an LMA (as defined) (the "Pending Acquisitions"), and one agreement to dispose of three FM stations (the "Pending Transactions"). In February 1996, as a result of the passage of the Telecommunications Act of 1996 (the "Telecom Act"), radio broadcasting companies were permitted to increase their ownership of stations within a single market from a maximum of four to a maximum of between five and eight stations, depending on market size. More importantly, the Telecom Act also eliminated the national ownership restriction that generally had limited companies to the ownership of no more than 40 stations (20 AM and 20 FM) throughout the United States. In order to capitalize on the opportunities created by the Telecom Act, R. Steven Hicks, an executive with over 30 years of experience in the radio broadcasting industry, and Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") formed the Company to acquire and operate radio station clusters in mid-sized markets. The Company generally defines mid-sized markets as those Metropolitan Statistical Areas ("MSAs") ranked between 50 and 200, each of which has approximately $10.0 million to $35.0 million in radio advertising revenue. The Company believes that mid-sized markets represent attractive operating environments because, as compared to the 50 largest markets in the United States, they are generally characterized by (i) lower radio station purchase prices as a multiple of broadcast cash flow, (ii) less sophisticated and undercapitalized competitors, including both radio and competing advertising media such as newspaper and television and (iii) less direct format competition resulting from fewer stations in any given market. The Company believes that the attractive operating characteristics of mid-sized markets coupled with the opportunity provided by the Telecom Act to create in-market radio station cluster groups will enable the Company to achieve substantial revenue growth and cost efficiencies. As a result, management believes that the Company can generate broadcast cash flow margins that are comparable to the higher margins that heretofore were generally achievable only in the top 50 markets. To effectively and efficiently manage its stations, the Company has developed a flexible management structure designed to manage a large and growing portfolio of radio stations throughout the United States. The station portfolio will be organized into five regions: the Northeast (Atlantic Star), the Southeast (Southern Star), the Southwest (GulfStar), the Midwest (Central Star) and the West (Pacific Star), each of which is, or will be, managed by regional executives in conjunction with general managers in each of the Company's markets. 1 6 STATION PORTFOLIO The following table sets forth certain information regarding the Company and its markets assuming the Pending Transactions have been consummated.
COMPANY COMPANY STATIONS REVENUE AUDIENCE MSA --------- SHARE SHARE MARKET(1) RANK FM AM RANK RANK SOURCE COMPANY(2) --------- ---- --- --- ------- -------- ----------------- NORTHEAST REGION (ATLANTIC STAR) Allentown-Bethlehem, PA............... 64 3 3 1 1 Commodore/Patterson Wilmington, DE........................ 74 1 1 2 2 Commodore Roanoke, VA........................... 101 4 1 2 1 Benchmark/Cavalier/WRIS Worcester, MA......................... 106 1 1 1 1 Knight Quality Fairfield County, CT.................. 112 4 4 2 2 Commodore Portsmouth-Dover-Rochester, NH........ 117 2 1 1 2 Knight Quality Huntington, WV-Ashland, KY............ 139 5 5 1 1 Commodore Salisbury-Ocean City, MD.............. 153 2 -- 3 4 Benchmark Manchester, NH........................ 193 1 1 1 2 Knight Quality Wheeling, WV.......................... 213 5 2 1 1 Osborn Winchester, VA........................ 219 2 1 2 1 Benchmark Burlington, VT........................ 221 1 -- 2t 5 Knight Quality Harrisburg-Lebanon-Carlisle, PA....... 253 1 1 2 2 Patterson Dover, DE............................. NA 2 1 1 1 Benchmark Westchester-Putnam Counties, NY....... NA 2 1 NA 1 Commodore Lynchburg, VA......................... NA 3 1 1 1 Benchmark/Cavalier --- -- Subtotal........................ 39 24 SOUTHEAST REGION (SOUTHERN STAR) Birmingham, AL........................ 55 2 1 2 3 Ameron Greenville, SC........................ 59 1 -- 2t 2 Benchmark Columbia, SC.......................... 88 4 2 1 1 Benchmark/Emerald City Daytona Beach, FL..................... 93 1 -- 1 2 SFX Melbourne-Titusville-Cocoa, FL........ 96 3 2 1 1 Space Coast Huntsville, AL........................ 114 4 2 1 1 Osborn/Griffith Ft. Pierce-Stuart-Vero Beach, FL...... 121 5 1 1 1 Commodore Pensacola, FL......................... 125 3 -- 1 1 Patterson Montgomery, AL........................ 142 3 -- 2 2 Benchmark Savannah, GA.......................... 153 4 2 1 1 Patterson Asheville, NC......................... 179 1 1 1 1 Osborn Tuscaloosa, AL........................ 212 3 1 1 1 Osborn/Grant Jackson, TN........................... 257 2 1 1 1 Osborn Statesville, NC....................... NA 1 1 NA NA Benchmark Gadsden, AL........................... NA 1 1 NA 1 Osborn --- -- Subtotal........................ 38 15 SOUTHWEST REGION (GULFSTAR) Baton Rouge, LA....................... 81 3 3 1 1 GulfStar Wichita, KS........................... 91 2 1 3 3 SFX Jackson, MS........................... 118 2 2 2 2 Benchmark Shreveport, LA........................ 126 1 1 2 3 Benchmark Beaumont,TX........................... 127 3 1 1 1 GulfStar Corpus Christi, TX.................... 128 3 1 1 1 GulfStar Tyler-Longview, TX.................... 143 4 1 1 1 GulfStar/Noalmark Killeen, TX........................... 149 2 -- 1 1 GulfStar Fayetteville, AR...................... 161 4 -- 1 1 GulfStar/KJEM Ft. Smith, AR......................... 169 2 1 1 1 GulfStar/Booneville Lubbock, TX........................... 171 4 2 1 1 GulfStar/American General Waco, TX.............................. 190 4 2 1 1 GulfStar Texarkana, TX......................... 237 3 1 1 1 GulfStar Lawton, OK............................ 243 2 -- 1 1 KLAW Lufkin, TX............................ NA 2 -- NA NA GulfStar Victoria, TX.......................... NA 2 -- NA 1 GulfStar --- -- Subtotal........................ 43 16 MIDWEST REGION (CENTRAL STAR) Grand Rapids, MI...................... 66 3 1 2 3 Patterson Des Moines, IA........................ 89 2 1 4 4 Community Pacific Madison, WI........................... 120 4 2 1 1 Madison Springfield, IL....................... 192 2 1 3 3 Patterson
2 7
COMPANY COMPANY STATIONS REVENUE AUDIENCE MSA --------- SHARE SHARE MARKET(1) RANK FM AM RANK RANK SOURCE COMPANY(2) --------- ---- --- --- ------- -------- ----------------- Cedar Rapids, IA...................... 197 2 1 2 1 Quass Battle Creek-Kalamazoo, MI............ 229 2 2 1 1 Patterson --- -- Subtotal........................ 15 8 WEST REGION (PACIFIC STAR) Honolulu, HI.......................... 58 4 3 1 1 Patterson Fresno, CA............................ 65 3 2 2 3 Patterson Stockton, CA.......................... 85 1 1 3 3 Community Pacific Modesto, CA........................... 121 1 1 2 2 Community Pacific Reno, NV.............................. 133 2 1 4 3 Patterson Anchorage, AK......................... 165 4 2 2 1 Community Pacific/COMCO Fairbanks, AK......................... NA 2 1 NA 1 COMCO Farmington, NM........................ NA 3 1 NA NA GulfStar Yuma, AZ.............................. NA 2 1 NA 1 Commonwealth --- -- Subtotal........................ 22 13 --- -- Total........................... 157 76 === ==
- --------------- NA Information not available. (1) See explanatory notes to this table beginning on page 60 of this Prospectus. (2) As defined in "The Acquisitions" and/or "Glossary of Certain Terms and Market and Industry Data." ACQUISITION STRATEGY The Company is the leading consolidator of radio stations in mid-sized markets throughout the United States. Management has achieved this position through the application of an acquisition strategy that it believes allows the Company to develop radio station clusters at attractive prices. First, the Company enters attractive new mid-sized markets by acquiring a leading station (or a group that owns a leading station) in such market. The Company then utilizes the initial acquisition as a platform to acquire additional stations which further enhance the Company's position in such market. Management believes that once it has established operations in a market with an initial acquisition, it can acquire additional stations at reasonable prices and, by leveraging its existing infrastructure, knowledge of and relationships with advertisers and substantial management experience, improve the operating performance and financial results of those stations. OPERATING STRATEGY The Company's objective is to maximize the broadcast cash flow of each of its radio station clusters through the application of the following strategies: Enhance Revenue Growth through Multiple Station Ownership. Management believes that the ownership of multiple stations in a market allows the Company to coordinate its programming to appeal to a broad spectrum of listeners. Once the station cluster has been created, the Company can provide one-stop shopping to advertisers attempting to reach a wide range of demographic groups. Simplifying the buying of advertising time for customers encourages increased advertiser usage thereby enhancing the Company's revenue generating potential. Broad demographic coverage also allows the Company to compete more effectively against alternative media, such as newspaper and television, thus potentially increasing radio's share of the total advertising dollars spent in a given market. Create Low Cost Operating Structure. Management believes that it is less expensive to operate radio stations in mid-sized markets than in large markets for several reasons. First, because stations in mid-sized markets typically have less direct format competition, the Company is less reliant on expensive on-air talent and costly advertising and promotional campaigns to capture listeners. Second, the ownership of multiple stations within a market allows the Company to achieve substantial cost savings through the consolidation of facilities, management, sales and administrative personnel and operating resources (such as on-air talent, programming and music research) and through the reduction of redundant corporate expenses. Furthermore, management expects 3 8 that the Company, as a result of the large size of its portfolio, combined with the consolidated purchasing power of other portfolio companies of Hicks Muse, will be able to realize substantial economies of scale in such areas as national representation commissions, employee benefits, casualty insurance premiums, long distance telephone rates and other operating expenses. Finally, the incorporation of digital automation in certain markets allows the Company to operate radio stations at off-peak hours with minimal human involvement while improving the quality of programming. Utilize Sophisticated Operating Techniques. Following the acquisition of a station or station group, the Company seeks to capitalize on management's extensive large market operating experience by implementing sophisticated techniques such as advertising inventory management systems, sales training programs and in-depth music research studies which improve both the efficiency and profitability of its stations. Prior to the passage of the Telecom Act, management believes that many operators in mid-sized markets did not generate sufficient revenue to justify the incurrence of expenditures to develop these techniques. Provide Superior Customer Service. The Company believes that advertising customers in mid-sized markets typically do not have extensive resources to create and implement advertising campaigns. The Company provides many of its advertising customers with extensive advertising support which may include (i) assistance in structuring advertising and promotional campaigns, (ii) creating and producing customer advertisements and (iii) analyzing the effectiveness of the customer's media programs. Management believes that this type of superior customer service attracts new customers to the Company and increases the loyalty of the Company's existing customers, thereby providing stability to the Company's revenue, often despite fluctuations in station ratings. Develop Decentralized Management Structure. The Company has developed experienced and highly motivated regional and local management teams, derived primarily from station groups acquired by the Company, and has decentralized operational decision-making so that these regional and local managers have the flexibility to develop operating cultures that capitalize on the unique qualities of each region and market. The Company also relies on local managers to source additional acquisition opportunities. In addition, in order to motivate regional management, the Company intends to link compensation to regional operating performance as well as the combined results of the Company. MANAGEMENT R. Steven Hicks, the President and Chief Executive Officer of the Company, is a 30-year veteran of the radio broadcasting industry (including 18 years as a station owner) who has owned and operated or managed in excess of 150 radio stations in large and mid-sized markets throughout the United States. In addition, in 1993, Mr. Hicks co-founded SFX Broadcasting, Inc., a publicly traded company ("SFX"), for which he served as Chief Executive Officer for three years until his resignation in 1996. The Company has designed a regional organizational structure to manage effectively its existing station portfolio as well as to accommodate future in-market or group acquisitions. Each of the Company's regions is, or will be, headquartered within the region and led by a regional operating executive who manages, or will manage, the operations of that region's station portfolio and who oversees, or will oversee, the regional and general managers of the stations. Each regional operating executive reports to R. Steven Hicks. In assembling each of the existing regional management teams, the Company has sought to retain the senior management of many of the station groups that it has acquired so as to (i) retain and capitalize on the local market experience and knowledge of these experienced executives and (ii) foster a culture that is consistent with the unique attributes of each of the local markets acquired. Furthermore, the Company believes that each of its regional executives possesses considerable knowledge of its region's other radio broadcasters and is therefore well situated to identify strategic acquisition candidates. The Company's regional executive management teams will be compensated based upon the financial performance of their respective regions and the Company as a whole with such compensation to be awarded in the form of cash bonuses and stock options. Management believes that this compensation structure, along with the ownership interests of management, fosters teamwork and the sharing of the best practices across regions to maximize the overall financial performance of the Company. 4 9 Each of the Company's regional executives has extensive experience operating radio stations in mid-sized markets, as described below. Northeast Region. The Northeast Region is managed by its president and chief executive officer, James T. Shea, Jr. Mr. Shea has over 22 years of experience in the radio broadcasting industry. Mr. Shea's operating knowledge and strong advertising relationships helped Commodore, prior to its acquisition by the Company, become a leading radio group in each of its markets. Pro forma for the Pending Acquisitions, the Northeast Region will include 63 stations in 16 markets. Southeast Region. The Southeast Region is being managed on an interim basis by Frank D. Osborn. Mr. Osborn, who was formerly the President and Chief Executive Officer of Osborn, serves on the Executive Council (as defined) of Capstar Radio and brings more than 19 years of radio industry experience to the Company. The Company intends to employ a new president and chief executive officer of the Southeast Region by the end of 1997, so that Mr. Osborn may focus his attention on his responsibilities as a member of the Executive Council. Pro forma for the Pending Acquisitions, the Southeast Region will include 53 stations in 15 markets. Southwest Region. The Southwest Region is managed by its president and chief executive officer, John D. Cullen. Mr. Cullen has served as president and chief operating officer of GulfStar since 1996 and brings more than 16 years of radio industry experience to the Company. Prior to joining GulfStar, Mr. Cullen served as a regional manager for SFX. Pro forma for the Pending Transactions, the Southwest Region will include 59 stations in 16 markets. Midwest Region. The Midwest Region will be managed by Mary K. Quass, the current president and chief executive officer of Quass Broadcasting Company ("Quass"), who will serve as the Midwest Region's president and chief executive officer upon consummation of the Quass Acquisition (as defined). Ms. Quass has more than 19 years experience in the radio broadcasting industry in numerous roles, including Vice President and General Manager of radio stations KHAK-FM and KHAK-AM prior to purchasing such radio stations in 1988. The Company expects to benefit significantly from Ms. Quass' experience and knowledge of the markets in the Midwest Region. Pro forma for the Pending Acquisitions, the Midwest Region will include 23 stations in six markets. West Region. The West Region is managed by its president and chief executive officer, Dex Allen, who has over 35 years of experience in the radio broadcasting industry. Mr. Allen has served as the managing member of Commonwealth Broadcasting of Arizona, L.L.C. ("Commonwealth") since 1984 and is expected to continue to serve in such position until the consummation of the Commonwealth Acquisition (as defined). Pro forma for the Pending Acquisitions, the West Region will include 35 stations in nine markets. The Company has created an Executive Council, consisting of R. Steven Hicks, Paul D. Stone, William S. Banowsky, Jr. and other executive officers of Capstar Radio who will serve as managing directors (each a "Managing Director"). The Executive Council will develop and implement the Company's strategy and corporate culture to enable the Company's regional operating executives to focus substantially all of their efforts upon operating their stations by relieving them of many of the business activities that are not directly related to station operations. The Executive Council, in consultation with the regional operating executives, is responsible for strategic planning, acquisitions, financial reporting, facilities consolidation, public service activities, technological development, network opportunities, national vendor relationships, investor and government relations, recruiting and training employees, and all other matters affecting the Company which are not directly related to regional operations. Mr. Hicks will allocate primary responsibility for each of these areas to appropriate members of the Executive Council. The executive officers of Capstar Radio who serve as Managing Directors on the Executive Council are Frank D. Osborn, David J. Benjamin, III, Joseph L. Mathias, IV and James M. Strawn. Mr. Osborn brings more than 19 years of radio industry experience, including 13 years as the President and Chief Executive Officer of Osborn. Mr. Benjamin has 23 years of radio broadcasting experience, including co-founding and serving as Chairman and Chief Executive Officer of Community Pacific (as defined) since 1974. Mr. Mathias has managed the operations of Benchmark (as defined) since 1990 and prior to 1990 held various positions in the cable 5 10 television and radio broadcast industry. Mr. Strawn has 31 years of radio industry experience, including two years as an Executive Vice President and Chief Financial Officer of Patterson (as defined) and 13 years as a radio station owner. OWNERSHIP In April 1996, Hicks Muse combined its financial expertise with the operating experience of R. Steven Hicks to form the Company. Hicks Muse is a private investment firm based in Dallas, New York, St. Louis and Mexico City that specializes in acquisitions, recapitalizations and other principal investing activities. Since the firm's inception in 1989, affiliates of Hicks Muse have completed more than 70 transactions having a combined transaction value exceeding $19.0 billion. In 1994, an affiliate of Hicks Muse made its first major investment in the radio broadcasting industry when Hicks, Muse, Tate & Furst Equity Fund II, L.P. founded Chancellor Broadcasting Company ("Chancellor"), a company which owns and operates radio stations exclusively within the 40 largest MSAs in the United States and which, upon the consummation of its merger with Evergreen Media Corporation, will be one of the largest pure-play radio broadcasting companies in the United States based on net revenues. Hicks, Muse, Tate & Furst Equity Fund III, L.P. ("HM Fund III"), an affiliate of Hicks Muse, and its affiliates (including Capstar Broadcasting Partners, L.P. ("Capstar L.P.")) have invested $233.9 million in Common Stock (as defined) of Capstar Broadcasting, including $75.0 million invested as part of the Financing. HM Fund III and its affiliates have committed to invest an additional $50.0 million in Capstar Broadcasting, and Capstar Broadcasting has committed to issue additional equity to HM Fund III and its affiliates in exchange therefor. R. Steven Hicks, the President and Chief Executive Officer of the Company, has invested $3.1 million in Class C Common Stock, par value $.01 per share ("Class C Common Stock"), of Capstar Broadcasting. Certain other members of the management of Capstar Broadcasting and its subsidiaries, including certain of the Company's regional executives and Managing Directors, have invested an additional $7.2 million in Class A Common Stock, par value $.01 per share ("Class A Common Stock"), of Capstar Broadcasting. As part of the GulfStar Merger (as defined), GulfStar common stockholders received Common Stock of Capstar Broadcasting having a deemed value of approximately $113.0 million. Thomas O. Hicks, chairman and chief executive officer of Hicks Muse and a director of Capstar Broadcasting and the Company, beneficially owns 100% of the outstanding capital stock of Capstar Broadcasting and beneficially owned approximately 87.3% of the voting power of GulfStar immediately before completion of the GulfStar Merger. In addition, Thomas O. Hicks and R. Steven Hicks filled two of the four director seats of GulfStar, and R. Steven Hicks was also the Chief Executive Officer of GulfStar. Certain members of management of Capstar Broadcasting also received Common Stock of Capstar Broadcasting in connection with the GulfStar Merger as more fully described in "The Acquisitions -- GulfStar Transaction." THE ACQUISITIONS COMPLETED ACQUISITIONS Since the purchase by the Company of Commodore in October 1996 for a purchase price of $213.6 million ("the Commodore Acquisition"), which was funded with the proceeds of a $90.0 million equity investment in the Company by HM Fund III and its affiliates, bank indebtedness of $35.0 million and the assumption of Commodore's then outstanding indebtedness, the Company has consummated (i) the purchase of (A) Osborn in February 1997 (the "Osborn Acquisition") for a purchase price of approximately $118.8 million comprised of $117.0 million paid in cash, which was funded with the proceeds of an equity investment by HM Fund III in the Company and the proceeds from the issuance of the Notes, and Class A Common Stock of Capstar Partners having a deemed value of approximately $1.8 million, (B) substantially all of the assets of EZY Com, Inc. ("EZY"), City Broadcasting Co., Inc. ("City") and Roper Broadcasting, Inc. ("Roper" and, collectively, with EZY and City, "Space Coast") in April 1997 (collectively, the "Space Coast Acquisitions") for an aggregate purchase price of approximately $12.0 million paid in cash, which was funded with borrowings under the Existing Credit Facility, (C) substantially all of the assets of Taylor Communications Corporation ("Taylor") 6 11 utilized in the operation of Taylor's stations in the Tuscaloosa, Alabama market in April 1997 (the "Osborn Tuscaloosa Acquisition") for an aggregate purchase price of approximately $1.0 million paid in cash, which was funded with borrowings under the Existing Credit Facility, (D) all of the outstanding capital stock of Dixie Broadcasting, Inc. and Radio WBHP, Inc. (collectively, "Mountain Lakes") in May 1997 (the "Osborn Huntsville Acquisition" and, together with the Osborn Tuscaloosa Acquisition, the "Osborn Add-on Acquisitions") for a purchase price of approximately $24.5 million comprised of $22.0 million paid in cash, which was funded with borrowings under the Existing Credit Facility, and two three-year consulting agreements valued at approximately $2.5 million, (E) GulfStar in July 1997 through the merger of a wholly-owned subsidiary of Capstar Broadcasting with and into GulfStar (the "GulfStar Merger") and the subsequent contribution of GulfStar (through the Company) to Capstar Radio (collectively with the GulfStar Merger, the "GulfStar Transaction"), for a purchase price of approximately $232.5 million comprised of $119.5 million paid in cash, which was funded with the proceeds of the Hicks Muse GulfStar Equity Investment (as defined), the Capstar BT Equity Investment (as defined) and the proceeds of the Preferred Stock Offering, Common Stock having a deemed value of approximately $113.0 million, (F) Benchmark Communications Radio Limited Partnership, L.P. and certain of its subsidiary partnerships (collectively, "Benchmark") in July 1997 (the "Benchmark Acquisition") for a purchase price of approximately $173.4 million comprised of $171.4 million paid in cash, which was funded with proceeds from the Capstar Radio Notes Offering (as defined), and Class A Common Stock having a deemed value of approximately $2.0 million, (G) substantially all of the assets of Cavalier Communications, L.P. ("Cavalier") in July 1997 (the "Cavalier Acquisition") for a purchase price of approximately $8.3 million paid in cash, which was funded with $8.3 million of the proceeds from the Capstar Radio Notes Offering, (H) substantially all of the assets of The Madison Radio Group ("Madison") in July 1997 (the "Madison Acquisition") for a purchase price of approximately $38.8 million paid in cash, which was funded with $11.8 million of the proceeds from the Capstar Radio Notes Offering and borrowings of $27.0 million under the New Credit Facility, and (I) 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 in August 1997 for a purchase price of approximately $9.5 million, which was funded by forgiveness of indebtedness owed by Emerald City to the Company (the "Emerald City Acquisition" and together with the Commodore Acquisition, the Osborn Transactions (as defined), the Space Coast Acquisitions, the GulfStar Transaction, the Benchmark Acquisition, the Madison Acquisition and the Cavalier Acquisition, the "Completed Transactions"), and (ii) the disposition of substantially all of the assets used or held for use in connection with the operation of the Company's stations in the Port Charlotte and Ft. Myers, Florida markets in April 1997 for a sale price of $11.0 million in cash (the "Osborn Ft. Myers Disposition" and together with the Osborn Acquisition and the Osborn Add-on Acquisitions, the "Osborn Transactions"). PENDING ACQUISITIONS The Company has agreed, subject to various conditions, to acquire 88 radio stations (60 FM and 28 AM) in 16 separate transactions. Upon completion of the Pending Transactions, the Company's portfolio will include a total of 233 stations located in 62 mid-sized markets throughout the United States. The purchase price of each of the Pending Acquisitions will be paid in cash and/or Common Stock and is expected to be financed as more fully described in "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "The Acquisitions." 7 12 PENDING ACQUISITIONS
ESTIMATED COMPANY PURCHASE PRICE STATIONS OF PENDING NUMBER NUMBER --------- EXPECTED ACQUISITIONS OF NEW OF EXISTING COMPANY FM AM REGION CLOSING DATE ($ IN MILLIONS) MARKETS MARKETS - ------------------------------------- --- --- ------------------- -------------- --------------- ------- ----------- Community Pacific.................... 6 4 West August 1997 35.0 4 -- WRIS................................. 1 -- Northeast August 1997 3.1 -- 1 SFX (Exchange)....................... 3 1 Southeast/Southwest September 1997 -- 2 -- Grant................................ 1 -- Southeast September 1997 3.2 -- 1 Griffith............................. 3 -- Southeast September 1997 5.4 -- 1 Ameron............................... 2 1 Southeast October 1997 31.5 1 -- COMCO................................ 4 2 West October 1997 6.7 1 1 Commonwealth......................... 2 1 West October 1997 5.3 1 -- KLAW................................. 2 -- Southwest November 1997 2.2 1 -- American General..................... 1 -- Southwest November 1997 3.2 -- 1 Booneville........................... 1 -- Southwest December 1997 1.5 -- 1 KJEM................................. 1 -- Southwest December 1997 0.8 -- 1 Knight Quality....................... 5 3 Northeast January 1998 60.0 4 -- Patterson............................ 25 14 NE/SE/MW/W January 1998 215.0 9 1 Quass................................ 2 1 Midwest January 1998 14.9 1 -- Noalmark(1).......................... 1 1 Southwest March 2000 1.4 -- 1 -- -- ------ -- -- Total........................ 60 28 $389.2 24 9 == == ====== == ==
- --------------- (1) GulfStar has an option to acquire two stations in the Longview, Texas market from Noalmark Broadcasting Corp. ("Noalmark") on or before March 6, 2000. GulfStar currently provides services for such stations pursuant to an LMA and expects to exercise the option on or before March 6, 2000. See "The Acquisitions." The Company has agreed to sell all of the outstanding capital stock of Bryan Broadcasting Operating Company, a wholly owned subsidiary of GulfStar ("BBOC"). The Company anticipates that such sale will be completed in August 1997 (the "GulfStar -- Bryan Disposition"). BBOC owns and operates three FM radio stations in Bryan, Texas. See "Certain Transactions -- GulfStar Transactions." Consummation of each of the Pending Transactions is subject to numerous conditions, including approval of the Federal Communications Commission (the "FCC") and, where applicable, satisfaction of any requirements and any applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Accordingly, the actual date of consummation of each of the Pending Transactions may vary from the anticipated closing dates. For further information concerning the Pending Transactions, see "Risk Factors -- Risks of Acquisition Strategy," "Business," "The Acquisitions" and "Certain Transactions -- GulfStar Transactions." THE EXCHANGE OFFER The Exchange Offer applies to the $277.0 million aggregate principal amount at maturity of the Old Notes. The form and terms of the New Notes are the same as the form and terms of the Old Notes except that the offer and sale of the New Notes has been registered under the Securities Act and, therefore, the New Notes will not bear legends restricting their transfer. The New Notes will evidence the same debt as the Old Notes and will be entitled to the benefits of the indenture pursuant to which the Old Notes were issued (the "Notes Indenture"). See "Description of the New Notes." The Exchange Offer......... $1,000 principal amount at maturity of New Notes in exchange for each $1,000 principal amount at maturity of Old Notes. As of the date hereof, Old Notes representing $277.0 million aggregate principal amount at maturity were outstanding. The terms of the New Notes and the Old Notes are substantially identical. Based on an interpretation by the staff of the Securities and Exchange Commission (the "Commission") set forth in no-action letters issued to third parties unrelated to the Company, the Company believes that, with the exceptions discussed herein, New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold 8 13 and otherwise transferred by any person receiving the New Notes, whether or not that person is the holder (other than any such holder or such other person that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that (i) the New Notes are acquired in the ordinary course of business of that holder or such other person, (ii) neither the holder nor such other person is engaging in or intends to engage in a distribution of the New Notes, and (iii) neither the holder nor such other person has an arrangement or understanding with any person to participate in the distribution of the New Notes. However, the Company has not sought, and does not intend to seek, its own no-action letter, and there can be no assurance that the Commission's staff would make a similar determination with respect to the Exchange Offer. See "The Exchange Offer -- Purpose and Effect." Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where those Old Notes were acquired by the broker-dealer as a result of its market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of those New Notes. See "Plan of Distribution." Registration Rights Agreement.................. The Old Notes were sold by the Company on February 20, 1997 in a private placement. In connection with the sale, the Company entered into a Registration Rights Agreement (the "Registration Rights Agreement") with BT Securities Corporation, the initial purchaser of the Old Notes (the "Initial Purchaser"), providing for the Exchange Offer. See "The Exchange Offer -- Purpose and Effect." Expiration Date............ The Exchange Offer will expire at 5:00 P.M., New York City time, , 1997, or such later date and time to which it is extended. Withdrawal Rights.......... The tender of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Conditions to the Exchange Offer...................... The Exchange Offer is subject to certain customary conditions, certain of which may be waived by the Company. See "The Exchange Offer -- Conditions." Procedures for Tendering Old Notes.................. Each holder of Old Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a copy thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver the Letter of Transmittal, or the copy, together with the Old Notes and any other required documentation, to the Exchange Agent at the address set forth herein. Persons holding Old Notes through the Depository Trust Company (the "DTC") and wishing to accept the Exchange Offer must do so pursuant to the DTC's Automated Tender Offer Program, by which each tendering Participant (as defined) will agree to be bound by the Letter of Transmittal. By executing or agreeing to be bound by the Letter of Transmittal, each holder will represent to the Company that, among other things, (i) any New Notes to be received by it will be 9 14 acquired in the ordinary course of its business, (ii) it has no arrangement with any person to participate in the distribution of the New Notes and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company, or if it is an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the holder is not a broker-dealer, it will be required to represent that it is not engaged in, and does not intend to engage in, the distribution of the New Notes. If the holder is a broker-dealer that will receive New Notes for its own account in exchange for Notes that were acquired as a result of market-making activities or other trading activities, it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. Pursuant to the Registration Rights Agreement, the Company is required to file a registration statement for a continuous offering pursuant to Rule 415 under the Securities Act in respect of the Old Notes if existing Commission interpretations are changed such that the New Notes received by holders in the Exchange Offer are not or would not be, upon receipt, transferable by each such holder (other than an affiliate of the Company) without restriction under the Securities Act. See "The Exchange Offer -- Purpose and Effect." Acceptance of Old Notes and Delivery of New Notes.... The Company will accept for exchange any and all Old Notes which are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The New Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. See "The Exchange Offer -- Terms on the Exchange Offer." Exchange Agent............. U.S. Trust Company of Texas, N.A., is serving as Exchange Agent in connection with the Exchange Offer. Federal Income Tax Considerations........... The exchange pursuant to the Exchange Offer will not be a taxable event for federal income tax purposes. See "Certain United States Federal Income Tax Considerations." Effect of Not Tendering.... Old Notes that are not tendered or that are tendered but not accepted will, following the completion of the Exchange Offer, continue to be subject to the existing restrictions upon transfer thereof. The Company will have no further obligation to provide for the registration under the Securities Act of such Old Notes. TERMS OF THE NEW NOTES Securities Offered......... $277.0 million aggregate principal amount at maturity of 12 3/4% Senior Discount Notes due 2009. Maturity Date.............. February 1, 2009. Interest Rate and Payment Dates...................... Interest will not accrue or be payable on the Notes prior to February 1, 2002. Thereafter interest will accrue at a rate of 12 3/4% per annum and will be payable semiannually on each February 1 and August 1, commencing August 1, 2002. 10 15 Optional Redemption........ The Notes will be redeemable at the option of the Company, in whole or in part, at any time and from time to time on or after February 1, 2002 at the redemption prices set forth herein, plus, without duplication, accrued and unpaid interest to the redemption date. In addition, prior to February 1, 2001, the Company, at its option, may use the net cash proceeds of one or more Public Equity Offerings or Major Asset Sales to redeem up to 25% of the aggregate principal amount at maturity of the Notes at a redemption price of 112.75%; provided, however, that after any such redemption, there is outstanding at least 75% of the original aggregate principal amount at maturity of the Notes. See "Description of the New Notes -- Optional Redemption." Ranking.................... The New Notes will be general unsecured senior obligations of the Company ranking senior in right of payment to all existing and future subordinated Indebtedness of the Company and pari passu in right of payment with all other senior indebtedness of the Company. Existing and future Indebtedness of the Company's subsidiaries will be structurally senior to the New Notes. As of March 31, 1997, on a pro forma basis after giving effect to the Completed Transactions and the Financing and the application of the net proceeds therefrom, there would have been (i) no Indebtedness of the Company other than the Notes outstanding, (ii) no Indebtedness of the Company that would have ranked pari passu in right of payment to the Notes, and (iii) approximately $293.1 million of Indebtedness of the Company's subsidiaries, including current payables. Capstar Radio entered into the New Credit Facility in connection with the consummation of the Benchmark Acquisition in July 1997, the Indebtedness under which is guaranteed by the Company. As of July , 1997, $ million in principal amount was outstanding under the New Credit Facility and $ million was available for borrowing thereunder. The Company's guarantee of the New Credit Facility constitutes Indebtedness that is pari passu with the Notes. Change of Control.......... Prior to February 1, 2002, upon the occurrence of a Change of Control, the Company will have the option to redeem the Notes in whole but not in part at a redemption price equal to 100% of the Accreted Value thereof plus the Applicable Premium. If a Change of Control occurs after February 1, 2002 or if the Company does not redeem the Notes as provided in the immediately preceding sentence, each holder of the Notes will have the option to require the Company to redeem all or a portion of such holder's Notes at a purchase price equal to (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, plus accrued and unpaid interest, if any, thereon to the purchase date if the Change of Control Payment Date is after February 1, 2002. There can be no assurance that the Company will have the financial resources necessary to repurchase the Notes upon a Change of Control or that the Company would be able to obtain financing for such purpose on favorable terms, if at all. In addition, the New Credit Facility restricts the Company's ability to repurchase the Notes, including pursuant to a Change of Control Offer (as defined). A Change of Control would result in a default under the New Credit Facility. In addition, the Certificate of Designation (the "Certificate of Designation") governing the Company's 12% Senior Exchangeable Preferred Stock (the "Senior Exchangeable Preferred Stock"), the indenture (the "Existing Capstar Radio 11 16 Indenture") governing Capstar Radio's 13 1/4% Senior Subordinated Notes due 2003 (the "Existing Capstar Radio Notes") and the indenture (the "New Capstar Radio Indenture" and collectively with the Existing Capstar Radio Indenture, the "Capstar Radio Indentures") governing Capstar Radio's 9 1/4% Senior Subordinated Notes due 2007 (the "New Capstar Radio Notes" and collectively with the Existing Capstar Radio Notes, the "Capstar Radio Notes"), have provisions relating to the change of control of the Company, in the case of the Senior Exchangeable Preferred Stock, and Capstar Radio, in the case of the Capstar Radio Notes, that would require the repurchase of the Senior Exchangeable Preferred Stock and the Capstar Radio Notes. A "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any person or group of related persons for purposes of Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (a "Group") (whether or not otherwise in compliance with the provisions of the Notes Indenture), other than to Hicks Muse, any of its affiliates (excluding Chancellor), officers and directors or R. Steven Hicks (the "Permitted Holders"); or (ii) a majority of the Board of Directors of the Company shall consist of Persons (as defined) who are not Continuing Directors (as defined); or (iii) the acquisition by any Person or Group (other than the Permitted Holders) of the power, directly or indirectly, to vote or direct the voting of securities having more than 50% of the ordinary voting power for the election of directors of the Company. Certain transactions, including recapitalizations or transactions resulting in a change in ownership or the issuance of substantial additional indebtedness, would not constitute a Change of Control for purposes of the Notes Indenture. See "Risk Factors -- Change of Control," "Description of Capital Stock," "Description of Other Indebtedness" and "Description of the New Notes -- Change of Control." Original Issue Discount.... For federal income tax purposes, the Notes will be treated as having been issued with "original issue discount" equal to the difference between the issue price of the Notes and the stated redemption price at maturity. Each holder of a Note will be required to include in gross income for federal income tax purposes a portion of such original issue discount in advance of receipt of cash payments on the Notes to which the income is attributable, even though no cash payments will be received until February 1, 2002. See "Risk Factors -- Original Issue Discount" and "Certain Federal Income Tax Considerations." Certain Restrictive Provisions................. The Notes Indenture contains restrictive provisions that, among other things, limit the ability of the Company and its subsidiaries to incur additional Indebtedness, pay dividends or make certain other restricted payments, sell or swap assets, enter into certain transactions with affiliates or merge or consolidate with or sell all or substantially all of their assets to any other person. See "Description of the New Notes." 12 17 THE FINANCING The Company received proceeds of approximately $94.8 million, net of $5.2 million of the initial purchasers' discount and estimated fees and expenses, from the Company's issuance of 1,000,000 shares of its Senior Exchangeable Preferred Stock, which was consummated on June 17, 1997 (the "Preferred Stock Offering"). Concurrently with consummation of the GulfStar Merger, Capstar Broadcasting received $75.0 million from the Hicks Muse GulfStar Equity Investment and $11.1 million from the Capstar BT Equity Investment (as defined), of which $29.4 million was used by Capstar Broadcasting to redeem preferred stock of GulfStar (the "Preferred Stock Redemption") and the remaining $56.7 million was contributed as equity by Capstar Broadcasting to the Company. The Company has contributed $151.5 million to Capstar Radio (consisting of $45.6 million of the Hicks Muse GulfStar Equity Investment, the Capstar BT Equity Investment of $11.1 million and $94.8 million in net proceeds from the Preferred Stock Offering). Concurrently with the Preferred Stock Offering, Capstar Radio received proceeds of approximately $191.5 million, net of $8.5 million of the initial purchasers' discount and estimated fees and expenses, from Capstar Radio's issuance of $200 million in aggregate principal amount of its New Capstar Radio Notes (the "Capstar Radio Notes Offering"). The Preferred Stock Offering, the Hicks Muse GulfStar Equity Investment, the Capstar BT Equity Investment and the Capstar Radio Notes Offering are collectively referred to herein as the "Financing." RISK FACTORS See "Risk Factors" for a discussion of certain factors that should be considered in evaluating an investment in the Notes. 13 18 SUMMARY HISTORICAL FINANCIAL DATA The following table presents summary historical financial data of the Company and its predecessor (Commodore) 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.
THE THE COMMODORE COMPANY COMMODORE COMPANY ---------------------------------------------------- ------------ ----------- ----------- JANUARY 1, OCTOBER 17, THREE MONTHS YEARS ENDED DECEMBER 31, 1996 -- 1996 -- ENDED MARCH 31, -------------------------------------- OCTOBER 16, DECEMBER 31, ------------------------- 1992 1993 1994 1995 1996(1) 1996(2) 1996(3) 1997(4) ------- -------- ------- ------- ----------- ------------ ----------- ----------- (DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED) OPERATING DATA: Net revenue................ $17,961 $ 19,798 $26,225 $30,795 $ 31,957 $ 10,303 $ 7,416 $ 14,107 Station operating expenses................. 12,713 13,509 16,483 19,033 21,291 6,283 5,375 10,356 Depreciation and amortization............. 1,676 1,129 2,145 1,926 2,158 1,331 480 2,389 Corporate expenses......... 1,602 2,531 2,110 2,051 1,757 601 466 1,424 Other operating expenses(5).............. -- 1,496 2,180 2,007 13,834 744 -- -- Operating income (loss).... 1,970 1,133 3,307 5,778 (7,083) 1,344 1,095 (62) Interest expense........... 4,614 4,366 3,152 7,806 8,861 5,035 2,452 6,792 Net loss................... (2,580) (3,782) (527) (2,240) (17,836) (3,756) (1,436) (7,471) OTHER DATA: Broadcast cash flow(6)..... $ 5,248 $ 6,289 $ 9,742 $11,762 $ 10,666 $ 4,020 $ 2,041 $ 3,751 Broadcast cash flow margin(6)................ 29.2% 31.8% 37.1% 38.2% 33.4% 39.0% 27.5% 26.6% EBITDA(7).................. $ 3,646 $ 3,758 $ 7,632 $ 9,711 $ 8,909 $ 3,419 $ 1,575 $ 2,327 Cash flows related to:(8) Operating activities..... (406) 477 4,061 1,245 1,990 (49) 1,891 409 Investing activities..... (458) (10,013) (50) (4,408) (34,358) (127,372) (15,798) (129,389) Financing activities..... 951 9,377 (2,855) 12,013 26,724 132,449 8,103 136,977 Cash interest expense(9)... 4,408 4,218 2,932 5,132 5,545 2,627 1,454 3,926 Capital expenditures....... 371 333 623 321 449 808 124 916 Deficiency of earnings to fixed charges(10)........ 2,998 3,743 918 1,908 17,703 3,756 1,409 6,827 BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents..................................................................................... $ 13,025 Intangible and other assets, net.............................................................................. 358,891 Total assets.................................................................................................. 444,100 Long-term debt, including current portion..................................................................... 229,955 Total stockholders' equity.................................................................................... 140,898
- --------------- (1) The historical financial data set forth includes the results of operations of Commodore from January 1, 1996 through October 16, 1996, the date of the Commodore Acquisition. (2) The historical financial data set forth includes the results of operations of the Company from October 17, 1996 through December 31, 1996. (3) The historical financial data set forth includes the results of operations of Commodore from January 1, 1996 through March 31, 1996. (4) The historical financial data set forth includes the results of operations of the Company from January 1, 1997 through March 31, 1997 and balance sheet data as of March 31, 1997. (5) 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 Commodore Acquisition 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. (6) Broadcast cash flow consists of operating income before depreciation, amortization, corporate expenses and other operating expenses. Although broadcast cash flow is not a measure of performance calculated in accordance with generally accepted accounting principles ("GAAP"), management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcast industry to evaluate a radio company's operating performance. See "Glossary of Certain Terms and Market and Industry Data." (7) EBITDA consists of operating income before depreciation, amortization and other operating expenses. Although EBITDA is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcast industry to evaluate a radio company's operating performance. See "Glossary of Certain Terms and Market and Industry Data." (8) Cash flows related to operating activities, investing activities and financing activities are derived from the related statement of cash flows and are prepared in accordance with GAAP. (9) Cash interest expense excludes non-cash amortization of deferred finance costs, discounts to initial purchases, and interest on the Notes. (10) For purposes of this calculation, "earnings" consist of income (loss) before income taxes and fixed charges, and "fixed charges" consist of interest, amortization of deferred financing costs and the component of rental expense believed by management to be representative of the interest factor thereon. Preferred stock dividends and accretion are included in fixed charges where appropriate. 14 19 SUMMARY PRO FORMA FINANCIAL DATA The following table presents summary pro forma financial data of the Company as of and for the twelve months then ended March 31, 1997. 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, as if each had occurred on January 1, 1996: (i) the Completed Transactions and their related financing, including the Financing; and (ii) the Pending Transactions and their related financing, including the foregoing transactions. The pro forma balance sheet data at March 31, 1997 have been prepared as if any such transaction not completed by March 31, 1997 occurred on that date. The summary pro forma financial data are not necessarily indicative of either future results of operations or the results that would have occurred if those transactions had been consummated on the indicated dates. The following financial information should be read in conjunction with the Financial Statements, the Pro Forma Financial Information and, in each case, the related notes included elsewhere in this Prospectus.
TWELVE MONTHS ENDED MARCH 31, 1997 ------------------------------- PRO FORMA FOR COMPLETED TRANSACTIONS AND THE FINANCING PRO FORMA(1) ------------- ------------ (DOLLARS IN THOUSANDS) OPERATING DATA: Net revenue............................................... $191,803 $ 296,559 Station operating expenses................................ 136,767 214,438 Depreciation and amortization............................. 26,014 40,157 Corporate expenses........................................ 8,356 14,581 Other operating expenses.................................. 9,815 10,165 Operating income.......................................... 10,851 17,218 Interest expense.......................................... 50,013 64,889 Net income (loss)......................................... (20,515) (28,757) OTHER DATA: Broadcast cash flow(3).................................... $ 55,036 $ 82,121(2) Broadcast cash flow margin(3)............................. 28.7% 27.7% EBITDA(4)................................................. $ 46,680 $ 67,540(2) Cash interest expense(5).................................. 42,422 57,298 Deficiency of earnings to fixed charges(6)................ 19,327 49,407 BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents................................. $ 12,279 $ 1,837 Intangible and other assets, net.......................... 697,337 1,072,213 Total assets.............................................. 834,396 1,265,929 Long-term debt, including current portion(7).............. 429,167 615,113 Senior exchangeable preferred stock....................... 94,750 94,750 Total stockholders' equity(7)............................. 219,049 423,218
- --------------- (1) Gives effect to the Completed Transactions, the Pending Transactions and the financing of each of the foregoing including the Financing. (2) The pro forma financial results exclude the effects of estimated cost savings resulting from the Completed Transactions and the Pending Acquisitions. On a pro forma basis, assuming the consummation of such transactions, including related cost savings as if they had occurred on January 1, 1996, broadcast cash flow and EBITDA would have been $93.9 million and $85.0 million, respectively, for the twelve-month period ended March 31, 1997. The Company expects to realize approximately $11.8 million of estimated cost savings resulting from the elimination of redundant operating expenses arising from such transactions, including elimination of certain management positions, the consolidation of facilities and new rates associated with revised vendor contracts and savings related to automation of certain station operations. In addition, the Company expects to realize approximately $5.7 million of cost savings, on a pro forma basis, resulting from the elimination of certain corporate overhead functions, net of increased costs associated with the implementation of the Company's corporate management structure. Corporate cost savings reflect the expected level of annual corporate expenditures arising from such transactions. The Company anticipates that corporate expenses will increase upon consummation of additional acquisitions. There can be no assurances that any operating or corporate cost savings will be achieved. (3) Broadcast cash flow consists of operating income before depreciation, amortization, corporate expenses and other operating expenses. Although broadcast cash flow is not a measure of performance calculated in accordance with GAAP, management believes that it is useful 15 20 to an investor in evaluating the Company because it is a measure widely used in the broadcast industry to evaluate a radio company's operating performance. See "Glossary of Certain Terms and Market and Industry Data." (4) EBITDA consists of operating income before depreciation, amortization and other operating expenses. Although EBITDA is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcast industry to evaluate a radio company's operating performance. See "Glossary of Certain Terms and Market and Industry Data." (5) Cash interest expense excludes non-cash amortization of deferred finance costs, discounts to initial purchasers, and interest on the Notes. (6) For purposes of this calculation, "earnings" consist of income (loss) before income taxes and fixed charges, and "fixed charges" consist of interest, amortization of deferred financing costs and the component of rental expense believed by management to be representative of the interest factor thereon. Preferred stock dividends and accretion are included in fixed charges where appropriate. (7) The Company anticipates that it will fund the Pending Acquisitions with indebtedness, rather than capital stock, to the fullest extent then permitted under the debt incurrence covenants contained in the Certificate of Designation, the Indentures (as defined) and the New Credit Facility. As a result, the Company expects the actual amount of indebtedness incurred in connection with the Pending Acquisitions to exceed the amount assumed for purposes of the Pro Forma Financial Information. The Company expects to fund additional amounts needed to consummate the Pending Acquisitions through a combination of (i) additional debt capacity resulting from cash flow growth and (ii) an additional $50.0 million equity investment in Capstar Broadcasting by HM Fund III and its affiliates. 16 21 RISK FACTORS This Prospectus contains forward-looking statements. The words "anticipate," "believe," "expect," "plan," "intend," "estimate," "project," "will," "could," "may" and similar expressions are intended to identify forward-looking statements. Such statements reflect the Company's current views with respect to future events and financial performance and involve risks and uncertainties, including without limitation the risks described in "Risk Factors." Should one or more of these risks or uncertainties occur, or should underlying assumptions prove incorrect, actual results may vary materially and adversely from those anticipated, believed, expected, planned, intended, estimated, projected or otherwise indicated. Investors should carefully consider the following risk factors, in addition to the other information contained in this Prospectus, before exchanging the Old Notes for New Notes. RISKS OF ACQUISITION STRATEGY The Company intends to pursue growth through the acquisition of radio broadcasting companies, radio station groups and individual radio stations in mid-sized markets. The Company cannot predict whether it will be successful in pursuing such acquisition opportunities or what the consequences would be of any acquisitions. The Company is currently evaluating certain acquisitions; however, other than as described in "The Acquisitions," the Company currently has no binding commitments to acquire any specific business or other material assets. The Company must obtain additional financing to consummate the Pending Acquisitions and there can be no assurance that such financing will be available to the Company on terms acceptable to its management or at all. Consummation of the Pending Acquisitions is subject to various conditions, including FCC and other regulatory approval. No assurances can be given that any or all of the Pending Acquisitions will be consummated or that, if completed, they will be successful. The Company's acquisition strategy involves numerous risks, including difficulties in the integration of operations and systems and the management of a large and geographically diverse group of stations, the diversion of management's attention from other business concerns and the potential loss of key employees of acquired stations. There can be no assurance that the Company's management will be able to manage effectively the resulting business or that such acquisitions will benefit the Company. Depending upon the nature, size and timing of future acquisitions, the Company may be required to raise additional financing in addition to the financing necessary to consummate the Pending Acquisitions. There can be no assurance that such financing will be permitted under the Notes Indenture, the Certificate of Designation, the indenture governing the Company's 12% Subordinated Exchange Debentures due 2009 (the "Exchange Debentures") issuable in exchange for the Senior Exchangeable Preferred Stock under certain circumstances (the "Exchange Indenture" and together with the Notes Indenture, the "Capstar Indentures"), the Capstar Radio Indentures (the Capstar Indentures together with the Capstar Radio Indentures, the "Indentures"), the New Credit Facility or any other loan agreements to which the Company, Capstar Radio or Capstar Broadcasting may become a party. Moreover, there can be no assurances that such additional financing will be available to the Company on terms acceptable to its management or at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." SUBSTANTIAL LEVERAGE The Company has, and after giving effect to the Pending Transactions and the financing thereof (including the Financing) and the application of the net proceeds therefrom, will continue to have consolidated indebtedness that is substantial in relation to its stockholders' equity. As of March 31, 1997, on a pro forma basis after giving effect to the Completed Transactions and the related financing thereof (including the Financing), as if each had occurred on January 1, 1996, the Company would have had outstanding, on a consolidated basis, long-term indebtedness (including current portions) of approximately $429.2 million and stockholders' equity of approximately $219.0 million and, after giving further effect to the Pending Transactions and their related financing, the Company would have had outstanding, on a consolidated basis, long-term indebtedness (including current portions) of approximately $615.1 million and stockholders' equity of approximately $423.2 million. See "Capitalization," "Unaudited Pro Forma Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The Indentures, the Certificate of Designation and the New Credit Facility limit, or will limit, the incurrence of additional 17 22 indebtedness by the Company and its subsidiaries, in each case subject to certain significant exceptions. See "Description of Capital Stock," "Description of Other Indebtedness" and "Description of the New Notes." The level of the Company's indebtedness could have several important consequences to the holders of the New Notes, including, but not limited to, the following: (i) a substantial portion of the Company's cash flow from operations will be dedicated to debt service and will not be available for other purposes; (ii) the Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate or other purposes may be impaired in the future; (iii) certain of the Company's borrowings will be at variable rates of interest (including the borrowings under the 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 Indentures, the Certificate of Designation and the New Credit Facility could limit the Company's ability to compete, expand and make capital improvements; and (v) the Company's level of indebtedness could make it more vulnerable to economic downturns, limit its ability to withstand competitive pressures and reduce its flexibility in responding to changing business and economic conditions. As of March 31, 1997, none of the Company's indebtedness was subject to variable rates of interest. See "Description of Capital Stock," "Description of Other Indebtedness" and "Description of the New Notes." The Company's ability to satisfy its debt obligations (including the Notes) will depend upon its future financial and operating performance, which, in turn, is subject to prevailing economic conditions and financial, business and other factors, certain of which are beyond its control. If the Company's cash flow and capital resources are insufficient to fund its debt service obligations, the Company may be forced to reduce or delay planned expansion and capital expenditures, sell assets, obtain additional equity capital or restructure its debt. There can be no assurance that the Company's operating results, cash flow and capital resources will be sufficient for payment of its indebtedness in the future. In the absence of such operating results and resources, the Company could face substantial liquidity problems and might be required to dispose of material assets or operations to meet its debt service and other obligations, and there can be no assurance as to the timing of such sales or the proceeds that the Company could realize therefrom or that such sales can be effected on terms satisfactory to the Company or at all. See "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources" and "Description of Other Indebtedness." LIMITED OPERATING HISTORY; HISTORY OF NET LOSSES; MANAGEMENT OF GROWTH The Company 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 and expects to continue to grow very rapidly, which will place significant demands on its administrative, operational and financial resources. The Company had a net loss of $3.8 million for the period from October 17, 1996 through December 31, 1996 and Commodore, the Company's predecessor, has had a net loss for each fiscal year since its inception in 1980. There can be no assurance that the Company will become profitable. 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 make additional acquisitions, to integrate acquired radio stations and radio groups, to hire additional personnel, or to enhance its management systems could have a material adverse effect on the Company. See "Business." The Company incurred or assumed, and will incur or assume, substantial indebtedness to finance the Completed Transactions and the Pending Transactions for which it has, and will continue to have, significant debt service requirements. In addition, the Company has, and will continue to have, significant charges for depreciation and amortization expense related to the fixed assets and intangibles acquired, or to be acquired, in its acquisitions and compensation charges in connection with stock option agreements and warrants issued to certain members of management. See "Certain Transactions." Consequently, the Company expects that, for the foreseeable future as it pursues its acquisition strategy, it will report net losses substantially in excess of those experienced historically, which will result in decreases in stockholders' equity. 18 23 HOLDING COMPANY STRUCTURE; LIMITATIONS ON ACCESS TO CASH FLOW OF THE COMPANY'S SUBSIDIARIES The Company conducts its business through its subsidiaries and has no operations of its own. The sole operating assets of the Company are all of the shares of capital stock of Capstar Radio, which in turn, directly owns the capital stock of Southern Star, Atlantic Star, GulfStar, Pacific Star and Central Star which in turn, directly or indirectly, own the capital stock of the Company's other operating subsidiaries. Consequently, the Company's sole source of cash from which to make payments on the Notes will be dividends distributed or other payments made to it by its subsidiaries. The Capstar Radio Indentures restrict the ability of Capstar Radio to pay dividends or make other restricted payments to the Company. Except as permitted, or as will be permitted, under the Indentures, the Certificate of Designation, and the New Credit Facility, the Company's subsidiaries may not incur additional indebtedness. Furthermore, the Company's subsidiaries are legally distinct from the Company and have no obligation, contingent or otherwise, to pay amounts due pursuant to the Notes or to make any funds available for such payments. The ability of the Company's subsidiaries to make such funds available, whether through dividends or other distributions, will be subject to applicable corporate and other laws and regulations and to the terms of agreements to which such subsidiaries are or become subject. All of the subsidiaries of Capstar Radio are guarantors of the Existing Capstar Radio Notes. Capstar Radio is the borrower under the New Credit Facility and all of the subsidiaries of the Company, other than Capstar Radio, are guarantors under the New Credit Facility. Capstar Radio and such subsidiaries also granted security interests in substantially all of their assets in which a security interest may lawfully be granted to secure their indebtedness under the New Credit Facility. As a result of these factors, the Notes are effectively subordinated to all liabilities of the Company's subsidiaries. As of March 31, 1997, on a pro forma basis after giving effect to the Completed Transactions and their related financing, including the Financing, as if each had occurred on January 1, 1996, the total liabilities of the Company's subsidiaries would have been approximately $329.4 million and, after giving further effect to the Pending Transactions and their related financing, the total liabilities of the Company's subsidiaries would have been approximately $556.8 million. RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS The Indentures, the Certificate of Designation and the New Credit Facility contain certain covenants that restrict, among other things, the ability of the Company and its subsidiaries to incur additional indebtedness, issue preferred stock, incur liens, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company and its subsidiaries. The New Credit Facility also requires the Company's subsidiaries to maintain specified financial ratios and to satisfy certain financial condition tests. The ability of the Company's subsidiaries to meet those financial ratios and financial condition tests can be affected by events beyond their control, and there can be no assurance that the Company's subsidiaries will meet those tests. A breach of any of these covenants could result in a default under the New Credit Facility and/or the Indentures. Upon an event of default under the New Credit Facility or the Indentures, the lenders thereunder could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. In the case of the New Credit Facility, if Capstar Radio were unable to repay those amounts, the lenders thereunder could proceed against the collateral granted to them to secure that indebtedness. If the indebtedness under the New Credit Facility were to be accelerated, there can be no assurance that the assets of the Company would be sufficient to repay in full and/or redeem such indebtedness, the Notes, the other indebtedness of the Company and its subsidiaries, and the Senior Exchangeable Preferred Stock. See "Description of Capital Stock," "Description of Other Indebtedness" and "Description of the New Notes." COMPETITION; BUSINESS RISKS Radio broadcasting is a highly competitive business. The Company's radio stations, now owned or to be acquired upon completion of the Pending Acquisitions, compete for audiences and advertising revenues within their respective markets directly with other radio stations, as well as with other media, such as newspapers, magazines, cable television, outdoor advertising and direct mail. In addition, certain of the Company's stations compete, and in the future other of the Company's stations may compete, with groups of two or more stations 19 24 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 IN CONTROL Thomas O. Hicks beneficially owns 100% of the outstanding capital stock of Capstar Broadcasting through his controlling interest in Hicks Muse and certain stockholders agreements. See "Certain Transactions." As a result, Thomas O. Hicks is able to control the vote on the election of the Board of Directors of Capstar Broadcasting and, therefore, is able to direct the management and policies of the Company. The interests of Thomas O. Hicks may differ from the interests of holders of the Notes. See "Management," "Security Ownership of Certain Beneficial Owners" and "Description of Capital Stock." The Communications Act and certain regulations of the FCC require the prior consent of the FCC to any change of control of the Company. See "-- Governmental Regulation of Broadcasting Industry" and "Business -- Federal Regulation of Radio Broadcasting." DEPENDENCE ON KEY PERSONNEL The Company's business depends upon the continued efforts, abilities and expertise of its executive officers and other key employees, including R. Steven Hicks, the Company's Chief Executive Officer and Chairman of the Board. Capstar Broadcasting has, or will have, employment agreements with several of the Company's key employees, including R. Steven Hicks, Paul D. Stone, the Company's Executive Vice President and Chief Financial Officer, and William S. Banowsky, Jr., the Company's Executive Vice President and General Counsel. Capstar Broadcasting and its subsidiaries have or will enter into employment agreements with the presidents and chief executive officers of the Company's five regions and the Managing Directors of Capstar Radio. The Company believes that the loss of any of these individuals could have a material adverse effect on the Company. See "Management." 20 25 CONFLICT OF INTEREST Thomas O. Hicks, a director of Capstar Broadcasting and the Company, beneficially owns 100% of the outstanding capital stock of Capstar Broadcasting. Thomas O. Hicks is the President and a director of HM2/Chancellor Holdings, Inc. ("HM2/Chancellor"), which through its subsidiaries, including Chancellor, holds attributable interests in radio stations in various markets in the States of California, Florida, Minnesota, New York, Ohio, Arizona, Colorado, Georgia, Pennsylvania and Washington, D.C. and, upon completion of Chancellor's pending acquisitions and merger with Evergreen Media Corporation, will have attributable interests in radio stations in four additional states, including Illinois, Massachusetts, Michigan and Texas. Thomas O. Hicks is also the President, Chief Executive Officer, Chief Operating Officer and 100% stockholder of HM3/Sunrise, Inc. ("HM3/Sunrise"), which through subsidiaries owns television stations in California, New York and Michigan and is seeking to acquire an attributable interest in a television station in Ohio. Eric C. Neuman is a director of Capstar Broadcasting, the Vice President and Secretary of HM2/Chancellor, and the Vice President of HM3/Sunrise. Accordingly, Thomas O. Hicks and Eric C. Neuman will not expend all of their professional time on behalf of the Company. See "Management" and "Security Ownership of Certain Beneficial Owners." Directors and executive officers of Capstar Broadcasting who are also directors and executive officers of HM2/Chancellor and HM3/Sunrise may have conflicts of interest with respect to matters potentially or actually involving or affecting the Company and HM2/Chancellor or HM3/Sunrise, such as acquisitions, operations, financings and other corporate opportunities that may be suitable for both Capstar Broadcasting and HM2/Chancellor or HM3/Sunrise. To the extent that such opportunities arise, such directors and executive officers may consult with their legal advisors and make determinations with respect to such opportunities after consideration of a number of factors, including whether such opportunities are presented to any such director or executive officer in his capacity as a director or executive officer of Capstar Broadcasting or its subsidiaries, whether such opportunities are consistent with Capstar Broadcasting's strategic objectives and whether Capstar Broadcasting will be able to undertake or benefit from such opportunities. In addition, determinations may be made by Capstar Broadcasting's Board of Directors, when appropriate, by a vote of the disinterested directors only. No assurances can be given that such disinterested director approval will be sought or that any such conflicts will be resolved in favor of the Company. GOVERNMENTAL REGULATION OF BROADCASTING INDUSTRY The broadcasting industry is subject to extensive federal regulation that, among other things, requires approval by the FCC for the issuance, renewal, transfer of control and assignment of broadcasting station operating licenses and limits the number of broadcasting properties that the Company may acquire in any market. Additionally, the Communications Act and FCC rules impose limitations on alien ownership and voting of the capital stock of the Company. The Telecom Act creates significant new opportunities for broadcasting companies but also creates uncertainties as to how the FCC and the courts will enforce and interpret the Telecom Act. In addition, the number of radio stations the Company may acquire in any market is limited by FCC rules and may vary depending upon whether the interests in other radio stations or certain other media properties of certain individuals affiliated with the Company are attributable to those individuals under FCC rules. Moreover, under the FCC's cross-interest policy, the FCC in certain instances may prohibit one party from acquiring an attributable interest in one media outlet and a substantial non-attributable economic interest in another media outlet in the same market, thereby prohibiting a particular acquisition by the Company. The FCC generally applies its ownership limits to "attributable" interests held by an individual, corporation, partnership or other association. The interests of the Company's officers, directors and majority stockholder are generally attributable to the Company. Certain of the Company's officers and directors have attributable broadcast interests, which will limit the number of radio stations that the Company may acquire or own in any market in which such officers or directors hold or acquire attributable broadcast interests. The Company is a wholly-owned subsidiary of Capstar Broadcasting. Capstar Broadcasting's Certificate of Incorporation restricts the ownership, voting and transfer of Capstar Broadcasting's capital stock in accordance with the Communications Act and the rules of the FCC to prohibit ownership of more than 25% of Capstar 21 26 Broadcasting's outstanding capital stock, or more than 25% of the voting rights it represents, by or for the account of Aliens (as defined) or corporations otherwise subject to domination or control by Aliens. Capstar Broadcasting's Certificate of Incorporation provides that shares of capital stock of Capstar Broadcasting determined by Capstar Broadcasting's Board of Directors to be owned beneficially by an Alien or an entity directly or indirectly owned by Aliens in whole or in part shall always be subject to redemption by Capstar Broadcasting by action of its Board of Directors to the extent necessary, in the judgment of such Board of Directors, to comply with the Alien ownership restrictions of the Communications Act and the FCC rules and regulations. The consummation of radio broadcasting acquisitions requires prior approval of the FCC with respect to the transfer of control or assignment of the broadcast licenses of the acquired stations. Certain of the Pending Acquisitions have not yet received FCC approval. There can be no assurance that the FCC will approve future acquisitions by the Company (including the Pending Acquisitions). The consummation of certain acquisitions, including certain of the Pending Acquisitions, is also subject to applicable waiting periods and possible review by the DOJ or the FTC under the HSR Act. Since the passage of the Telecom Act, certain radio broadcasting acquisitions, including the Benchmark Acquisition, have been the subject of "second requests" for additional information by federal authorities under the HSR Act. The DOJ's investigation with respect to the Benchmark Acquisition was closed, however, when the DOJ granted early termination of the applicable waiting period under the HSR Act in May 1997. The Company cannot predict the outcome of any specific DOJ or FTC investigation, which are necessarily very fact specific. See "Business -- Federal Regulation of Radio Broadcasting." The Company's business will be dependent upon maintaining its broadcasting licenses issued by the FCC, which are ordinarily issued for a maximum term of eight years. Although it is rare for the FCC to deny a license renewal application, there can be no assurance that the future renewal applications of the Company will be approved or that such renewals will not include conditions or qualifications that could adversely affect the Company. Moreover, governmental regulations and policies may change over time and there can be no assurance that such changes would not have a material adverse impact upon the Company. See "Business -- Federal Regulation of Radio Broadcasting." ORIGINAL ISSUE DISCOUNT CONSEQUENCES OF NOTES The Notes were issued at a substantial discount from their principal amount at maturity. Although cash interest will not accrue on the Notes prior to February 1, 2002, original issue discount (the difference between the stated redemption price at maturity and the issue price of the Notes) will accrue from the issue date of the Notes. Consequently, purchasers of Notes generally will be required to include amounts in gross income for United States federal income tax purposes in advance of their receipt of the cash payments to which the income is attributable. Such amounts in the aggregate will be equal to the difference between the stated redemption price at maturity (inclusive of stated interest on the Notes) and the issue price of the Notes. See "Certain United States Federal Income Tax Considerations." In the event a bankruptcy case is commenced by or against the Company under the United States Bankruptcy Code (the "Bankruptcy Code"), the claim of a holder of Notes may be limited to an amount equal to the sum of (i) the initial offering price and (ii) that portion of the original issue discount that is not deemed to constitute "unmatured interest" for purposes of the Bankruptcy Code. Any original issue discount that was not amortized as of the date of any such bankruptcy filing would constitute "unmatured interest." To the extent that the Bankruptcy Code differs from the Internal Revenue Code of 1986, as amended, in determining the method of amortization of original issue discount, a holder of Notes may realize taxable gain or loss on payment of such holder's claim in bankruptcy. CHANGE OF CONTROL Upon the occurrence of a Change of Control, the Company will be required to offer to purchase all outstanding Notes at a purchase price equal to (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 accrued and unpaid interest, if any, to the Change of Control Payment 22 27 Date if the Change of Control Payment Date is after February 1, 2002. If a Change of Control were to occur, there can be no assurance that the Company would have sufficient funds to pay the purchase price for all of the Notes that the Company might be required to purchase. The Certificate of Designation provides that, upon a change of control (as therein defined), the Company will be required to offer to purchase all outstanding Senior Exchangeable Preferred Stock at a purchase price equal to 101% of the liquidation preference thereof, plus, without duplication, accumulated and unpaid dividends, if any, to the change of control payment date (as therein defined) (including an amount in cash equal to a prorated dividend for the period from the dividend payment date (as therein defined) immediately prior to the change in control payment date to the change of control payment date). The Existing Capstar Radio Indenture provides that, upon a change of control (as therein defined) of Capstar Radio, Capstar Radio will be required to purchase all of the Existing Capstar Radio Notes then outstanding at a purchase price equal to 101% of their accreted value (as therein defined), plus accrued interest to the date of repurchase, in the case of such a purchase prior to May 1, 1998, and thereafter at a purchase price equal to 101% of the principal amount thereof, plus accrued interest to the date of repurchase. The New Capstar Radio Indenture provides that, upon a change of control (as therein defined) of Capstar Radio, Capstar Radio will be required to purchase all of the New Capstar Radio Notes then outstanding at a purchase price equal to 101% of their principal amount plus accrued and unpaid interest, if any, to the date of purchase. A change of control (as defined therein) under any Indenture or the Certificate of Designation would in all likelihood also constitute a change of control under the other Indentures and the Certificate of Designation, will constitute an event of default under the New Credit Facility, and may cause acceleration of other indebtedness, if any, in which case the Company would be required to repay in full the New Credit Facility and any other indebtedness before repurchasing the Notes. Moreover, as of the date of this Prospectus, after giving effect to the Pending Transactions, the Company would not have sufficient funds available to purchase all of the outstanding Notes pursuant to a Change of Control Offer. In the event that the Company were required to purchase the Notes pursuant to a Change of Control Offer, the Company expects that it would need to seek third-party financing to the extent it does not have available funds to meet its purchase obligations. However, there can be no assurance that the Company would be able to obtain such financing on favorable terms, if at all. See "Description of Other Indebtedness" and "Description of the New Notes." In such event, the Company may be unable to repurchase Notes tendered in response to a Change of Control Offer. ABSENCE OF PUBLIC MARKET The Old Notes are designated for trading in the PORTAL market. There is no established trading market for the New Notes. The New Notes will not trade on PORTAL and the Company does not currently intend to list the New Notes on any securities exchange or to seek approval for quotation through any automated quotation system. There can be no assurance as to the development of any market or the liquidity of any market that may develop for the New Notes. If such a market were to exist, no assurance can be given as to the trading prices of the New Notes. Future trading prices of the New Notes will depend on many factors, including, among other things, prevailing interest rates, the Company's operating results and the market for similar securities. USE OF PROCEEDS There will be no cash proceeds to the Company from the Exchange Offer. 23 28 CAPITALIZATION The following table sets forth (i) the historical capitalization of the Company at March 31, 1997, (ii) the unaudited pro forma capitalization of the Company, after giving effect to the Completed Transactions and the Financing, and (iii) the unaudited pro forma capitalization of the Company, after giving effect to the Completed Transactions, the Pending Transactions, and, in each case, the financing of each of the foregoing transactions, including the Financing, and the application of the net proceeds therefrom. This table should be read in conjunction with the Financial Statements, the Pro Forma Financial Information and, in each case, the related notes thereto included elsewhere in this Prospectus.
MARCH 31, 1997 ------------------------------------- PRO FORMA FOR COMPLETED TRANSACTIONS AND THE ACTUAL FINANCING PRO FORMA -------- ------------- ---------- (DOLLARS IN THOUSANDS) Cash and cash equivalents............... $ 13,025 $ 12,279 $ 1,837 ======== ======== ========== Long-term debt (including current maturities): Capstar Radio: New Credit Facility(1)............. $ -- $ -- $ 185,946 9 1/4% Senior Subordinated Notes due 2007......................... -- 199,212 199,212 13 1/4% Senior Subordinated Notes due 2003(2)...................... 77,614 77,614 77,614 -------- -------- ---------- Total Capstar Radio long-term debt........................ 77,614 276,826 462,772 The Company: 12 3/4% Senior Discount Notes due 2009(3).......................... 152,341 152,341 152,341 -------- -------- ---------- Total long-term debt.......... 229,955 429,167 615,113 -------- -------- ---------- 12% Senior Exchangeable Preferred Stock............................ -- 94,750 94,750 Stockholders' equity(4)(5)(6)......... 140,898 219,049 423,218 -------- -------- ---------- Total capitalization.......... $370,853 $742,966 $1,133,081 ======== ======== ==========
- --------------- (1) In connection with the Benchmark Acquisition, the Company and Capstar Radio, as the borrower thereunder, entered into the New Credit Facility consisting of a $200.0 million revolving loan facility. See "Description of Other Indebtedness -- New Credit Facility." (2) As a result of a purchase accounting adjustment in connection with the Commodore Acquisition, the carrying value of the Existing Capstar Radio Notes includes an unamortized premium of $806,000. The Existing Capstar Radio Notes are limited in aggregate principal amount to $76.8 million and bear interest at a rate of 13 1/4% per annum, of which only 7 1/2% is payable in cash up to May 1, 1998. Beginning on May 1, 1998, the Existing Capstar Radio 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 Existing Capstar Radio Notes are reduced to their face value of $76.8 million at maturity in 2003. (3) The Notes were issued by the Company at a substantial discount from their aggregate principal amount at maturity of $277.0 million 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. (4) The pro forma capitalization of the Company excludes certain equity investments made subsequent to March 31, 1997 which were not made in connection with the transactions given effect in the pro forma financial statements. These equity investments totaled $3.8 million. (5) The GulfStar Merger was accounted for at historical cost (on a basis similar to a pooling of interests) as the Company and GulfStar were under common control. Immediately subsequent to the GulfStar Merger and the Preferred Stock Redemption, Capstar Broadcasting contributed the capital stock of GulfStar to the Company. Additionally, had (i) the Preferred Stock Redemption, (ii) the GulfStar Transaction and (iii) the repayment and termination of the GulfStar credit facility occurred at March 31, 1997, the Company would have incurred (i) a loss on redemption of preferred of $3.9 million, (ii) a charge for estimated merger fees and expense of $4.2 million, and (iii) an extraordinary charge on the early extinguishment of debt of $2.3 million, respectively. (6) In connection with the Benchmark Acquisition, Capstar Broadcasting issued $750,000 of Class C Common Stock to an affiliate of Hicks Muse in consideration for its agreement to purchase the indebtedness of a subsidiary (the "Fund III Acquisition Sub") of HM Fund III from the lender upon the occurrence of certain events, including, among other events, a default by the borrower. The issuance of Class C Common Stock in connection with such agreement to purchase resulted in an extraordinary charge in the period in which the Company consummated the Benchmark Acquisition. Had the Benchmark Acquisition been consummated at March 31, 1997, the Company would have recorded an extraordinary charge of approximately $750,000. Additionally, the Company terminated the Existing Credit Facility in connection with the Benchmark Acquisition. Had the Company terminated the Existing Credit Facility at March 31, 1997, it would have recorded an extraordinary charge on the early extinguishment of debt of $1.2 million. 24 29 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 its predecessor (Commodore), Osborn, GulfStar, Benchmark, Madison, Community Pacific, Patterson, Ameron, Knight Quality, Quass and Mountain Lakes and, in each case, the related notes included elsewhere in this Prospectus. The pro forma statement of operations for the year ended December 31, 1996, and for the three months ended March 31, 1997 and 1996 have been prepared to illustrate the effects of: (i) the Commodore Acquisition; (ii) the Completed Transactions, including the Financing; and (iii) the Pending Transactions and the anticipated financing thereof, as if each had occurred on January 1, 1996. The pro forma balance sheet as of March 31, 1997, has been prepared as if any such transaction not yet consummated on that date had occurred on that date. The Pro Forma Financial Information and accompanying notes should be read in conjunction with the financial statements and other financial information included elsewhere herein pertaining to the Company, Commodore, Osborn, GulfStar, Benchmark, Madison, Community Pacific, Patterson, Ameron, Knight Quality, Quass and Mountain Lakes, including "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The unaudited pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable. The Company anticipates that it will fund the Pending Transactions with indebtedness, rather than capital stock, to the fullest extent then permitted under the debt incurrence covenants contained, or to be contained, in the Certificate of Designation, the Indentures and the New Credit Facility. As a result, the Company expects the actual amount of indebtedness incurred in connection with the Pending Transactions to exceed the amount in the Pro Forma Financial Information. The Pro Forma Financial Information is not necessarily indicative of either future results of operations or the results that might have been achieved if such transactions had been consummated on the indicated dates. All acquisitions, except for the GulfStar Transaction, given effect in the Pro Forma Financial Information are accounted for using the purchase method of accounting. The aggregate purchase price of each such transaction is allocated to the tangible and intangible assets and liabilities acquired based upon their respective fair values. The allocation of the aggregate purchase price reflected in the Pro Forma Financial Information is preliminary for transactions closed or to be closed after April 1, 1997. The final allocation of the purchase price is contingent upon the receipt of final appraisals of the acquired assets and the revision of other estimates; however, the allocation is not expected to differ materially from the preliminary allocation. The GulfStar Transaction is accounted for at historical cost, on a basis similar to a pooling of interests, as the Company and GulfStar were under common control prior to the GulfStar Transaction. For the purpose of the pro forma statement of operations for the year ended December 31, 1996 and for the three months ended March 31, 1997 and 1996, (i) "Completed Transactions Combined" collectively refers to the historical results of operations of the entities and stations acquired or sold in the Completed Transactions, excluding the Commodore Acquisition, and (ii) "Pending Transactions Combined" collectively refers to the results of operations of the entities and stations to be acquired or sold in the Pending Transactions. For the purpose of the pro forma balance sheet as of March 31, 1997, (i) "Completed Transactions Combined" collectively refers to the historical balance sheets of the entities and stations acquired or sold in the Completed Transactions, excluding the Commodore Acquisition and the Osborn Acquisition, and (ii) "Pending Transactions Combined" collectively refers to the historical balance sheets of the entities and stations to be acquired or sold in the Pending Transactions. As used in the Pro Forma Financial Information, (i) "Company Combined" presents unaudited pro forma financial data for the Company, including its predecessor, Commodore, (ii) "Pro Forma for Completed Transactions and the Financing" gives effect to the Completed Transactions and the financing thereof, including the Financing and (iii) "Pro Forma" gives effect to each of the foregoing transactions, the Pending Transactions the anticipated financing thereof. 25 30 The following tables present a summary of the Pro Forma Financial Information included on the following pages.
PRO FORMA FOR COMPLETED TRANSACTIONS AND THE FINANCING ------------------------------------------------------------------ THREE MONTHS ENDED MARCH 31, YEAR ENDED -------------------- TWELVE MONTHS ENDED DECEMBER 31, 1996 1996 1997 MARCH 31, 1997 ----------------- -------- -------- ------------------- (DOLLARS IN THOUSANDS) OPERATING DATA: Net revenue...................... $190,096 $ 38,682 $ 40,389 $191,803 Station operating expenses....... 136,194 30,317 30,890 136,767 Depreciation and amortization.... 26,014 6,504 6,504 26,014 Corporate expenses............... 7,803 2,001 2,554 8,356 Other operating expenses......... 9,831 2,485 2,469 9,815 Operating income (loss).......... 10,254 (2,625) (2,028) 10,851 Interest expense................. 50,013 12,505 12,505 50,013 Net income (loss)................ (19,927) (8,305) (8,893) (20,515) OTHER DATA: Broadcast cash flow(1)........... $ 53,902 $ 8,365 $ 9,499 $ 55,036 Broadcast cash flow margin(1).... 28.4% 21.6% 23.5% 28.7% EBITDA(2)........................ $ 46,099 $ 6,364 $ 6,945 $ 46,680
PRO FORMA ---------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, YEAR ENDED -------------------- TWELVE MONTHS ENDED DECEMBER 31, 1996 1996 1997 MARCH 31, 1997 ----------------- -------- -------- ------------------- (DOLLARS IN THOUSANDS) OPERATING DATA: Net revenue........................ $294,531 $ 61,144 $ 63,172 $296,559 Station operating expenses......... 214,098 48,760 49,100 214,438 Depreciation and amortization...... 40,157 10,041 10,041 40,157 Corporate expenses................. 13,430 3,134 4,285 14,581 Other operating expenses........... 9,943 2,482 2,704 10,165 Operating income (loss)............ 16,903 (3,273) (2,958) 17,218 Interest expense................... 64,889 16,224 16,224 64,889 Net income (loss).................. (27,357) (12,075) (13,475) (28,757) OTHER DATA: Broadcast cash flow(1)............. $ 80,433 $ 12,384 $ 14,072 $ 82,121(3) Broadcast cash flow margin(1)...... 27.3% 20.3% 22.3% 27.7% EBITDA(2).......................... $ 67,003 $ 9,250 $ 9,787 $ 67,540(3) Deficiency of earnings to fixed charges(4)...................... 47,379 17,148 19,176 49,407
- --------------- (1) Broadcast cash flow consists of operating income before depreciation, amortization, corporate expenses and other operating expenses. Although broadcast cash flow is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcasting industry to evaluate a radio company's operating performance. See "Glossary of Certain Terms and Market and Industry Data." (2) EBITDA consists of operating income before depreciation, amortization and other operating expenses. Although EBITDA is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcasting industry to evaluate a radio company's operating performance. See "Glossary of Certain Terms and Market and Industry Data." (3) The pro forma financial results exclude the effects of estimated cost savings resulting from the Completed Transactions and the Pending Acquisitions. On a pro forma basis, assuming the consummation of the aforementioned transactions, including related cost savings as if they had occurred on January 1, 1996, broadcast cash flow and EBITDA would have been $93.9 million and $85.0 million, respectively, for the twelve-month period ended March 31, 1997. The Company expects to realize approximately $11.8 million of estimated cost savings resulting from the elimination of redundant operating expenses arising from such transactions, including elimination of certain management positions, the consolidation of facilities and new rates associated with revised vendor contracts and savings related to automation of certain station operations. In addition, the Company expects to realize approximately $5.7 million of cost savings, on a pro forma basis, resulting from the elimination of certain corporate overhead functions, net of increased costs associated with the implementation of the Company's corporate management structure. Corporate cost savings reflect the expected level of annual corporate expenditures arising from such transactions. The Company anticipates that corporate expenses will increase upon consummation of additional acquisitions. There can be no assurances that any operating or corporate cost savings will be achieved. (4) For purposes of this calculation, "earnings" consist of income (loss) before income taxes and fixed charges, and "fixed charges" consist of interest, amortization of deferred financing costs and the component of rental expense believed by management to be representative of the interest factor thereon. Preferred stock dividends and accretion are included in fixed charges where appropriate. 26 31 CAPSTAR BROADCASTING PARTNERS, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 (DOLLARS IN THOUSANDS)
ADJUSTMENTS ADJUSTMENTS PRO FORMA FOR THE FOR THE FOR THE PENDING COMPLETED COMPLETED TRANSACTIONS COMPLETED TRANSACTIONS TRANSACTIONS PENDING AND THE THE COMPANY TRANSACTIONS AND THE AND THE TRANSACTIONS RELATED COMBINED(A) COMBINED(B) FINANCING FINANCING COMBINED(F) FINANCING PRO FORMA ----------- ------------ ------------ ------------- ------------ ------------ --------- Net revenue............... $13,847 $26,542 $ -- $ 40,389 $22,783 $ -- $ 63,172 Station operating expenses................ 10,356 20,534 -- 30,890 18,210 -- 49,100 Depreciation and amortization............ 2,389 3,038 1,077(C) 6,504 2,430 1,107(C) 10,041 Corporate expenses........ 1,424 1,130 -- 2,554 1,731 -- 4,285 Other operating expenses................ -- 2,469 -- 2,469 235 -- 2,704 ------- ------- -------- -------- ------- -------- -------- Operating income (loss)............... (322) (629) (1,077) (2,028) 177 (1,107) (2,958) Interest expense.......... 6,532 3,508 2,465(D) 12,505 2,788 931(G) 16,224 Gain (loss) on sale of assets.................. -- 5,348 -- 5,348 6 -- 5,354 Increase in fair value of redeemable warrants..... -- -- -- -- 5,882 (5,882)(H) -- Other (income) expense.... (27) (265) -- (292) (61) -- (353) ------- ------- -------- -------- ------- -------- -------- Income (loss) before provision for income taxes................ (6,827) 1,476 (3,542) (8,893) (8,426) 3,844 (13,475) Provision (benefit) for income taxes............ 46 (68) 22(E) -- (2,807) 2,807(E) -- ------- ------- -------- -------- ------- -------- -------- Net income (loss)......... $(6,873) $ 1,544 $ (3,564) $ (8,893) $(5,619) $ 1,037 (13,475) ======= ======= ======== ======== ======= ======== Dividends and accretion on preferred stock(I)................ 3,450 -------- Loss applicable to common shares.................. $(16,925) ======== Deficiency of earnings to fixed charges and preferred stock dividends and accretion(J)............ $ 19,176
See Accompanying Notes to Pro Forma Financial Information. 27 32 CAPSTAR BROADCASTING PARTNERS, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS -- (CONTINUED) FOR THE THREE MONTHS ENDED MARCH 31, 1996 (DOLLARS IN THOUSANDS)
ADJUSTMENTS ADJUSTMENTS FOR THE FOR THE PRO FORMA COMMODORE COMPLETED FOR ACQUISITION TRANSACTIONS COMPLETED AND THE COMPLETED COMBINATION TRANSACTIONS PENDING THE COMPANY RELATED TRANSACTIONS AND THE AND THE TRANSACTIONS COMBINED(K) FINANCING COMBINED(M) FINANCING FINANCING COMBINED(O) ----------- ----------- ------------ ------------ ------------ ------------ Net revenue............................. $ 9,103 $ -- $29,579 $ -- $38,682 $22,462 Station operating expenses.............. 6,862 -- 23,455 -- 30,317 18,443 Depreciation and amortization........... 480 1,336(C) 3,642 1,046(C) 6,504 1,769 Corporate expenses...................... 466 -- 1,535 -- 2,001 1,133 Other operating (income) expenses....... -- -- 273 2,212(N) 2,485 (3) ------- ------- ------- ------- ------- ------- Operating income (loss)............... 1,295 (1,336) 674 (3,258) (2,625) 1,120 Interest expense........................ 2,452 5,052(L) 2,443 2,558(D) 12,505 1,910 Gain (loss) on sale of assets........... -- -- 6,876 -- 6,876 530 Other (income) expense.................. 52 -- (1) -- 51 (67) ------- ------- ------- ------- ------- ------- Income (loss) before provision for income taxes....................... (1,209) (6,388) 5,108 (5,816) (8,305) (193) Provision (benefit) for income taxes.... 27 (27)(E) 609 (609)(E) -- 80 ------- ------- ------- ------- ------- ------- Net income (loss)....................... $(1,236) $(6,361) $ 4,499 $(5,207) $(8,305) $ (273) ======= ======= ======= ======= ======= ======= Dividends and accretion on preferred stock(I).............................. Loss applicable to common shares........ Deficiency of earnings to fixed charges and preferred stock dividends and accretion(J).......................... ADJUSTMENTS FOR THE PENDING TRANSACTIONS AND THE RELATED FINANCING PRO FORMA ------------ --------- Net revenue............................. $ -- $ 61,144 Station operating expenses.............. -- 48,760 Depreciation and amortization........... 1,768(C) 10,041 Corporate expenses...................... -- 3,134 Other operating (income) expenses....... -- 2,482 -------- -------- Operating income (loss)............... (1,768) (3,273) Interest expense........................ 1,809(G) 16,224 Gain (loss) on sale of assets........... -- 7,406 Other (income) expense.................. -- (16) -------- -------- Income (loss) before provision for income taxes....................... (3,577) (12,075) Provision (benefit) for income taxes.... (80)(E) -- -------- -------- Net income (loss)....................... $ (3,497) (12,075) ======== Dividends and accretion on preferred stock(I).............................. 3,073 -------- Loss applicable to common shares........ $(15,148) ======== Deficiency of earnings to fixed charges and preferred stock dividends and accretion(J).......................... $ 17,148
See Accompanying Notes to Pro Forma Financial Information. 28 33 CAPSTAR BROADCASTING PARTNERS, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1996 (DOLLARS IN THOUSANDS)
ADJUSTMENTS FOR THE ADJUSTMENTS PRO FORMA COMMODORE FOR THE FOR ACQUISITION COMPLETED COMPLETED AND THE COMPLETED TRANSACTIONS TRANSACTIONS PENDING THE COMPANY RELATED TRANSACTIONS AND THE AND THE TRANSACTIONS COMBINED(P) FINANCING COMBINED(R) FINANCING FINANCING COMBINED(S) ----------- ----------- ------------ ------------ ------------ ------------ Net revenue................................. $ 44,473 $ -- $145,623 $ -- $190,096 $104,435 Station operating expenses.................. 29,798 -- 106,396 -- 136,194 77,904 Depreciation and amortization............... 3,489 3,774(C) 14,594 4,157(C) 26,014 8,670 Corporate expenses.......................... 2,358 -- 5,445 -- 7,803 5,627 Other operating expenses.................... 14,578 (13,834)(Q) 6,875 2,212(N) 9,831 112 -------- -------- -------- -------- -------- -------- Operating income (loss)................... (5,750) 10,060 12,313 (6,369) 10,254 12,122 Interest expense............................ 13,896 16,115(L) 11,165 8,837(D) 50,013 9,643 Gain (loss) on sale of assets............... -- -- 23,092 -- 23,092 559 Increase in fair value of redeemable warrants.................................. -- -- -- -- -- 5,499 Other (income) expense...................... 1,824 -- 248 -- 2,072 (238) -------- -------- -------- -------- -------- -------- Income (loss) before provision for income taxes................................... (21,470) (6,055) 23,992 (15,206) (18,739) (2,223) Provision (benefit) for income taxes........ 133 (133)(E) 2,248 (2,248)(E) -- (2,228) -------- -------- -------- -------- -------- -------- Income (loss) before extraordinary item... (21,603) (5,922) 21,744 (12,958) (18,739) 5 Extraordinary item, loss on early extinguishment of debt.................... -- -- 1,188 -- 1,188 -- -------- -------- -------- -------- -------- -------- Net income (loss)........................... $(21,603) $ (5,922) $ 20,556 $(12,958) $(19,927) $ 5 ======== ======== ======== ======== ======== ======== Dividends and accretion on preferred stock(I).................................. Loss applicable to common shares............ Deficiency of earnings to fixed charges and preferred stock dividends and accretion (J)............................. ADJUSTMENTS FOR THE PENDING TRANSACTIONS AND THE RELATED FINANCING PRO FORMA ------------ --------- Net revenue................................. $ -- $294,531 Station operating expenses.................. -- 214,098 Depreciation and amortization............... 5,473(C) 40,157 Corporate expenses.......................... -- 13,430 Other operating expenses.................... -- 9,943 ------- -------- Operating income (loss)................... (5,473) 16,903 Interest expense............................ 5,233(G) 64,889 Gain (loss) on sale of assets............... -- 23,651 Increase in fair value of redeemable warrants.................................. (5,499)(H) -- Other (income) expense...................... -- 1,834 ------- -------- Income (loss) before provision for income taxes................................... (5,207) (26,169) Provision (benefit) for income taxes........ 2,228(E) -- ------- -------- Income (loss) before extraordinary item... (7,435) (26,169) Extraordinary item, loss on early extinguishment of debt.................... -- 1,188 ------- -------- Net income (loss)........................... $(7,435) (27,357) ======= Dividends and accretion on preferred stock(I).................................. 12,843 -------- Loss applicable to common shares............ $(40,200) ======== Deficiency of earnings to fixed charges and preferred stock dividends and accretion (J)............................. $ 47,379
See Accompanying Notes to Pro Forma Financial Information. 29 34 CAPSTAR BROADCASTING PARTNERS, INC. UNAUDITED PRO FORMA BALANCE SHEET AS OF MARCH 31, 1997 (DOLLARS IN THOUSANDS)
ADJUSTMENTS PRO FORMA FOR THE FOR COMPLETED COMPLETED TRANSACTIONS TRANSACTIONS PENDING COMPLETED AND THE AND THE TRANSACTIONS THE COMPANY TRANSACTIONS(T) FINANCING FINANCING COMBINED(GG) ----------- --------------- ------------ ------------ ------------ ASSETS Current Assets: Cash and cash equivalents............. $ 13,025 $ 11,367 $ (815)(U) $ 12,279 $ 4,884 (11,298)(V) Accounts receivable, net.............. 13,051 17,267 (3,662)(U) 26,656 17,188 Prepaid expenses and other............ 17,142 3,294 (743)(U) 5,863 3,169 (330)(W) (13,500)(X) -------- -------- -------- -------- -------- Total current assets............ 43,218 31,928 (30,348) 44,798 25,241 Property and equipment, net............. 41,991 38,011 12,259(U) 92,261 33,992 Intangible and other assets, net........ 358,891 159,601 171,722(U) 697,337 153,717 (625)(Y) (535)(U) 10,555(Z) (2,272)(AA) -------- -------- -------- -------- -------- Total assets.................... $444,100 $229,540 $160,756 $834,396 $212,950 ======== ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and other accrued expenses............................ $ 15,490 $ 11,870 $ (2,074)(U) $ 25,286 $ 9,082 Current portion of long-term debt..... -- 15,084 (15,084)(U) -- 10,664 -------- -------- -------- -------- -------- Total current liabilities....... 15,490 26,954 (17,158) 25,286 19,746 Long-term debt, less current portion(OO)........................... 229,955 138,132 (55,572)(U) 429,167 98,975 (82,560)(AA) 199,212(BB) 60,000(CC) (60,000)(CC) Other long-term liabilities............. 57,757 6,047 2,340(U) 66,144 290 -------- -------- -------- -------- -------- Total liabilities............... 303,202 171,133 46,262 520,597 119,011 Senior exchangeable preferred stock(OO)............................. -- -- 94,750(DD) 94,750 -- Redeemable preferred stock.............. -- 23,081 (23,081)(EE) -- 20,747 Redeemable warrants..................... -- -- -- -- 17,803 Stockholders' equity (deficit).......... 140,898 35,326 (33,689)(U) 219,049 55,389 750(CC) (750)(CC) 83,900(FF) (2,272)(AA) (3,919)(EE) (1,195)(Z) -------- -------- -------- -------- -------- Total liabilities and stockholders' equity.......... $444,100 $229,540 $160,756 $834,396 $212,950 ======== ======== ======== ======== ======== ADJUSTMENTS FOR THE PENDING TRANSACTIONS AND THE RELATED FINANCING PRO FORMA ------------ ---------- ASSETS Current Assets: Cash and cash equivalents............. $ (3,652)(HH) $ 1,837 (11,674)(II) Accounts receivable, net.............. (4,710)(HH) 38,810 (324)(JJ) Prepaid expenses and other............ (1,874)(HH) 7,152 (6)(JJ) --------- ---------- Total current assets............ (22,240) 47,799 Property and equipment, net............. 20,004(HH) 145,917 (340)(JJ) Intangible and other assets, net........ 225,830(HH) 1,072,213 (435)(JJ) (4,236)(HH) --------- ---------- Total assets.................... $ 218,583 $1,265,929 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and other accrued expenses............................ $ (5,171)(HH) $ 28,975 (222)(JJ) Current portion of long-term debt..... (10,664)(KK) -- --------- ---------- Total current liabilities....... (16,057) 28,975 Long-term debt, less current portion(OO)........................... (98,975)(KK) 615,113 185,946(LL) Other long-term liabilities............. 37,440(HH) 103,873 (1)(JJ) --------- ---------- Total liabilities............... 108,353 747,961 Senior exchangeable preferred stock(OO)............................. 94,750 Redeemable preferred stock.............. (20,747)(MM) -- Redeemable warrants..................... (17,803)(MM) -- Stockholders' equity (deficit).......... (55,389)(NN) 423,218 (882)(JJ) 205,051(LL) --------- ---------- Total liabilities and stockholders' equity.......... $ 218,583 $1,265,929 ========= ==========
See Accompanying Notes to Pro Forma Financial Information. 30 35 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION (DOLLARS IN THOUSANDS) (A) The schedule below gives effect to the historical acquisitions of the Company consummated prior to March 31, 1997 for the period from January 1, 1997 through March 31, 1997. THE COMPANY
ADJUSTMENTS FOR THE HISTORICAL ACQUISITIONS THE THE BY THE COMPANY COMPANY COMPANY(1) COMBINED ------- ------------ -------- Net revenue.......................................... $14,107 $(260) $13,847 Station operating expenses........................... 10,356 -- 10,356 Depreciation and amortization........................ 2,389 -- 2,389 Corporate expenses................................... 1,424 -- 1,424 Other operating expenses............................. -- -- -- ------- ----- ------- Operating income.................................. (62) (260) (322) Interest expense..................................... 6,792 (260) 6,532 Gain (loss) on sale of assets........................ -- -- -- Other (income) expense............................... (27) -- (27) ------- ----- ------- Income (loss) before provision for income taxes... (6,827) -- (6,827) Provision (benefit) for income taxes................. 46 -- 46 ------- ----- ------- Income (loss) before extraordinary loss........... (6,873) -- (6,873) Extraordinary loss on early extinguishment of debt(2)........................................... 598 (598) -- ------- ----- ------- Net income (loss)................................. $(7,471) $ 598 $(6,873) ======= ===== ======= Deficiency of earnings to fixed charges(3)........... $6,827
- --------------- (1) The column gives effect to the LMA fees related to the Community Pacific Acquisition. (2) The adjustment reflects the elimination of the extraordinary loss during the pro forma period. (3) For purposes of this calculation, "earnings" consist of income (loss) before income taxes and fixed charges, and "fixed charges" consist of interest, amortization of deferred financing costs and the component of rental expense believed by management to be representative of the interest factor thereon. 31 36 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (B) The schedule below gives effect to the following for the period from January 1, 1997 through March 31, 1997: (i) the historical acquisitions and dispositions of the indicated entities consummated prior to March 31, 1997 and (ii) the acquisitions and dispositions of the indicated entities which were pending at March 31, 1997 and were consummated prior to the date of this Prospectus. COMPLETED TRANSACTIONS COMBINED
OTHER COMPLETED HISTORICAL HISTORICAL HISTORICAL HISTORICAL TRANSACTIONS OSBORN(1) GULFSTAR BENCHMARK MADISON COMBINED(2) ---------- ---------- ---------- ---------- --------------- Net revenue....................................... $3,577 $10,995 $ 6,444 $2,028 $2,653 Station operating expenses........................ 2,937 7,948 5,338 1,246 2,323 Depreciation and amortization..................... 418 1,001 1,336 376 (93) Corporate expenses................................ 268 518 265 47 32 Other operating expenses.......................... -- 2,469 -- -- -- ------ ------- ------- ------ ------ Operating income (loss)......................... (46) (941) (495) 359 391 Interest expense.................................. 385 1,846 937 348 (8) Gain (loss) on sale of assets..................... 5,348 -- -- -- -- Other (income) expense............................ (212) (36) (61) -- 44 ------ ------- ------- ------ ------ Income (loss) before provision for income taxes........................................ 5,129 (2,751) (1,371) 11 355 Provision (benefit) for income taxes.............. 32 (102) -- -- 2 ------ ------- ------- ------ ------ Net income (loss)............................... $5,097 $(2,649) $(1,371) $ 11 $ 353 ====== ======= ======= ====== ====== ADJUSTMENTS FOR COMPLETED HISTORICAL TRANSACTIONS TRANSACTIONS(3) COMBINED --------------- ------------ Net revenue....................................... $845 $26,542 Station operating expenses........................ 742 20,534 Depreciation and amortization..................... -- 3,038 Corporate expenses................................ -- 1,130 Other operating expenses.......................... -- 2,469 ---- ------- Operating income (loss)......................... 103 (629) Interest expense.................................. -- 3,508 Gain (loss) on sale of assets..................... -- 5,348 Other (income) expense............................ -- (265) ---- ------- Income (loss) before provision for income taxes........................................ 103 1,476 Provision (benefit) for income taxes.............. -- (68) ---- ------- Net income (loss)............................... $103 $ 1,544 ==== =======
- --------------- (1) The column represents the consolidated results of operations of Osborn from January 1, 1997 through February 20, 1997, the date of the Osborn Acquisition. (2) The column represents the historical combined operating results of the following entities and stations which were acquired or sold prior to the date of this Prospectus: (i) McForhun, Livingston, and Stephens Radio, all acquired by GulfStar prior to the GulfStar Transaction; (ii) Space Coast, Cavalier and Emerald City, all acquired by the Company; (iii) WESC-AM/FM and WFNQ-FM, all sold by Benchmark prior to the Benchmark Acquisition; (iv) WMCZ-FM, WMHS-FM and WZHT-FM, all acquired by Benchmark prior to the Benchmark Acquisition; (v) the stations acquired in the Osborn Add-on Acquisitions; and (vi) the stations sold in the Osborn Ft. Myers Disposition. (3) The adjustments give effect to the historical operating results and/or LMA or JSA expense and/or revenue of the following stations which were acquired prior to March 31, 1997: (i) WYNU-FM and WTXT-FM, both acquired by Osborn; (ii) WSCQ-FM, WFMX-FM and WSIC-AM, all acquired by Benchmark; and (iii) KTRA-FM, KKFG-FM, KDAG-FM and KCQL-AM, all acquired by GulfStar. The adjustments also give effect to the LMA revenue and expense related to the stations acquired in the Osborn Add-on Acquisitions. 32 37 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (C) The adjustment reflects (i) a change in depreciation and amortization resulting from conforming the estimated useful lives of the acquired stations and (ii) the additional depreciation and amortization expense resulting from the allocation of the purchase price of the acquired stations including an increase in property and equipment, FCC licenses, and intangible assets to their estimated fair market value and the recording of goodwill associated with the acquisitions. Goodwill and FCC licenses are being amortized over 40 years. (D) The adjustment reflects interest expense associated with (i) the Existing Capstar Radio Notes, (ii) the Notes, (iii) the New Capstar Radio Notes, and (iv) the amortization of deferred financing fees associated with the Existing Capstar Radio Notes, the Notes, the New Capstar Radio Notes and the New Credit Facility, net of interest expense related to the existing indebtedness of the companies included within the Completed Transactions Combined and the Company. Deferred financing fees are amortized over the term of the related debt.
THREE MONTHS YEAR ENDED ENDED MARCH 31, DECEMBER 31, ----------------- 1996 1996 1997 ------------ ------- ------- Existing Capstar Radio Notes........................... $ 8,878 $ 2,220 $ 2,220 Notes.................................................. 20,261 5,065 5,065 New Capstar Radio Notes................................ 18,427 4,607 4,607 -------- ------- ------- Interest expense before amortization of deferred financing fees....................................... 47,566 11,892 11,892 Amortization of deferred financing fees................ 2,447 613 613 -------- ------- ------- Pro forma interest expense........................... 50,013 12,505 12,505 Pro forma interest expense for the Company and Commodore............................................ (30,011) (7,504) -- Historical interest expense for the Company............ -- -- (6,532) Historical interest expense for the Completed Transactions Combined................................ (11,165) (2,443) (3,508) -------- ------- ------- Net adjustment....................................... $ 8,837 $ 2,558 $ 2,465 ======== ======= =======
(E) The adjustment reflects the elimination of historical income tax expense (benefit) as the Company would have generated a taxable loss during the pro forma period. 33 38 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (F) The columns represent the combined income statements for the period from January 1, 1997 through March 31, 1997 of the acquisitions and dispositions of the Company which were pending at March 31, 1997 and have not been consummated as of the date of this Prospectus. PENDING TRANSACTIONS COMBINED
OTHER HISTORICAL HISTORICAL PENDING PENDING COMMUNITY HISTORICAL KNIGHT HISTORICAL HISTORICAL TRANSACTIONS TRANSACTIONS PACIFIC PATTERSON QUALITY AMERON QUASS COMBINED(1) COMBINED ---------- ---------- ---------- ---------- ---------- --------------- ------------ Net revenue.................. $1,681 $10,727 $3,663 $1,856 $921 $3,935 $22,783 Station operating expenses... 1,311 8,319 2,965 1,616 689 3,310 18,210 Depreciation and amortization............... 350 1,162 206 167 73 472 2,430 Corporate expenses........... 197 1,151 371 -- -- 12 1,731 Other operating expenses..... -- 233 -- -- 2 -- 235 ------ ------- ------ ------ ---- ------ ------- Operating income (loss).... (177) (138) 121 73 157 141 177 Interest expense............. 238 1,716 165 218 86 365 2,788 Gain (loss) on sale of assets..................... -- -- 6 -- -- -- 6 Increase in fair value of redeemable warrants........ -- 5,882 -- -- -- -- 5,882 Other (income) expense....... 2 (3) (36) 5 -- (29) (61) ------ ------- ------ ------ ---- ------ ------- Income (loss) before provision for income taxes................... (417) (7,733) (2) (150) 71 (195) (8,426) Provision (benefit) for income taxes............... -- (2,861) 24 -- 30 -- (2,807) ------ ------- ------ ------ ---- ------ ------- Net income (loss).......... $ (417) $(4,872) $ (26) $ (150) $ 41 $ (195) $(5,619) ====== ======= ====== ====== ==== ====== =======
--------------------- (1) The column represents the historical combined operating results of the following entities and stations to be acquired or sold subsequent to the date of this Prospectus: (i) WMEZ-FM, KRDU-AM, KJOI-FM, and WQFN-FM, all pending acquisitions of Patterson; (ii) COMCO, Commonwealth, WRIS, Griffith, Grant, and the stations to be acquired in the SFX Exchange, all pending acquisitions of the Company; (iii) American General, KLAW, KJEM, and Booneville, all pending acquisitions of GulfStar; and (iv) WTAW-FM, KTSR-FM, and KAGG-FM, all pending dispositions of GulfStar. 34 39 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (G) The adjustment reflects interest expense associated with (i) the Existing Capstar Radio Notes, (ii) the Notes, (iii) the New Capstar Radio Notes, (iv) the New Credit Facility and (v) the amortization of deferred financing fees associated with the Existing Capstar Radio Notes, the Notes, the New Capstar Radio Notes and the New Credit Facility, all net of interest expense related to the existing indebtedness of the companies included within the Pending Transactions Combined and the Company. Deferred financing fees are amortized over the term of the related debt.
THREE MONTHS YEAR ENDED ENDED MARCH 31, DECEMBER 31, -------------------- 1996 1996 1997 ------------ -------- -------- Existing Capstar Radio Notes......................... $ 8,878 $ 2,220 $ 2,220 Notes................................................ 20,261 5,065 5,065 New Capstar Radio Notes.............................. 18,427 4,607 4,607 New Credit Facility at 8.0%.......................... 14,876 3,719 3,719 -------- -------- -------- Interest expense before amortization of deferred financing fees............................................... 62,442 15,611 15,611 Amortization of deferred financing fees.............. 2,447 613 613 -------- -------- -------- Pro forma interest expense......................... 64,889 16,224 16,224 Pro forma interest expense for the Completed Transactions....................................... (50,013) (12,505) (12,505) Historical interest expense for the Pending Transactions Combined.............................. (9,643) (1,910) (2,788) -------- -------- -------- Net adjustment..................................... $ 5,233 $ 1,809 $ 931 ======== ======== ========
(H) The adjustment reflects the elimination of the increase in fair value of the redeemable warrants as the warrants will be repurchased in connection with the Patterson Acquisition. (I) The adjustment reflects the dividends and accretion on the Senior Exchangeable Preferred Stock. (J) For purposes of this calculation, "earnings" consist of income (loss) before income taxes and fixed charges, and "fixed charges" consist of interest, amortization of deferred financing costs and the component of rental expense believed by management to be representative of the interest factor thereon. Preferred stock dividends and accretion are included in fixed charges where appropriate. 35 40 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (K) The schedule below gives effect to the historical acquisitions of the Company's predecessor, Commodore, consummated prior to March 31, 1997 for the period from January 1, 1996 through March 31, 1996. THE COMPANY
ADJUSTMENTS FOR THE HISTORICAL THE ACQUISITIONS BY THE COMPANY COMPANY(1) COMMODORE(2) COMBINED ---------- --------------- ----------- Net revenue................................... $ 7,416 $1,687 $ 9,103 Station operating expenses.................... 5,375 1,487 6,862 Depreciation and amortization................. 480 -- 480 Corporate expenses............................ 466 -- 466 Other operating expenses...................... -- -- -- ------- ------ ------- Operating income (loss)..................... 1,095 200 1,295 Interest expense.............................. 2,452 -- 2,452 Gain (loss) on sale of assets................. -- -- -- Other (income) expense........................ 52 -- 52 ------- ------ ------- Income (loss) before provision for income taxes.................................... (1,409) 200 (1,209) Provision (benefit) for income taxes.......... 27 -- 27 ------- ------ ------- Net income (loss)........................... $(1,436) $ 200 $(1,236) ======= ====== ======= Deficiency of earnings to fixed charges(3).... $ 1,409
- --------------- (1) The column represents the results of operations of the Company's predecessor, Commodore, from January 1, 1996 through March 31, 1996. (2) The column gives effect to the historical operating results and LMA and JSA revenue and expense of the following acquisitions by the Commodore: the Huntington Acquisition, WKHL-FM, WSTC-AM, WAVW-FM, WBBE-FM, WAXE-AM, WAXB-FM, WZZN-FM and WPUT-AM. (3) For purposes of this calculation, "earnings" consist of income (loss) before income taxes and fixed charges, and "fixed charges" consist of interest, amortization of deferred financing costs and the component of rental expense believed by management to be representative of the interest factor thereon. (L) The adjustment reflects interest expense associated with (i) the Existing Capstar Radio Notes, (ii) the Notes, and (iii) the amortization of deferred financing fees associated with the Existing Capstar Radio Notes and the Notes, net of interest expense related to the existing indebtedness of the Company and Commodore. Deferred financing fees are amortized over the term of the related debt.
YEAR ENDED THREE MONTHS ENDED DECEMBER 31, 1996 MARCH 31, 1996 ----------------- -------------------- Existing Capstar Radio Notes....................... $ 8,878 $ 2,220 Notes.............................................. 20,261 5,065 ------- -------- Interest expense before amortization of deferred financing fees................................... 29,139 7,285 Amortization of deferred financing fees............ 872 219 ------- -------- Pro forma interest expense....................... 30,011 7,504 Historical interest expense for the Company........ (5,035) -- Historical interest expense for Commodore.......... (8,861) (2,452) ------- -------- Net adjustment..................................... $16,115 $ 5,052 ======= ========
36 41 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (M) The schedule below gives effect to the following for the period from January 1, 1996 through March 31, 1996: (i) the historical acquisitions and dispositions of the indicated entities consummated prior to March 31, 1997; and (ii) the acquisitions and dispositions of the indicated entitles which were pending at March 31, 1997 and were consummated prior to the date of this Prospectus. COMPLETED TRANSACTIONS COMBINED
OTHER ADJUSTMENTS HISTORICAL COMPLETED FOR HISTORICAL HISTORICAL HISTORICAL HISTORICAL POINT TRANSACTIONS HISTORICAL OSBORN GULFSTAR BENCHMARK MIDCONTINENT COMMUNICATIONS COMBINED(1) TRANSACTIONS(2) ---------- ---------- ---------- ------------ -------------- ------------ --------------- Net revenue......... $6,852 $4,595 $ 6,217 $ 735 $ 950 $3,594 $6,636 Station operating expenses.......... 5,868 3,604 4,964 794 684 2,637 4,904 Depreciation and amortization...... 1,211 677 1,330 108 382 (66) -- Corporate expenses.......... 457 171 819 -- 52 36 -- Other operating expenses.......... -- 273 -- -- -- -- -- ------ ------ ------- ----- ----- ------ ------ Operating income (loss)......... (684) (130) (896) (167) (168) 987 1,732 Interest expense.... 635 851 646 -- 260 51 -- Gain (loss) on sale of assets......... 6,874 -- -- -- -- 2 -- Other (income) expense........... 93 (4) (58) (17) -- (15) -- ------ ------ ------- ----- ----- ------ ------ Income (loss) before provision for income taxes... 5,462 (977) (1,484) (150) (428) 953 1,732 Provision (benefit) for income taxes............. 851 (191) -- (51) -- -- -- ------ ------ ------- ----- ----- ------ ------ Net income (loss)......... $4,611 $ (786) $(1,484) $ (99) $(428) $ 953 $1,732 ====== ====== ======= ===== ===== ====== ====== COMPLETED TRANSACTIONS COMBINED ------------ Net revenue......... $29,579 Station operating expenses.......... 23,455 Depreciation and amortization...... 3,642 Corporate expenses.......... 1,535 Other operating expenses.......... 273 ------- Operating income (loss)......... 674 Interest expense.... 2,443 Gain (loss) on sale of assets......... 6,876 Other (income) expense........... (1) ------- Income (loss) before provision for income taxes... 5,108 Provision (benefit) for income taxes............. 609 ------- Net income (loss)......... $ 4,499 =======
- --------------- (1) The column represents the historical combined operating results of the following entities and stations which were acquired or sold prior to the date of this Prospectus Offer: (i) McForhun, Livingston, Stephens Radio, KWHN-AM, KMAG-FM, KLLI-FM and KYGL-FM, all acquired by GulfStar prior to the GulfStar Transaction; (ii) Space Coast, Cavalier and Emerald City, all acquired by the Company; (iii) the stations acquired in the Osborn Add-on Acquisitions; (iv) WESC-AM/FM and WFNQ-FM, all sold by Benchmark prior to the Benchmark Acquisition; (iv) WMCZ-FM, WMHS-FM and WZHT-FM, all acquired by Benchmark prior to the Benchmark Acquisition; and (v) the stations sold in the Osborn Ft. Myers Disposition. (2) The adjustments give effect to the historical operating results and/or LMA or JSA expense and/or revenue of the following stations which were acquired or sold prior to March 31, 1997: (i) WKWK-FM, WRIR-FM, WGEW-FM, WEEL-FM, WBBD-AM, WYNU-FM and WTXT-FM, all acquired by Osborn prior to the Osborn Acquisition; (ii) WWRD-FM, WNDR-AM, WNTQ-FM, WFXK-FM, WAYV-FM, and WFKS-FM, all sold by Osborn prior to the Osborn Acquisition; (iii) KRYS-AM/FM, KMXR-FM, KNCN-FM, KEZA-FM, KKIX-FM, KKZQ-FM, KIIZ-FM, KLFX-FM, KFMX-FM, KKAM-AM, KRLB-FM, KZII-FM, KFYO-AM, KBRQ-FM, KKTK-AM, WACO-FM, KCKR-FM, KWTX-AM/FM, KTRA-FM, KKFG-FM, KDAG-FM, and KCQL-AM, all acquired by GulfStar; (iv) KLTX-AM, sold by GulfStar; (v) WJMI-FM, WOAD-FM, WKXI-FM/AM, WSCQ-FM, WFMX-FM, WSIC-AM, KRMD-AM/FM and WJMZ-FM, all acquired by Benchmark; (vi) WLTY-FM, WTAR-AM and WKOC-FM, all sold by Benchmark. (N) The adjustment collectively gives effect to the warrants issued to R. Steven Hicks in connection with the financing of the Commodore Acquisition, the Osborn Acquisition and the GulfStar Transaction. 37 42 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (O) The column represents the combined income statements for the period from January 1, 1996 through March 31, 1996 of the acquisitions and dispositions of the Company which were pending at March 31, 1997 and have not been consummated as of the date of this Prospectus. PENDING TRANSACTIONS COMBINED
OTHER HISTORICAL HISTORICAL PENDING COMMUNITY HISTORICAL KNIGHT HISTORICAL HISTORICAL TRANSACTIONS PACIFIC PATTERSON QUALITY AMERON QUASS COMBINED(1) ---------- ---------- ---------- ---------- ---------- ------------ Net revenue........................ $2,403 $6,097 $3,757 $1,602 $894 $3,848 Station operating expenses......... 2,025 5,144 2,949 1,461 708 3,313 Depreciation and amortization...... 329 522 259 165 69 425 Corporate expenses................. 166 576 371 -- -- 20 Other operating income............. -- -- -- -- 3 -- ------ ------ ------ ------ ---- ------ Operating income (loss).......... (117) (145) 178 (24) 120 90 Interest expense................... 216 821 174 221 103 375 Gain (loss) on sale of assets...... -- -- 530 -- -- -- Other (income) expense............. 50 (55) (19) (11) (7) (25) ------ ------ ------ ------ ---- ------ Income (loss) before provision for income taxes.............. (383) (911) 553 (234) 24 (260) Provision (benefit) for income taxes............................ -- 69 -- 11 -- ------ ------ ------ ------ ---- ------ Net income (loss)................ $ (383) $ (911) $ 484 $ (234) $ 13 $ (260) ====== ====== ====== ====== ==== ====== ADJUSTMENTS FOR PENDING HISTORICAL TRANSACTIONS TRANSACTIONS(2) COMBINED --------------- ------------ Net revenue........................ $3,861 $22,462 Station operating expenses......... 2,843 18,443 Depreciation and amortization...... -- 1,769 Corporate expenses................. 1,133 Other operating income............. 3 ------ ------- Operating income (loss).......... 1,018 1,120 Interest expense................... 1,910 Gain (loss) on sale of assets...... -- 530 Other (income) expense............. -- (67) ------ ------- Income (loss) before provision for income taxes.............. 1,018 (193) Provision (benefit) for income taxes............................ -- 80 ------ ------- Net income (loss)................ $1,018 $ (273) ====== =======
- --------------- (1) The column represents the historical combined operating results of the following entities and stations to be acquired or sold subsequent to the date of this Prospectus: (i) WMEZ-FM, KRDU-AM, KJOI-FM, and WQFN-FM, all pending acquisitions of Patterson; (ii) COMCO, Commonwealth, WRIS, Griffith, Grant, and the stations to be acquired in the SFX Exchange, all pending acquisitions of the Company; and (iii) Noalmark, American General, KLAW, KJEM, and Booneville, all pending acquisitions of GulfStar. (2) The adjustments give effect to the historical operating results and/or LMA or JSA expense and/or revenue of the following stations: WNNK-FM, WTCY-AM, WXBM-FM, WWSF-FM, WSOK-AM, WLVH-FM, WAEV-FM, KIKI-FM/AM, KKLV-FM, KHVH-AM, WFMB-FM/AM, WCVS-FM, KCBL-AM, KBOS-FM and KTHT-FM, all purchased by Patterson prior to March 31, 1997. 38 43 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (P) The schedule below gives effect to the historical acquisitions of the Company's predecessor, Commodore, consummated prior to March 31, 1997 for the period from January 1, 1996 through December 31, 1996. THE COMPANY
ADJUSTMENTS FOR THE HISTORICAL THE HISTORICAL ACQUISITIONS BY THE COMPANY COMPANY(1) COMMODORE(2) COMMODORE(3) COMBINED ---------- ------------ --------------- ----------- Net revenue......................... $10,303 $ 31,957 $2,213 $ 44,473 Station operating expenses.......... 6,283 21,291 2,224 29,798 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) (11) (5,750) Interest expense.................... 5,035 8,861 -- 13,896 Gain (loss) on sale of assets....... -- -- -- -- Other (income) expense.............. 65 1,759 -- 1,824 ------- -------- ------ -------- Income (loss) before provision for income taxes................... (3,756) (17,703) (11) (21,470) Provision (benefit) for income taxes............................. -- 133 -- 133 ------- -------- ------ -------- Net income (loss)................. $(3,756) $(17,836) $ (11) $(21,603) ======= ======== ====== ======== Deficiency of earnings to fixed charges(4)........................ $ 3,756
- --------------- (1) The column represents the consolidated result of operations of the Company and its predecessor, Commodore, from October 17, 1996 through December 31, 1996. (2) The column represents the consolidated results of operations of Commodore from January 1, 1996 through October 16, 1996, the date of the Commodore Acquisition. (3) The column gives effect to the historical operating results and LMA or JSA revenue and expense of the following acquisitions completed by Commodore: the Huntington Acquisition, WKHL-FM, WSTC-AM, WAVW-FM, WBBE-FM, WAXE-AM, WAXB-FM, WZZN-FM, and WPUT-AM. (4) For purposes of this calculation, "earnings" consist of income (loss) before income taxes and fixed charges, and "fixed charges" consist of interest, amortization of deferred financing costs and the component of rental expense believed by management to be representative of the interest factor thereon. 39 44 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (Q) The adjustment reflects the elimination of (i) merger related compensation expenses and (ii) other expenses related to the acquisition of Commodore by the Company, including costs related to the abandoned initial public offering of Commodore. These expenses were recognized by Commodore in connection with the acquisition. (R) The schedule below gives effect to the following for the period from January 1, 1996 through December 31, 1996: (i) the historical acquisition and dispositions of the indicated entities consummated prior to March 31, 1997, and (ii) the acquisitions and dispositions of the indicated entities which were pending at March 31, 1997 and were consummated prior to the date of this Prospectus. COMPLETED TRANSACTIONS COMBINED
OTHER ADJUSTMENTS HISTORICAL COMPLETED FOR HISTORICAL HISTORICAL HISTORICAL HISTORICAL POINT TRANSACTIONS HISTORICAL OSBORN GULFSTAR BENCHMARK MIDCONTINENT COMMUNICATIONS COMBINED(1) TRANSACTIONS(2) ---------- ---------- ---------- ------------ -------------- --------------- --------------- Net revenue......... $37,215 $32,563 $27,255 $3,446 $5,601 $15,150 $24,393 Station operating expenses.......... 28,823 24,299 21,253 2,555 3,430 9,602 16,434 Depreciation and amortization...... 4,756 2,810 5,320 405 1,538 (235) -- Corporate expenses.......... 1,850 1,923 1,513 -- 179 (20) -- Other operating expenses.......... 1,200 5,432 -- -- -- 243 -- ------- ------- ------- ------ ------ ------- ------- Operating income (loss).......... 586 (1,901) (831) 486 454 5,560 7,959 Interest expense.... 2,202 4,604 3,384 -- 1,071 (96) -- Gain (loss) on sale of assets......... 13,522 -- 9,612 -- -- (42) -- Other (income) expense........... 291 829 (679) (69) (8) (116) -- ------- ------- ------- ------ ------ ------- ------- Income (loss) before provision for income taxes........... 11,615 (7,334) 6,076 555 (609) 5,730 7,959 Provision (benefit) for income taxes.. 2,379 (322) -- 189 -- 2 -- ------- ------- ------- ------ ------ ------- ------- Income (loss) before extraordinary item............ 9,236 (7,012) 6,076 366 (609) 5,728 7,959 Extraordinary item, loss on early extinguishment of debt.............. -- 1,188 -- -- -- -- -- ------- ------- ------- ------ ------ ------- ------- Net income........ $ 9,236 $(8,200) $ 6,076 $ 366 $ (609) $ 5,728 $ 7,959 ======= ======= ======= ====== ====== ======= ======= COMPLETED TRANSACTIONS COMBINED ------------ Net revenue......... $145,623 Station operating expenses.......... 106,396 Depreciation and amortization...... 14,594 Corporate expenses.......... 5,445 Other operating expenses.......... 6,875 -------- Operating income (loss).......... 12,313 Interest expense.... 11,165 Gain (loss) on sale of assets......... 23,092 Other (income) expense........... 248 -------- Income (loss) before provision for income taxes........... 23,992 Provision (benefit) for income taxes.. 2,248 -------- Income (loss) before extraordinary item............ 21,744 Extraordinary item, loss on early extinguishment of debt.............. 1,188 -------- Net income........ $ 20,556 ========
- --------------- (1) The column represents the historical combined operating results of the following entities and stations which were acquired or sold prior to the date of this Prospectus: (i) McForhun, Livingston, Stephens Radio, KWHN-AM, KMAG-FM, KLLI-FM and KYGL-FM, all acquired by GulfStar prior to the GulfStar Transaction; (ii) Space Coast, Cavalier and Emerald City, all acquired by the Company; (iii) the stations acquired in the Osborn Add-on Acquisitions; (iv) WESC-AM/FM and WFNQ-FM, all sold by Benchmark prior to the Benchmark Acquisition; (v) WMCZ-FM, WMHS-FM and WZHT-FM, all acquired by Benchmark prior to the Benchmark Acquisition; and (vi) the stations sold in the Osborn Ft. Myers Disposition. (2) The adjustments give effect to the historical operating results and/or LMA or JSA expense and/or revenue of the following stations which were acquired or sold prior to March 31, 1997: (i) WKWK-FM, WRIR-FM, WEGW-FM, WEEL-FM, WBBD-AM, WYNU-FM and WTXT-FM, all acquired by Osborn; (ii) WWRD-FM, WNDR-AM, WNTQ-FM, WFXK-FM, WAYV-FM, and WFKS-FM, all sold by Osborn; (iii) KRYS-AM/FM, KMXR-FM, KNCN-FM, KEZA-FM, KKIX-FM, KKZQ-FM, KIIZ-FM, KLFX-FM, KLTX-FM, KFMX-FM, KKAM-AM, KRLB-FM, KZII-FM, KFYO-AM, KBRQ-FM, KKTK-AM, WACO-FM, KCKR-FM, KWTX-AM/FM, KTRA-FM, KKFG-FM, KDAG-FM, and KCQL-AM, all acquired by GulfStar; (iv) KLTX-AM, sold by GulfStar; (v) WJMI-FM, WOAD-FM, WKXI-FM/AM, WSCQ-FM, WFMX-FM, WSIC-AM, KRMD-AM/FM and WJMZ-FM, all acquired by Benchmark; (vi) WLTY-FM, WTAR-AM and WKOC-FM, all sold by Benchmark. 40 45 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (S) The column represents the combined income statements for the period from January 1, 1996 through December 31, 1996 of the acquisitions and dispositions which were pending at March 31, 1997 and have not been consummated as of the date of this Prospectus. PENDING TRANSACTIONS COMBINED
OTHER HISTORICAL HISTORICAL PENDING COMMUNITY HISTORICAL KNIGHT HISTORICAL HISTORICAL TRANSACTIONS PACIFIC PATTERSON QUALITY AMERON QUASS COMBINED(1) ---------- ---------- ---------- ---------- ---------- ------------ Net revenue......................... $11,199 $41,369 $16,597 $8,131 $4,037 $15,690 Station operating expenses.......... 8,916 30,225 12,812 5,858 3,273 11,974 Depreciation and amortization....... 1,416 3,537 1,005 663 293 1,756 Corporate expenses.................. 760 2,624 2,084 -- -- 159 Other operating (income) expenses... -- 143 -- -- (31) -- ------- ------- ------- ------ ------ ------- Operating income (loss)........... 107 4,840 696 1,610 502 1,801 Interest expense.................... 933 5,052 710 843 428 1,677 Gain (loss) on sale of assets....... (11) -- 568 -- -- 2 Increase in fair value of redeemable warrants.......................... -- 5,499 -- -- -- -- Other (income) expense.............. 8 (37) (60) 76 (26) (199) ------- ------- ------- ------ ------ ------- Income (loss) before provision for income taxes................... (845) (5,674) 614 691 100 325 Provision (benefit) for income taxes............................. -- (2,344) 77 -- 39 -- ------- ------- ------- ------ ------ ------- Net income (loss)................. $ (845) $(3,330) $ 537 $ 691 $ 61 $ 325 ======= ======= ======= ====== ====== ======= ADJUSTMENTS FOR PENDING HISTORICAL TRANSACTIONS TRANSACTIONS(2) COMBINED --------------- ------------ Net revenue......................... $7,412 $104,435 Station operating expenses.......... 4,846 77,904 Depreciation and amortization....... -- 8,670 Corporate expenses.................. -- 5,627 Other operating (income) expenses... -- 112 ------ -------- Operating income (loss)........... 2,566 12,122 Interest expense.................... -- 9,643 Gain (loss) on sale of assets....... -- 559 Increase in fair value of redeemable warrants.......................... -- 5,499 Other (income) expense.............. -- (238) ------ -------- Income (loss) before provision for income taxes................... 2,566 (2,223) Provision (benefit) for income taxes............................. -- (2,228) ------ -------- Net income (loss)................. $2,566 $ 5 ====== ========
- --------------- (1) The column represents the historical combined operating results of the following entities and stations to be acquired or sold subsequent to the Exchange Offer: (i) WMEZ-FM, KRDU-AM, KJOI-FM, and WQFN-FM, all pending acquisitions of Patterson; (ii) COMCO, Commonwealth, WRIS, Griffith, Grant, and the stations be acquired in the SFX Exchange, all pending acquisitions of the Company; (iii) Noalmark, American General, KLAW, KJEM, and Booneville, all pending acquisitions of GulfStar; and (iv) WTAW-AM, KTSR-FM and KAGG-FM, all pending dispositions of the Company. (2) The adjustments give effect to the historical operating results and/or LMA or JSA expense and/or revenue of the following and stations: WNNK-FM, WTCY-AM, WXBM-FM, WWSF-FM, WSOK-AM, WLVH-FM, WAEV-FM, KIKI-FM/AM, KKLV-FM, KHVH-AM, WFMB-FM/AM, WCVS-FM, KCBL-AM, KBOS-FM, and KTHT-FM, all purchased by Patterson prior to March 31, 1997. 41 46 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (T) The schedule below gives effect to the acquisitions and dispositions of the companies acquired in the Completed Transactions which were consummated prior to the date of this Prospectus. COMPLETED TRANSACTIONS
OTHER COMPLETED COMPLETED HISTORICAL HISTORICAL HISTORICAL TRANSACTIONS TRANSACTIONS GULFSTAR BENCHMARK MADISON COMBINED(1) COMBINED ---------- ---------- ---------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents........................ $ 5,979 $ 4,021 $ 348 $ 1,019 $ 11,367 Accounts receivable, net......................... 8,232 4,563 1,415 3,057 17,267 Prepaid expenses and other....................... 1,536 1,232 132 394 3,294 -------- ------- ------- ------- -------- Total current assets..................... 15,747 9,816 1,895 4,470 31,928 Property and equipment, net........................ 17,485 14,055 2,739 3,732 38,011 Intangible and other assets, net................... 84,805 46,221 12,852 15,723 159,601 -------- ------- ------- ------- -------- Total assets............................. $118,037 $70,092 $17,486 $23,925 $229,540 ======== ======= ======= ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and other accrued expenses...... $ 4,819 $ 4,112 $ 790 $ 2,149 $ 11,870 Current portion of long-term debt................ 214 14,223 250 397 15,084 -------- ------- ------- ------- -------- Total current liabilities................ 5,033 18,335 1,040 2,546 26,954 Long-term debt, less current portion............... 82,346 29,849 13,250 12,687 138,132 Other long-term liabilities........................ 5,940 56 -- 51 6,047 -------- ------- ------- ------- -------- Total liabilities........................ 93,319 48,240 14,290 15,284 171,133 Redeemable preferred stock......................... 23,081 -- -- -- 23,081 Stockholders' equity............................... 1,637 21,852 3,196 8,641 35,326 -------- ------- ------- ------- -------- Total liabilities and stockholders' equity................................. $118,037 $70,092 $17,486 $23,925 $229,540 ======== ======= ======= ======= ========
- --------------- (1) The column represents the historical combined balance sheets of (i) the stations in the Osborn Add-On Acquisitions and the Osborn Ft. Myers Disposition; (ii) McForhun, Livingston, Stephens Radio, KWHN-AM, KMAG-FM, KLLI-FM and KYGL-FM, all acquired by GulfStar prior to the GulfStar Transaction; (iii) Space Coast, Cavalier, and Emerald City, all acquired by the Company; and (iv) WMCZ-FM, WMHS-FM and WZHT-FM all acquired by Benchmark prior to the Benchmark Acquisition. 42 47 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (U) The adjustment reflects (i) the assumption of $2,391 in liabilities in connection with the Completed Transactions, (ii) the acquisition of GulfStar, which is accounted for at historical cost on a basis similar to a pooling of interests, and (iii) the elimination of the historical equity of the Completed Transactions, excluding the equity of GulfStar of $24,718, and the allocation of the purchase prices, net of the proceeds from the Osborn Ft. Myers Disposition, of the Completed Transactions to the assets acquired and liabilities assumed resulting in an adjustment to property and equipment and FCC licenses to their estimated fair market values and the recording of goodwill associated with the acquisitions as follows:
ALLOCATION OF PURCHASE PRICES AND CARRYING GULFSTAR AT VALUE OF HISTORICAL COMPLETED COST TRANSACTIONS ADJUSTMENTS ------------- ------------ ----------- Cash and cash equivalents........................ $ 10,552 $ 11,367 $ (815) Accounts receivable, net......................... 13,605 17,267 (3,662) Prepaid expenses and other....................... 2,551 3,294 (743) Property and equipment, net...................... 50,270 38,011 12,259 Intangible and other assets, net................. 328,516 156,794 171,722 Deferred financing............................... 2,272 2,807 (535) Accounts payable and other accrued expenses...... (9,796) (11,870) (2,074) Long-term debt, including the current portion.... (82,560) (153,216) (70,656) Other long-term liabilities...................... (8,387) (6,047) 2,340 Stockholders' equity............................. (24,718) (58,407) (33,689) -------- Total purchase prices and deferred financing charges................................... $282,305 ========
(V) The adjustment reflects the excess cash used in connection with the Completed Transactions, less the remaining proceeds from the Capstar BT Equity Investment of $11,100 not used in financing the Completed Transactions. (W) The adjustment reflects $330 placed in escrow as security for Benchmark's obligation to consummate the acquisition of WESC-AM/FM and WFNQ-FM located in Greenville, South Carolina, and the use of the deposit to pay a portion of the purchase price in connection with the related acquisition. (X) The adjustment reflects the elimination of the outstanding loan balance of $13,500 to Emerald City which will be repaid in connection with the Emerald City Acquisition. (Y) The adjustment includes $75 in escrow as security for the Company's obligation to consummate the Emerald City Acquisition and $550 in escrow as security for its obligation to consummate the Osborn Huntsville Acquisition. The adjustment reflects the use of the deposits to pay a portion of the purchase prices in connection with the related acquisitions. (Z) The adjustment reflects the estimated deferred financing costs of $7,750 and $4,000 associated with the Capstar Radio Notes Offering and the New Credit Facility, respectively, and the write-off of the deferred financing costs of $1,195 associated with the Existing Credit Facility, which will be recognized as an extraordinary item in the period the Existing Credit Facility is repaid and terminated. (AA) The adjustments reflect the repayment of current borrowings of GulfStar of $82,560, including repayment of indebtedness under the GulfStar credit facility, and the write-off of $2,272 of related deferred financing costs which resulted in an extraordinary charge in the period the repayment was made. (BB) The adjustment reflects proceeds of $199,212 from the Capstar Radio Notes Offering. (CC) As part of the Benchmark Acquisition, the Fund III Acquisition Sub entered into a senior credit agreement (the "Acquisition Sub Credit Agreement") with Bankers Trust Company to borrow up to $62,000, of 43 48 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) which approximately $60,000 of the proceeds were loaned to Benchmark to enable Benchmark to consummate four separate acquisitions of radio station properties and for certain other purposes of Benchmark. The Company 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 a subsidiary of Capstar Broadcasting and the Acquisition Sub Credit Agreement was repaid (the "Repayment") with proceeds of the New Credit Facility. In connection with the Repayment, Capstar Broadcasting issued $750 of Class C Common Stock to HM Fund III in consideration of HM Fund III's agreement to purchase the obligations owing to Bankers Trust Company under the Acquisition Sub Credit Agreement and the Company recorded an extraordinary charge of $750. The related pro forma adjustments are as follows: Guarantee of loans to Benchmark under the Acquisition Sub Credit Agreement.......................................... $ 60,000 Repayment of indebtedness under the Acquisition Sub Credit Agreement in connection with the Benchmark Acquisition with proceeds from the New Credit Facility................ (60,000) Issuance of Common Stock in connection with the Company's guarantee................................................. 750 Extraordinary charge........................................ (750)
(DD) The adjustment reflects the net proceeds from the Preferred Stock Offering of $94,750, net of fees and expenses of $5,250. (EE) The adjustment reflects the elimination of the redeemable preferred stock of GulfStar which was redeemed in connection with the GulfStar Transaction. GulfStar recognized a loss on the Preferred Stock Redemption of $3,919 which represents the difference between the carrying value and the liquidation preference of the preferred stock. (FF) The adjustment reflects (i) the Hicks Muse GulfStar Equity Investment of $75,000 in connection with the GulfStar Transaction, (ii) the common equity investment of $2,000 by a former partner of Benchmark in connection with the Benchmark Acquisition, (iii) the Capstar BT Equity Investment of $11,100, and (iv) the fees and expenses incurred in connection with the GulfStar Merger, which were expensed in the period in which the GulfStar Merger was consummated. 44 49 NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS) (GG) The column represents the combined balance sheets as of March 31, 1997 of the acquisitions which were pending as of the date of this Prospectus. PENDING TRANSACTIONS
OTHER HISTORICAL PENDING COMMUNITY HISTORICAL HISTORICAL HISTORICAL HISTORICAL ACQUISITIONS PACIFIC PATTERSON KNIGHT QUALITY AMERON QUASS COMBINED(1) ---------- ---------- -------------- ---------- ---------- ------------ ASSETS Current assets: Cash and cash equivalents............. $ 331 $ 1,177 $ 2,498 $ 90 $ 55 $ 733 Accounts receivable, net.............. 745 8,171 2,631 1,405 536 3,700 Prepaid expenses and other............ 145 1,889 385 206 64 480 ------- -------- ------- ------- ------ ------- Total current assets.......... 1,221 11,237 5,514 1,701 655 4,913 Property and equipment, net............. 3,806 19,114 4,784 1,917 1,182 3,189 Intangible and other assets, net........ 12,696 118,088 676 13,006 2,373 6,878 ------- -------- ------- ------- ------ ------- Total assets.................. $17,723 $148,439 $10,974 $16,624 $4,210 $14,980 ======= ======== ======= ======= ====== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and other accrued expenses........................... $ 330 $ 3,742 $ 1,219 $ 761 $ 169 $ 2,861 Current portion of long-term debt..... 1,438 -- 848 5,200 250 2,928 ------- -------- ------- ------- ------ ------- Total current liabilities..... 1,768 3,742 2,067 5,961 419 5,789 Long-term debt, less current portion.... 8,337 66,500 7,773 4,563 3,418 8,384 Other long-term liabilities............. -- 87 -- -- 203 -- ------- -------- ------- ------- ------ ------- Total liabilities............. 10,105 70,329 9,840 10,524 4,040 14,173 Redeemable preferred stock.............. -- 20,747 -- -- -- -- Redeemable warrants..................... -- 17,803 -- -- -- -- Stockholders' equity.................... 7,618 39,560 1,134 6,100 170 807 ------- -------- ------- ------- ------ ------- Total liabilities and stockholders' equity........ $17,723 $148,439 $10,974 $16,624 $4,210 $14,980 ======= ======== ======= ======= ====== ======= PENDING TRANSACTIONS COMBINED ------------ ASSETS Current assets: Cash and cash equivalents............. $ 4,884 Accounts receivable, net.............. 17,188 Prepaid expenses and other............ 3,169 -------- Total current assets.......... 25,241 Property and equipment, net............. 33,992 Intangible and other assets, net........ 153,717 -------- Total assets.................. $212,950 ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and other accrued expenses........................... $ 9,082 Current portion of long-term debt..... 10,664 -------- Total current liabilities..... 19,746 Long-term debt, less current portion.... 98,975 Other long-term liabilities............. 290 -------- Total liabilities............. 119,011 Redeemable preferred stock.............. 20,747 Redeemable warrants..................... 17,803 Stockholders' equity.................... 55,389 -------- Total liabilities and stockholders' equity........ $212,950 ========
- --------------- (1) The columns represents the historical combined balance sheets of (i) WMEZ-FM, KRDU-FM, KJOI-FM and WQFN-FM, all pending acquisitions of Patterson; (ii) COMCO, Commonwealth, WRIS, Griffith and Grant, all pending acquisitions of the Company; and (iii) American General, Booneville, Noalmark, KLAW and KJEM, all pending acquisitions of GulfStar. 45 50 (HH) The adjustment reflects (i) the assumption of $2,086 in liabilities in connection with the Pending Transactions and (ii) the allocation of the purchase prices of the Pending Transactions to the assets acquired and liabilities assumed resulting in an adjustment to property and equipment and FCC licenses to their estimated fair market values and the recording of goodwill associated with the acquisitions as follows:
CARRYING ALLOCATION OF VALUE OF PURCHASE PENDING PRICES TRANSACTIONS ADJUSTMENTS ------------- ------------ ----------- Cash and cash equivalents............................ $ 1,232 $ 4,884 $ (3,652) Accounts receivable, net............................. 12,478 17,188 (4,710) Prepaid expenses and other........................... 1,295 3,169 (1,874) Property and equipment, net.......................... 53,996 33,992 20,004 Intangible and other assets, net..................... 375,311 149,481 225,830 Deferred financing................................... -- 4,236 (4,236) Accounts payable and other accrued expenses.......... (3,911) (9,082) (5,171) Other long-term liabilities.......................... (37,730) (290) 37,440 -------- Total purchase prices and deferred financing charges....................................... $402,671 ========
(II) The adjustment reflects the excess cash used in connection with the Pending Transactions. (JJ) The adjustments reflect the disposition of WTAW-AM, KTSR-FM and KAGG-FM located in Bryan, Texas. The stations will be exchanged for 1,187,947 shares of Capstar Broadcasting Class A Common Stock to be conveyed to the Company by William R. Hicks and Ben D. Downs. (KK) The adjustment reflects the elimination of the historical debt of the entities to be acquired in the Pending Transactions of $109,639, including the current portion of $10,664. (LL) The adjustments reflect borrowings of $185,946 under the New Credit Facility with an annual interest rate of 8.0% and an equity contribution of $205,051, including the commitment by HM Fund III and its affiliates to invest up to an additional $50,000, in connection with the financing of the Pending Transactions. (MM) The adjustment represents the purchase and retirement of the redeemable preferred stock of $20,747 and redeemable warrants of $17,803 in connection with the Patterson Acquisition. (NN) The adjustment reflects the net effect of the elimination of the historical equity of the entities to be acquired in the Pending Transactions, based on the purchase method of accounting, of $55,389. (OO) The pro forma amounts reflect the effects of the exchange offers for the Notes, the New Capstar Radio Notes and the Senior Exchangeable Preferred Stock. 46 51 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, 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, unaudited financial statements of the Company for the three months ended March 31, 1997, and unaudited financial statements of Commodore for the three months ended March 31, 1996, all of which are included elsewhere in this Prospectus, and from audited financial statements of Commodore for the years ended December 31, 1993 and 1992. The selected balance sheet data in the following table have been derived from audited financial statements of the Company as of December 31, 1996, from audited financial statements of Commodore as of December 31, 1995 which are included elsewhere in this Prospectus, from audited financial statements of Commodore as of December 31, 1994, 1993 and 1992 and from unaudited financial statements of the Company as of March 31, 1997, included elsewhere in this Prospectus, and from unaudited financial statements of Commodore as of March 31, 1996. In management's opinion, the unaudited financial statements from which such data have been derived include all adjustments (consisting only of normal, recurring adjustments) necessary to present fairly, in all material respects, the results of operations and financial condition of the Company and Commodore as of and for the periods presented.
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) 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(5)........ -- 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 income (loss).................. (2,580) (3,782) (527) (2,240) (17,836) (3,756) OTHER DATA: Broadcast cash flow(6)............. $ 5,248 $ 6,289 $ 9,742 $ 11,762 $ 10,666 $ 4,020 Broadcast cash flow margin(6)...... 29.2% 31.8% 37.1% 38.2% 33.4% 39.0% EBITDA(7).......................... $ 3,646 $ 3,758 $ 7,632 $ 9,711 $ 8,909 $ 3,419 Cash flows related to(8): 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 Cash interest expense(9)........... 4,408 4,218 2,932 5,132 5,545 2,627 Capital expenditures............... 371 333 623 321 449 808 Deficiency of earnings to fixed charges(10)...................... 2,998 3,743 918 1,908 17,703 3,756 BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents.......... $ 1,045 $ 887 $ 2,042 $ 10,891 $ 5,028 Intangible and other assets, net... 13,819 22,419 21,096 27,422 234,915 Total assets....................... 27,508 36,192 36,283 52,811 264,928 Long-term debt, including current portion.......................... 51,934 41,773 36,962 66,261 136,372 Redeemable preferred stock......... 5,800 10 8,414 -- -- Total stockholders' equity (deficit)........................ (28,766) (8,097) (18,038) (18,555) 91,143 THE COMMODORE COMPANY ----------- ----------- THREE MONTHS ENDED MARCH 31, ------------------------- 1996(3) 1997(4) ----------- ----------- (DOLLARS IN THOUSANDS) OPERATING DATA: Net revenue........................ $ 7,416 $ 14,107 Station operating expenses......... 5,375 10,356 Depreciation and amortization...... 480 2,389 Corporate expenses................. 466 1,424 Other operating expenses(5)........ -- -- Operating income (loss)............ 1,095 (62) Interest expense................... 2,452 6,792 Net income (loss).................. (1,436) (7,471) OTHER DATA: Broadcast cash flow(6)............. $ 2,041 $ 3,751 Broadcast cash flow margin(6)...... 27.5% 26.6% EBITDA(7).......................... $ 1,575 $ 2,327 Cash flows related to(8): Operating activities............. 1,891 409 Investing activities............. (15,798) (129,389) Financing activities............. 8,103 136,977 Cash interest expense(9)........... 1,454 3,926 Capital expenditures............... 124 916 Deficiency of earnings to fixed charges(10)...................... 1,409 6,827 BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents.......... 5,087 $ 13,025 Intangible and other assets, net... 42,748 358,891 Total assets....................... 63,211 444,100 Long-term debt, including current portion.......................... 74,478 229,955 Redeemable preferred stock......... -- -- Total stockholders' equity (deficit)........................ (19,991) 140,898
- --------------- (1) The historical financial data set forth includes the results of operations of Commodore from January 1, 1996 through October 16, 1996, the date of the Commodore Acquisition. (2) The historical financial data set forth includes the results of operations of the Company from October 17, 1996 through December 31, 1996 and the balance sheet data as of December 31, 1996. 47 52 (3) The historical financial data set forth includes the results of operations of Commodore from January 1, 1996 through March 31, 1996. (4) The historical financial data set forth includes the results of operations of the Company from January 1, 1997 through March 31, 1997. (5) 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 Commodore Acquisition 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. (6) Broadcast cash flow consists of operating income before depreciation, amortization, corporate expense and other expense. Although broadcast cash flow is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcast industry to evaluate a radio company's operating performance. See "Glossary of Certain Terms and Market and Industry Data." (7) EBITDA consists of operating income before depreciation, amortization and other expense. Although EBITDA is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcast industry to evaluate a radio company's operating performance. See "Glossary of Certain Terms and Market and Industry Data." (8) Cash flows related to operating activities, investing activities and financing activities are derived from the related statement of cash flows and are prepared in accordance with GAAP. (9) Cash interest expense excludes non-cash amortization of deferred finance costs, discounts to initial purchasers, and interest on the Notes. (10) For purposes of this calculation, "earnings" consist of income (loss) before income taxes and fixed charges, and "fixed charges" consist of interest, amortization of deferred financing costs and the component of rental expense believed by management to be representative of the interest factor thereon. Preferred stock dividends and accretion are included in fixed charges where appropriate. 48 53 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements and related notes thereto of the Company included elsewhere in this Prospectus. Periodically, the Company may make statements about trends, future plans and the Company's prospects. Actual results may differ materially from those described in such forward looking statements based on the risks and uncertainties facing the Company, including but not limited to, the following: business conditions and growth in the radio broadcasting industry and the general economy; competitive factors; changes in interest rates; the failure or inability to renew one or more of the Company's broadcasting licenses; and the factors described in "Risk Factors." A radio broadcast company's revenues are derived primarily from the sale of time to local and national advertisers. Those revenues are affected by the advertising rates that a radio station is able to charge and the number of advertisements that can be broadcast without jeopardizing listener levels (and resulting ratings). Advertising rates tend to be based upon demand for a station's advertising inventory and its ability to attract audiences in targeted demographic groups, as measured principally by Arbitron. Radio stations attempt to maximize revenues by adjusting advertising rates based upon local market conditions, controlling advertising inventory and creating demand and audience ratings. Seasonal revenue fluctuations are common in the radio broadcasting industry and are due primarily to fluctuations in advertising expenditures by local and national advertisers, with revenues typically being lowest in the first quarter and highest in the second and fourth quarters of each year. A radio station's operating results in any period also may be affected by the occurrence of advertising and promotional expenditures that do not produce commensurate revenues in the period in which the expenditures are made. Because Arbitron reports audience ratings on a quarterly basis, a radio station's ability to realize revenues as a result of increased advertising and promotional expenses and any resulting audience ratings improvements may be delayed for several months. Upon completion of the Pending Transactions, the Company will own and operate or provide services to 233 radio stations serving 62 mid-sized markets. The Company anticipates that it will consummate the Pending Transactions; however, the closing of each such transaction is subject to various conditions, including FCC and other governmental approvals, which are beyond the Company's control, and the availability of financing to the Company on acceptable terms. No assurances can be given that regulatory approval will be received, that the Indentures, the Certificate of Designation, the New Credit Facility or any other loan agreements to which the Company will be a party will permit additional financing for the Pending Acquisitions or that such financing will be available to the Company on acceptable terms. See "Risk Factors -- Risks of Acquisition Strategy." The Company incurred or assumed, and will incur or assume, substantial indebtedness to finance the Completed Transactions and the Pending Acquisitions for which it has, and will continue to have, significant debt service requirements. In addition, the Company has, and will continue to have, significant charges for depreciation and amortization expense related to the fixed assets and intangibles acquired, or to be acquired, in its acquisitions and compensation charges in connection with stock option agreements and warrants issued to certain members of management. See "Certain Transactions." Consequently, the Company expects that, for the foreseeable future as it pursues its acquisition strategy, it will report net losses substantially in excess of those experienced historically, which will result in decreases in stockholders' equity. In the following analysis, management discusses broadcast cash flow and EBITDA. Broadcast cash flow consists of operating income before depreciation, amortization, corporate expenses and other operating expenses. EBITDA consists of operating income before depreciation, amortization and other operating expenses. Although broadcast cash flow and EBITDA are not measures of performance calculated in accordance with 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. 49 54 Combined Results of Operation -- The Company and its predecessor, Commodore, and GulfStar The GulfStar Transaction was accounted for at historical cost on a basis similar to a pooling of interests. The following table presents summary supplemental historical combined financial data of the Company and its predecessor, Commodore, and GulfStar. Management believes that the aggregate financial information shown below may be helpful in understanding the past operations of the stations owned by the Company after the GulfStar Transaction. The following financial information should be read in conjunction with the consolidated financial statements of the Company, Commodore and GulfStar and, in each case, the related notes included elsewhere in this Prospectus.
THREE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, ---------------------------- ------------------------- 1994 1995 1996 1996 1997 ------- ------- -------- ----------- ----------- (DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED) Operating Data Net revenue.............................. $36,059 $46,592 $ 74,823 $12,011 $ 25,102 Station operating expenses............... 23,144 30,771 51,873 8,979 18,303 Depreciation and amortization............ 2,857 3,060 6,299 1,157 3,390 Corporate expenses....................... 2,449 2,564 4,281 637 1,942 Other operating expenses................. 2,180 2,007 20,010 273 2,469 Operating income (loss).................. 5,429 8,190 (7,640) 965 (1,002) Interest expense......................... 4,117 9,952 18,500 3,303 8,638 Net income............................... $ 118 $ (670) $(29,792) $(2,222) $(10,120) Other Data Broadcast cash flow...................... 12,915 15,821 22,950 3,032 6,799 Broadcast cash flow margin............... 35.8% 34.0% 30.7% 25.2% 27.1% EBITDA................................... 10,466 13,257 18,669 2,395 4,857
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996 Net Revenue. Net revenue increased $13.1 million or 109.2% to $25.1 million for the three months ended March 31, 1997 from $12.0 million for the three months ended March 31, 1996. Net revenue included from the operations purchased in connection with the Osborn Acquisition for the period February 21, 1997 through March 31, 1997 comprised $3.7 million of the increase. The inclusion of revenue from the remaining acquisitions of radio stations and revenue generated from LMAs and JSAs provided $5.1 million of the increase. For stations owned or operated for a comparable period in 1997 and 1996, net revenue increased approximately $4.3 million or 35.8% to $16.3 million for the three months ended March 31, 1997 from $12.0 million for the same period in 1996 primarily due to increased ratings and improved selling efforts. Station Operating Expenses. Station operating expenses increased $9.3 million or 103.3% to $18.3 million for the three months ended March 31, 1997 from $9.0 million for the three months ended March 31, 1996. The increase was primarily attributable to (i) additional operating expenses of the operations purchased in connection with the Osborn Acquisition of $2.9 million and (ii) station operating expenses of the radio station acquisitions and the JSAs and LMAs which contributed $2.9 million of the increase. For stations owned or operated for a comparable period in 1997 and 1996, station operating expenses increased approximately $3.5 million or 38.9% to $12.5 million in 1997 from $9.0 million in 1996 primarily due to increased selling expenses. Broadcast Cash Flow. As a result of the factors described above, broadcast cash flow increased approximately $3.8 million or 126.7% to $6.8 million for the three months ended March 31, 1997 from $3.0 million for the same period in 1996. The broadcast cash flow margin was 27.1% for the three months ended March 31, 1997 compared to 25.2% for the same period in 1996. The broadcast cash flow provided from the Osborn Acquisition accounted for approximately $861,000 of the increase; the broadcast cash flow margin from these operations was 23.0%. The inclusion of broadcast cash flows from the remaining acquisitions and LMAs accounts for approximately $1.2 million of the increase. Excluding the effects of the acquisitions and LMAs, broadcast cash flow increased approximately $1.7 million or 56.7% to $4.7 million for the three months ended March 31, 1997 50 55 from $3.0 million for the same period in 1996 and the broadcast cash flow margin on a same station basis increased to 28.8% from 25.2%. Corporate Expenses. Corporate expenses increased approximately $1.3 million or 204.1% to approximately $1.9 million for the three months ended March 31, 1997 from approximately $637,000 for the same period in 1996. This increase was primarily due to the additional corporate expense associated with Osborn's operations and the Company's acquisition activity. EBITDA. As a result of the factors described above, EBITDA increased approximately $2.5 million or 104.1% to $4.9 million for the three months ended March 31, 1997 from $2.4 million for the three months ended March 31, 1996. The EBITDA margin for the three months ended March 31, 1997 was 19.5% compared to 20.0% for the same period in 1996. Other Operating Expenses. Depreciation and amortization increased $2.2 million to $3.4 million for the three months ended March 31, 1997 from approximately $1.2 million for the three months ended March 31, 1996 primarily due to the various acquisitions consummated during 1996 and 1997. For the three months ended March 31, 1997, the Company recognized $2.5 million in compensation charges related to options issued in previous years, compared to $273,000 for the same period in 1996. Other (Income) Expense. Interest expense increased approximately $5.3 million or 160.6% to $8.6 million for the three months ended March 31, 1997 from $3.3 million for the three months ended March 31, 1996 due primarily to interest expense on $24.7 million of the principal balance of Commodore's senior credit facility with AT&T Commercial Finance Corporation (the "AT&T Credit Facility") which was repaid in full in connection with the Osborn Acquisition, interest expense on the GulfStar credit facility and interest expense on the $35.0 million term loan facility of the Company (the "Former Term Loan Facility") which was repaid in full in connection with the Osborn Acquisition. Interest income increased 55% to $181,000 as a result of the interest accrual on the loan to Emerald City and Eurodollar investments by GulfStar. Other expenses, net, decreased approximately $111,000 for the three months ended March 31, 1997 compared to the same period in 1996. The Company realized an extraordinary loss on early retirement of the AT&T Credit Facility during the three months ended March 31, 1997 of approximately $598,000 in prepayment penalties and fees. Additionally, the provision for income taxes decreased $108,000 or 65.9%. Net Loss. As a result of the factors described above, net loss increased approximately $7.9 million to $10.1 million for the three months ended March 31, 1997 from $2.2 million for the three months ended March 31, 1996. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 Net Revenue. Net revenue increased $28.2 million or 60.5% to $74.8 million in the year ended December 31, 1996 from $46.6 million in the year ended December 31, 1995. The inclusion of revenue from the acquisitions of radio stations and revenue generated from JSAs and LMAs entered into during the years ended December 31, 1996 and 1995 provided $21.1 million of the increase. For stations owned and operated for a comparable period in 1996 and 1995, net revenue increased approximately $7.1 million or 15.2% to $53.7 million in 1996 from $46.6 million in 1995 primarily due to increased ratings and improved selling efforts. Station Operating Expenses. Station operating expenses increased $21.1 million or 68.5% to $51.9 million in the year ended December 31, 1996 from $30.7 million during the year ended December 31, 1995. The increase was primarily attributable to the station operating expenses of the radio station acquisitions and the JSAs and the LMAs entered into during the years ended December 31, 1996 and 1995, which contributed $13.9 million to the increase. For stations owned and operated for a comparable period in 1996 and 1995, station operating expenses increased approximately $7.2 million, or 23.4% to $38.0 million in 1996 from $30.8 million in 1995 primarily due to increased selling expenses. Broadcast Cash Flow. As a result of the factors described above, broadcast cash flow increased $7.1 million or 45.0% to $22.9 million in the year ended December 31, 1996 from $15.8 million in the year ended December 31, 1995. The broadcast cash flow margin was 30.7% for 1996 as compared to 34.0% during 1995. The inclusion of broadcast cash flow from acquisitions and LMAs accounted for $4.9 million of the increase. Excluding the effects of the acquisitions and LMAs, broadcast cash flow increased $2.2 million or 13.9% to 51 56 $18.0 million in 1996 from $15.8 million in 1995 and the broadcast cash flow margin increased to 34.8% from 33.9%. Corporate Expenses. Corporate expenses increased approximately $1.7 million or 65.4% during 1996 to $4.3 million from $2.6 million in 1995 as a result of higher salary expense for additional staffing. EBITDA. As a result of the factors described above, EBITDA increased $5.4 million or 40.6% to $18.7 million in the year ended December 31, 1996 from $13.3 million in the year ended December 31, 1995. The EBITDA margin decreased to 25.0% in 1996 from 28.5% in 1995. Other Operating Expenses. Depreciation and amortization increased $3.2 million or 103.2% to $6.3 million in 1996 from $3.1 million in 1995 primarily due to certain radio station acquisitions consummated in 1996 and 1995. In 1996, the Company recognized $20.0 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, the former President and Chief Executive Officer of Commodore, and James T. Shea, Jr. was $2.0 million in 1995. Other (Income) Expenses. Interest expense increased $8.5 million or 85.0% to $18.5 million in the year ended December 31, 1996 from $10.0 million during the same period in 1995 primarily due to the interest expense associated with the Existing Capstar Radio Notes and $24.7 million in acquisition and working capital funding from the AT&T Credit Facility and interest incurred on the GulfStar credit facility. Other expenses, net, increased approximately $5.2 million to $2.7 million in expense for the year ended December 31, 1996 from approximately $2.7 million in other income for the period ended December 31, 1995. The increase was primarily due to approximately $500,000 in expenses associated with the filing of Commodore's Registration Statement on Form S-1 with the Securities and Exchange Commission on May 17, 1996, which was subsequently withdrawn, $1.4 million of merger related costs and expenses in connection with the Commodore Acquisition, and a decrease in gains on asset sales. Commodore earned approximately $300,000 in interest income on its temporary cash investments in 1996. Extraordinary loss on extinguishment of debt of approximately $1.2 million was recorded in 1996 related to the recognition of deferred financing fees associated with the GulfStar credit facility, compared to $444,000 in 1995 in connection with Commodore's debt restructuring on April 21, 1995. Additionally, there was a $1.4 million or 116.1% decrease in the provision for income taxes. Net Loss. As a result of the factors described above, net loss increased approximately $29.1 million to $29.8 million for the year ended December 31, 1996 from approximately $700,000 for the year ended December 31, 1995. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 Net Revenue. Net revenue increased approximately $10.5 million or 29.1% to $46.6 million in 1995 from $36.1 million in 1994. The inclusion of revenue from the acquisitions of radio stations and revenue generated from JSAs and LMAs entered into during 1995 provided approximately $5.4 million of the increase. For stations owned and operated for a comparable period in 1995 and 1994, net revenue improved approximately $5.1 million or 14.1% to $41.2 million in 1995 from $36.1 million in 1994, primarily due to higher ratings and improved selling efforts. Station Operating Expenses. Station operating expenses increased approximately $7.7 million or 33.3% to $30.8 million in 1995 from $23.1 million in 1994 partially due to the inclusion of station operating expenses from the newly acquired radio station and from the JSA and LMA activity in 1995, which contributed approximately $2.8 million to the increase. For stations owned and operated for a comparable period in 1995 and 1994, station operating expenses increased approximately $4.8 million or 20.7% to $28 million in 1995 from $23.2 million in 1994 due to increased selling expenses. Broadcast Cash Flow. As a result of the factors described above, broadcast cash flow increased approximately $2.9 million or 22.5% to $15.8 million in 1995 from $12.9 million in 1994. The broadcast cash flow margin was 34.0% in 1995 as compared to 35.8% in 1994. The inclusion of broadcast cash flow from acquisitions, JSAs and LMAs accounted for $1.8 million of the increase. Excluding the effects of the 52 57 acquisitions, broadcast cash flow increased $1.1 million or 7.7% to $14.0 million in 1995 from $12.9 million in 1994 and the broadcast cash flow margin decreased to 34.0% from 35.8%. Corporate Operating Expenses. Corporate expenses increased approximately $115,000 or 4.6% to $2.6 million in 1995 from $2.5 million in 1994. EBITDA. As a result of the factors described above, EBITDA increased approximately $2.8 million or 26.7% to $13.3 million in the year ended December 31, 1995 from $10.5 million in the year ended December 31, 1994. The EBITDA margin decreased to 28.5% in 1995 from 29.1% in 1994. Other Operating Expenses. Depreciation and amortization increased approximately $203,000 or 7.0% to $3.1 million in 1995 from $2.9 million in 1994 primarily as a result of Commodore fully amortizing certain costs in December 31, 1993. Long-term incentive compensation decreased approximately $173,000 or 7.9% to $2.0 million in 1995 from $2.2 million in 1994. The 1995 expense reflects the balance of the long-term incentive compensation obligations due Mr. Friedman and Mr. Shea pursuant to their prior employment agreements. Other (Income) Expenses. Interest expense increased approximately $5.8 million or 141.7% to $9.9 million in 1995 from $4.1 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 Existing Capstar Radio 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 Existing Capstar Radio 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 $3.1 million or 731.0% to $2.7 million in income in 1995 from $424,000 in expenses in 1994 primarily due to an increase in the gain on sale of assets. Additionally, there was an increase of approximately $402,000 or 52.2% in provision for income taxes and an approximate $444,000 loss on the early extinguishment of debt in 1995. Net Loss. As a result of the factors described above, Commodore recognized a net loss of approximately $670,000 in 1995, compared to income of $118,000 in 1994. The Company and its predecessor, Commodore The Company acquired Commodore on October 16, 1996, at which time Commodore became a wholly-owned subsidiary. 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 the Commodore Acquisition with the results of operations of Commodore from January 1, 1996, through October 16, 1996. The historical results of operations for the three-month period ended March 31, 1997 reflect the historical results of operations of the Company. The results of operations for the three-month period ended March 31, 1996, and the years ended December 31, 1995, 1994 and 1993 reflect the results of operations of Commodore. THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996 Net Revenue. Net revenue increased $6.7 million or 90.2% to $14.1 million for the three months ended March 31, 1997 from $7.4 million for the three months ended March 31, 1996. Net revenue included from the operations purchased in connection with the Osborn Acquisition for the period February 21, 1997 through March 31, 1997 comprised $3.7 million of the increase. The inclusion of revenue from the remaining acquisitions of radio stations and revenue generated from LMAs and JSAs provided $2.8 million of the increase. For stations owned or operated for a comparable period in 1997 and 1996, net revenue increased approximately $232,000, or 3.2%, to $7.4 million for the three months ended March 31, 1997 from $7.2 million for the same period in 1996 due to improved ratings and selling efforts. Station Operating Expenses. Station operating expenses increased $5.0 million or 92.7% to $10.4 million for the three months ended March 31, 1997 from $5.3 million for the three months ended March 31, 1996. The increase is primarily attributable to (i) additional operating expenses of the operations purchased in connection 53 58 with the Osborn Acquisition of $2.9 million and (ii) station operating expenses of the radio station acquisitions and the JSAs and LMAs which contributed $2.2 million of the increase. For stations owned or operated for a comparable period in 1997 and 1996, station operating expenses declined approximately $86,000, or 1.7%, to $5.1 million in 1997 from $5.2 million in 1996 as a result of efficiencies realized from market consolidation. Broadcast Cash Flow. As a result of the factors described above, broadcast cash flow increased approximately $1.7 million or 85.0% to $3.8 million for the three months ended March 31, 1997 from $2.0 million for the three months ended March 31, 1996. The broadcast cash flow margin was 26.6% for the three months ended March 31, 1997 compared to 27.5% for the three months ended March 31, 1996. The broadcast cash flow provided from the Osborn Acquisition accounted for approximately $861,000 of the increase; the broadcast cash flow margin from these operations was 23.0%. The inclusion of broadcast cash flows from the remaining acquisitions and LMAs accounts for approximately $531,000 of the increase. Excluding the effects of the acquisitions and LMAs, broadcast cash flow increased approximately $319,000, or 15.7%, to $2.3 million for the three months ended March 31, 1997 from $2.0 million for the three months ended March 31, 1996 and the broadcast cash flow margin on a same station basis increased to 31.4% from 28.0%. Corporate Expenses. Corporate expenses increased approximately $934,000, or 200.4%, to approximately $1.4 million for the three months ended March 31, 1997 from approximately $466,000 for the three months ended March 31, 1996. This increase was primarily due to the corporate offices of the Company which opened in October 1996 and the additional corporate expense associated with Osborn's operations. EBITDA. As a result of the factors described above, EBITDA increased approximately $752,000 or 47.7% to $2.3 million for the three months ended March 31,1997 from $1.6 million for the three months ended March 31, 1996. The EBITDA margin for the three months ended March 31, 1997 was 16.5% compared to 21.2% for the same period in 1996. Other Operating Expenses. Depreciation and amortization increased $1.9 million to $2.4 million for the three months ended March 31, 1997 from approximately $480,000 for the three months ended March 31, 1996 primarily due to the various acquisitions consummated during 1996 and 1997. Other (Income) Expense. Interest expense increased approximately $4.3 million, or 172.0%, to $6.8 million for the three months ended March 31, 1997 from $2.5 million for the three months ended March 31, 1996. The increase was attributable to the write-off of $1.0 million of deferred financing costs and $606,000 of interest associated with the Former Term Loan Facility, which was repaid in full in connection with the consummation of the Osborn Acquisition; $2.1 million of interest expense related to the Notes; and interest expense on the AT&T Credit Facility which was repaid in full in connection with the consummation of the Osborn Acquisition. Interest income increased 10.7% to $128,000 as a result of the interest accrual on the loan under the credit agreement with Emerald City. The Company realized an extraordinary loss on the early retirement of the AT&T Credit Facility during the three months ended March 31, 1997 related to penalties and fees of approximately $598,000. Net Loss. As a result of the factors described above, net loss increased approximately $6.0 million to $7.5 million for the three months ended March 31, 1997 from $1.4 million for the three months ended March 31, 1996. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 Net Revenue. Net revenue increased 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. 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 54 59 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 38.3% 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 1995 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 the 1996 period from 31.5% in 1995. 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, the former President and Chief Executive Officer of Commodore, and James T. Shea, Jr. 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 Existing Capstar Radio Notes, (ii) $24.7 million in acquisition and working capital funding from the AT&T 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 acquisitions of radio stations 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 stations and from the JSA and LMA activity in 1995, which contributed approximately $1.0 million to the increase. For stations owned and operated for a comparable period in 1995 and 1994, station 55 60 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 38.3% 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 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 an 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 Existing Capstar Radio Notes issued in the Recapitalization Transactions, which was partially offset by an increase in the amortization of the deferred financing charges associated with the Recapitalization Transactions and Commodore's prior credit facilities. Other income, net, increased approximately $800,000 or 200.0% to $400,000 in income in 1995 from $400,000 in expenses in 1994 primarily due to a decrease in the loss on sale of assets. Additionally, there was a decrease of approximately $200,000 or 66.7% in provision for income taxes and an approximate $400,000 loss on the early extinguishment of debt in 1995. Net Loss. As a result of the factors described above, net loss increased approximately $1.7 million or 340.0% to $2.2 million in 1995 from $500,000 in 1994. LIQUIDITY AND CAPITAL RESOURCES Pursuit of the Company's acquisition strategy has required a significant portion of the Company's capital resources. In 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 Common Stock to affiliates of Hicks Muse, R. Steven Hicks and certain other investors and with $54.8 million of borrowings under the Company's Former Term Loan Facility. In February 1997, the Company funded the $143.7 million purchase price (including transaction costs) for the Osborn Acquisition and the retirement of existing indebtedness of Capstar Radio and Osborn in connection therewith from (i) $150.3 million of the net proceeds of the issuance of the Notes, (ii) a $54.8 million investment in Common Stock by HM Fund III and its affiliates in connection with the Osborn Acquisition (the "Hicks Muse Osborn Equity Investment"), (iii) a contribution of shares of common stock of Osborn to the Company by Frank D. Osborn in exchange for shares of Common Stock having a deemed value of $1.8 million, and (iv) a $600,000 investment in Common Stock by certain members of management. In April and May 1997, the Company funded the purchase price (including transaction costs) of the Osborn Add-on Acquisitions and the Space Coast Acquisitions through borrowings under the Existing Credit Facility in the aggregate principal amount of $35.9 million. In July and August 1997, the Company funded (A) the GulfStar Merger with $119.5 million in cash of the proceeds of the Hicks Muse GulfStar Equity Investment, the Preferred Stock Offering, the Capstar BT Equity Investment and the Preferred Stock Offering and the issuance of Common Stock having a deemed value of approximately $113.0 million, (B) the Benchmark Acquisition with $171.4 million of the proceeds from the Capstar Radio Notes Offering and 56 61 the issuance of Class A Common Stock of Capstar Broadcasting having a deemed value of approximately $2.0 million, (C) the Cavalier Acquisition with $8.3 million of the proceeds from the Capstar Radio Notes Offering, (D) the Madison Acquisition with $11.8 million of the proceeds from the Capstar Radio Notes Offering and borrowings of $27.0 million under the New Credit Facility, and (E) the Emerald City Acquisition by forgiveness of $9.5 million of indebtedness owed by Emerald City to the Company. As a result of the financing of its acquisitions, the Company has a substantial amount of long-term indebtedness, and for the foreseeable future, the Company will use a large percentage of its cash to make payments under the New Credit Facility, the Notes, the Existing Capstar Radio Notes and the New Capstar Radio Notes. In October 1996, the Company assumed the Existing Capstar Radio Notes in connection with the Commodore Acquisition. The Existing Capstar Radio Notes are limited in aggregate principal amount to $76.8 million and bear interest at a rate of 13 1/4% per annum, of which only 7 1/2% is payable in cash up to May 1, 1998. Beginning on May 1, 1998, the Existing Capstar Radio Notes will bear cash interest at a rate of 13 1/4% per annum until maturity. The Existing Capstar Radio Notes require semi-annual cash interest payments on each May 1 and November 1 of $2.9 million through May 1, 1998, and $5.2 million from November 1, 1998, until maturity. On February 20, 1997, the Company issued the Notes at a substantial discount to their aggregate principal amount at maturity of $277.0 million. 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, Capstar Radio entered into the New Credit Facility and terminated the Existing 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 Capstar Radio. The New Credit Facility consists of a $200.0 million revolving loan facility. As of July 31, 1997, a principal balance of $ million was outstanding under the New Credit Facility and approximately $ million would have been available for borrowing thereunder. See "Description of Other Indebtedness." In addition to debt service, the Company's principal liquidity requirements will be for working capital and general corporate purposes, including capital expenditures, which are not expected to be material in amount, and to consummate the Pending Acquisitions and, as appropriate opportunities arise, to acquire additional radio stations. The Company intends to fund the $389.2 million aggregate purchase price for the Pending Acquisitions through a combination of proceeds of the Preferred Stock Offering and the Capstar Radio Notes Offering, borrowings under the New Credit Facility, proceeds from the Hicks Muse GulfStar Equity Investment and the Capstar BT Equity Investment, and a combination of indebtedness of Capstar Broadcasting, Capstar Radio and/or the Company and/or capital stock of Capstar Broadcasting or its subsidiaries. See "Unaudited Pro Forma Financial Information." The Company anticipates that it will fund the Pending Acquisitions with indebtedness, rather than capital stock, to the fullest extent then permitted under the debt incurrence covenants contained in the Indentures, the Certificate of Designation and the New Credit Facility. As a result, the Company expects the actual amount of indebtedness incurred in connection with the Pending Acquisitions to exceed the amount reflected in the Pro Forma Financial Information. See "Description of Capital Stock," "Description of Other Indebtedness" and "Description of the New Notes." The Company has not determined the terms of any such indebtedness or capital stock. The Company's ability to make such borrowings and issue such indebtedness and capital stock will depend upon many factors, including, but not limited to, the Company's success in operating and integrating its radio stations and the condition of the capital markets at the times of consummation of the Pending Acquisitions. No assurances can be given that such financings can be consummated on terms considered to be favorable by management or at all. Management believes that the proceeds of the Preferred Stock Offering, the Capstar Radio Notes Offering, the $45.6 million contribution from the Hicks Muse GulfStar Equity Investment, the $11.1 million contribution from the Capstar BT Equity Investment, the commitment by Hicks Muse Fund III and its affiliates to invest an additional $50.0 million in equity of Capstar Broadcasting (for which Capstar Broadcasting has committed to issue capital stock in exchange therefor) and cash from operating activities, together with available revolving credit borrowings under the 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 57 62 require financing for additional future acquisitions, if any, and there can be no assurance that it would be able to obtain such financing on terms considered to be favorable by management. Management evaluates potential acquisition opportunities on an on-going basis and has had, and continues to have, preliminary discussions concerning the purchase of additional stations. The Company expects that in connection with the financing of future acquisitions, it may consider disposing of stations in its markets. The Company has no current arrangements to dispose of any of its stations other than (i) the disposition of station KASH-AM in Anchorage, Alaska after consummation of the Community Pacific Acquisition and (ii) the exchange of stations WESC-FM, WFNQ-FM and WESC-AM in Greenville, South Carolina (which were acquired in the Benchmark Acquisition) for stations KKRD-FM, KRZZ-FM, and KNSS-AM in Wichita, Kansas, and WGNE-FM in Daytona Beach, Florida (which are owned by SFX). See "The Acquisitions -- SFX Exchange." Net cash provided by operating activities was $0.4 million and $1.9 million for the three-month periods ended March 31, 1997 and 1996, and $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 $129.4 million and $15.8 million for the three-month periods ended March 31, 1997 and 1996, and $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 $137.0 million and $8.1 million for the three-month periods ended March 31, 1997 and 1996, and $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. 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 ITEMS In connection with the Osborn Acquisition, the Company repaid the AT&T Credit Facility. The repayment of the AT&T Credit Facility resulted in a prepayment penalty in the amount of $598,000, which was reported as an extraordinary item. In connection with the Preferred Stock Redemption and the repayment and termination of the GulfStar credit facility, the Company recorded a loss on redemption of preferred stock and an extraordinary loss on the early extinguishment of debt, respectively. Had the Preferred Stock Redemption and the repayment and termination of the GulfStar credit facility occurred on March 31, 1997, the Company would have recorded a loss on repurchase of preferred stock of approximately $3.9 million and an extraordinary loss on the early extinguishment of debt of approximately $2.3 million. In connection with the Benchmark Acquisition, Capstar Broadcasting issued $750,000 of Class C Common Stock to an affiliate of Hicks Muse in consideration for its agreement to purchase the outstanding obligations of Bankers Trust Company under the Acquisition Sub Credit Agreement upon the occurrence of certain events. The issuance of Class C Common Stock in connection with the agreement to purchase the outstanding obligations of Bankers Trust Company under the Acquisition Sub Credit Agreement resulted in an extraordinary charge in the period in which the Company consummated the Benchmark Acquisition. Had the Benchmark Acquisition been consummated at March 31, 1997, the Company would have recorded an extraordinary charge of approximately $750,000. 58 63 BUSINESS THE COMPANY The Company is the largest radio broadcaster in the United States operating exclusively in mid-sized markets. On a pro forma basis after giving effect to the Pending Transactions, the Company will own and operate or provide services to 233 radio broadcasting stations in 62 mid-sized markets located throughout the United States. These stations comprise the leading radio group, in terms of revenue share and/or audience share, in 41 markets. On a pro forma basis after giving effect to the Completed Transactions of the Company and the Pending Transactions and the financing thereof, including the Financing, as if they had occurred on January 1, 1996, the Company would have had net revenue, EBITDA (as defined) and a net loss of $296.6 million, $67.5 million and $28.8 million, respectively, for the twelve-month period ended March 31, 1997, and EBITDA as adjusted for estimated cost savings of $85.0 million. The Company has entered into 16 agreements to acquire 88 additional stations, including 16 stations for which the Company currently provides services pursuant to an LMA, and one agreement to dispose of three FM stations. In February 1996, as a result of the passage of the Telecom Act, radio broadcasting companies were permitted to increase their ownership of stations within a single market from a maximum of four to a maximum of between five and eight stations, depending on market size. More importantly, the Telecom Act also eliminated the national ownership restriction that generally had limited companies to the ownership of no more than 40 stations (20 AM and 20 FM) throughout the United States. In order to capitalize on the opportunities created by the Telecom Act, R. Steven Hicks, an executive with over 30 years of experience in the radio broadcasting industry, and Hicks Muse formed the Company to acquire and operate radio station clusters in mid-sized markets. The Company generally defines mid-sized markets as those MSAs ranked between 50 and 200, each of which has approximately $10.0 million to $35.0 million in radio advertising revenue. The Company believes that mid-sized markets represent attractive operating environments because, as compared to the 50 largest markets in the United States, they are generally characterized by (i) lower radio station purchase prices as a multiple of broadcast cash flow, (ii) less sophisticated and undercapitalized competitors, including both radio and competing advertising media such as newspaper and television, and (iii) less direct format competition resulting from fewer stations in any given market. The Company believes that the attractive operating characteristics of mid-sized markets coupled with the opportunity provided by the Telecom Act to create in-market radio station cluster groups will enable the Company to achieve substantial revenue growth and cost efficiencies. As a result, management believes that the Company can generate broadcast cash flow margins that are comparable to the higher margins that heretofore were generally achievable only in the top 50 markets. To effectively and efficiently manage its stations, the Company has developed a flexible management structure designed to manage a large and growing portfolio of radio stations throughout the United States. The station portfolio has been, or will be, organized into five regions, the Northeast (Atlantic Star), the Southeast (Southern Star), the Southwest (GulfStar), the Midwest (Central Star) and the West (Pacific Star), each of which is, or will be, managed by regional executives in conjunction with general managers in each of the Company's markets. 59 64 STATION PORTFOLIO The following table sets forth certain information regarding the Company and its markets assuming the Pending Transactions have been consummated.
COMPANY COMPANY STATIONS REVENUE AUDIENCE MSA --------- SHARE SHARE MARKET(1) RANK(2) FM AM RANK(3) RANK(4) SOURCE COMPANY --------- ------- --- --- ------- -------- -------------- NORTHEAST REGION (ATLANTIC STAR) Allentown-Bethlehem, PA(5)(6)...... 64 3 3 1 1 Commodore/Patterson Wilmington, DE(7).................. 74 1 1 2 2 Commodore Roanoke, VA(5)..................... 101 4 1 2 1 Benchmark/Cavalier/WRIS Worcester, MA...................... 106 1 1 1 1 Knight Quality Fairfield County, CT(8)............ 112 4 4 2 2 Commodore Portsmouth-Dover-Rochester, NH..... 117 2 1 1 2 Knight Quality Huntington, WV-Ashland, KY(5)...... 139 5 5 1 1 Commodore Salisbury-Ocean City, MD........... 153 2 -- 3 4 Benchmark Manchester, NH..................... 193 1 1 1 2 Knight Quality Wheeling, WV(5).................... 213 5 2 1 1 Osborn Winchester, VA..................... 219 2 1 2 1 Benchmark Burlington, VT..................... 221 1 -- 2t 5 Knight Quality Harrisburg-Lebanon-Carlisle, PA.... 253 1 1 2 2 Patterson Dover, DE.......................... NA 2 1 1 1 Benchmark Westchester-Putnam Counties, NY(9)............................ NA 2 1 NA 1 Commodore Lynchburg, VA...................... NA 3 1 1 1 Benchmark/Cavalier --- -- Subtotal.................... 39 24 SOUTHEAST REGION (SOUTHERN STAR) Birmingham, AL..................... 55 2 1 2 3 Ameron Greenville, SC..................... 59 1 -- 2t 2 Benchmark Columbia, SC....................... 88 4 2 1 1 Benchmark/Emerald City Daytona Beach, FL.................. 93 1 -- 1 2 SFX Melbourne-Titusville-Cocoa, FL..... 96 3 2 1 1 Space Coast Huntsville, AL..................... 114 4 2 1 1 Osborn/Griffith Ft. Pierce-Stuart-Vero Beach, FL(5)............................ 121 5 1 1 1 Commodore Pensacola, FL...................... 125 3 -- 1 1 Patterson Montgomery, AL..................... 142 3 -- 2 2 Benchmark Savannah, GA....................... 153 4 2 1 1 Patterson Asheville, NC...................... 179 1 1 1 1 Osborn Tuscaloosa, AL(5).................. 212 3 1 1 1 Osborn/Grant Jackson, TN........................ 257 2 1 1 1 Osborn Statesville, NC.................... NA 1 1 NA NA Benchmark Gadsden, AL(10).................... NA 1 1 NA 1 Osborn --- -- Subtotal.................... 38 15
60 65
COMPANY COMPANY STATIONS REVENUE AUDIENCE MSA --------- SHARE SHARE MARKET(1) RANK(2) FM AM RANK(3) RANK(4) SOURCE COMPANY --------- ------- --- --- ------- -------- -------------- SOUTHWEST REGION (GULFSTAR) Baton Rouge, LA.................... 81 3 3 1 1 GulfStar Wichita, KS........................ 91 2 1 3 3 SFX Jackson, MS........................ 118 2 2 2 2 Benchmark Shreveport, LA..................... 126 1 1 2 3 Benchmark Beaumont, TX....................... 127 3 1 1 1 GulfStar Corpus Christi, TX................. 128 3 1 1 1 GulfStar Tyler-Longview, TX(5).............. 143 4 1 1 1 GulfStar/Noalmark Killeen, TX(5)..................... 149 2 -- 1 1 GulfStar Fayetteville, AR(5)................ 161 4 -- 1 1 GulfStar/KJEM Ft. Smith, AR(5)................... 169 2 1 1 1 GulfStar/Booneville Lubbock, TX........................ 171 4 2 1 1 GulfStar/American General Waco, TX........................... 190 4 2 1 1 GulfStar Texarkana, TX...................... 237 3 1 1 1 GulfStar Lawton, OK(5)...................... 243 2 -- 1 1 KLAW Lufkin, TX......................... NA 2 -- NA NA GulfStar Victoria, TX....................... NA 2 -- NA 1 GulfStar --- -- Subtotal.................... 43 16 MIDWEST REGION (CENTRAL STAR) Grand Rapids, MI................... 66 3 1 2 3 Patterson Des Moines, IA(5).................. 89 2 1 4 4 Community Pacific Madison, WI........................ 120 4 2 1 1 Madison Springfield, IL.................... 192 2 1 3 3 Patterson Cedar Rapids, IA................... 197 2 1 2 1 Quass Battle Creek-Kalamazoo, MI......... 229 2 2 1 1 Patterson --- -- Subtotal.................... 15 8 WEST REGION (PACIFIC STAR) Honolulu, HI....................... 58 4 3 1 1 Patterson Fresno, CA......................... 65 3 2 2 3 Patterson Stockton, CA(5).................... 85 1 1 3 3 Community Pacific Modesto, CA(5)..................... 121 1 1 2 2 Community Pacific Reno, NV........................... 133 2 1 4 3 Patterson Anchorage, AK(5)................... 165 4 2 2 1 Community Pacific/COMCO Fairbanks, AK(8)................... NA 2 1 NA 1 COMCO Farmington, NM..................... NA 3 1 NA NA GulfStar Yuma, AZ........................... NA 2 1 NA 1 Commonwealth --- -- Subtotal.................... 22 13 --- -- Total(10)................... 157 76 === ==
- --------------- NA Information not available. t Tied with another radio station group. (1) Actual city of license may be different from metropolitan market served. Market may be different from market definition used under FCC multiple ownership rules. (2) MSA rank obtained from Arbitron's Summer 1996 Radio Market Survey Schedule. (3) Company revenue share rank compiled from data in BIA Publications Radio Analyzer-BIA's Master Access, Version 1.7 (copyright 1996) (current as of February 27, 1997), based upon 1996 gross revenue for the indicated markets. (4) Company audience share rank obtained from Arbitron's Radio Market Reports, based on average quarter hour estimates for the last available reporting period ending either Spring or Fall 1996 for the demographic of persons ages 25-54, listening Monday through Sunday, 6 a.m. to midnight, except for the Yuma, Arizona market which was obtained from AccuRatings. To account for listeners lost to other nearby markets, a radio station's "local" audience share is derived by comparing the radio station's average quarter hour share to the total average quarter hour share for all stations whose signals are heard within the MSA, excluding audience share for listeners who listen to stations whose signals originate outside the MSA. (5) The Company provides certain sales and marketing services to stations WKAP-AM in Allentown-Bethlehem, Pennsylvania, WPAW-FM in Ft. Pierce-Stuart-Vero Beach, Florida, WEEL-FM in Wheeling, West Virginia, KLFX-FM in Killeen, Texas and KJEM-FM in 61 66 Fayetteville, Arkansas, pursuant to JSAs. The Company provides certain sales, programming and marketing services to station WHRD-AM in Huntington, West Virginia; pending consummation of the Grant Acquisition, to station WZBQ-FM in Tuscaloosa, Alabama; 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; and pending the consummation of the respective acquisitions, to stations KKTX-AM and KKTX-FM in Tyler-Longview, Texas, KZBB-FM in Ft. Smith, Arkansas, KLAW-FM and KZCD-FM in Lawton, Oklahoma, and WJLM-FM in Roanoke, Virginia pursuant to LMAs. The chart includes these stations. (6) The DOJ has raised an issue with the Company regarding the number of radio stations that the Company will own in the Allentown-Bethlehem, Pennsylvania area upon completion of the Patterson Acquisition. The Company has recently begun discussions with the DOJ to resolve the matter. See "Business -- Federal Regulation of Radio Broadcasting" and "The Acquisitions -- Patterson Acquisition." (7) If the proposed merger of Chancellor and Evergreen Media Corporation is completed, Thomas O. Hicks, through his control of HM2/Chancellor and the Company, will have an attributable interest in a total number of radio stations serving the Wilmington, Delaware market which exceeds FCC multiple ownership limitations. The FCC could require the Company to divest itself of radio stations WJBR-FM and WJBR-AM, which serve the Wilmington, Delaware market. The Company proposes to assign the broadcasting licenses of such stations to a newly-formed company which will be structured to satisfy FCC multiple ownership rules and cross-interest limitations. While management of the Company believes that such arrangement will meet FCC multiple ownership rules and cross-interest limitations as they presently exist, there can be no assurance that the FCC will act favorably on the proposed assignment or that the FCC will not amend its rules and policies in an adverse manner. The Company does not believe that an unfavorable decision by the FCC would have a material adverse effect on the financial condition of the Company. (8) Fairfield County, Connecticut is a CSA as defined by Arbitron. The CSA includes the Arbitron markets of Bridgeport, Stamford-Norwalk and Danbury, Connecticut with market rankings of 112, 132 and 191, respectively. MSA rank is listed for the Bridgeport market only. The combined rank for the CSA has not been estimated. Fairbanks, Alaska is a CSA as defined by Arbitron, for which audience share rank was obtained from Arbitron's Fall 1996 CSA Market Report. (9) Westchester-Putnam Counties, New York are a sub-set of the greater New York City Metropolitan Area, which is ranked as the largest MSA by Arbitron. (10) Company audience share rank obtained from Arbitron's June 1996 County Report (for field work performed in 1995) survey, from the County of Etowah, Alabama which is Gadsden's home county. * The chart does not include (i) station WING-FM in Dayton, Ohio, which is owned by the Company and for which an unrelated third party, who has an option to purchase such station, currently provides certain sales, programming and marketing services pursuant to an LMA, (ii) station KASH-AM in Anchorage, Alaska, which the Company expects to dispose of in connection with the consummation of the Community Pacific Acquisition in order to remain in compliance with the station ownership limitations under the Communications Act, and (iii) stations WESC-FM, WFNQ-FM, and WESC-AM which will be exchanged for stations owned by SFX in the SFX Exchange. See "The Acquisitions." ACQUISITION STRATEGY The Company is the leading consolidator of radio stations in mid-sized markets throughout the United States. Management has achieved this position through the application of an acquisition strategy that it believes allows the Company to develop radio station clusters at attractive prices. First, the Company enters attractive new mid-sized markets by acquiring a leading station (or a group that owns a leading station) in such market. The Company then utilizes the initial acquisition as a platform to acquire additional stations which further enhance the Company's position in a given market. Management believes that once it has established operations in a market with an initial acquisition, it can acquire additional stations at reasonable prices and, by leveraging its existing infrastructure, knowledge of and relationships with advertisers and substantial management experience, improve the operating performance and financial results of those stations. OPERATING STRATEGY The Company's objective is to maximize the broadcast cash flow of each of its radio station clusters through the application of the following strategies: Enhance Revenue Growth through Multiple Station Ownership. Management believes that the ownership of multiple stations in a market allows the Company to coordinate its programming to appeal to a broad spectrum of listeners. Once the station cluster has been created, the Company can provide one-stop shopping to advertisers attempting to reach a wide range of demographic groups. Simplifying the buying of advertising time for customers encourages increased advertiser usage thereby enhancing the Company's revenue generating potential. Broad demographic coverage also allows the Company to compete more effectively against alternative media, such as newspaper and television, thus potentially increasing radio's share of the total advertising dollars spent in a given market. 62 67 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 other portfolio companies of Hicks Muse, will be able to realize substantial economies of scale in such areas as national representation commissions, employee benefits, casualty insurance premiums, long distance telephone rates and other operating expenses. Finally, the incorporation of digital automation in certain markets allows the Company to operate radio stations at off-peak hours with minimal human involvement while improving the quality of programming. Utilize Sophisticated Operating Techniques. Following the acquisition of a station or station group, the Company seeks to capitalize on management's extensive large market operating experience by implementing sophisticated techniques such as advertising inventory management systems, sales training programs and in-depth music research studies which improve both the efficiency and profitability of its stations. Prior to the passage of the Telecom Act, management believes that many operators in mid-sized markets did not generate sufficient revenue to justify the incurrence of expenditures to develop these techniques. Provide Superior Customer Service. The Company believes that advertising customers in mid-sized markets typically do not have extensive resources to create and implement advertising campaigns. The Company provides many of its advertising customers with extensive advertising support which may include (i) assistance in structuring advertising and promotional campaigns, (ii) creating and producing customer advertisements and (iii) analyzing the effectiveness of the customer's media programs. Management believes that this type of superior customer service attracts new customers to the Company and increases the loyalty of the Company's existing customers, thereby providing stability to the Company's revenue, often despite fluctuations in station ratings. Develop Decentralized Management Structure. The Company has developed experienced and highly motivated regional and local management teams, derived primarily from station groups acquired by the Company, and has decentralized decision-making so that these regional and local managers have the flexibility to develop operating cultures that capitalize on the unique qualities of each region and market. The Company also relies on local managers to source additional acquisition opportunities. In addition, in order to motivate regional management, the Company intends to link compensation to regional operating performance as well as the combined results of the Company. MANAGEMENT R. Steven Hicks, the President and Chief Executive Officer of the Company, is a 30-year veteran of the radio broadcasting industry (including 18 years as a station owner) who has owned and operated or managed in excess of 150 radio stations in large and mid-sized markets throughout the United States. In addition, in 1993, Mr. Hicks co-founded SFX for which he served as Chief Executive Officer for three years until his resignation in 1996. The Company has created a regional organizational structure to manage effectively its existing station portfolio as well as to accommodate future in-market or group acquisitions. Each of the Company's regions is, or will be, headquartered within the region and led by a regional operating executive who manages, or will manage, the operations of that region's station portfolio and who oversees, or will oversee, the regional and general managers of the stations. Each regional operating executive reports directly to R. Steven Hicks. In assembling each of the existing regional management teams, the Company has sought to retain the senior management of many of the station groups that it has acquired so as to (i) retain and capitalize on the local market experience and knowledge of these experienced executives and (ii) foster a culture that is consistent with the unique attributes of each of the local markets acquired. Furthermore, the Company believes that each of its regional executives 63 68 possesses considerable knowledge of its region's competitors and is therefore well situated to identify strategic acquisition candidates. The Company's regional executive management teams will be compensated based upon the financial performance of their respective regions and the Company as a whole with such compensation to be awarded in the form of cash bonuses and stock options. Management believes that this compensation structure, along with the ownership interests of management, fosters teamwork and the sharing of the best practices across regions to maximize the overall financial performance of the Company. The Company has created an Executive Council, consisting of R. Steven Hicks, Paul D. Stone, William S. Banowsky, Jr. and other executive officers of Capstar Radio who will serve as Managing Directors. The Executive Council will develop and implement the Company's strategy and corporate culture and to enable the Company's regional operating executives to focus substantially all of their efforts upon operating their stations by relieving them of many of the business activities that are not directly related to station operations. The Executive Council, in consultation with the regional operating executives, is responsible for strategic planning, acquisitions, financial reporting, facilities consolidation, public service activities, technological development, network opportunities, national vendor relationships, investor and government relations, recruiting and training employees, and all other matters affecting the Company which are not directly related to regional operations. R. Steven Hicks, the Company's Chief Executive Officer will allocate primary responsibility for each of these areas to appropriate members of the Executive Council. The executive officers of Capstar Radio who serve, or will serve, as Managing Directors on the Executive Council are Frank D. Osborn, David J. Benjamin, III, Joseph C. Mathias, IV, and James M. Strawn. Mr. Osborn brings more than 19 years of radio industry experience, including 13 years as the President and Chief Executive Officer of Osborn. Mr. Benjamin has 23 years of radio broadcasting experience, including co-founding and serving as Chairman and Chief Executive Officer of Community Pacific since 1974. Mr. Mathias has managed the operations of Benchmark since 1989 and prior to 1990 held various positions in the cable television and radio broadcast industry. Mr. Strawn has 31 years of radio industry experience, including two years as an Executive Vice President and Chief Financial Officer of Patterson and 13 years as a radio station owner. OWNERSHIP In April 1996, Hicks Muse combined its financial expertise with the operating experience of R. Steven Hicks to form the Company. In October 1996, the Company acquired Commodore and Mr. Hicks became the Chief Executive Officer of the Company. Hicks Muse is a private investment firm based in Dallas, New York, St. Louis and Mexico City that specializes in acquisitions, recapitalizations and other principal investing activities. Since the firm's inception in 1989, affiliates of Hicks Muse have completed more than 70 transactions having a combined transaction value exceeding $19.0 billion. In 1994, an affiliate of Hicks Muse made its first major investment in the radio broadcasting industry when Hicks, Muse, Tate & Furst Equity Fund II, L.P. founded Chancellor, a company which owns and operates radio stations exclusively within the 40 largest MSAs in the United States and which, upon consummation of its merger with Evergreen Media Corporation, will be one of the largest pure-play radio broadcasting companies in the United States based on net revenues. HM Fund III, an affiliate of Hicks Muse, and its affiliates (including Capstar L.P.) have invested $233.9 million in Common Stock of Capstar Broadcasting, including $75.0 million invested as part of the Financing. HM Fund III and its affiliates have committed to invest an additional $50.0 million in Capstar Broadcasting, and Capstar Broadcasting has committed to issue additional equity to HM Fund III and its affiliates in exchange therefor. R. Steven Hicks, the President and Chief Executive Officer of the Company, has invested $3.1 million in Class C Common Stock. Certain other members of the management of Capstar Broadcasting and its subsidiaries, including certain of the Company's regional executives and Managing Directors, have invested an additional $7.2 million in Class A Common Stock of Capstar Broadcasting. As part of the GulfStar Transaction, GulfStar common stockholders received Common Stock of Capstar Broadcasting having a deemed value of approximately $113.0 million. Thomas O. Hicks, the Chairman of the Board and Chief Executive Officer of Hicks Muse and a director of Capstar Broadcasting and the Company, beneficially owns 100% of the outstanding capital stock of Capstar Broadcasting and beneficially owned approximately 87.3% of the voting power of GulfStar immediately before completion of the GulfStar Merger. In 64 69 addition, Thomas O. Hicks and R. Steven Hicks filled two of the four director seats of GulfStar, and R. Steven Hicks was also the Chief Executive Officer of GulfStar. Certain members of management of Capstar Broadcasting received Common Stock of Capstar Broadcasting in connection with the GulfStar Merger as more fully described in "The Acquisitions -- GulfStar Transaction." REGIONAL OPERATING GROUPS Northeast Region (Atlantic Star) The Company's portfolio of radio stations in the Northeast Region includes 63 radio stations (39 FM and 24 AM) located in 16 markets in Connecticut, Delaware, Kentucky, Maryland, Massachusetts, New Hampshire, New York, Pennsylvania, Vermont, Virginia and West Virginia. The Company has the leading radio station cluster based on revenue share rank in eight of its 16 markets. History. The stations owned and operated by the Company, or to which it provided services before the Commodore Acquisition, formed the basis for the Northeast Region with 27 stations located in the following Northeast Region markets: Allentown-Bethlehem, Pennsylvania (four stations); Wilmington, Delaware (two stations); Fairfield County, Connecticut (eight stations); Huntington, West Virginia-Ashland, Kentucky (10 stations); and Westchester-Putnam Counties, New York (three stations). The Company entered each of these five markets with an initial acquisition of one or two stations during the 1980's. The Company's portfolio of stations has undergone significant growth during the past two years, as the management team completed acquisitions of 16 stations in the Northeast Region markets in 1995 and 1996, especially after the passage of the Telecom Act in February 1996. As a result of the recent acquisitions of many of the Northeast Region's stations, management believes that the station clusters in the original Northeast Region markets have not yet realized the full potential of their recent consolidations. In February 1997, the Company completed the Osborn Acquisition which provided the Northeast Region with an additional seven stations in the Wheeling, West Virginia market where the Company ranks number one in both revenue and audience share. In the past year, Osborn purchased four stations and assumed a JSA with a fifth station in order to add to its two existing radio stations in the Wheeling, West Virginia market. The stations target a broad demographic spectrum with five different formats: Country; Adult Contemporary; Adult; Classic Rock; and Oldies. Southern Star also operates the Country Music Hall and Jamboree in the Hills, a country music festival, which complement the strong radio station cluster in Wheeling. The Benchmark Acquisition enhances the Company's Northeast Region station portfolio through the addition of 11 stations in five new markets. The Benchmark Acquisition provides the Company with two stations in Roanoke, Virginia; two stations in Salisbury-Ocean City, Maryland; three stations in Winchester, Virginia; three stations in Dover, Delaware; and one station in Lynchburg, Virginia. The Company expects to realize substantial revenue growth and economies of scale in the Northeast Region from this acquisition because two of the new markets are adjacent to one of the original Company markets, as both the Dover and Salisbury-Ocean City markets are near Wilmington, and the Roanoke and Lynchburg markets are expected to be combined with six stations purchased, or to be purchased, in connection with the Cavalier Acquisition and the WRIS Acquisition. The Patterson Acquisition (as defined) will provide the Company with two stations in Harrisburg-Lebanon-Carlisle, Pennsylvania, a new market for the Company. In addition, the Knight Quality Acquisition will provide the Company with eight stations in four new markets including: Worcester, Massachusetts (two stations); Portsmouth-Dover-Rochester, New Hampshire (three stations); Manchester, New Hampshire (two stations); and Burlington, Vermont (one station). Management. The Northeast Region is managed by its president and chief executive officer, James T. Shea, Jr. Mr. Shea has over 22 years of experience in the radio broadcasting industry. Mr. Shea's operating knowledge and strong advertising relationships helped Commodore, prior to its acquisition by the Company, become a leading radio group in each of its markets. Pro forma for the Pending Acquisitions, the Northeast Region will include 63 stations in 16 markets. Markets. Management believes that the station portfolio in the Northeast Region has significant growth potential from the recent formation of station clusters in the Northeast Region markets. The 16 markets comprising the Northeast Region are highlighted by eight markets which rank number one in revenue share and 65 70 nine markets which rank number one in audience share. Six of these markets, Allentown-Bethlehem, Pennsylvania; Worcester, Massachusetts; Huntington, West Virginia-Ashland, Kentucky; Wheeling, West Virginia; Dover, Delaware; and Lynchburg, Virginia, rank number one in both revenue and audience share. The Wheeling, West Virginia market is a good example of the Company's operating strategy. In the past year, Osborn purchased four stations and assumed a JSA with a fifth station in order to add to its two existing radio stations. The stations target a broad demographic spectrum with five different formats: Country, Adult Contemporary, Adult, Class Rock, and Oldies. Southern Star also operates the Country Music Hall and Jamboree in the Hills, a country music festival, which compliment the strong radio station cluster in Wheeling. In addition, management believes that the recently formed clusters in most of the other markets in the region should be able to generate substantial cash flow improvements given the Company's strong station positions. For example, in Huntington, West Virginia-Ashland, Kentucky, the Company owns or provides services to ten stations, including six of the ten viable stations in the market. The Company acquired two of the stations in 1982, entered into LMAs with eight additional stations in April 1996 and subsequently acquired seven of these stations in October 1996. The Company believes that this market and the other markets in the region have not yet realized their full potential with respect to economies of scale and revenue enhancements. The following table summarizes certain information relating to the Company's radio stations in the Northeast Region, assuming consummation of the Pending Acquisitions.
TARGET COMPANY COMPANY STATION DEMO- REVENUE AUDIENCE AUDIENCE MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE SHARE STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4) ----------------------- -------- ------- ------- ------- ------- -------- -------- ALLENTOWN-BETHLEHEM, PA.............. 64 1 1 WAEB-AM............................. 1982 Commodore 35+ 6 WAEB-FM............................. 1982 Commodore W18-49 3 WZZO-FM............................. 1993 Commodore M18-49 4 WKAP-AM(5).......................... 1995 Commodore 35+ 8 WEEX-AM(6).......................... 1995 Patterson 35-64 10 WODE-FM(6).......................... 1995 Patterson 35-64 2 WILMINGTON, DE(7).................... 74 2 2 WJBR-AM............................. 1985 Commodore W25-54 5t WJBR-FM............................. 1985 Commodore 35+ 2 ROANOKE, VA.......................... 101 2 1 WROV-AM............................. 1996 Benchmark 25-54 NA WROV-FM............................. 1996 Benchmark 18-49 1 WRDJ-FM............................. 1996 Cavalier 35-64 8t WJJS-FM............................. 1996 Cavalier 18-34 3 WJLM-FM(5).......................... 1969 WRIS 25-54 5 WORCESTER, MA........................ 106 1 1 WTAG-AM............................. 1986 Knight Quality 35-64 4 WSRS-FM............................. 1963 Knight Quality F25-54 2 FAIRFIELD COUNTY, CT(8).............. 112 2 2 WNLK-AM............................. 1989 Commodore 35+ 9t WEFX-FM............................. 1989 Commodore M18-49 6 WSTC-AM............................. 1996 Commodore 25-54 9t WKHL-FM............................. 1996 Commodore 25-54 4 WINE-AM............................. 1996 Commodore 25-54 14 WRKI-FM............................. 1996 Commodore M18-49 7 WPUT-AM............................. 1996 Commodore 35+ NA WAXB-FM............................. 1996 Commodore 25-54 NA PORTSMOUTH-ROCHESTER, NH............. 117 1 2 WHEB-FM............................. 1965 Knight Quality M25-44 2 WXHT-FM............................. 1994 Knight Quality F25-44 6t WTMN-AM............................. 1994 Knight Quality M18-50 NA MARKET AND STATION CALL LETTERS(1) FORMAT ----------------------- ------ ALLENTOWN-BETHLEHEM, PA.............. WAEB-AM............................. News/Talk WAEB-FM............................. Contemporary Hits WZZO-FM............................. Album Rock WKAP-AM(5).......................... Middle-of-the-Road WEEX-AM(6).......................... Country WODE-FM(6).......................... Oldies WILMINGTON, DE(7).................... WJBR-AM............................. Middle-of-the-Road WJBR-FM............................. Adult Contemporary ROANOKE, VA.......................... WROV-AM............................. Oldies WROV-FM............................. Album Rock WRDJ-FM............................. Oldies WJJS-FM............................. Contemporary Hits WJLM-FM(5).......................... Country WORCESTER, MA........................ WTAG-AM............................. News/Talk/Sports WSRS-FM............................. Lite Rock FAIRFIELD COUNTY, CT(8).............. WNLK-AM............................. News/Talk WEFX-FM............................. Classic Hits WSTC-AM............................. News/Talk WKHL-FM............................. Oldies WINE-AM............................. News/Talk WRKI-FM............................. Album Rock WPUT-AM............................. Country WAXB-FM............................. Oldies PORTSMOUTH-ROCHESTER, NH............. WHEB-FM............................. Album Rock WXHT-FM............................. Classic Hits WTMN-AM............................. Sports/Talk
66 71
TARGET COMPANY COMPANY STATION DEMO- REVENUE AUDIENCE AUDIENCE MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE SHARE STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4) ----------------------- -------- ------- ------- ------- ------- -------- -------- HUNTINGTON, WV-ASHLAND, KY........... 139 1 1 WTCR-AM............................. 1982 Commodore 25-54 10 WTCR-FM............................. 1982 Commodore 25-54 1 WIRO-AM............................. 1996 Commodore M25-54 14t WHRD-AM(5).......................... 1996 Commodore M25-54 NA WZZW-AM............................. 1996 Commodore M25-54 NA WKEE-AM............................. 1996 Commodore 35+ 12t WKEE-FM............................. 1996 Commodore 25-54 2 WAMX-FM............................. 1996 Commodore M25-54 5t WFXN-FM............................. 1996 Commodore M25-54 7 WBVB-FM............................. 1996 Commodore M18-49 8 SALISBURY-OCEAN CITY, MD............. 153 3 4 WWFG-FM............................. 1993 Benchmark 25-54 4 WOSC-FM............................. 1994 Benchmark 18-34 12 MANCHESTER, NH....................... 193 1 2 WGIR-AM............................. 1961 Knight Quality 35+ 3 WGIR-FM............................. 1965 Knight Quality M25-49 2 WHEELING, WV......................... 213 1 1 WWVA-AM............................. 1987 Osborn 25-54 8t WOVK-FM............................. 1987 Osborn 25-54 1 WKWK-FM............................. 1996 Osborn 25-54 2 WBBD-AM............................. 1996 Osborn 25-54 8t WRIR-FM............................. 1996 Osborn 25-54 5 WEGW-FM............................. 1996 Osborn 25-54 4 WEEL-FM(5).......................... 1996 Osborn 25-54 6t WINCHESTER, VA....................... 219 2 1 WUSQ-FM............................. 1991 Benchmark 25-54 1 WFQX-FM............................. 1994 Benchmark 18-49 4 WNTW-AM............................. 1994 Benchmark 25-54 NA BURLINGTON, VT....................... 221 2t 5 WEZF-FM............................. 1984 Knight Quality F25-54 2t HARRISBURG-LEBANON-CARLISLE, PA...... 253 2 2 WTCY-AM............................. 1996 Patterson 35-54 7t WNNK-FM............................. 1996.. Patterson W25-44 1 DOVER, DE............................ NA 1 1 WDSD-FM............................. 1990 Benchmark 25-54 1 WSRV-FM............................. 1994 Benchmark 25-54 2 WDOV-AM............................. 1990 Benchmark 25-54 NA WESTCHESTER-PUTNAM COUNTIES, NY(8)(9)............................ NA NA 1 WFAS-AM............................. 1986 Commodore 35+ NA WFAS-FM............................. 1986 Commodore W25-54 1 WZZN-FM............................. 1996 Commodore W25-54 NA LYNCHBURG, VA........................ NA 1 1 WLDJ-FM............................. 1996 Cavalier 35-64 2 WJJX-FM............................. 1996 Cavalier 18-34 4t WJJS-AM............................. 1996 Cavalier 18-34 8t WYYD-FM............................. 1995 Benchmark 25-54 1 MARKET AND STATION CALL LETTERS(1) FORMAT ----------------------- ------ HUNTINGTON, WV-ASHLAND, KY........... WTCR-AM............................. Classic Country WTCR-FM............................. Country WIRO-AM............................. Sports WHRD-AM(5).......................... Sports WZZW-AM............................. Sports WKEE-AM............................. Middle-of-the-Road WKEE-FM............................. Adult Contemporary WAMX-FM............................. Modern Rock WFXN-FM............................. Classic Rock WBVB-FM............................. Country SALISBURY-OCEAN CITY, MD............. WWFG-FM............................. Country WOSC-FM............................. Contemporary Hits MANCHESTER, NH....................... WGIR-AM............................. News/Talk/Sports WGIR-FM............................. Album Rock WHEELING, WV......................... WWVA-AM............................. Country WOVK-FM............................. Country WKWK-FM............................. Adult Contemporary WBBD-AM............................. Adult Contemporary WRIR-FM............................. Classic Rock WEGW-FM............................. Classic Rock WEEL-FM(5).......................... Oldies WINCHESTER, VA....................... WUSQ-FM............................. Country WFQX-FM............................. Contemporary Hits WNTW-AM............................. News/Talk BURLINGTON, VT....................... WEZF-FM............................. Adult Contemporary HARRISBURG-LEBANON-CARLISLE, PA...... WTCY-AM............................. Urban/Adult Contemporary WNNK-FM............................. Contemporary Hits DOVER, DE............................ WDSD-FM............................. Country WSRV-FM............................. Adult Contemporary WDOV-AM............................. News/Talk WESTCHESTER-PUTNAM COUNTIES, NY(8)(9)............................ WFAS-AM............................. News/Talk WFAS-FM............................. Adult Contemporary WZZN-FM............................. Classic Rock LYNCHBURG, VA........................ WLDJ-FM............................. Oldies WJJX-FM............................. Contemporary Hits WJJS-AM............................. Contemporary Hits WYYD-FM............................. Country
- --------------- NA Information not available. t Tied with another radio station. (1) Actual city of license may be different from metropolitan market served. Market may be different from market definition used under FCC multiple ownership rules. (2) MSA rank obtained from Arbitron's Summer 1996 Radio Market Survey Schedule. Fairfield County is a CSA as defined by Arbitron. The CSA includes the Arbitron markets of Bridgeport, Stamford-Norwalk, and Danbury, Connecticut with market rankings of 112, 132, and 191, respectively. MSA Rank is listed for the Bridgeport market only. The combined rank for the CSA has not been estimated. (3) Company revenue share rank obtained from data in BIA Publications -- Radio Analyzer, BIA's Master Access, Version 1.7 (copyright 1996) (current as of February 27, 1997), based upon 1996 gross revenue for the indicated markets. Rankings for Wilmington, Delaware, Dover, Delaware, Roanoke, Virginia, and Lynchburg, Virginia markets were determined separately, using the City of License to determine the split of the market. (4) Company and station audience share rank obtained from Arbitron's Radio Market Reports, based on average quarter hour estimates for the reporting period ending Fall 1996, except for Winchester, Virginia and Wheeling, West Virginia, which are reported as of Spring 1996 because the markets were not marked for the Fall 1996 period, for the demographic of persons ages 25-54, listening Monday 67 72 through Sunday, 6 a.m. to midnight. To account for listeners lost to other nearby markets, a radio station's "local" audience share is derived by comparing the radio station's average quarter hour share to the total average quarter hour share for all stations whose signals are heard within the MSA, excluding audience share for listeners who listen to stations whose signals originate outside the MSA. (5) The Company provides certain sales and marketing services to stations WKAP-AM in Allentown, Pennsylvania and WEEL-FM in Wheeling, West Virginia pursuant to JSAs. The Company provides certain sales, programming and marketing services to stations WHRD-AM in Huntington, West Virginia and WJLM-FM in Roanoke, Virginia pursuant to an LMA. (6) The DOJ has raised an issue with the Company regarding the number of radio stations that the Company will own in the Allentown-Bethlehem, Pennsylvania area upon completion of the Patterson Acquisition. The Company has recently begun discussions with the DOJ to resolve the matter. See "Business -- Federal Regulation of Radio Broadcasting" and "The Acquisitions -- Patterson Acquisition." (7) If the proposed merger of Chancellor and Evergreen Media Corporation is completed, Thomas O. Hicks, through his control of HM2/Chancellor and the Company, will have an attributable interest in a total number of radio stations serving the Philadelphia, Pennsylvania market which exceeds FCC multiple ownership limitations. The FCC could require the Company to divest itself of radio stations WJBR-FM and WJBR-AM, which serve the Wilmington, Delaware market. The Company proposes to assign the broadcasting licenses of such stations to a newly-formed company which will be structured to satisfy FCC multiple ownership rules and cross-interest limitations. While management of the Company believes that such arrangement will meet FCC multiple ownership rules and cross-interest limitations as they presently exist, there can be no assurance that the FCC will act favorably on the proposed assignment or that the FCC will not amend its rules and policies in an adverse manner. The Company does not believe that an unfavorable decision by the FCC would have a material adverse effect on the financial condition of the Company. See "Risk Factors -- Government Regulation of Broadcasting Industry" and "-- Federal Regulation of Radio Broadcasting." (8) Fairfield County, Connecticut and Westchester-Putnam Counties, New York, CSA audience share and revenues obtained from Arbitron's Custom Survey Area Report for the Fall 1996 period. (9) Westchester-Putnam Counties, New York are sub-sets of the greater New York City Metropolitan Area, which is ranked as the largest MSA by Arbitron. Southeast Region (Southern Star) Upon completion of the Pending Acquisitions, the Company's portfolio of radio stations in the Southeast Region will include 53 stations (38 FM and 15 AM) located in 15 markets in Alabama, Florida, Georgia, North Carolina, South Carolina and Tennessee. The Company's stations comprise the leading radio station group based on revenue share in 10 of the 15 markets. History. The Osborn Acquisition provided the core of the Southeast Region with 13 stations located in five markets: Huntsville, Alabama (three stations); Asheville, North Carolina (two stations); Tuscaloosa, Alabama (three stations); Jackson, Tennessee (three stations); and Gadsden, Alabama (two stations). The Company also owns two station clusters in Florida. The Commodore Acquisition provided the Company with six stations in the Ft. Pierce-Stuart-Vero Beach market and the Space Coast Acquisitions provided the Company with five stations in the Melbourne-Titusville-Cocoa market. The Benchmark Acquisition enhances the Company's Southeast Region station portfolio by providing the Company with 11 stations in the following new markets: Greenville, South Carolina (one station); Columbia, South Carolina (five stations); Montgomery, Alabama (three stations); and Statesville, North Carolina (two stations). The Emerald City Acquisition (one station) enhances the Company's position in the Columbia, South Carolina market. The Pending Acquisitions will enhance the Company's Southeast Region station portfolio through the acquisition of 17 additional stations in four new markets and two existing markets. The Patterson Acquisition will provide the Company with station clusters in the following new markets: Savannah, Georgia (six stations) and Pensacola, Florida (three stations). The SFX Exchange will provide the Company with one station in Daytona Beach, Florida, which is a new market for the Company. In addition, the Ameron Acquisition will provide the Company with three stations in Birmingham, Alabama, a new market for the Company. The Grant Acquisition will provide a new station in Tuscaloosa, Alabama, an existing market for the Company. Finally, the Griffith Acquisition (three stations) will enhance the Company's position in the Huntsville, Alabama market. Management. The Southeast Region is being managed on an interim basis by Frank D. Osborn. Mr. Osborn, who was formerly the President and Chief Executive Officer of Osborn, serves on the Executive Council of Capstar Radio and brings more than 19 years of radio industry experience to the Company. The Company intends to employ a new president and chief executive officer of the Southeast Region by the end of 1997, so that Mr. Osborn may focus his attention on his responsibilities as a member of the Executive Council. Pro forma for the Pending Acquisitions, the Southeast Region will include 53 stations in 15 markets. 68 73 Markets. Management believes that the portfolio of markets in the Southeast Region has significant consolidation and future add-on acquisition potential, even though the Company ranks number one in both revenue and audience share in 9 of its 15 markets in the region. The Southeast Region's markets are highlighted by four six-station clusters, including Columbia, South Carolina; Huntsville, Alabama; Ft. Pierce-Stuart-Vero Beach, Florida; and Savannah, Georgia. The Southeast Region illustrates the Company's acquisition strategy as the markets have been formed through separate acquisitions ranging from one station add-on acquisitions to multi-station and multi-market acquisitions. 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 COMPANY STATION DEMO- REVENUE AUDIENCE AUDIENCE MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE SHARE CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4) --------------- -------- ------- ------- ------- ------- -------- -------- BIRMINGHAM, AL................. 55 2 3 WMJJ-FM....................... 1990 Ameron W25-54 3t WERC-AM....................... 1990 Ameron M35-54 7 WOWC-FM....................... 1994 Ameron 18-44 14t GREENVILLE, SC................. 59 2t 2 WJMZ-FM....................... 1990 Benchmark 25-54 2 COLUMBIA, SC................... 88 1 1 WCOS-FM....................... 1993 Benchmark 25-54 2 WHKZ-FM....................... 1993 Benchmark 25-54 10 WVOC-AM....................... 1994 Benchmark 35-64 8 WSCQ-FM....................... 1992 Benchmark 25-54 11t WCOS-AM....................... 1993 Benchmark 25-54 13t WNOK-FM....................... 1994 Emerald City 25-54 3t DAYTONA BEACH, FL.............. 93 1 2 WGNE-FM....................... 1996 SFX 25-54 1 MELBOURNE-TITUSVILLE-COCOA, 96 1 1 FL............................ WMMB-AM....................... 1986 City 50+ 5t WBVD-FM....................... 1986 City 35-64 4 WMMV-AM....................... 1982 EZY 35-64 7t WLRQ-FM....................... 1982 EZY 25-54 1 WHKR-FM....................... 1989 Roper 25-54 3 HUNTSVILLE, AL................. 114 1 1 WDRM-FM....................... 1974 Osborn 25-54 1 WHOS-AM....................... 1997 Osborn 25-54 NA WBHP-AM....................... 1997 Osborn 25-54 NA WTAK-FM....................... 1993 Griffith M25-54 3 WXQW-FM....................... 1995 Griffith 25-54 13t WWXQ-FM....................... 1994 Griffith 25-54 13t FT. PIERCE-STUART-VERO BEACH, 121 1 1 FL............................ WZZR-FM....................... 1987 Commodore M18-49 2 WQOL-FM....................... 1995 Commodore 25-54 3t WPAW-FM(5).................... 1995 Commodore 25-54 7 WBBE-FM....................... 1996 Commodore 25-54 1 WAVW-FM....................... 1996 Commodore 25-54 5t WAXE-AM....................... 1996 Commodore 35+ 14t PENSACOLA, FL.................. 125 1 1 WMEZ-FM....................... 1997 Patterson W25-54 3 WXBM-FM....................... 1996 Patterson 25-54 1 WWSF-FM....................... 1996 Patterson 35-54 NA MONTGOMERY, AL................. 142 2 2 WZHT-FM....................... 1997 Benchmark 25-54 1 WMCZ-FM....................... 1997 Benchmark 25-54 4 WMHS-FM....................... 1997 Benchmark 25-54 NA MARKET AND CALL LETTERS(1) FORMAT --------------- ------ BIRMINGHAM, AL................. WMJJ-FM....................... Adult Contemporary WERC-AM....................... News/Talk WOWC-FM....................... Country GREENVILLE, SC................. WJMZ-FM....................... Urban COLUMBIA, SC................... WCOS-FM....................... Country WHKZ-FM....................... Country WVOC-AM....................... News/Talk WSCQ-FM....................... Adult WCOS-AM....................... Country WNOK-FM....................... Contemporary Hits DAYTONA BEACH, FL.............. WGNE-FM....................... Country MELBOURNE-TITUSVILLE-COCOA, FL............................ WMMB-AM....................... Middle-of-the-Road WBVD-FM....................... Classic Rock WMMV-AM....................... Middle-of-the-Road WLRQ-FM....................... Adult Contemporary WHKR-FM....................... Country HUNTSVILLE, AL................. WDRM-FM....................... Country WHOS-AM....................... Country WBHP-AM....................... Country WTAK-FM....................... Classic Rock WXQW-FM....................... Adult Contemporary WWXQ-FM....................... Adult Contemporary FT. PIERCE-STUART-VERO BEACH, FL............................ WZZR-FM....................... Classic Rock WQOL-FM....................... Oldies WPAW-FM(5).................... Country WBBE-FM....................... Adult Contemporary WAVW-FM....................... Country WAXE-AM....................... Financial PENSACOLA, FL.................. WMEZ-FM....................... Adult Contemporary WXBM-FM....................... Country WWSF-FM....................... Oldies MONTGOMERY, AL................. WZHT-FM....................... Urban WMCZ-FM....................... Urban/Adult Contemporary WMHS-FM....................... Urban
69 74
TARGET COMPANY COMPANY STATION DEMO- REVENUE AUDIENCE AUDIENCE MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE SHARE CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4) --------------- -------- ------- ------- ------- ------- -------- -------- SAVANNAH, GA................... 153 1 1 WCHY-AM....................... 1995 Patterson 35-54 NA WCHY-FM....................... 1995 Patterson 25-54 5 WYKZ-FM....................... 1996 Patterson 25-54 NA WAEV-FM....................... 1996 Patterson 18-49 2 WSOK-AM....................... 1996 Patterson 25-54 6 WLVH-FM....................... 1996 Patterson 25-54 1 ASHEVILLE, NC.................. 179 1 1 WWNC-AM....................... 1994 Osborn 25-54 3 WKSF-FM....................... 1994 Osborn 25-54 1 TUSCALOOSA, AL................. 212 1 1 WACT-AM....................... 1997 Osborn 25-54 10t WACT-FM....................... 1997 Osborn 25-54 9 WTXT-FM....................... 1997 Osborn 25-54 1 WZBQ-FM(5).................... 1995 Grant 18-34 2 JACKSON, TN.................... 257 1 1 WTJS-AM....................... 1986 Osborn 25-54 8t WTNV-FM....................... 1986 Osborn 25-54 3 WYNU-FM....................... 1986 Osborn 25-54 1 STATESVILLE, NC................ NA NA NA WFMX-FM....................... 1996 Benchmark 25-54 NA WSIC-AM....................... 1996 Benchmark 25-54 NA GADSDEN, AL(6)................. NA NA 1 WAAX-AM....................... 1994 Osborn 25-54 5 WQEN-FM....................... 1994 Osborn 25-54 2 MARKET AND CALL LETTERS(1) FORMAT --------------- ------ SAVANNAH, GA................... WCHY-AM....................... Country WCHY-FM....................... Country WYKZ-FM....................... Adult Contemporary WAEV-FM....................... Adult Contemporary WSOK-AM....................... Gospel WLVH-FM....................... Adult Contemporary ASHEVILLE, NC.................. WWNC-AM....................... Country WKSF-FM....................... Country TUSCALOOSA, AL................. WACT-AM....................... Gospel WACT-FM....................... Country WTXT-FM....................... Country WZBQ-FM(5).................... Contemporary Hits JACKSON, TN.................... WTJS-AM....................... News/Talk WTNV-FM....................... Country WYNU-FM....................... Classic Rock STATESVILLE, NC................ WFMX-FM....................... Country WSIC-AM....................... News/Talk GADSDEN, AL(6)................. WAAX-AM....................... News/Talk WQEN-FM....................... Adult Contemporary
- --------------- NA Information not available. t Tied with another radio station. (1) Actual city of license may be different from metropolitan market served. Market may be different from market definition used under FCC multiple ownership rules. (2) MSA rank obtained from Arbitron's Summer 1996 Radio Market Survey Schedule. The table does not include stations WESC-AM, WESC-FM, and WFNQ-FM in Greenville, South Carolina, which stations will be sold to SFX in the SFX Exchange. See "The Acquisitions." (3) Company revenue share rank obtained from data in BIA Publications-Radio Analyzer, BIA's MasterAccess, version 1.7 (copyright 1996) (current of February 27, 1997), based upon 1996 gross revenue for the indicated markets. (4) Station audience share rank obtained from Arbitron's Radio Market Reports, based on average quarter hour estimates for the reporting period ending Fall 1996, except for Asheville, North Carolina, Tuscaloosa, Alabama, and Jackson, Tennessee, which are reported as of Spring 1996 because the markets were not ranked for the Fall 1996 period, for the demographic of persons ages 25-54, listening Monday through Sunday, 6 a.m. to midnight. To account for listeners lost to other nearby markets, a radio station's "local" audience share is derived by comparing the radio station's average quarter hour share to the total average quarter hour share for all stations whose signals are heard within the MSA, excluding audience share for listeners who listen to stations whose signals originate outside the MSA. (5) The Company provides certain sales and marketing services to station WPAW-FM in Ft. Pierce-Stuart-Vero Beach, Florida, pursuant to a JSA, and to station WZBQ-FM in Tuscaloosa, Alabama, pursuant to an LMA. (6) Audience share rank obtained from Arbitron's June 1996 County Report (for field work performed in 1995) survey, from the County of Etowah, Alabama which is Gadsden's home county. Southwest Region (GulfStar) Upon consummation of the Pending Transactions, the Company's portfolio of radio stations in the Southwest Region will include 59 radio stations (43 FM and 16 AM) located in 16 markets in Arkansas, Kansas, Louisiana, Mississippi, Oklahoma and Texas. The Company's stations will comprise the leading radio station group based on revenue share in 11 of its 16 markets. History. The GulfStar Transaction, in combination with the Pending Acquisitions of GulfStar, provides the core of the Southwest region with 50 stations located in the following 13 markets: Baton Rouge, Louisiana (six stations); Beaumont, Texas (four stations); Corpus Christi, Texas (four stations); Tyler-Longview, Texas (five stations); Fayetteville, Arkansas (four stations); Fort Smith, Arkansas (three stations); Killeen, Texas (two stations); Lubbock, Texas (six stations); Texarkana, Texas (four stations); Lawton, Oklahoma (two stations); Lufkin, Texas (two stations); Victoria, Texas (two stations); and Waco, Texas (six stations). The Company's stations comprise the leading radio group based on both ratings and revenue share in 11 of these markets. 70 75 GulfStar's portfolio of stations and markets have undergone significant growth during 1996 and in 1997. GulfStar has completed acquisitions of 31 stations in 12 markets during this period and currently has five pending acquisitions for seven stations in one new market and four existing markets. The Benchmark Acquisition provides the Company with two stations in the Shreveport, Louisiana market and four stations in the Jackson, Mississippi market. The SFX Exchange will provide the Company with three stations in the Wichita, Kansas market. Management. The Southwest Region is managed by its president and chief executive officer, John D. Cullen. Mr. Cullen has served as president and chief operating officer of GulfStar since 1996 and brings more than 16 years of radio industry experience to the Company. Prior to joining GulfStar, Mr. Cullen served as a regional manager for SFX. Pro forma for the Pending Transactions, the Southwest Region will include 59 stations in 16 markets. Markets. Management believes that growth opportunities remain in each of its markets in the Southeast Region. Management believes that the benefits of consolidation from GulfStar's completed acquisitions have not yet been fully realized. Because advertising rates of other media are typically more expensive than radio, GulfStar can effectively market an attractively priced alternative medium to non-radio advertisers. The Company currently owns at least one of the top three radio stations in each of its markets. The following table summarizes certain information relating to the Company's radio stations in the Southwest Region, assuming consummation of the Pending Transactions.
TARGET COMPANY COMPANY STATION MARKET AND DEMO- REVENUE AUDIENCE AUDIENCE STATION CALL YEAR SOURCE MSA GRAPHIC SHARE SHARE SHARE LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4) FORMAT ------------ -------- ---------------- ------- -------- ------- -------- -------- ------ BATON ROUGE, LA........... 81 1 1 WYNK-FM.................. 1995 GulfStar 25-54 1 Country WYNK-AM.................. 1995 GulfStar 25-54 16t Country WJBO-AM.................. 1995 GulfStar M 35-64 8 News/Talk/Sports WLSS-FM.................. 1995 GulfStar W 18-35 6t Contemporary Hits KRVE-FM.................. 1997 GulfStar W 25-54 4 Adult Contemporary WBIU-AM.................. 1997 GulfStar 65+ 16t Christian Country WICHITA, KS............... 91 3 3 KKRD-FM.................. 1996 SFX 25-54 6 Contemporary Hits KRZZ-FM.................. 1996 SFX 25-54 3 Classic Rock KNSS-AM.................. 1996 SFX 35-64 11t News/Talk JACKSON, MS............... 118 2 2 WJMI-FM.................. 1996 Benchmark 25-54 4 Urban WOAD-AM.................. 1996 Benchmark 25-54 10t Gospel WKXI-AM.................. 1996 Benchmark 25-54 20 Urban WKXI-FM.................. 1996 Benchmark 25-54 14 Adult Contemporary SHREVEPORT, LA............ 126 2 3 KRMD-FM.................. 1996 Benchmark 25-54 1 Country KRMD-AM.................. 1996 Benchmark 25-54 14 Country BEAUMONT, TX.............. 127 1 1 KLVI-AM.................. 1992 GulfStar 30+ 5 News/Talk KYKR-FM.................. 1992 GulfStar 25-54 2t Country KKMY-FM.................. 1995 GulfStar 30-54 1 Adult Contemporary KIOC-FM.................. 1997 GulfStar 18-34 8 Alternative CORPUS CHRISTI, TX........ 128 1 1 KRYS-FM.................. 1996 GulfStar 25-54 2 Country KRYS-AM.................. 1996 GulfStar 25-54 22 Country KMXR-FM.................. 1996 GulfStar W 20-45 7 Adult Contemporary KNCN-FM.................. 1997 GulfStar M 18-44 8 Album Rock
71 76
TARGET COMPANY COMPANY STATION MARKET AND DEMO- REVENUE AUDIENCE AUDIENCE STATION CALL YEAR SOURCE MSA GRAPHIC SHARE SHARE SHARE LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4) FORMAT ------------ -------- ---------------- ------- -------- ------- -------- -------- ------ TYLER-LONGVIEW, TX........ 143 1 1 KNUE-FM.................. 1994 GulfStar 25-54 1 Country KISX-FM.................. 1996 GulfStar 18-34 2 Adult Contemporary KTYL-FM.................. 1996 GulfStar W 30-54 5 Adult Contemporary KKTX-AM(5)............... Pending Noalmark M 30-49 NA Classic Rock KKTX-FM(5)............... Pending Noalmark M 30-49 6t Classic Rock KILLEEN, TX............... 149 1 1 KIIZ-FM.................. 1996 GulfStar 25-54 1 Urban KLFX-FM(6)............... 1996 GulfStar 18-34 5 Rock FAYETTEVILLE, AR.......... 161 1 1 KEZA-FM.................. 1996 GulfStar 25-54 2 Adult Contemporary KKIX-FM.................. 1997 GulfStar 25-54 1 Country KKZQ-FM.................. 1997 GulfStar 25-54 4 Classic Rock KJEM-FM(5)............... Pending KJEM 35-64 13t Adult Standards FT. SMITH, AR............. 169 1 1 KWHN-AM.................. 1997 GulfStar 35-64 8 News/Talk KMAG-FM.................. 1997 GulfStar 25-49 2 Country KZBB-FM(5)............... Pending Booneville 25-54 5t Album Rock LUBBOCK, TX............... 171 1 1 KFMX-FM.................. 1996 GulfStar M 18-34 4 Album Rock KKAM-AM.................. 1996 GulfStar 18+ 12t Talk KZII-FM.................. 1997 GulfStar 12-34 2 Contemporary Hits KFYO-AM.................. 1997 GulfStar 35+ 9 News/Talk/Sports KCRM-FM.................. 1996 GulfStar W 18-49 7t Adult Contemporary KKCL-FM.................. Pending American General 35-64 3 Oldies WACO, TX.................. 190 1 1 KBRQ-FM.................. 1996 GulfStar M 25-54 2t Classic Rock KKTK-AM.................. 1996 GulfStar M 18-49 6 Classic Rock WACO-FM.................. 1996 GulfStar 25-54 1 Country KCKR-FM.................. 1996 GulfStar 18-49 4 Country KWTX-FM.................. 1996 GulfStar W 25-54 2t Contemporary Hits KWTX-AM.................. 1996 GulfStar 25-54 7 News/Talk TEXARKANA, TX............. 237 1 1 KKYR-AM.................. 1994 GulfStar 25-54 NA Country KKYR-FM.................. 1994 GulfStar 25-54 1 Country KLLI-FM.................. 1997 GulfStar 18-49 3 Country KYGL-FM.................. 1997 GulfStar 35-49 4 Classic Rock LAWTON, OK................ 243 1 1 KLAW-FM(5)............... Pending KLAW 25-54 1 Country KZCD-FM(5)............... Pending KLAW M25-54 2t Rock LUFKIN, TX................ NA NA NA KYKS-FM.................. 1993 GulfStar 12+ NA Country KAFX-FM.................. 1996 GulfStar 18-49 NA Adult Contemporary VICTORIA, TX.............. NA NA 1 KIXS-FM.................. 1993 GulfStar 25-54 2 Country KLUB-FM.................. 1996 GulfStar 25-49 3 Classic Rock
- --------------- NA Information not available. t Tied with another station. (1) Actual city of license may be different from metropolitan market served. Market may be different from market definition used under FCC multiple ownership rules. (2) MSA rank obtained from Arbitron's Summer 1996 Radio Market Survey Schedule. (3) Company revenue share rank compiled from data in BIA Publications Radio Analyzer-BIA's Master Access, Version 1.7 (copyright 1996) (current as of February 27, 1997), based upon 1996 gross revenue for the indicated markets. (4) Company and station audience share rank obtained from Arbitron's Radio Market Reports, based on average quarter hour estimates for the last available reporting period ending either Spring or Fall 1996 for the demographic of persons ages 25-54, listening Monday 72 77 through Sunday, 6:00 a.m. to midnight. To account for listeners lost to other nearby markets, a radio station's "local" audience share is derived by comparing the radio station's average quarter hour share to the total average quarter hour share for all stations whose signals are heard within the MSA, excluding audience share for listeners who listen to stations whose signals originate outside the MSA. (5) Pending the consummation of the respective Pending Acquisitions, the Company provides certain sales, programming and marketing services pursuant to LMAs to stations KKTX-FM and KKTX-AM in Tyler-Longview, Texas; KJEM-FM in Fayetteville, Arkansas; KZBB-FM in Ft. Smith, Arkansas; and KLAW-FM and KZCD-FM in Lawton, Oklahoma. (6) The Company provides certain sales and marketing services to station KLFX-FM in Killeen, Texas, pursuant to a JSA. Midwest Region (Central Star) Upon consummation of the Pending Acquisitions, the Company's portfolio of radio stations in the Midwest Region will include 23 radio stations (15 FM and 8 AM) located in six markets in Illinois, Iowa, Michigan and Wisconsin. The Company's stations will comprise the leading radio station group based on revenue share rank in two of these markets. History. The Madison Acquisition provides the Company with six stations in the Madison, Wisconsin market. As a group, these stations are ranked number one in the market revenue and audience share. The Midwest Region will be enhanced through the completion of three Pending Acquisitions: Patterson (11 stations); Quass (three stations); and Community Pacific (three stations). The Patterson Acquisition will provide the Company with four stations in the Battle Creek-Kalamazoo, Michigan market, four stations in the Grand Rapids, Michigan market, and three stations in the Springfield, Illinois market. The Quass Acquisition will provide the Company with three stations in the Cedar Rapids, Iowa market. The Company will obtain three stations in the Des Moines, Iowa market in connection with the Community Pacific Acquisition. Management. The Midwest Region is being managed on an interim basis by Dex Allen, who also serves as the president and chief executive officer of the West Region. See "-- Regional Operating Groups -- West Region." The Midwest Region will be managed by Mary K. Quass, the current president and chief executive officer of Quass, who will serve as the Midwest Region's president and chief executive officer upon consummation of the Quass Acquisition. Ms. Quass has more than 19 years experience in the radio broadcasting industry in numerous roles, including Vice President and General Manager of radio stations KHAK-FM and KHAK-AM prior to Ms. Quass purchasing such radio stations in 1988. Pro forma for the Pending Acquisitions, the Midwest Region will include 23 stations in six markets. Markets. Although the Company's station clusters in the Midwest Region have leading positions based on audience share in three of the six markets, management believes that substantial opportunity exists to improve the profitability of these clusters by acquiring additional stations in each of these markets. For example, in the Des Moines, Iowa market, the Company operates two FM stations and one AM station. Both FM stations serve the Adult 25-54 demographic, one of which is programmed as an album-oriented rock station and the other as a country station. The Company intends to pursue acquisitions of additional stations in the Des Moines, Iowa market in order to capitalize on its existing infrastructure and market presence and to enhance the financial performance of the station cluster. Management intends to pursue such add-on acquisitions in each of the markets in the Midwest Region. The Midwest Region is highlighted by the Madison, Wisconsin market which ranks number one in both revenue and audience share. The following table summarizes certain information relating to the Company's radio stations in the Midwest Region, assuming consummation of the Pending Acquisitions.
COMPANY COMPANY STATION TARGET REVENUE AUDIENCE AUDIENCE MARKET AND YEAR SOURCE MSA DEMOGRAPHIC SHARE SHARE SHARE STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4) ----------------------- -------- ------- ------- ----------- ------- -------- -------- GRAND RAPIDS, MI............ 66 2 3 WGRD-FM.................... 1996 Patterson 18-34 6 WRCV-AM.................... 1996 Patterson 35+ NA WLHT-FM.................... 1996 Patterson 25-54 3 WQFN-FM.................... Pending Patterson F25-54 14 DES MOINES, IA.............. 89 4 4 KHKI-FM(5)................. 1995 Community Pacific 25-54 7 KGGO-FM(5)................. 1995 Community Pacific 25-54 5 KDMI-AM(5)................. 1995 Community Pacific NA NA MARKET AND STATION CALL LETTERS(1) FORMAT ----------------------- ------ GRAND RAPIDS, MI............ WGRD-FM.................... Modern Rock WRCV-AM.................... Country WLHT-FM.................... Adult Contemporary WQFN-FM.................... Easy DES MOINES, IA.............. KHKI-FM(5)................. Country KGGO-FM(5)................. Album Rock KDMI-AM(5)................. Religion
73 78
COMPANY COMPANY STATION TARGET REVENUE AUDIENCE AUDIENCE MARKET AND YEAR SOURCE MSA DEMOGRAPHIC SHARE SHARE SHARE STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4) ----------------------- -------- ------- ------- ----------- ------- -------- -------- MADISON, WI................. 120 1 1 WIBA-AM.................... 1995 Madison 35-64 8t WIBA-FM.................... 1995 Madison 25-54 4 WMAD-FM.................... 1995 Madison 18-34 5 WTSO-AM.................... 1997 Madison 35-64 14 WZEE-FM.................... 1997 Madison 18-49 2 WMLI-FM.................... 1997 Madison 35-64 13 SPRINGFIELD, IL............. 192 3 3 WFMB-AM.................... 1996 Patterson M35-64 9 WFMB-FM.................... 1996 Patterson 25-54 4 WCVS-FM.................... 1996 Patterson 25-54 12 CEDAR RAPIDS, IA............ 197 2 1 KHAK-FM.................... 1988 Quass 25-54 1 KDAT-FM.................... 1995 Quass 25-54 2 KTOF-AM.................... 1988 Quass 25-54 9t BATTLE CREEK/KALAMAZOO, MI......................... 229 1 1 WBCK-AM.................... 1996 Patterson 35-64 2 WBXX-FM.................... 1996 Patterson 25-54 1 WRCC-AM.................... 1996 Patterson 45+ 4 WWKN-FM.................... 1996 Patterson 35-64 NA MARKET AND STATION CALL LETTERS(1) FORMAT ----------------------- ------ MADISON, WI................. WIBA-AM.................... News/Talk WIBA-FM.................... Classic Rock WMAD-FM.................... Modern Rock WTSO-AM.................... News/Talk WZEE-FM.................... Adult Contemporary WMLI-FM.................... Soft Hits SPRINGFIELD, IL............. WFMB-AM.................... News/Talk/Sports WFMB-FM.................... Country WCVS-FM.................... 70's Oldies CEDAR RAPIDS, IA............ KHAK-FM.................... Country KDAT-FM.................... Soft Rock KTOF-AM.................... Christian Contemporary BATTLE CREEK/KALAMAZOO, MI......................... WBCK-AM.................... News/Talk WBXX-FM.................... Adult Contemporary WRCC-AM.................... Adult Standards WWKN-FM.................... Oldies
- --------------- NA Information not available. t Tied with another station. (1) Actual city of license may be different from metropolitan market served. Market may be different from market definition used under FCC multiple ownership rules. (2) MSA rank obtained from Arbitron's Summer 1996 Radio Market Survey Schedule. The table does not include station WING-FM in Dayton, Ohio, which station is owned by the Company and for which an unrelated third party, who has an option to purchase such station, currently provides certain sales, programming and marketing services pursuant to a LMA. (3) Company revenue share rank obtained from data in BIA Publication-Radio Analyzer, BIA's MasterAccess, version 1.7 (copyright 1996) (currently as of February 27, 1997), based upon 1996 gross revenue for the indicated markets. (4) Company and station audience rank share obtained from Arbitron's Radio Market Reports, based on average quarter hour estimates for the reporting period ending either Spring or Fall 1996, for the demographic of persons ages 25-54, listening Monday through Sunday, 6:00 a.m. to midnight. To account for listeners lost to other nearby markets, a radio station's "local" audience is derived by comparing the radio station's average quarter hour share to the total average quarter hour share for all stations whose signals are heard within the MSA, excluding audience share for listeners who listen to stations whose signals originate outside the MSA. (5) The Company provides certain sales, programming and marketing services pursuant to an LMA, pending the consummation of the Community Pacific Acquisition, to stations KHKI-FM, KGGO-FM and KDMI-AM in Des Moines, Iowa. West Region (Pacific Star) Upon consummation of the Pending Acquisitions, the Company will own and operate or provide services to 35 radio stations (22 FM and 13 AM) in the West Region. These stations are located in nine markets in Alaska, Arizona, California, Hawaii, Nevada and New Mexico. The Company's stations will comprise the leading radio station cluster based on revenue share in one of these markets. History. The GulfStar Transaction provides the Company with four stations in the Farmington, New Mexico market. The West Region will be enhanced through the completion of four pending acquisitions: COMCO (six stations); Commonwealth (three stations); Community Pacific (seven stations); and Patterson (15 stations). The COMCO Acquisition will provide the Company with three stations in the Fairbanks, Alaska market. In Anchorage, Alaska, the Company will create a six-station cluster combining three stations from the COMCO Acquisition and three stations from the Community Pacific Acquisition. This cluster will provide the Company with the number one and number two rankings in audience share and revenue share, respectively. The Community Pacific Acquisition will also provide the Company with two stations in each of the Stockton and Modesto, California markets. All of the stations to be acquired as part of the Commonwealth Acquisition are located in Yuma, Arizona. In addition, the Patterson Acquisition will enhance the Company's West Region station portfolio with three new markets, including Honolulu, Hawaii (seven stations), Fresno, California (five stations) and Reno, Nevada (three stations). 74 79 Management. The West Region is managed by its president and chief executive officer, Dex Allen, who has over 35 years of experience in the radio broadcasting industry. Mr. Allen has served as the managing member of Commonwealth since 1984 and is expected to continue to serve in such position until the consummation of the Commonwealth Acquisition. Pro forma for the Pending Acquisitions, the West Region will include 35 stations in nine markets. Markets. Management believes that the West Region has significant growth potential and the current markets have substantial consolidation and add-on capabilities. Management hopes to replicate its success in Honolulu, Hawaii, where the Company holds the number one revenue share and number one audience share ranks in the market. The seven stations target a broad demographic spectrum with five different formats: Adult Contemporary, Jazz, Classic Rock, Contemporary Hits and News/Talk. Another strong radio cluster will be formed upon consummation of two Pending Acquisitions. The Community Pacific Acquisition and the COMCO Acquisition will bring a six-station cluster together in Anchorage, Alaska which when combined will form the number two radio station group in terms of revenue share and the number one group in terms of audience share. The Company believes that both of these markets and the other West Region markets have not fully realized the benefits of economies of scale or revenue enhancements associated with station consolidation. The Company expects to build on its success in Honolulu, which ranks number one in revenue share and audience share, through continued consolidation and economies of scale in its existing portfolio in the West Region. The following table summarizes certain information relating to the Company's radio stations in the West Region, assuming consummation of the Pending Acquisitions.
COMPANY COMPANY STATION MARKET AND TARGET REVENUE AUDIENCE AUDIENCE STATION CALL YEAR SOURCE MSA DEMOGRAPHIC SHARE SHARE SHARE LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4) FORMAT ------------ -------- ----------------- ------- ----------- ------- -------- -------- ------ HONOLULU, HI......... 58 1 1 KSSK-AM............ 1995 Patterson 25-54 3 Adult Contemporary KSSK-FM............ 1995 Patterson 25-54 1 Adult Contemporary KUCD-FM............ 1995 Patterson 35-54 12 Jazz KHVH-AM............ 1996 Patterson 35-64 11 News/Talk KKLV-FM............ 1996 Patterson M 35-54 8 Classic Rock KIKI-AM............ 1996 Patterson 18-34 NA Contemporary Hits KIKI-FM............ 1996 Patterson 18-34 4 Contemporary Hits FRESNO, CA........... 65 2 3 KBOS-FM............ 1996 Patterson 18-34 3 Contemporary Hits KCBL-AM............ 1996 Patterson M 18-49 NA Sports KRZR-FM............ 1995 Patterson M 18-49 8 Album Rock KRDU-AM............ Pending Patterson NA NA Religion KJOI-FM............ Pending Patterson 25-54 7 Adult Contemporary STOCKTON, CA......... 85 3 3 KVFX-FM(5)......... 1994 Community Pacific 18-49 4 Classic Rock KJAX-AM(5)......... 1996 Community Pacific 35-64 6 Talk MODESTO, CA.......... 121 2 2 KJSN-FM(5)......... 1982 Community Pacific 25-54 3 Adult Contemporary KFIV-AM(5)......... 1982 Community Pacific 35-64 7t Talk RENO, NV............. 133 4 3 KRNO-FM............ 1996 Patterson 25-54 3 Adult Contemporary KWNZ-FM............ 1996 Patterson 18-34 2 Contemporary Hits KCBN-AM............ 1996 Patterson 35-64 19t Middle of the Road ANCHORAGE, AK(6)..... 165 2 1 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 1 KIAK-FM............ 1993 COMCO 25-54 1 Country KIAK-AM............ 1993 COMCO 25-54 7 News/Talk KAKQ-FM............ 1994 COMCO 25-54 2t Adult Contemporary
75 80
COMPANY COMPANY STATION MARKET AND TARGET REVENUE AUDIENCE AUDIENCE STATION CALL YEAR SOURCE MSA DEMOGRAPHIC SHARE SHARE SHARE LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4) FORMAT ------------ -------- ----------------- ------- ----------- ------- -------- -------- ------ FARMINGTON, NM....... NA NA KKFG-FM............ 1997 GulfStar NA 25-54 NA Country KDAG-FM............ 1997 GulfStar M 25-54 NA Classic Rock KCQL-AM............ 1997 GulfStar 35+ NA Oldies KTRA-FM............ 1997 GulfStar 18-49 NA Country YUMA, AZ............. NA NA 1 KYJT-FM............ 1986 Commonwealth 25-49 1 Classic Hits KTTI-FM............ 1995 Commonwealth 25-54 2 Country KBLU-AM............ 1995 Commonwealth 35-64 8t Oldies
- --------------- >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. 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 pursuant to an LMA, pending the consummation of the Community Pacific Acquisition, to stations KVFX-FM and KJAX-AM in Stockton, California; 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 dispose of station KASH-AM in connection with the 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 the strong ratings of its country music stations by integrating its radio stations with its Capitol Music Hall, a 2,500-seat theater that hosts approximately 100 music, comedy and dramatic performances each year, and Jamboree in the Hills, an annual outdoor festival featuring 20 or more country music stars held on a 200-acre site owned by the Company outside of Wheeling. The Company also distributes programmed music, primarily Muzak, in the Atlanta, Macon and Albany, Georgia and Ft. Myers, Florida markets. As the exclusive Muzak franchisee in these markets, the Company provides subscribers with commercial-free Muzak programming ranging from traditional background music to newer formats including country and soft rock. The Company also sells, leases and installs the equipment required to receive the programming via satellite and other media and also designs, sells and installs sound, closed-circuit video and security systems and equipment in locations such as offices, schools, hospitals, shopping malls and stadiums. In addition, the Company is an authorized distributor of the Rauland-Borg line of communications equipment for schools and hospitals in various markets. INDUSTRY OVERVIEW Radio stations generate the majority of their revenue from the sale of advertising time to local and national spot advertisers and national network advertisers. Radio serves primarily as a medium for local advertising. During the past decade (1985-1995), local advertising revenue as a percentage of total radio advertising revenue in a given market has ranged from approximately 75% to 80%. The growth in total radio advertising revenue tends to be fairly stable and has generally grown at a rate faster than the Gross National Product (the "GNP"). With the exception of 1991, when total radio advertising revenue fell by approximately 3.1% compared to the 76 81 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, 1997, radio reaches approximately 95.1% of all Americans over the age of 12 each week. More than one-half of all radio listening is done outside the home, in contrast to other advertising mediums, and four out of five adults are reached by car radio each week. The average listener spends approximately three hours and 20 minutes per day listening to radio. The highest portion of radio listenership occurs during the morning, particularly between the time a listener wakes up and the time the listener reaches work. This "morning drive time" period reaches more than 82.5% of people over 12 years of age and, as a result, radio advertising sold during this period achieves premium advertising rates. Radio listeners have gradually shifted over the years from AM (amplitude modulation) to FM (frequency modulation) stations. FM reception, as compared to AM, is generally clearer and provides greater tonal range and higher fidelity. FM's listener share is now in excess of 75%, despite the fact that the number of AM and FM commercial stations in the United States is approximately equal. COMPETITION; CHANGES IN BROADCASTING INDUSTRY The radio broadcasting industry is highly competitive. The success of each of the Company's stations depends largely upon its audience ratings and its share of the overall advertising revenue within its market. The Company's stations compete for listeners and advertising revenue directly with other radio stations within their respective markets. Radio stations compete for listeners primarily on the basis of program content that appeals to a particular demographic group. By building a strong listener base consisting of a specific demographic group in each of its markets, the Company is able to attract advertisers seeking to reach those listeners. Factors that are material to a radio station's competitive position include management experience, the station's local audience rank in its market, transmitter power, assigned frequency, audience characteristics, local program acceptance and the number and characteristics of other radio stations in the market area. The Company attempts to improve its competitive position with promotional campaigns aimed at the demographic groups targeted by its stations and by sales efforts designed to attract advertisers. Recent changes in the FCC's policies and rules permit increased ownership and operation of multiple local radio stations. Management believes that radio stations that elect to take advantage of joint arrangements such as LMAs or JSAs may in certain circumstances have lower operating costs and may be able to offer advertisers more attractive rates and services. Although the Company currently operates several multiple station groups and intends to pursue the creation of 77 82 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 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 78 83 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, WROV-AM, KCBL-AM, KCQL-AM, WFMB-AM, WRCC-AM, WKXI-AM, KWTX-AM, KKTX-AM, WTCY-AM, WEEX-AM, KKAM-AM, KNSS-AM, and KCBN-AM which are local channel stations, and WINE-AM, WPUT-AM, WKEE-AM, WWVA-AM, WHOS-AM, WESC-AM, KYAK-AM, WTSO-AM, KHVH-AM, KENI-AM, KIKI-AM, KRDU-AM, KFYO-AM, WBIU-AM and WNTW-AM which are clear channel stations. Ownership Matters. The Communications Act prohibits the assignment of a broadcast license or the transfer of control of a broadcast licensee without the prior approval of the FCC. In determining whether to grant such approval, the FCC considers a number of factors pertaining to the licensee, including compliance with the various rules limiting common ownership of media properties, the "character" of the licensee and those persons holding "attributable" interests therein, and compliance with the Communications Act's limitations on alien ownership as well as compliance with other FCC policies, including FCC equal employment opportunity requirements. A transfer of control of a corporation controlling a broadcast license may occur in various ways. For example, a transfer of control occurs if an individual stockholder gains or loses "affirmative" or "negative" control of such corporation through issuance, redemption or conversion of stock. "Affirmative" control would consist of control of more than 50% of such corporation's outstanding voting power and "negative" control would consist of control of exactly 50% of such voting power. To obtain the FCC's prior consent to assign or 79 84 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. Thomas O. Hicks, a director of the Company, is the President and a director of HM2/Chancellor, which through Chancellor holds attributable interests in radio stations in various markets in the States of California, Florida, Minnesota, New York, Ohio, Arizona, Colorado, Georgia, Pennsylvania, as well as in Washington, D.C. Upon completion of Chancellor's pending merger with Evergreen Media Corporation, Chancellor will also hold attributable interests in various markets in the additional states of Illinois, Massachusetts, Michigan and Texas. Thomas O. Hicks is also the President, Chief Executive Officer and Chief Operating Officer and 100% stockholder of HM3/Sunrise, which through STC Broadcasting, Inc. owns television stations in California, New York and Michigan and is seeking to acquire an attributable interest in a television station in Ohio. Eric C. Neuman is a director of the Company, the Vice President and Secretary of HM2/Chancellor, and the Vice President of HM3/Sunrise. In determining whether the Company is in compliance with the local ownership limits on AM and FM stations, the FCC will consider the Company's AM and FM holdings as well as the attributable broadcast interests of the Company's officers, directors and attributable stockholders. Accordingly, the attributable broadcast interests of the Company's officers and directors described in the preceding paragraph will limit the 80 85 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. If the proposed merger of Chancellor and Evergreen Media Corporation is completed, Thomas O. Hicks, through his control of HM2/Chancellor and the Company, will have an attributable interest in a total number of radio stations serving the Philadelphia, Pennsylvania market which exceeds FCC multiple ownership limitations. The FCC could require the Company to divest itself of radio stations WJBR-FM and WJBR-AM, which serve the Wilmington, Delaware market. The Company proposes to assign the broadcasting licenses of such stations to a newly-formed company which will be structured to satisfy FCC multiple ownership rules and cross-interest limitations. While management of the Company believes that such arrangement will meet FCC multiple ownership rules and cross-interest limitations as they presently exist, there can be no assurance that the FCC will act favorably on the proposed assignment or that the FCC will not amend its rules and policies in an adverse manner. The Company does not believe that an unfavorable decision by the FCC would have a material adverse effect on the financial condition of the Company. The Communications Act prohibits the issuance of broadcast licenses to, or the holding of broadcast licenses by, any corporation of which more than 20% of the capital stock is owned of record or voted by non-U.S. citizens or their representatives or by a foreign government or a representative thereof, or by any corporation organized under the laws of a foreign country (collectively, "Aliens"). The Communications Act also authorizes the FCC, if the FCC determines that it would be in the public interest, to prohibit the issuance of a broadcast license to, or the holding of a broadcast license by, any corporation directly or indirectly controlled by any other corporation of which more than 25% of the capital stock is owned of record or voted by Aliens. The Company has been advised that the FCC staff has interpreted this provision to require a public interest finding in favor of such a grant or holding before a broadcast license may be granted to or held by any such corporation and has made such a finding only in limited circumstances generally involving licenses other than broadcast licenses. The FCC has issued interpretations of existing law (i) under which these restrictions in modified form apply to other forms of business organizations, including partnerships and (ii) indicating how alien interests in a company that are held directly through intermediate entities should be considered in determining whether that company is in compliance with these alien ownership restrictions. As a result of these provisions, the licenses granted to the radio station subsidiaries of the Company by the FCC could be revoked if, among other restrictions imposed by the FCC, more than 25% of the Company's stock were directly or indirectly owned or voted by Aliens. The Company is an indirect wholly-owned subsidiary of Capstar Broadcasting. Accordingly, Capstar Broadcasting's Certificate of Incorporation restricts the ownership, voting and transfer of Capstar Broadcasting's capital stock in accordance with the Communications Act and the rules of the FCC, and prohibits ownership of more than 25% of Capstar Broadcasting's outstanding capital stock (or more than 25% of the voting rights it represents) by or for the account of Aliens or corporations otherwise subject to domination or control by Aliens. The Certificate of Incorporation authorizes Capstar Broadcasting's Board of Directors to adopt such provisions as it deems necessary to enforce these prohibitions. In addition, the Certificate of Incorporation provides that shares of capital 81 86 stock of Capstar Broadcasting determined by Capstar Broadcasting's Board of Directors to be owned beneficially by an Alien or an entity directly or indirectly owned by Aliens in whole or in part shall always be subject to redemption by Capstar Broadcasting by action of the Board of Directors to the extent necessary, in the judgment of the Board of Directors, to comply with these alien ownership restrictions. Local Marketing Agreements. Over the past few years, a number of radio stations have entered into what have commonly been referred to as local marketing agreements or LMAs. While these agreements may take varying forms, under a typical LMA, separately owned and licensed radio stations agree to enter into cooperative arrangements of varying sorts, subject to compliance with the requirements of antitrust laws and with the FCC's rules and policies. Under these arrangements, separately-owned stations could agree to function cooperatively in programming, advertising sales and similar matters, subject to the requirement that the licensee of each station maintain independent control over the programming and operations of its own station. One typical type of LMA is a programming agreement between two separately-owned radio stations serving a common service area, whereby the licensee of one station programs substantial portions of the broadcast day on the other licensee's station, subject to ultimate editorial and other controls being exercised by the latter licensee, and sells advertising time during those program segments. Such arrangements are an extension of the concept of "time brokerage" agreements, under which a licensee of a station sells blocks of time on its station to an entity or entities that program the blocks of time and sell their own commercial advertising announcements during the time periods in question. 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 82 87 rules, the Company may be required to terminate any JSA it might have with a radio station which the Company could not own under the FCC's multiple ownership rules. Programming and Operation. The Communications Act requires broadcasters to serve the "public interest." The FCC gradually has relaxed or eliminated many of the more formalized procedures it had developed in the past to promote the broadcast of certain types of programming responsive to the needs of a station's community of license. A licensee continues to be required, however, to present programming that is responsive to issues of the station's community and to maintain certain records demonstrating such responsiveness. Complaints from listeners concerning a station's programming often will be considered by the FCC when it evaluates renewal applications of a licensee, although listener complaints may be filed at any time and generally may be considered by the FCC at any time. Stations also must pay regulatory and application fees and follow various rules promulgated under the Communications Act that regulate, among other things, political advertising, sponsorship identifications, the advertisement of contests and lotteries, obscene and indecent broadcasts, and technical operations, including limits on radio frequency radiation. In addition, licensees must develop and implement affirmative action programs designed to promote equal employment opportunities and must submit reports to the FCC with respect to these matters on an annual basis and in connection with a renewal application. Failure to observe these or other rules and policies can result in the imposition of various sanctions, including monetary forfeitures, the grant of "short term" (less than the full term) license renewal or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license. Proposed and Recent Changes. The FCC has a pending rulemaking proceeding that seeks, among other things, comment on whether the FCC should modify its radio and television broadcast ownership "attribution" rules by (i) raising the basic benchmark for attributing ownership in a corporate licensee from 5% to 10% of the licensee's outstanding voting power, (ii) increasing from 10% to 20% of the licensee's outstanding voting power the attribution benchmark for "passive investors" in corporate licensees, (iii) attributing certain minority stockholdings in corporations with a single majority shareholder and (iv) attributing certain LMA, JSA, debt or non-voting stock interests that have heretofore been non-attributable. Moreover, Congress and the FCC have under consideration, and in the future may consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could affect, directly or indirectly, the operation, ownership and profitability of the Company's radio stations, result in the loss of audience share and advertising revenues for the Company's radio stations, and affect the ability of the Company to acquire additional radio stations or to finance those acquisitions. Such matters may include spectrum use or other fees on FCC licenses; foreign ownership of broadcast licenses; revisions to the FCC's equal employment opportunity rules and rules relating to political broadcasting; technical and frequency allocation matters; proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages on radio; changes in the FCC's cross-interest, multiple ownership and attribution policies; new technologies such as DAB; and proposals to auction the right to use the radio broadcast spectrum to the highest bidder. The Company cannot predict what other matters might be considered in the future by the FCC or Congress, nor can it judge in advance what impact, if any, the implementation of any of these proposals or changes might have on its business. Federal Antitrust Laws. In addition to the risks associated with the acquisition of radio stations, the Company is also aware of the possibility that certain acquisitions it proposes to make may be investigated by the FTC or the DOJ, which are the agencies responsible for enforcing the federal antitrust laws. The agencies have recently investigated several radio station acquisitions where an operator proposed to acquire new stations in its existing markets, including the Benchmark Acquisition and the Patterson Acquisition. The DOJ's investigation with respect to the Benchmark Acquisition was closed, however, when the DOJ granted early termination of the applicable waiting period under the HSR Act in May 1997. The Company cannot predict the outcome of any specific DOJ or FTC investigation, which are necessarily very fact specific. Any decision by the FTC or the DOJ to challenge a proposed acquisition could affect the ability of the Company to consummate the acquisition or to consummate it on the proposed terms. 83 88 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 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. The Company has filed, or intends to file, a Notification and Report Form with the DOJ and the FTC with respect to each of the Ameron Acquisition, the Patterson Acquisition, and the SFX Exchange. No other Pending Acquisition is subject to the HSR Act. The DOJ has raised an issue with the Company regarding the number of radio stations that the Company will own in the Allentown-Bethlehem, Pennsylvania area upon completion of the Patterson Acquisition and has issued a Second Request in connection therewith. The Company has recently begun discussions with the DOJ to resolve the matter. See "The Acquisitions -- Patterson Acquisition." As part of its increased scrutiny of radio station acquisitions, the DOJ has stated publicly that it believes that LMAs, JSAs and other similar agreements customarily entered into in connection with radio station transfers prior to the expiration of the waiting period under the HSR Act could violate the HSR Act. EMPLOYEES At March 31, 1997, the Company had a staff of 600 full-time employees and 242 part-time employees. If the GulfStar Transaction, the Space Coast Acquisitions, the Benchmark Acquisition, the Madison Acquisition, the Osborn Add-on Transactions, the Cavalier Acquisition and the Emerald City Acquisition had been consummated as of March 31, 1997, the Company would have had a staff of approximately 1,656 full-time employees and 660 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. 84 89 SEASONALITY Seasonal revenue fluctuations are common in the radio broadcasting industry and are due primarily to fluctuations in advertising expenditures by retailers. The Company's revenues and broadcast cash flows are typically lowest in the first quarter and highest in the second and fourth quarters. PROPERTIES AND FACILITIES The types of properties required to support each of the Company's radio stations include offices, studios and transmitter/antenna sites. A station's studios are generally housed with its offices in downtown or business districts. The transmitter/antenna sites generally are located so as to provide maximum market coverage. The Company owns transmitter and antenna sites in Gadsden and Tuscaloosa, Alabama; Norwalk and Brookfield, Connecticut; Wilmington and Dover, Delaware; Ft. Pierce, Melbourne, Port St. Lucie and Vero Beach, Florida; Catlettsburg, Kentucky; Hartsdale and Brewster, New York; Asheville and Statesville, North Carolina; Dayton, Ohio; Whitehall, Pennsylvania; Jackson, Tennessee; Huntington and Wheeling, West Virginia; Des Moines, Iowa; and Manteca, California. The Company also leases transmitter and antenna sites in Tuscaloosa, Alabama; Stamford, Connecticut; Bethany Beach, Delaware; Indian River County, Cocoa and Vero Beach, Florida; Asheville and Cool Springs, North Carolina; Bridgeport and Dayton, Ohio; Washington Township and Bethlehem, Pennsylvania; Huntington, Milton and Cabell County and Wheeling, West Virginia; Pawling and Bedford, New York; Anchorage, Alaska; Modesto and Stockton, California; and Des Moines, Iowa. The Company typically leases studio and office space, although it owns its facilities in Gadsden and Tuscaloosa, Alabama; Brookfield, Connecticut; Port St. Lucie and Ft. Pierce, Florida; Catlettsburg, Kentucky; Hartsdale and Patterson, New York; Asheville, North Carolina; Jackson, Tennessee; Huntington and Wheeling, West Virginia; Des Moines, Iowa; Anchorage, Alaska; and Monterey, Modesto and Stockton, California. In addition, as a result of the completion of the GulfStar Transaction, the Benchmark Acquisition, the Madison Acquisition, the Cavalier Acquisition and the Emerald City Acquisition, the Company also owns transmitter and antenna sites in Ft. Smith, Arkansas; Jackson, Mississippi; Farmington, New Mexico; Columbia, Garrison and Greenville, South Carolina; Waco, Beaumont, Lubbock, Corpus Christi, Texarkana, and Victoria, Texas; and Amherst County, Bedford County, Roanoke and Winchester, Virginia. The Company also leases transmitter and antenna sites in Ft. Smith and Fayetteville, Arkansas; Baton Rouge and Caddo Parish, Louisiana; Jackson and Pelahatchi, Mississippi; Farmington, New Mexico; Waco, Beaumont, Killeen, Lubbock, Corpus Christi, Lufkin, Tyler, Victoria, and Texarkana, Texas; and Boonea Mill and Winchester, Virginia. The Company owns or leases studio and office space in Ft. Smith and Fayetteville, Arkansas; Dover, Delaware; Shreveport and Baton Rouge, Louisiana; Columbia and Greenville, South Carolina; Beaumont, Killeen, Lubbock, Lufkin, Waco, Tyler, Corpus Christi, Victoria, and Texarkana, Texas; and Roanoke, Virginia. The Company generally considers its facilities to be suitable and of adequate size for its current and intended purposes. The Company does not anticipate any difficulties in renewing any facility leases or in leasing additional space, if required. The Company owns substantially all of its other equipment, consisting principally of transmitting antennae, transmitters, studio equipment and general office equipment. The towers, antennae and other transmission equipment used by the Company's stations are generally in good condition, although opportunities to upgrade facilities are continuously reviewed. The principal executive offices of the Company are located at 600 Congress Avenue, Suite 1400, Austin, Texas 78701. The telephone number of the Company at that address is (512) 404-6840. LITIGATION The Company is involved in litigation from time to time in the ordinary course of its business. In management's opinion, the litigation in which the Company is currently involved, individually and in the aggregate, is not material to the Company's financial condition or results of operations. 85 90 THE ACQUISITIONS As part of the Company's overall strategy to capitalize on the opportunities created by the Telecom Act, the Company has entered into 16 agreements to acquire or assume agreements to provide services to 88 additional stations in 33 mid-sized markets (including 19 stations in six markets for which the Company currently provides services pursuant to an LMA) and, upon completion of the Pending Transactions, the Company will own and operate or provide services to 233 radio stations in 62 mid-sized markets located throughout the United States. Any such acquisition agreements pursuant to which Capstar Broadcasting or any subsidiary of Capstar Broadcasting (other than the Company) is a party will be assigned or contributed to Capstar Radio upon or prior to consummation of the acquisition. The Company must obtain additional financing to consummate the Pending Acquisitions and there can be no assurance that such financing will be available to the Company on terms acceptable to its management or at all. The consummation of the Pending Acquisitions is subject to various conditions, including FCC and other regulatory approval. No assurances can be given that any or all of the Pending Acquisitions will be consummated or that, if completed, they will be successful. GULFSTAR TRANSACTION In July 1997, Capstar Broadcasting, CBC -- GulfStar Merger Sub, Inc., a wholly-owned subsidiary of Capstar Broadcasting ("MergeCo"), merged with GulfStar, pursuant to which (i) the separate existence of GulfStar ceased, (ii) MergeCo survived as a wholly-owned subsidiary of Capstar Broadcasting and was renamed "GulfStar Communications, Inc.," (iii) each issued and outstanding share of MergeCo capital stock remained outstanding after the GulfStar Merger, (iv) each share of common stock of GulfStar outstanding immediately prior to the effective time (the "Effective Time") of the GulfStar Merger was converted into the right to receive a number of shares of Common Stock as more fully described hereinafter, and (v) each share of preferred stock of GulfStar outstanding immediately prior to the Effective Time was converted into the right to receive an amount in cash equal to its liquidation preference, including accumulated dividends, immediately prior to the GulfStar Merger, which amount equalled $29.4 million in the aggregate for all outstanding shares of preferred stock. Pursuant to the terms of the GulfStar Merger, each share of GulfStar's common stock, par value $.01 per share ("GulfStar Common Stock"), and GulfStar's Class A Common Stock, par value $.01 per share ("GulfStar Class A Stock"), was converted into the right to receive 1,187.947 shares of Class A Common Stock and each share of GulfStar's Class B Common Stock, par value $.01 per share ("GulfStar Class B Stock"), and Class C Common Stock, par value $.01 per share ("GulfStar Class C Stock"), was converted into the right to receive 1,187.947 shares of Class B Common Stock, par value $.01 per share ("Class B Common Stock"), of Capstar Broadcasting and Class C Common Stock, respectively, provided that each share of GulfStar Class A Stock and each share of GulfStar Class C Stock held by R. Steven Hicks or Thomas O. Hicks was converted into the right to receive 1,187.947 shares of Class C Common Stock of Capstar Broadcasting. Immediately prior to the Effective Time, BT Capital Partners, Inc. ("BT Capital"), an affiliate of BT Securities Corporation (an initial purchaser in the Preferred Stock Offering and the Capstar Radio Notes Offering), exercised a warrant previously issued by GulfStar to BT Capital, and upon such exercise received 8,098 shares of GulfStar Class B Stock. At the Effective Time, Capstar Broadcasting assumed GulfStar's obligations under two option agreements (the "Assumed Options") pursuant to which, subject to certain terms and conditions, GulfStar was obligated to issue an aggregate of 1,000 shares of GulfStar Common Stock to two employees of GulfStar. The Assumed Options are deemed to be options to acquire an aggregate of 1,187.947 shares of Class A Common Stock at an exercise price of $0.71 per share. Upon completion of the GulfStar Merger, Capstar Broadcasting and the stockholders of GulfStar, except R. Steven Hicks, entered into the GulfStar Stockholders Agreement. See "Certain Transactions -- Stockholders Agreements." The conversion ratio was calculated by the parties based on the relative value of Capstar Broadcasting and GulfStar principally determined by utilizing projected broadcast cash flows for the fiscal year ending December 31, 1998. Thomas O. Hicks, a director of Capstar Broadcasting and the Company, beneficially owns 100% of the outstanding capital stock of Capstar Broadcasting and beneficially owned 87.3% of the voting power of GulfStar. In addition, Thomas O. Hicks and R. Steven Hicks, Chairman of the Board and Chief Executive Officer, filled two of the four director seats of GulfStar, and R. Steven Hicks was also the Chief Executive Officer of GulfStar. 86 91 Upon completion of the GulfStar Merger, R. Steven Hicks became entitled to receive 11,879,470 shares of Class C Common Stock, Thomas O. Hicks became entitled to receive 12,000,000 shares and 34,369,136 shares of Class B Common Stock and Class C Common Stock, respectively, Eric C. Neuman, Paul D. Stone, Lawrence D. Stuart, Jr. and John D. Cullen became entitled to receive 2,500,628 shares, 2,271,355 shares, 637,928 shares, and 3,292,989 shares, respectively, of Class A Common Stock, and BT Capital became entitled to receive 9,619,995 shares of Class B Common Stock. In July 1997, the advisory committee of HM Fund III approved the terms of the GulfStar Merger. Upon completion of the GulfStar Merger, Capstar Broadcasting contributed GulfStar through the Company to Capstar Radio in exchange for common stock of the Company, and as a result, GulfStar became a wholly owned subsidiary of the Company. AMERON ACQUISITION On April 24, 1997, the Company agreed to acquire substantially all of the assets of Ameron Broadcasting, Inc. ("Ameron") used or held for use in the operation of radio stations WOWC-FM, WMJJ-FM and WERC-AM, which serve the Birmingham, Alabama market (the "Ameron Acquisition"). The purchase price of the Ameron Acquisition will be approximately $31.5 million payable in cash. In May 1997, the Company and Ameron filed an application with the FCC for approval to transfer control of such radio stations to the Company, and in July 1997 the DOJ granted early termination of the waiting period under the HSR Act. The Company anticipates that the Ameron Acquisition will be consummated in October 1997. Under the terms of the acquisition agreement, which was entered into by Capstar Acquisition Company, Inc., a subsidiary of the Company ("Capstar Acquisition Co."), the acquisition agreement may be terminated by Ameron prior to consummation of the asset purchase under various circumstances, including a material breach of any representation, warranty, covenant or agreement by Capstar Acquisition Co. If the acquisition agreement is terminated due to a material breach of any representation, warranty, covenant or agreement by Capstar Acquisition Co., then Ameron will be entitled to liquidated damages in the amount of $1,000,000 as Ameron's exclusive remedy. Capstar Acquisition Co. has secured its obligation to consummate the asset purchase by placing $1.0 million in cash into escrow. See "Description of Other Indebtedness -- Letters of Credit." In a related transaction, the Company agreed on May 5, 1997, to assume from Sharepoint Management, Inc. ("Sharepoint") certain construction permits issued to Sharepoint by the FCC to construct and operate a new FM Broadcast Station in Columbiana, Alabama (the "Permit Agreement"). Since Sharepoint is controlled by the president of Ameron, Ameron has agreed in an amendment to the acquisition agreement dated May 9, 1997 to reduce the purchase price to be paid under the acquisition agreement on a dollar-for-dollar basis by the amount of the purchase price to be paid under the Permit Agreement, which is expected to be $75,000. The Company and Ameron have also agreed in an amendment to the acquisition agreement that the Company has the right to extend the closing thereunder in exchange for increasing the purchase price payable thereunder by $65,000. COMCO ACQUISITION On February 3, 1997, the Company agreed to acquire substantially all of the assets of COMCO Broadcasting, Inc. ("COMCO") (the "COMCO Acquisition"). The purchase price of the COMCO Acquisition will equal approximately $6.7 million payable in cash. COMCO owns and operates six radio stations (four FM and two AM) in the Anchorage and Fairbanks, Alaska markets. The Company and COMCO filed an application with the FCC for approval to transfer control of such radio stations to the Company in February 1997. No filing under the HSR Act is required. The Company anticipates that the COMCO Acquisition will be consummated in October 1997. Under the terms of the agreement, which was entered into by Pacific Star, a wholly-owned subsidiary of the Company, the acquisition agreement may be terminated by COMCO prior to consummation of the asset purchase under various circumstances, including a material breach of any representation, warranty, covenant or agreement by Pacific Star. If the acquisition agreement is terminated due to a material breach of any representation, warranty, covenant or agreement by Pacific Star, then COMCO will be entitled to liquidated damages in the 87 92 amount of $335,000 as COMCO's exclusive remedy. Pacific Star has secured its obligation to consummate the asset purchase by placing into escrow a letter of credit in the amount of $335,000. See "Description of Other Indebtedness -- Letters of Credit." Upon consummation of the 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 dispose of 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. COMMONWEALTH ACQUISITION On January 27, 1997, the Company agreed to acquire substantially all of the assets of Commonwealth Broadcasting of Arizona, L.L.C. ("Commonwealth") (the "Commonwealth Acquisition"). The purchase price of the Commonwealth Acquisition will equal approximately $5.3 million payable in cash. Commonwealth owns and operates three radio stations (two FM and one AM) in Yuma, Arizona. No filing under the HSR Act is required, and the FCC approved the Commonwealth Acquisition in April 1997. The Company anticipates that the Commonwealth Acquisition will be consummated in October 1997. Under the terms of the acquisition agreement, which was entered into by Pacific Star, the acquisition agreement may be terminated by Commonwealth prior to consummation of the asset purchase under various circumstances, including a material breach of any representation, warranty, covenant or agreement by Pacific Star. If the acquisition agreement is terminated due to a material breach of any representation, warranty, covenant or agreement by Pacific Star, then Commonwealth will be entitled to liquidated damages in the amount of $262,500 as Commonwealth's exclusive remedy. Pacific Star has secured its obligation to consummate the asset purchase by placing into escrow a letter of credit in the amount of $262,500. See "Description of Other Indebtedness -- Letters of Credit." COMMUNITY PACIFIC ACQUISITION On December 26, 1996, the Company agreed to acquire substantially all of the assets of Community Pacific Broadcasting Company L.P. ("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. The applicable waiting period under the HSR Act terminated in February 1997, after which time the Company and Community Pacific entered into an LMA pursuant to which the Company provides certain sales, programming and marketing services for Community Pacific's stations. The FCC approved the Community Pacific Acquisition in April 1997. The Company anticipates that the Community Pacific Acquisition will be consummated in August 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 Other Indebtedness -- Letters of Credit." GRANT ACQUISITION On June 20, 1997, the Company agreed to acquire substantially all of the assets of Grant used or held for use in the operation of radio station WZBQ-FM which serves the Tuscaloosa, Alabama market (the "Grant 88 93 Acquisition"). The purchase price of the Grant Acquisition will equal approximately $3.2 million payable in cash. The Company and Grant intend to file an application in July 1997 with the FCC for approval to transfer control of such radio station to the Company. No filing under the HSR Act is required. The Company anticipates that the Grant Acquisition will be consummated in September 1997. Under the terms of the acquisition agreement, which was entered into by Capstar Acquisition Co., the acquisition agreement may be terminated by Grant prior to consummation of the asset purchase under various circumstances, including a material breach of any representation, warranty, covenant or agreement by Capstar Acquisition Co. If the acquisition agreement is terminated due to a material breach of any representation, warranty, covenant or agreement by Capstar Acquisition Co., then Grant will be entitled to liquidated damages in the amount of $160,000 as Grant's exclusive remedy. Capstar Acquisition Co. has secured its obligation to consummate the asset purchase by placing the sum of $160,000 in cash into escrow. GRIFFITH ACQUISITION On May 22, 1997, the Company agreed to acquire substantially all of the assets of Griffith Broadcasting, Inc. ("Griffith") used or held for use in the operation of stations WTAK-FM, WXQW-FM and WWXQ-FM, which serve the Huntsville, Alabama market (the "Griffith Acquisition"). The purchase price of the Griffith Acquisition will equal approximately $5.4 million payable in cash. In June 1997, the Company and Griffith filed an application with the FCC for approval to transfer control of such radio stations to the Company. No filing under the HSR Act is required. The Company anticipates that the Griffith Acquisition will be consummated in September 1997. Under the terms of the acquisition agreement, which was entered into by Capstar Acquisition Co., the acquisition agreement may be terminated by Griffith prior to consummation of the asset purchase under various circumstances, including a material breach of any representation, warranty, covenant or agreement by Capstar Acquisition Co. If the acquisition agreement is terminated due to a material breach of any representation, warranty, covenant or agreement by Capstar Acquisition Co., then Griffith will be entitled to liquidated damages in the amount of $250,000 as Griffith's exclusive remedy. Capstar Acquisition Co. has secured its obligation to consummate the asset purchase by placing into escrow a letter of credit in the amount of $250,000. See "Description of Other Indebtedness -- Letters of Credit." GULFSTAR -- AMERICAN GENERAL ACQUISITION On June 6, 1997, GulfStar agreed to acquire substantially all of the assets of American General Media of Texas, Inc. ("American General") used or held for use in the operation of radio station KKCL-FM which serves the Lubbock, Texas market (the "GulfStar -- American General Acquisition"). The purchase price of the GulfStar -- American General Acquisition will equal approximately $3.2 million payable in cash. GulfStar and American General filed an application with the FCC in June 1997 for approval to transfer control of the radio station to GulfStar. No filing under the HSR Act is required. The Company anticipates that the GulfStar -- American General Acquisition will be consummated in November 1997. Under the terms of the acquisition agreement, which was entered into by GulfStar Communications Lubbock, Inc., a subsidiary of GulfStar ("GulfStar -- Lubbock"), the acquisition agreement may be terminated by American General prior to consummation of the asset purchase if all conditions to GulfStar -- Lubbock's obligation to consummate the asset purchase (including the condition that all of American General's representations and warranties are true and correct and that American General has performed, satisfied and complied with all of its covenants, agreements and conditions in the acquisition agreement) are satisfied and GulfStar -- Lubbock nevertheless fails to consummate the asset purchase. If the acquisition agreement is terminated by American General due to GulfStar -- Lubbock's failure to consummate the asset purchase even though all conditions to GulfStar -- Lubbock's obligation to consummate the asset purchase are satisfied, American General will be entitled to liquidated damages in the amount of $160,000. GulfStar -- Lubbock has secured its obligation to consummate the asset purchase by placing into escrow cash in the amount of $160,000. 89 94 GULFSTAR -- BOONEVILLE ACQUISITION On June 1, 1997, GulfStar agreed to acquire substantially all of the assets of Booneville Broadcasting Company and Arklahoma Communications Company (collectively, "Booneville") used or held for use in the operation of radio station KZBB-FM, which serves the Ft. Smith, Arkansas market (the "GulfStar -- Booneville Acquisition"). The purchase price of the GulfStar -- Booneville Acquisition will equal approximately $1.5 million payable in cash. GulfStar and Booneville filed an application with the FCC in June 1997 for approval to transfer control of the radio station to GulfStar. No filing under the HSR Act is required. GulfStar and Booneville entered into an LMA in connection with KZBB-FM pursuant to which GulfStar provides certain sales, programming and marketing services for the station. The Company anticipates that the GulfStar -- Booneville Acquisition will be consummated in December 1997. Under the terms of the acquisition agreement, which was entered into by GulfStar Communications Arkansas, Inc., a subsidiary of GulfStar ("GulfStar -- Arkansas"), the acquisition agreement may be terminated by Booneville prior to consummation of the asset purchase if all conditions to GulfStar -- Arkansas' obligation to consummate the asset purchase (including the condition that all of Booneville's representations and warranties are true and correct and that Booneville has performed, satisfied and complied with all of its covenants, agreements and conditions in the acquisition agreement) are satisfied and GulfStar -- Arkansas nevertheless fails to consummate the asset purchase. If the acquisition agreement is terminated by Booneville due to GulfStar -- Arkansas' failure to consummate the asset purchase even though all conditions to GulfStar -- Arkansas' obligation to consummate the asset purchase are satisfied, Booneville will be entitled to liquidated damages in the amount of $500,000. GulfStar -- Arkansas has secured its obligations to consummate the asset purchase by placing into escrow cash in the amount of $500,000. GulfStar -- Arkansas and Booneville entered into an LMA in connection with KZBB-FM pursuant to which GulfStar provides certain sales, programming and marketing services for KZBB-FM. GULFSTAR -- KJEM ACQUISITION OPTION On June 18, 1997, GulfStar acquired an option to acquire substantially all of the assets of KJEM used or held for use in the operation of radio station KJEM-FM which serves the Fayetteville, Arkansas market (the "GulfStar -- KJEM Acquisition Option"). The purchase price of the KJEM-FM assets will equal approximately $1,750,000 payable in cash, of which $750,000 (the "Option Payment") was paid in cash on the date of the agreement. In most circumstances, the Option Payment is not refundable. GulfStar may exercise its option, in its sole discretion, on or before the first anniversary date of the agreement. GulfStar and KJEM intend to file an application with the FCC in July 1997 for approval to transfer control of the radio station to GulfStar. GulfStar and KJEM entered into an LMA in connection with KJEM-FM pursuant to which GulfStar provides certain sales, programming and marketing services for the station. Under the terms of the option agreement, which was entered into by GulfStar -- Arkansas, the asset purchase contemplated by the option agreement may be terminated by KJEM prior to consummation of the asset purchase if all conditions to GulfStar -- Arkansas' obligation to consummate the asset purchase (including the condition that all of KJEM's representations and warranties are true and correct and that KJEM has performed, satisfied and complied with all of its covenants, agreements and conditions in the acquisition agreement) are satisfied and GulfStar -- Arkansas nevertheless fails to consummate the asset purchase If such asset purchase is terminated by KJEM due to GulfStar -- Arkansas' failure to consummate the asset purchase even though all conditions to GulfStar -- Arkansas' obligation to consummate the asset purchase are satisfied, KJEM, will be entitled to liquidated damages in the amount of the Option Payment. GULFSTAR -- KLAW ACQUISITION On June 1, 1997, GulfStar agreed to acquire substantially all of the assets of KLAW Broadcasting, Inc., ("KLAW") used or held for use in the operation of radio stations KLAW-FM and KZCD-FM, which serve the Lawton, Oklahoma market (the "GulfStar -- KLAW Acquisition"). The purchase price of the GulfStar -- KLAW Acquisition will equal approximately $2.2 million payable in cash. GulfStar and the sellers intend to file an application with the FCC in June 1997 for approval to transfer control of the radio station to GulfStar. No 90 95 filing under the HSR Act is required. GulfStar and KLAW entered into an LMA in connection with KLAW-FM and KZCD-FM pursuant to which GulfStar provides certain sales, programming and marketing services for the stations. The Company anticipates that the GulfStar -- KLAW Acquisition will be consummated in November 1997. Under the terms of the acquisition agreement, which was entered into by GulfStar, the acquisition agreement may be terminated by KLAW prior to consummation of the asset purchase if all conditions to GulfStar's obligation to consummate the asset purchase (including the condition that all of KLAW's representations and warranties are true and correct and that KLAW has performed, satisfied and complied with all of its covenants, agreements and conditions in the acquisition agreement) are satisfied and GulfStar fails to consummate the asset purchase. If the acquisition agreement is terminated by KLAW due to GulfStar's failure to consummate the asset purchase even though all conditions to GulfStar's obligation to consummate the asset purchase are satisfied, KLAW will be entitled to liquidated damages in the amount of $110,000. GulfStar has secured its obligations to consummate the asset purchase by placing into escrow cash in the amount of $110,000. GULFSTAR -- NOALMARK ACQUISITION On March 5, 1997, GulfStar acquired an option to acquire substantially all of the assets of Noalmark Broadcasting Corporation ("Noalmark") used or held for use in the operation of radio stations KKTX-FM and KKTX-AM, which serve the Longview, Texas market (the "GulfStar -- Noalmark Acquisition Option"). The purchase price of the Noalmark assets will equal approximately $2.4 million payable in cash, of which $1.0 million (the "KKTX Option Payment") was paid in cash by GulfStar on the date of the agreement. In most circumstances, the KKTX Option Payment is not refundable. GulfStar may exercise its option, in its sole discretion, on or before March 2000. GulfStar and Noalmark entered into an LMA in connection with KKTX-FM and KKTX-AM pursuant to which GulfStar provides certain sales, programming and marketing services for the stations. Under the terms of the option agreement, which was entered into by GulfStar, the asset purchase contemplated by the option agreement may be terminated by Noalmark prior to consummation of the asset purchase if all conditions to GulfStar's obligation to consummate the asset purchase (including the condition that all of Noalmark's representations and warranties are true and correct and that Noalmark has performed, satisfied and complied with all of its covenants, agreements and conditions in the acquisition agreement) are satisfied and GulfStar nevertheless fails to consummate the asset purchase. If such asset purchase is terminated by Noalmark due to GulfStar's failure to consummate the asset purchase even though all conditions to GulfStar's obligation to consummate the asset purchase are satisfied, Noalmark will be entitled to liquidated damages in the amount of the KKTX Option Payment. KNIGHT QUALITY ACQUISITION On June 18, 1997, the Company agreed to acquire substantially all of the assets of Knight Quality (the "Knight Quality Acquisition"). The purchase price of the Knight Quality Acquisition will equal approximately $60.0 million payable in cash. Knight Quality owns and operates eight radio stations (five FM and three AM) in five markets located in Worcester, Massachusetts, Manchester, New Hampshire, Burlington, Vermont, Portsmouth, New Hampshire, and York Center, Maine. The Company and Knight Quality intend to file in July 1997 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 Company anticipates that the Knight Quality Acquisition will be consummated in January 1998. Under the terms of the three acquisition agreements by Capstar Acquisition Co. relating to the Knight Quality Acquisition, each acquisition agreement may be terminated by Knight Quality prior to consummation of the asset purchase under various circumstances, including, but not limited to, a material breach of any representation, warranty, covenant or agreement, by Capstar Acquisition Co. The closing of the transactions contemplated by each of the acquisition agreements is conditioned upon the closing of the two other acquisition agreements. If the acquisition agreements are terminated due to a material breach of any representation, warranty, covenant or agreement by Capstar Acquisition Co., then Knight Quality will be entitled to liquidated damages in 91 96 the aggregate amount of $3.0 million as Knight Quality's exclusive remedy. Capstar Acquisition Co. has secured its obligation to consummate the Knight Quality Acquisition by placing into escrow letters of credit in the aggregate amount of $3.0 million. See "Description of Other Indebtedness -- Letters of Credit." PATTERSON ACQUISITION On June 12, 1997, the Company agreed to acquire all of the outstanding preferred stock, common stock and common stock equivalents of Patterson Broadcasting, Inc. ("Patterson") (the "Patterson Acquisition"). The purchase price of the Patterson Acquisition will equal approximately $215.0 million payable in cash. Patterson will own and operate or provide services to 39 radio stations (25 FM and 14 AM) in the Savannah, Georgia, Allentown and Harrisburg, Pennsylvania, Fresno, California, Honolulu, Hawaii, Battle Creek and Grand Rapids, Michigan, Reno, Nevada, Springfield, Illinois, and Pensacola, Florida markets. The Company and Patterson filed in May 1997 (i) an application with the FCC for approval to transfer control of such radio stations to the Company and (ii) a Notification and Report Form with the DOJ and the FTC. The Company anticipates that the Patterson Acquisition will be consummated in February 1998. Under the terms of the purchase agreement, which was entered into by Capstar Acquisition Co., the purchase agreement may be terminated by Patterson prior to consummation of the stock purchase under various circumstances, including a material breach of any representation, warranty, covenant or agreement by Capstar Acquisition Co. If the purchase agreement is terminated due to a material breach of any representation, warranty, covenant or agreement by Capstar Acquisition Co., then Patterson will be entitled to liquidated damages in the amount of $10.0 million as Patterson's exclusive remedy. Capstar Acquisition Co. will secure its obligation to consummate the stock purchase by placing into escrow a letter of credit in the amount of $10.0 million. See "Description of Other Indebtedness -- Letters of Credit." The DOJ has raised an issue with the Company regarding the number of radio stations that the Company will own in the Allentown-Bethlehem, Pennsylvania area upon completion of the Patterson Acquisition. The Company has recently begun discussions with the DOJ to resolve the matter. See "Business -- Federal Regulation of Radio Broadcasting." On January 29, 1997, Patterson agreed to acquire substantially all of the assets of WMEZ, Inc. ("WMEZ") used or held for use in the operation of radio station WMEZ-FM, which serves the Pensacola, Florida market. The purchase price of the WMEZ assets will equal approximately $7.0 million payable by Patterson in cash. The FCC granted approval for the acquisition in May 1997. No filing under the HSR Act is required. The Company expects such acquisition to be completed by Patterson prior to completion of the Patterson Acquisition. On April 24, 1997, Patterson agreed to acquire all of the outstanding common stock of Radio Dinuba Company ("Dinuba"), which owns and operates radio stations KJOI-FM and KRDU-AM serving the Fresno, California market. The purchase price will equal approximately $5.3 million payable in cash. FCC approval is pending. No filing under the HSR Act is required. The Company expects such acquisition to be completed by Patterson prior to completion of the Patterson Acquisition. On May 5, 1997, Patterson agreed to acquire substantially all of the assets of William E. Kuiper, Jr. ("Kuiper") used or held for use in the operation of radio station WQFN-FM, which serves the Grand Rapids, Michigan market. The purchase price of the Kuiper assets will equal approximately $1.9 million payable in cash. FCC approval is pending. No filing under the HSR Act is required. The Company expects such acquisition to be completed by Patterson prior to completion of the Patterson Acquisition. If any of the pending acquisitions of Patterson is not completed or is otherwise terminated prior to completion of the Patterson Acquisition, then the purchase price for the Patterson Acquisition will be reduced by an amount to be agreed to by the parties to the Patterson Acquisition. QUASS ACQUISITION On June 9, 1997, the Company agreed to acquire all of the outstanding common stock of Quass Broadcasting Company ("Quass") (the "Quass Acquisition"). The purchase price of the Quass Acquisition will equal approximately $14.9 million payable in cash. Quass owns and operates three radio stations (two FM and 92 97 one AM) in the Cedar Rapids, Iowa market. The Company and Quass intend to file an application with the FCC in July 1997 for approval to transfer control of such radio stations to the Company. No filing under the HSR Act is required. The Company anticipates that the Quass Acquisition will be consummated in January 1998. Under the terms of the purchase agreement, which was entered into by Capstar Acquisition Co., the purchase agreement may be terminated by Quass prior to consummation of the acquisition under various circumstances, including a material breach of any representation, warranty, covenant or agreement by Capstar Acquisition Co. If the purchase agreement is terminated due to a material breach of any representation, warranty, covenant or agreement by Capstar Acquisition Co., then Quass and Quass' stockholders will be entitled to liquidated damages in the amount of $750,000 as their exclusive remedy. Capstar Acquisition Co. has secured its obligation to consummate the acquisition by placing into escrow a letter of credit in the amount of $750,000. See "Description of Other Indebtedness -- Letters of Credit." Concurrently with the execution of the Quass stock purchase agreement, Mary K. Quass, the majority stockholder of Quass, purchased 909,091 shares of common stock of the Company, which will be subsequently exchanged for shares of Class A Common Stock, for an aggregate purchase price of $1.0 million. Substantially all of the purchase price was paid through the issuance of a promissory note by Mary K. Quass to the Company, which obligation is secured by a pledge of the shares. See "Certain Transactions -- Indebtedness of Management." Also concurrently with the execution of the Quass stock purchase agreement, Mary K. Quass and Capstar Acquisition Co. entered into a consulting agreement pursuant to which she agreed to provide consulting services to Capstar Acquisition Co. on an hourly basis as requested. SFX EXCHANGE On May 23, 1997, the Company agreed to exchange substantially all of the assets used or useful in the Company's operation of three radio stations (two FM and one AM) in the Greenville, South Carolina market for substantially all of the assets used or useful in SFX's operation of four radio stations (three FM and one AM) in Wichita, Kansas and Daytona Beach, Florida (the "SFX Exchange"). The three stations to be exchanged by the Company were acquired in the Benchmark Acquisition. The Company and SFX intend to file in July 1997 (i) an application with the FCC for approval to transfer control of the radio stations and (ii) a Notification and Report Form with the DOJ and the FTC. The Company anticipates that the SFX Exchange will be consummated in September 1997. Under the terms of the exchange agreement, which was entered into by Capstar Acquisition Co., the exchange may be terminated by either party prior to consummation of the exchange agreement under various circumstances, including a material breach of any representation, warranty, covenant or agreement by the other party. If the exchange agreement is terminated due to a material breach of any representation, warranty, covenant or agreement by a party, then the other party will be entitled to liquidated damages in the amount of $2.0 million as such party's exclusive remedy. In addition, either party may terminate the exchange agreement in its sole and absolute discretion, if within 20 days after receipt of the agreement's underlying schedules (which were not required to be provided at the time the agreement was entered into), either party is not satisfied with the information contained in the schedules provided by the other party. R. Steven Hicks is a party to an agreement with SFX, which, among other things, prohibited Mr. Hicks, the Company and any affiliate of Hicks Muse in which Mr. Hicks had an ownership interest or to which Mr. Hicks acted as an advisor from competing with, owning any direct or indirect interest in or providing any services to any person which was in the business of owning or operating one or more radio stations licensed or having a transmitter site within any county in the MSA of certain specified SFX markets. Such noncompetition provisions were terminated concurrently with the Company entering into the exchange agreement without regard to whether the SFX Exchange is actually consummated. WRIS ACQUISITION On April 11, 1997, the Company agreed to acquire substantially all of the assets of WRIS, Inc. ("WRIS") used or held for use in the operation of station WJLM-FM in Salem, Virginia (the "WRIS Acquisition"). The 93 98 purchase price of the WRIS Acquisition will equal approximately $3.1 million payable in cash. In April 1997, the Company and WRIS filed an application with the FCC for approval to transfer control of such radio station to the Company. No filing under the HSR Act is required. The Company anticipates that the WRIS Acquisition will be consummated in August 1997. Under the terms of the acquisition agreement, which was entered into by Capstar Acquisition Co., the acquisition agreement may be terminated by WRIS prior to consummation of the asset purchase under various circumstances, including a material breach of any representation, warranty, covenant or agreement by Capstar Acquisition Co. If the acquisition agreement is terminated due to a material breach of any representation, warranty, covenant or agreement by Capstar Acquisition Co., then WRIS will be entitled to liquidated damages in the amount of $150,000 as WRIS's exclusive remedy. Capstar Acquisition Co. has secured its obligation to consummate the asset purchase by placing into escrow a letter of credit in the amount of $150,000. See "Description of Other Indebtedness -- Letters of Credit." OTHER POSSIBLE ACQUISITIONS The Company has entered into four 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." 94 99 MANAGEMENT The directors and executive officers of the Company are listed below. Each of the directors will hold office until the next annual meeting of stockholders and until his successor has been duly elected and qualified. Executive officers are generally elected annually by the Board of Directors to serve, subject to the discretion of the Board of Directors, until their successors are appointed.
NAME AGE POSITION ---- --- -------- R. Steven Hicks............................ 47 Chairman of the Board, President, Chief Execu- tive Officer and Director William S. Banowsky, Jr.................... 36 Executive Vice President, General Counsel and Secretary Paul D. Stone.............................. 36 Executive Vice President and Chief Financial Officer Frank D. Osborn............................ 50 Acting President and Chief Executive Officer of Southern Star (Southeast Region) and Managing Director of Capstar Radio James T. Shea, Jr.......................... 43 President and Chief Executive Officer of Atlantic (Northeast Region) John D. Cullen............................. 43 President and Chief Executive Officer of Gulf- Star (Southwest Region) Dex Allen.................................. 54 President and Chief Executive Officer of Pacific Star (West Region) Mary K. Quass(1)........................... 47 President and Chief Executive Officer of Central Star (Midwest Region) David J. Benjamin, III(2).................. 50 Managing Director of Capstar Radio Joseph L. Mathias, IV...................... 32 Managing Director of Capstar Radio James M. Strawn(3)......................... 55 Managing Director of Capstar Radio Thomas O. Hicks............................ 51 Director Eric C. Neuman............................. 53 Director Lawrence D. Stuart, Jr..................... 53 Director
- --------------- (1) Mary K. Quass will become the president and chief executive officer of the Midwest Region upon consummation of the Quass Acquisition. (2) David J. Benjamin, III will become a Managing Director of Capstar Radio upon consummation of the Community Pacific Acquisition. (3) James M. Strawn will become a Managing Director of Capstar Radio upon consummation of the Patterson Acquisition. R. Steven Hicks has served as the Chairman of the Board, President, Chief Executive Officer and as a director of Capstar Broadcasting and the Company since May 1997 and October 1996, respectively. Mr. Hicks 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. William S. Banowsky, Jr. has served as an Executive Vice President and the General Counsel of Capstar Broadcasting and the Company since May 1997 and January 1997, respectively. Mr. Banowsky was an attorney with Snell, Banowsky & Trent, P.C., Dallas, Texas, for six years before joining the Company. Prior to that time, he was an attorney for Johnson & Gibbs, P.C., Dallas, Texas, for four years. Paul D. Stone has served as an Executive Vice President and the Chief Financial Officer of Capstar Broadcasting and of the Company since May and January 1997, respectively. Mr. Stone was an Executive Vice President and the Chief Financial Officer of GulfStar from April 1996 until January 1997 at which time Mr. Stone resigned from such positions. Prior to January 1997, Mr. Stone was Vice President and Controller of Hicks Muse for six years. He is a Certified Public Accountant. 95 100 Frank D. Osborn serves as the acting President and Chief Executive Officer of Southern Star and as a Managing Director of Capstar Radio. Mr. Osborn served as President and Chief Executive Officer of Osborn from Osborn's inception in 1984 until June 1997. He is Chairman of the Board of Fairmont Communications and is a member of the Board of Directors of Northstar Television Group. From 1983 to 1985, Osborn served as Senior Vice President/Radio for Price Communications Corporation. From 1981 to 1983, Mr. Osborn served as Vice President and General Manager of WYNY, NBC's New York FM radio station, and was Vice President of Finance and Administration of NBC Radio from 1977 to 1981. James T. Shea, Jr. is the President and Chief Executive Officer of Atlantic Star and has served in such position since June 1997. He previously served as President of Capstar Radio from October 1996 to June 1997. Prior to serving as President of Capstar Radio, Mr. Shea served as Chief Operating Officer of Commodore from January 1995 to October 1996. Mr. Shea joined Commodore as the President of its MidAtlantic Region in March 1992. He joined Wilks-Schwartz as Vice President, General Manager, and Partner of WKRZ, Wilkes Barre, Pennsylvania in 1980, and became Vice President, General Manager and Partner of WQQQ/WEEX, Allentown, Pennsylvania in 1984, was promoted to Executive Vice President and Partner in 1986 and served in such capacity until 1992. John D. Cullen has served as the President and Chief Executive Officer of GulfStar since consummation of the GulfStar Transaction in July 1997. From March 1996 to June 1997, Mr. Cullen served as the President and Chief Operating Officer of GulfStar. From 1992 to February 1996, Mr. Cullen served as a regional manager of SFX's radio stations in the Greenville-Spartanburg, Raleigh-Durham, Charlotte and Greensboro-Winston-Salem markets. Mr. Cullen is a 16-year veteran of the radio broadcasting industry. Dex Allen serves as the President and Chief Executive Officer of Pacific Star. Mr. Allen has served as the managing member of Commonwealth since 1984. Prior to 1984, Mr. Allen was Vice President/General Manager of KOGO-AM and KPRI-FM in San Diego, California and the Sales Manager of KCBQ-AM in San Diego, California. Mr. Allen is a 29-year veteran of the radio broadcasting industry, including 12 years as a station owner. Mary K. Quass has been the President and Chief Executive Officer of Quass since 1988. From 1982 to 1988, Ms. Quass served as Vice President/General Manager of stations KHAK-AM and KHAK-FM in Cedar Rapids, Iowa. Ms. Quass is a 19-year veteran of the radio broadcasting industry, including nine years as a station owner. Upon consummation of the Quass Acquisition, Ms. Quass will serve as the President and Chief Executive Officer of Central Star. David J. Benjamin, III has been President and Chief Executive Officer of Community Pacific since 1992. Prior to such time, he co-founded and served since 1974 as Chairman and Chief Executive Officer of Community Pacific's predecessor, Community Pacific Broadcasting Corporation, which positions he held since 1974. Mr. Benjamin is a former President of the Oregon Association of Broadcasters and a former board member of the National Association of Broadcasters. Upon consummation of the Community Pacific Acquisition, Mr. Benjamin will serve as a Managing Director of Capstar Radio. Joseph L. Mathias, IV has served as a Managing Director of Capstar Radio since consummation of the Benchmark Acquisition in July 1997. From January 1997 to July 1997, Mr. Mathias serves as a general partner of Benchmark, during which time Mr. Mathias managed the operations of Benchmark. Prior to such time, he held various positions in the cable television and radio broadcasting industries. Mr. Mathias is a seven-year veteran of the radio broadcasting industry. James M. Strawn has served as an Executive Vice President and the Chief Financial Officer of Patterson since 1995. From 1988 to 1995, Mr. Strawn served as an executive vice president for Summit Communications, and from 1984 to 1988, Mr. Strawn served as an Executive Vice President and the Chief Financial Officer of DKM Broadcasting. Mr. Strawn served in various positions with Cox Communications, including regional controller and assistant controller for the broadcast corporate staff, from 1966 to 1984. Mr. Strawn is a 31-year veteran of the radio broadcasting industry, including 13 years as a station owner. Upon consummation of the Patterson Acquisition, Mr. Strawn will serve as a Managing Director of Capstar Radio. 96 101 Thomas O. Hicks has been a director of the Company and Capstar Broadcasting since October 1996 and May 1997, respectively. Thomas O. Hicks has been Chairman and Chief Executive Officer of Hicks Muse since co-founding the firm in 1989. Prior to forming Hicks Muse, Thomas O. Hicks co-founded Hicks & Haas Incorporated in 1983 and served as its Co-Chairman and Co-Chief Executive Officer through 1989. Thomas O. Hicks also serves as a director of Chancellor Broadcasting Company, Berg Electronics Corp., Sybron International Corporation and Neodata Corporation. Thomas O. Hicks is the brother of R. Steven Hicks. Eric C. Neuman has served as a director of Capstar Broadcasting and the Company since May 1997 and October 1996, respectively, and as an Executive Vice President of the Company from October 1996 to June 1997. Mr. Neuman has served as an officer of Hicks Muse since 1993 and as a Senior Vice President thereof since 1996. Before joining Hicks Muse, Mr. Neuman served for eight years as Managing General Partner of Communications Partners, Ltd., a Dallas-based private investment firm. Mr. Neuman has served as a director of Chancellor Broadcasting Company since 1996. Lawrence D. Stuart, Jr. has served as a director of the Company and Capstar Broadcasting since January 1997 and May 1997, respectively. Mr. Stuart has been a Managing Director and Principal of Hicks Muse since 1995. Prior to joining Hicks Muse, Mr. Stuart served for over 20 years as the principal outside legal counsel for the investment firms and portfolio companies led by Thomas O. Hicks. From 1989 to 1995, Mr. Stuart was the Managing Partner of the Dallas office of Weil, Gotshal & Manges (a Limited Liability Partnership including Professional Corporations). Upon completion of the Patterson Acquisition, James W. Wesley, Jr. will become the Chairman of the Board of Capstar Broadcasting. Mr. Wesley has been President and Chief Executive Officer of Patterson since it was founded in 1995. From 1988 to 1995, Mr. Wesley served as President of Summit Communications based in Winston-Salem, North Carolina. Prior to 1988, Mr. Wesley spent 33 years in various positions, including President of Cox Communications in Atlanta, Georgia. Mr. Wesley is a 42-year veteran of the radio broadcasting industry. BOARD COMMITTEES In June 1997, Capstar Broadcasting's Board of Directors established an Audit Committee and a Compensation Committee. The Audit Committee's functions include recommending to the Board of Directors of Capstar Broadcasting the engagement of Capstar Broadcasting's independent public accountants, reviewing with such accountants the plans for and the results and scope of their auditing engagement and certain other matters relating to their services provided to Capstar Broadcasting, including the independence of such accountants. The Compensation Committee determines the compensation of executive officers and administers the Capstar Broadcasting Stock Option Plan (as defined) and the Stock Purchase Plan (as defined). Lawrence D. Stuart, Jr., Eric C. Neuman and R. Gerald Turner, a director of Capstar Broadcasting, serve on the Audit Committee. Thomas O. Hicks, Mr. Stuart and Mr. Turner serve on the Compensation Committee. 97 102 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
LONG-TERM ANNUAL COMPENSATION COMPENSATION($) ----------------------------------- ----------------------- OTHER SECURITIES ALL OTHER ANNUAL UNDERLYING LTIP COMPENSATION SALARY($) BONUS($) COMPENSATION OPTIONS(#) PAYOUTS($) ($) --------- -------- ------------ ---------- ---------- --------------- R. Steven Hicks..................... 135,400 -- -- 9,300,000(1) -- 7,440,000(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 Capstar Radio Frank D. Osborn..................... 387,000 300,000 -- -- -- 1,778,375(3) President of Southern Star
- --------------- (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 Capstar Radio. (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 $15,500 from the exercise of incentive stock options granted by Osborn. OPTION GRANTS IN 1996 The following table contains information about stock options and stock purchase rights granted to the Named Executive Officers during the fiscal year ended December 31, 1996. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ------------------------------------------ POTENTIAL REALIZABLE VALUE NUMBER OF PERCENT OF TOTAL AT ASSUMED ANNUAL RATES SECURITIES OPTIONS OF STOCK PRICE APPRECIATION UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1) OPTIONS EMPLOYEES PRICE EXPIRATION --------------------------- NAME GRANTED(#) IN 1996 PER SHARE DATE 5%($) 10%($) ---- ---------- ---------------- --------- ---------- ------------ ------------ R. Steven Hicks....... 9,300,000(2) 100% $ 1.00(2) 10-16-06 $15,748,720 $24,121,805 James T. Shea, Jr..... 720,880(3) 18.20% $ 1.00 11-26-06 $ 1,174,238 $ 1,869,777 350,000(4) 8.84% $ 1.00 12-26-96 $ 570,113 $ 907,310 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 1996 Stock Option Plan, which have been exchanged for options granted under the Capstar Broadcasting Stock Option Plan (as defined). See "-- Benefit Plans." (4) Represents stock purchase rights granted pursuant to the Company's 1996 Stock Purchase Plan, which plan is no longer expected to be used. 98 103 OPTION EXERCISES IN 1996 The following table sets forth certain information (i) with respect to the number of shares of common stock of Capstar Partners 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 Capstar Partners 1996 Stock Option Plan (as defined) 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...... -- -- 7,440,000(2) 1,860,000(2) $9,895,200 $2,473,800 James T. Shea, Jr.... -- -- -- 720,880(3) -- 958,770 350,000(4) -- -- -- -- -- Frank D. Osborn...... -- -- -- -- -- --
- --------------- (1) There is no public market for the Common Stock. Based on the per share price of the Hicks Muse GulfStar Equity Investment and the Capstar BT Equity Investment of $1.33. (2) See "Certain Transactions -- Warrants." (3) Represents options granted pursuant to the Company's 1996 Stock Option Plan. (4) Represents stock purchase rights granted pursuant to the Company's 1996 Stock Purchase Plan. EMPLOYMENT AGREEMENTS R. Steven Hicks Employment Agreement. Capstar Broadcasting has entered into an employment agreement with R. Steven Hicks pursuant to which Mr. Hicks serves as Chairman, President and Chief Executive Officer of Capstar Broadcasting. Mr. Hicks' employment agreement terminates on December 31, 2001, and will be automatically renewed for successive one-year terms unless Mr. Hicks or Capstar Broadcasting gives the other party written notice of his or its intention not to renew the employment agreement at least six months prior to the date the employment agreement would otherwise expire (but no more than 12 months prior to such expiration date). Mr. Hicks' base salary is $250,000 per year and is subject to annual increases at least equal to five percent of the then current annual base salary. He is also entitled to receive such annual performance bonuses as Capstar Broadcasting's Board of Directors may determine. Further, Mr. Hicks is entitled to receive stock options to purchase shares of Class A Common Stock. If Capstar Broadcasting terminates Mr. Hicks' employment for cause or Mr. Hicks terminates his employment for other than good reason, Capstar Broadcasting must pay Mr. Hicks all accrued obligations and other benefits earned prior to the date of termination. If Capstar Broadcasting terminates Mr. Hicks' employment agreement other than for cause or Mr. Hicks terminates his employment agreement for good reason, Mr. Hicks' employment agreement provides for (A) a lump sum payment of (x) two times Mr. Hicks' then current annual salary and (y) any accrued obligations and other benefits earned prior to the date of termination and (B) unless the Board of Directors of Capstar Broadcasting determines that Mr. Hicks has not satisfactorily performed his obligations and duties under the agreement, the immediate vesting of all stock options between Capstar Broadcasting and Mr. Hicks and the right to exercise those options until the earlier of (x) the expiration date of those options or (y) the 90th day after Mr. Hicks' termination. Mr. Hicks has entered into a substantially similar employment agreement with GulfStar. Upon completion of the GulfStar Transaction, Mr. Hicks' employment agreement with GulfStar will terminate and his employment agreement with Capstar Broadcasting will be amended to increase Mr. Hicks' current base salary to $500,000. William S. Banowsky, Jr. Employment Agreement. Capstar Broadcasting has entered into an employment agreement with William S. Banowsky, Jr. pursuant to which Mr. Banowsky serves as an Executive Vice President and the General Counsel of Capstar Broadcasting. Mr. Banowsky's employment agreement terminates on December 31, 2001, and will be renewed automatically for successive one-year terms unless Mr. Banowsky or 99 104 Capstar Broadcasting gives the other party written notice of his or its intention not to renew the employment agreement at least six months prior to the date the employment agreement would otherwise expire (but not more than 12 months prior to such expiration date). Mr. Banowsky's current base salary is $200,000 per year, subject to annual increases at least equal to five percent of the then current annual base salary. Mr. Banowsky is also entitled to receive such annual bonuses as Capstar Broadcasting's Board of Directors may determine. Further, Mr. Banowsky is entitled to receive stock options to purchase shares of Class A Common Stock. If Capstar Broadcasting terminates Mr. Banowsky's employment for cause or Mr. Banowsky terminates his employment for other than good reason, Capstar Broadcasting must pay Mr. Banowsky all accrued obligations and other benefits earned prior to the date of termination. If Capstar Broadcasting terminates Mr. Banowsky's employment agreement other than for cause or Mr. Banowsky terminates his employment agreement for good reason, Mr. Banowsky's employment agreement provides for (A) a lump sum payment of (x) two times Mr. Banowsky's then current annual salary and (y) any accrued obligations and other benefits earned prior to the date of termination and (B) unless the Board of Directors of Capstar Broadcasting determines that Mr. Banowsky has not satisfactorily performed his obligations and duties under the agreement, the immediate vesting of all stock options between Capstar Broadcasting and Mr. Banowsky and the right to exercise those options until the earlier of (x) the expiration date of those options or (y) the 90th day after Mr. Banowsky's termination. Paul D. Stone Employment Agreement. Capstar Broadcasting has entered into an employment agreement with Paul D. Stone pursuant to which Mr. Stone serves as an Executive Vice President and the Chief Financial Officer of Capstar Broadcasting. Mr. Stone's employment agreement terminates on December 31, 2001, and will be renewed automatically for successive one year terms unless Mr. Stone or Capstar Broadcasting gives the other party written notice of his or its intention not to renew the employment agreement at least six months prior to the date the employment agreement would otherwise expire (but no more than 12 months prior to such expiration date). Mr. Stone's base salary is $200,000 per year, subject to annual increases at least equal to five percent of the then current annual base salary. Mr. Stone is also entitled to receive such annual bonuses as Capstar Broadcasting's Board of Directors may determine. Further, Mr. Stone is entitled to receive stock options to purchase shares of Class A Common Stock. If Capstar Broadcasting terminates Mr. Stone's employment for cause or Mr. Stone terminates his employment for other than good reason, Capstar Broadcasting must pay Mr. Stone all accrued obligations and other benefits earned prior to the date of termination. If Capstar Broadcasting terminates Mr. Stone's employment agreement other than for cause or Mr. Stone terminates his employment agreement for good reason, Mr. Stone's employment agreement provides for (A) a lump sum payment of (x) two times Mr. Stone's then current annual salary and (y) any accrued obligations and other benefits earned prior to the date of termination and (B) unless the Board of Directors of Capstar Broadcasting determines that Mr. Stone has not satisfactorily performed his obligations and duties under the agreement, the immediate vesting of all stock options between Capstar Broadcasting and Mr. Stone and the right to exercise those options until the earlier of (x) the expiration date of those options or (y) the 90th day after Mr. Stone's termination. Frank D. Osborn Employment Agreement. Capstar Broadcasting, Capstar Radio and Southern Star have entered into an employment agreement with Frank D. Osborn pursuant to which Mr. Osborn serves as a Managing Director of Capstar Radio and, on an interim basis, as the President and Chief Executive Officer of Southern Star. Mr. Osborn's employment agreement terminates on the fifth anniversary of the consummation of the Osborn Acquisition. Mr. Osborn's base salary is $375,000, and commencing on January 1, 1998, and on each subsequent January 1, his base salary will be adjusted to reflect the annual increase in the Consumer Price Index during the preceding year. In addition, Mr. Osborn is entitled to a guaranteed bonus of $25,000 per month for a period of 60 months after February 20, 1997 and an annual bonus as determined by Capstar Radio's Board of Directors. If Mr. Osborn's employment is terminated by Capstar Radio for cause or by Mr. Osborn for other than good reason, Capstar Radio is obligated to pay all accrued obligations and other benefits to Mr. Osborn. If the employment agreement is terminated by Capstar Radio other than for cause or disability or by Mr. Osborn for good reason, Mr. Osborn's employment agreement provides for (A) a lump sum payment of any accrued obligations and other benefits earned prior to the date of termination, (B) the payment in regular installments of (x) if the remainder of the employment period is 24 months or less, Mr. Osborn's then current annual base salary for the remainder of the employment period, (y) if the remainder of the employment period is more than 24 months but less than 36 months, twice the sum of Mr. Osborn's then current salary, plus Mr. Osborn's then 100 105 current salary for the remainder of the employment period after 24 months have expired from the termination date, or (z) if the remainder of the employment period is more than 36 months, twice the sum of Mr. Osborn's then current salary plus Mr. Osborn's then current salary for a period of 12 months after 24 months have expired from the termination date, (C) the payment of the guaranteed bonus as if Mr. Osborn's employment had not been terminated and (D) unless the Board of Directors of Capstar Radio determines that Mr. Osborn has not satisfactorily performed his obligations and duties under the agreement, the immediate vesting of all stock options between Capstar Radio 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 Capstar Radio's employee medical benefit plan for 24 months following termination unless Capstar Radio fails to achieve 60% of its annual budget for operating profit for the last calendar year ended prior to termination. In that case, Mr. Osborn is entitled to participate in such plan for 12 months following termination. James T. Shea, Jr. Employment Agreement. Capstar Broadcasting and Atlantic Star have entered into an employment agreement with James T. Shea, Jr. pursuant to which Mr. Shea serves as the President and Chief Executive Officer of Atlantic Star. Mr. Shea's employment agreement terminates on April 30, 1999. Mr. Shea's base salary is $275,625, which increases at the beginning of each calendar year by an amount which shall not be less than five percent of his then current base salary. Mr. Shea is also entitled to receive annual bonuses as the Board of Directors of Atlantic Star may determine, provided that the bonus shall not be less than $150,000. In addition, the employment agreement provides for an automobile allowance, participation in the retirement, savings, and welfare benefit plans of Atlantic Star and a life insurance policy of $650,000. If Atlantic Star terminates Mr. Shea's employment for cause, Atlantic Star is obligated to pay Mr. Shea's then accrued base salary, reimbursable expenses, and any other compensation then due and owing. In addition, Atlantic Star must continue to fund Mr. Shea's life insurance policy. If the employment agreement is terminated due to death or disability, without cause or by Mr. Shea for good reason, Mr. Shea will be entitled to (i) the continuation of his annual base salary, as then in effect, for a period equal to (A) if the termination date occurs after April 21, 1998 but prior to April 30, 1999, a 12-month period commencing on the termination date or (B) if the termination date occurs on or prior to April 21, 1998, the lesser of (x) a 24-month period commencing on the termination date and (y) the period starting on the termination date and ending on April 30, 1999, (ii) a pro rata amount of his annual bonus, (iii) any annual base salary and annual bonus then accrued but not yet paid, (iv) the continuation of his welfare benefits for a period equal to (A) if the termination date occurs after April 21, 1998 but prior to April 30, 1999, a 12-month period commencing on the termination date or (B) if the termination date occurs on or prior to April 21, 1998, the lesser of (x) a 24-month period commencing on the termination date and (y) the period starting on the termination date and ending on April 30, 1999, (v) the continuation of his life insurance policy, (vi) any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans and programs, (vii) reimbursement for certain expenses incurred as of the termination date but not yet paid as of the date of termination and (viii) any other rights afforded to him under other written agreements between Mr. Shea and Capstar Broadcasting. John D. Cullen Employment Agreement. Upon consummation of the GulfStar Transaction, Capstar Broadcasting and GulfStar entered into an employment agreement with John D. Cullen pursuant to which Mr. Cullen serves as the President and Chief Executive Officer of GulfStar. Mr. Cullen's employment agreement will terminate on the fifth anniversary of the consummation of the GulfStar Transaction. Mr. Cullen's base salary is $210,000, subject to annual increases at least equal to the percentage increase, if any, in the Consumer Price Index during the preceding calendar year. Mr. Cullen is also entitled to receive an annual performance bonus if certain financial goals, as determined by the Board of Directors of GulfStar, are achieved. In addition, Mr. Cullen is entitled to receive stock options to purchase Class A Common Stock. If GulfStar terminates Mr. Cullen's employment for cause or Mr. Cullen terminates his employment for other than good reason, GulfStar will pay to Mr. Cullen his accrued obligations and investments through the date of termination. If GulfStar terminates Mr. Cullen's employment without cause or Mr. Cullen terminates his employment for good reason, Mr. Cullen's employment agreement provides for (A) a lump sum cash payment equal to any accrued obligations of GulfStar to Mr. Cullen, (B) a payment in regular installments of Mr. Cullen's then current salary for the one-year period commencing from the date of termination (the "Severance Period"), (C) continued medical, dental and life insurance coverage at the expense of GulfStar until the earlier of (x) the expiration of the Severance Period or (y) the date Mr. Cullen has commenced new employment and has thereby become eligible for comparable 101 106 medical benefits, and (D) unless the Board of Directors of Capstar Broadcasting determines that Mr. Cullen has not satisfactorily performed his obligations and duties under the agreement, the immediate vesting of all stock options between Capstar Broadcasting and Mr. Cullen and the right to exercise those options until the earlier of (x) the expiration date of such stock options or (y) the 90th day after Mr. Cullen's termination. Dex Allen Employment Agreement. Pacific Star and Capstar Broadcasting have entered into an employment agreement with Dex Allen pursuant to which (i) Mr. Allen serves as President and Chief Executive Officer of Pacific Star, (ii) Mr. Allen's term of employment is five years, provided that on the fifth anniversary and on each anniversary thereafter, Mr. Allen's employment period shall automatically be extended for one additional year unless Mr. Allen or Pacific Star gives the other party written notice of his or its intention not to renew the employment agreement at least six months prior to such anniversary (but no more than 12 months prior to such anniversary), (iii) Mr. Allen will receive a base salary of $150,000 during his first year of employment, which will increase to $200,000 per year thereafter, subject to further annual increases at least equal to the percentage increase, if any, in the Consumer Price Index during the preceding calendar year, and (iv) Mr. Allen is entitled to receive an annual bonus of at least $50,000 per year if certain financial goals, as determined by Pacific Star's Board of Directors, are achieved. Capstar Broadcasting, Pacific Star and Mr. Allen also agreed that (i) if Pacific Star terminates Mr. Allen's employment for cause or Mr. Allen terminates his employment for other than good reason, Pacific Star will only be obligated to make a lump sum payment to Mr. Allen of any accrued obligations of Pacific Star to Mr. Allen, including Mr. Allen's salary earned or accrued through the date of his termination, and (ii) if Pacific Star terminates Mr. Allen's employment other than for cause or disability or Mr. Allen terminates his employment for good reason, Mr. Allen's employment agreement provides for (A) a severance payment of Mr. Allen's then current base salary in regular installments for a one year period, (B) a lump sum payment of any accrued obligations and other benefits earned prior to the date of termination, and (C) unless the Board of Directors of Pacific Star determines that Mr. Allen has not satisfactorily performed his obligations and duties under the agreement, the immediate vesting of all stock options between Capstar Broadcasting and Mr. Allen and the right to exercise those options until the earlier of (x) the expiration date of those options or (y) the 90th day after Mr. Allen's termination. Mary K. Quass Employment Agreement. Upon consummation of the Quass Acquisition, Central Star and Capstar Broadcasting will enter into an employment agreement with Mary K. Quass pursuant to which Ms. Quass will serve as the President and Chief Executive Officer of Central Star. Ms. Quass' employment agreement will terminate on the fifth anniversary of the consummation of the Quass Acquisition. Ms. Quass' base salary will be $200,000, subject to annual increases at least equal to the percentage increase, if any, in the Consumer Price Index during the preceding calendar year. Ms. Quass is also entitled to receive an annual performance bonus if certain financial goals, as determined by the Board of Directors of Central Star, are achieved. Further, if revenues and net income for a fiscal year of the Midwest Region equal or exceed the targets for such revenues and net income as set forth in the Midwest Region's budget, then, Ms. Quass will be awarded an annual bonus in the amount of at least $50,000 with respect to such fiscal year. In addition, Ms. Quass will be entitled to receive stock options to purchase Class A Common Stock. If Central Star terminates Ms. Quass' employment for cause or Ms. Quass terminates her employment for other than good reason, Central Star will pay to Ms. Quass her accrued obligations and investments through the date of termination. If Central Star terminates Ms. Quass' employment without cause or Ms. Quass terminates her employment for good reason, Ms. Quass' employment agreement will provide for (A) a lump sum cash payment equal to any accrued obligations of Central Star to Ms. Quass, (B) a payment in regular installments of Ms. Quass' then current salary for the one-year period commencing from the date of termination (the "Severance Period"), (C) continued medical, dental and life insurance coverage at the expense of Central Star until the earlier of (x) the expiration of the Severance Period or (y) the date Ms. Quass has commenced new employment and has thereby become eligible for comparable medical benefits, and (D) unless the Board of Directors of Capstar Broadcasting determines that Ms. Quass has not satisfactorily performed her obligations and duties under the agreement, the immediate vesting of all stock options between Capstar Broadcasting and Ms. Quass and the right to exercise those options until the earlier of (x) the expiration date of such stock options or (y) the 90th day after Ms. Quass' termination. David J. Benjamin, III Employment Agreement. Upon consummation of the Community Pacific Acquisition, Capstar Radio and Capstar Broadcasting will enter into an employment agreement with David J. Benjamin, III 102 107 pursuant to which Mr. Benjamin will serve as a Managing Director of Capstar Radio. 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 Capstar Radio 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 will also be entitled to receive an annual bonus of $50,000 per year if certain financial goals, as determined by the Board of Directors of Capstar Radio, are achieved. In addition, Mr. Benjamin will be entitled to receive stock options to purchase shares of Class A Common Stock. If Capstar Radio terminates Mr. Benjamin's employment for cause or Mr. Benjamin terminates his employment for other than good reason, Capstar Radio will not be obligated to make any further salary payments to Mr. Benjamin except those earned prior to the date of termination. If Capstar Radio terminates Mr. Benjamin's employment without cause or Mr. Benjamin terminates his employment for good reason, Mr. Benjamin's employment agreement will provide for (A) a lump sum payment equal to any accrued obligations of Capstar Radio 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 Capstar Radio determines that Mr. Benjamin has not satisfactorily performed his obligations and duties under the agreement, the immediate vesting of all stock options between Capstar Radio 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 Me. Benjamin's termination. If Mr. Benjamin's employment is terminated due to death or disability, Capstar Radio will pay all accrued obligations and investments, guaranteed bonuses and other benefits for 12 months after the termination date. Joseph L. Mathias IV Employment Agreement. Upon consummation of the Benchmark Acquisition, Capstar Radio and Capstar Broadcasting entered into an employment agreement pursuant to which Mr. Mathias serves as a Managing Director of Capstar Radio. Mr. Mathias' employment agreement will terminate on the third anniversary of the consummation of the Benchmark Acquisition. Mr. Mathias' base salary is $200,000, subject to annual increases at the discretion of the Board of Directors of Capstar Radio. In addition, Mr. Mathias is entitled to receive stock options to purchase Class A Common Stock. If Capstar Radio terminates Mr. Mathias' employment for cause or Mr. Mathias terminates his employment for other than good reason, Capstar Radio will pay to Mr. Mathias his accrued obligations and investments through the date of termination. If Capstar Radio terminates Mr. Mathias' employment without cause or Mr. Mathias terminates his employment for good reason, Mr. Mathias' employment agreement provides for (A) a lump sum cash payment equal to any accrued obligations of Capstar Radio to Mr. Mathias, (B) a payment in regular installments of Mr. Mathias' then current salary for the remainder of the employment period (the "Severance Period"), and (C) continued medical, dental, and life insurance coverage at the expense of Capstar Radio until the earlier of (x) the expiration of the Severance Period or (y) the date Mr. Mathias has commenced new employment and has thereby become eligible for comparable medical benefits. James M. Strawn Employment Agreement. Upon consummation of the Patterson Acquisition, Capstar Radio and Capstar Broadcasting will enter into an employment agreement pursuant to which Mr. Strawn will serve as a Managing Director of Capstar Radio. Mr. Strawn's employment agreement will terminate on the fifth anniversary of the consummation of the Patterson Acquisition. Mr. Strawn's base salary will be $200,000, subject to annual increases at least equal to the percentage increase, if any, in the Consumer Price Index during the preceding year. Mr. Strawn will also be entitled to receive an annual performance bonus, as determined by the Board of Directors of Capstar Radio. In addition, Mr. Strawn will be entitled to receive stock options to purchase Class A Common Stock. If Capstar Radio terminates Mr. Strawn's employment for cause or Mr. Strawn terminates his employment for other than good reason, Capstar Radio will pay to Mr. Strawn his accrued obligations and investments through the date of termination. If Capstar Radio terminates Mr. Strawn's employment without cause or Mr. Strawn 103 108 terminates his employment for good reason, Mr. Strawn's employment agreement will provide for (A) a lump sum cash payment equal to any accrued obligations of Capstar Radio to Mr. Strawn, (B) a payment in regular installments of Mr. Strawn's then current salary for a two-year period from the date of termination (the "Severance Period"), (C) continued medical, dental, and life insurance coverage at the expense of Capstar Radio until the earlier of (x) the expiration of the Severance Period or (y) the date Mr. Strawn has commenced new employment and has thereby become eligible for comparable medical benefits and (D) unless the Board of Directors of Capstar Radio determines that Mr. Strawn has not satisfactorily performed his obligations and duties under the agreement, the immediate vesting of all stock options between Capstar Broadcasting and Mr. Strawn and the right to exercise those options until the earlier of (x) the expiration date of those options or (y) the 90th day after Mr. Strawn's termination. If Mr. Strawn's employment is terminated due to disability, Capstar Radio shall pay all accrued obligations and investments, and a payment in regular installments of Mr. Strawn's then current salary for six months after the termination date. James W. Wesley Employment Agreement. Upon consummation of the Patterson Acquisition, Capstar Broadcasting will enter into an employment agreement pursuant to which Mr. Wesley will serve as Chairman of the Board of Capstar Broadcasting. Mr. Wesley's employment agreement will terminate on the fifth anniversary of the consummation of the Patterson Acquisition. Mr. Wesley's base salary will be $300,000, subject to annual increases at least equal to the percentage increase, if any, in the Consumer Price Index during the preceding calendar year. Mr. Wesley is also entitled to receive an annual performance bonus, as determined by the Board of Directors of the Company. In addition, Mr. Wesley is entitled to receive stock options to purchase Class A Common Stock. If Capstar Broadcasting terminates Mr. Wesley's employment for cause or Mr. Wesley terminates his employment for other than good reason, Capstar Broadcasting will pay to Mr. Wesley his accrued obligations and investments through the date of termination. If Capstar Broadcasting terminates Mr. Wesley's employment without cause or Mr. Wesley terminates his employment for good reason, Mr. Wesley's employment agreement provides for (A) a lump sum cash payment equal to any accrued obligations of Capstar Broadcasting to Mr. Wesley, (B) a payment in regular installments of Mr. Wesley's then current salary for the remainder of a two year period from the date of termination (the "Severance Period"), (C) continued medical, dental, and life insurance coverage at the expense of Capstar Broadcasting until the earlier of (x) the expiration of the Severance Period or (y) the date Mr. Wesley has commenced new employment and has thereby become eligible for comparable medical benefits and (D) unless the Board of Directors of Capstar Broadcasting determines that Mr. Wesley has not satisfactorily performed his obligations and duties under the agreement, the immediate vesting of all stock options between Capstar Broadcasting and Mr. Wesley and the right to exercise those options until the earlier of (x) the expiration date of those options or (y) the 90th day after Mr. Wesley's termination. If Mr. Wesley's employment is terminated due to disability, Capstar Broadcasting shall pay all accrued obligations and investments and a payment in regular installments of Mr. Wesley's then current salary for a period of six months from the date of termination. BENEFIT PLANS Capstar Broadcasting Stock Option Plan Capstar Broadcasting's 1997 Stock Option Plan (the "Capstar Broadcasting Stock Option Plan") gives certain individuals and key employees of Capstar Broadcasting and any parent corporation or subsidiary corporation thereof (such parent and subsidiary corporations are referred to as "Related Entities") who are responsible for the continued growth of Capstar Broadcasting an opportunity to acquire a proprietary interest in Capstar Broadcasting, and thus to create in such persons an increased interest in and a greater concern for the welfare of Capstar Broadcasting and any Related Entities. The Capstar Broadcasting Stock Option Plan provides for the grant of options to acquire up to 9,000,000 shares of Class A Common Stock. Grants of stock options with respect to 6,801,710 shares of Class A Common Stock have been made under the Capstar Broadcasting Stock Option Plan. The Capstar Broadcasting Stock Option Plan is administered by Capstar Broadcasting's Compensation Committee, which is currently comprised of R. Steven Hicks, Thomas O. Hicks and Lawrence D. Stuart, Jr. The Compensation Committee has authority, subject to the terms of the Capstar Broadcasting Stock Option Plan (including the formula grant provisions and the provisions relating to incentive stock options contained therein), 104 109 to determine when and to whom to make grants or awards under the Capstar Broadcasting Stock Option Plan, the number of shares to be covered by the grants or awards, the types and terms of the grants and awards, and in the case of grants of stock options, the exercise price of stock options. Moreover, the Compensation Committee will have the authority, subject to the provisions of the Capstar Broadcasting Stock Option Plan, to establish such rules and regulations as it deems necessary for the proper administration of the Capstar Broadcasting Stock Option Plan and to make such determinations and interpretations and to take such action in connection with the Capstar Broadcasting Stock Option Plan and any grants and awards thereunder as it deems necessary or advisable. The Compensation Committee's determinations and interpretations under the Capstar Broadcasting Stock Option Plan are final, binding and conclusive on all participants and need not be uniform and may be made by the Compensation Committee selectively among persons who receive, or are eligible to receive, grants and awards under the Capstar Broadcasting Stock Option Plan. Grants of "incentive stock options" within the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and non-qualified stock options (options which do not qualify under section 422 of the Code) may be made under the Capstar Broadcasting Stock Option Plan to key employees. Grants of non-qualified stock options may be made to eligible non-employees (as defined in the Stock Option Plan). No incentive stock option may be granted pursuant to the Capstar Broadcasting Stock Option Plan after October 16, 2006. The exercise price per share of Class A Common Stock under each option is fixed by the Compensation Committee at the time of grant and must equal at least 100% of the fair market value (as defined in the Stock Option Plan) of a share of Class A Common Stock on the date of grant; provided, however, that the exercise price of an incentive stock option granted to a person who, at the time of grant, owns shares of Capstar Broadcasting or any Related Entity which possess more than 10% of the total combined voting power of all classes of stock of Capstar Broadcasting or of any Related Entity may not be less than 110% of the fair market value of a share of Class A Common Stock on the date of grant. No option is exercisable after the expiration of ten years from the date of grant, unless, as to any non-qualified stock option, otherwise expressly provided in the option agreement; provided, however, that no incentive stock option granted to a person who, at the time of grant, owns stock of Capstar Broadcasting, or any Related Entity, possessing more than 10% of the total combined voting power of all classes of stock of Capstar Broadcasting, or any Related Entity, is exercisable after the expiration of five years from the date of grant. In the event of a change of control or sale of Capstar Broadcasting, all outstanding stock options may, subject to the sole discretion of the Compensation Committee, become exercisable in full at such time or times as the Compensation Committee may determine. Each stock option accelerated by the Compensation Committee would terminate on such date (not later than the stated exercise date) as the Compensation Committee determines. Unless an option or other agreement provides otherwise, upon the date of death of an optionee (or upon the termination of an optionee because of such optionee's disability), the person who acquires the right to exercise the option of such optionee (or the optionee in the case of disability) must exercise such option within 180 days after the date of death (or termination in the case of disability), unless a longer period is expressly provided in such incentive stock option or a shorter period is established by the Compensation Committee, but in no event after the expiration date of such option. Following an optionee's termination of employment for cause, all stock options held by such optionee will immediately be canceled as of the date of termination of employment. Following an optionee's termination of employment for other than cause, such optionee must exercise his stock option within 30 days after the date of such termination, unless a longer period is expressly provided in such stock option or a shorter period is established by the Compensation Committee, provided that no incentive stock option shall be exercisable more than three months after such termination. The option exercise price may be paid in cash or, in the discretion of the Compensation Committee, by the delivery of shares of Class A Common Stock then owned by the participant, or by a combination of these methods. Also, in the discretion of the Compensation Committee, payment may also be made by delivering a properly executed exercise notice to Capstar Broadcasting together with a copy of irrevocable instructions to a broker to deliver promptly to Capstar Broadcasting the amount of sale or loan proceeds to pay the exercise price. 105 110 Except as otherwise expressly provided in any non-qualified stock option, stock options may be transferred by a participant only by will or by the laws of descent and distribution and may be exercised only by the participant during his lifetime. If an optionee's employment is terminated for any reason or a change of control occurs, Capstar Broadcasting, or its designee, may purchase the remaining options and/or shares of Class A Common Stock held by such optionee at a price per share equal to fair market value. Prior to the transfer by an optionee of any shares of Class A Common Stock issued to such optionee upon exercise of a stock option, Capstar Broadcasting or its designee has the right to acquire such shares of Class A Common Stock on the same terms and conditions as the proposed transfer. Stock Purchase Plan Capstar Broadcasting's 1997 Stock Purchase Plan (the "Stock Purchase Plan") gives certain key employees of Capstar Broadcasting and any Related Entities who are expected to contribute materially to the success of Capstar Broadcasting and any Related Entities an opportunity to acquire a proprietary interest in Capstar Broadcasting, and thus to retain such persons and create in such persons an increased interest in and a greater concern for the welfare of Capstar Broadcasting and any Related Entities. The Stock Purchase Plan provides for the grant of stock purchase rights to acquire up to shares of Class A Common Stock. To date, grants of stock purchase rights with respect to 980,000 shares of Class A Common Stock have been made under the Stock Purchase Plan, all of which have been exercised. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION 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 (the Company's President and Chief Executive Officer), Eric C. Neuman (an Executive Vice President of the Company) 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. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company's Certificate of Incorporation provides that no director of the Company shall be personally liable to the Company or its stockholders for monetary damages for breach of his fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) in respect of certain unlawful dividend payments or stock redemptions or purchases or (iv) for any transaction from which the director derived an improper personal benefit. The effect of these provisions is to eliminate the rights of the Company and its stockholders (through stockholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of fiduciary duty as a director (including breaches resulting from grossly negligent behavior), except in the situations described above. Capstar Broadcasting has entered into indemnification agreements with each of its directors and executive officers under which Capstar Broadcasting has agreed to indemnify the director or officer to the fullest extent permitted by law and to advance expenses, if the director or officer becomes a party to or witness or other participant in any threatened, pending or completed action, suit or proceeding (a "Claim") by reason of any occurrence related to the fact that the person is or was a director, officer, employee, agent or fiduciary of Capstar Broadcasting or a subsidiary of Capstar Broadcasting or another entity at Capstar Broadcasting request (an "Indemnifiable Event"), unless a reviewing party (either outside counsel or a committee appointed by the Board of Directors) determines that the person would not be entitled to indemnification under applicable law. In addition, if a change in control or a potential change in control of Capstar Broadcasting occurs and if the person 106 111 indemnified so requests, Capstar Broadcasting will establish a trust for the benefit of the indemnitee and fund the trust in an amount sufficient to satisfy all expenses reasonably anticipated at the time of the request to be incurred in connection with any Claim relating to an Indemnifiable Event. The reviewing party will determine the amount deposited in the trust. An indemnitee's rights under the indemnification agreement are not exclusive of any other rights under the Capstar Broadcasting's Certificate of Incorporation or By-laws or applicable law. The Company believes that these provisions and agreements will assist the Company in attracting and retaining qualified individuals to serve as directors and officers. 107 112 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The table below gives effect to the acquisition by Capstar Broadcasting of all of the issued and outstanding common stock of the Company, the Completed Transactions and the Financing and sets forth, as if each of the foregoing had occurred on March 31, 1997, (i) the number and percentage of outstanding shares of each class of the capital stock of Capstar Broadcasting that are beneficially owned by (a) each person or group beneficially owning five percent or more of any class of the capital stock of Capstar Broadcasting, (b) each director of Capstar Broadcasting, (c) each Named Executive Officer, (d) each executive officer of Capstar Broadcasting, and (e) all directors and executive officers of the Company and Capstar Broadcasting as a group and (ii) the combined percentage of all classes of the capital stock of Capstar Broadcasting that are beneficially owned by each of such person or group of persons. Except as noted below, each individual or entity named below is believed to have sole investment and voting power with respect to all the shares of capital stock reflected below.
CLASS A CLASS B CLASS C COMMON STOCK COMMON STOCK(1) COMMON STOCK(2) -------------------- -------------------- --------------------- NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT PERCENT OF PERCENTAGE OF OF OF OF OF OF ECONOMIC OF VOTING NAME OF BENEFICIAL OWNER SHARES CLASS SHARES CLASS SHARES CLASS INTEREST POWER ------------------------ ---------- ------- ---------- ------- ----------- ------- ---------- ---------- Capstar Broadcasting Partners, L.P.(3)......................... -- -- -- -- 178,775,505 78.4% 59.3% 77.5% 200 Crescent Court, Suite 1600 Dallas, Texas 75201 Capstar BT Partners, L.P.(3)...... -- -- 26,559,261 55.1% -- -- 8.8% -- 200 Crescent Court, Suite 1600 Dallas, Texas 75201 BT Capital Partners, Inc.......... -- -- 9,619,995 20.0% -- -- 3.2% -- Capstar Boston Partners, L.L.C.(3)....................... 2,727,272 10.8% -- -- -- -- * * Dex Allen(3)...................... 363,636 1.4% -- -- -- -- * * Scott J. Bacherman(3)............. 100,000 * -- -- -- -- * * William S. Banowsky, Jr.(3)....... 500,000 2.0% -- -- -- -- * * David J. Benjamin, III(3)......... 363,636 1.4% -- -- -- -- * * John D. Cullen(3)................. 3,292,989 13.1% -- -- -- -- 1.1% * R. Steven Hicks(4)................ -- -- -- -- 25,449,986 10.7% 8.2% 10.6% Thomas O. Hicks(5)................ 25,147,566 100.0% 48,179,897 100.0% 238,593,986 100.0% 15.4% 100.0% Joseph L. Mathias, IV(3).......... 1,538,462 6.1% -- -- -- -- -- -- Eric C. Neuman(3)................. 2,500,628 9.9% -- -- -- -- * * Frank D. Osborn(3)................ 1,636,361 6.5% -- -- -- -- * * Mary K. Quass(3).................. 909,091 3.6% -- -- -- -- * * James T. Shea, Jr.(3)............. 350,000 1.4% -- -- -- -- * * Jay Sterin(3)..................... 250,000 1.0% -- -- -- -- * * Paul D. Stone(3).................. 2,271,355 9.0% -- -- -- -- * * James M. Strawn................... -- -- -- -- -- -- -- -- Lawrence D. Stuart, Jr.(3)........ 637,928 2.5% -- -- -- -- * * James W. Wesley, Jr............... -- -- -- -- -- -- -- -- R. Gerald Turner(3)............... 75,188 * -- -- -- -- * * All directors and executive officers of the Company and Capstar Broadcasting as a group (18 persons).................... 25,147,566 100.0% 48,179,897 100.0% 238,593,986 100.0% 100.0% 100.0%
- --------------- * Less than one percent. (1) The holders of shares of Class B Common Stock, par value $.01 per share, of Capstar Broadcasting ("Class B Common Stock" and, together with the Class A Common Stock and Class C Common Stock, the "Common Stock") are not entitled to vote, except as required by law. The shares of Class B Common Stock are convertible in whole but not in part, at the option of the holder or holders thereof, into the same number of shares of Class A Common Stock, subject to certain conditions. See "Description of Capital Stock." (2) The holders of the Class C Common Stock are entitled to vote with the holders of the Class A Common Stock on all matters submitted to a vote of stockholders of the Company, except after an IPO (as defined) with respect to the election of Class A Directors (as defined), certain "going private" transactions and as otherwise required by law and except under the circumstances described under "Description of Capital Stock." Each share of Class C Common Stock is entitled to ten votes per share on all matters submitted to a vote of stockholders. See "Description of Capital Stock." (3) Such shares are subject to a stockholders agreement as described in "Certain Transactions -- Stockholders Agreements." (4) The number of shares of Class C Common Stock includes (i) 100,000 shares owned of record by R. Steven Hicks' children, (ii) 7,440,000 shares purchasable by R. Steven Hicks pursuant to the terms of the Warrant, (iii) 2,042,546 shares purchasable by R. Steven Hicks pursuant to the terms of the Second Warrant, and (iv) 987,970 shares purchasable by R. Steven Hicks pursuant to the terms of the Third Warrant (as defined). See "Certain Transactions -- Stockholders Agreements -- Affiliate Stockholders Agreement" and "-- Warrants." R. Steven Hicks has voting rights to the shares owned by his children under the terms of the Affiliate Stockholders Agreement (as defined). R. Steven Hicks disclaims beneficial ownership of the shares of Common Stock not owned by him of record. The shares owned 108 113 of record by R. Steven Hicks and his children are subject to a voting agreement as described in "Certain Transactions -- Stockholders Agreements -- Affiliate Stockholders Agreement." (5) The number of shares of Class A Common Stock is comprised of (i) 2,727,272 shares owned of record by Capstar Boston Partners, L.L.C., which shares are subject to a voting agreement as described in "Certain Transactions -- Stockholders Agreements -- Affiliate Stockholders Agreement," (ii) 6,366,378 shares owned of record by parties to the Management Stockholders Agreement (as defined), which shares are subject to a voting agreement as described in "Certain Transactions -- Stockholders Agreements -- Management Stockholders Agreement" and (iii) 16,053,916 shares owned of record by parties to the GulfStar Stockholders Agreement (as defined), which shares are subject to a voting agreement as described in "Certain Transactions -- Stockholders Agreements -- GulfStar Stockholders Agreement." The number of shares of Class B Common Stock is comprised of (i) the 26,559,261 shares owned of record by Capstar BT Partners, L.P., which shares are subject to the Affiliate Stockholders Agreement as described in "Certain Transactions -- Stockholders Agreements -- Affiliate Stockholders Agreement" and (ii) 21,620,636 shares owned of record by parties to the GulfStar Stockholders Agreement (as defined), which shares are subject to a voting agreement as described in "Certain Transactions -- Stockholders Agreements -- GulfStar Stockholders Agreement." The number of shares of Class C Common Stock includes (i) 100,000 shares owned of record by R. Steven Hicks' children, which shares are subject to a voting agreement as described in "Certain Transactions -- Stockholders Agreements -- Affiliate Stockholders Agreement," (ii) 3,000,000 shares owned of record by R. Steven Hicks, and 7,440,000 shares, 2,042,546 shares and 987,970 shares purchasable by R. Steven Hicks pursuant to the terms of the Warrant, the Second Warrant and the Third Warrant, respectively, which shares are subject to a voting agreement as described in "Certain Transactions -- Stockholders Agreements -- Affiliate Stockholders Agreement," (iii) 178,775,505 shares owned of record by Capstar L.P., of which the ultimate general partner is an entity controlled by Thomas O. Hicks, and (iv) 46,247,965 shares owned of record by parties to the GulfStar Stockholders Agreement (as defined), which shares are subject to a voting agreement as described in "Certain Transactions -- Stockholders Agreements -- GulfStar Stockholders Agreement." Hicks Muse is a party to the Affiliate Stockholders Agreement, the Management Stockholders Agreement and the GulfStar Stockholders Agreement, which agreements require the parties to such agreements to vote their shares (i) in favor of the election to Capstar Broadcasting's Board of Directors of such individuals as may be designated by Hicks Muse and its affiliates (including Capstar L.P.) and (ii) on other matters as the holders of a majority of the voting power of the outstanding shares of Common Stock vote on such matters. Thomas O. Hicks is the controlling stockholder of Hicks Muse and serves as its Chairman of the Board, President, Chief Executive Officer, Chief Operating Officer and Secretary. Accordingly, Thomas O. Hicks may be deemed to be the beneficial owner of all of the Common Stock subject to the Affiliate Stockholders Agreement, the Management Stockholders Agreement and the GulfStar Stockholders Agreement. Thomas O. Hicks disclaims beneficial ownership of the shares of Common Stock not owned by him of record. 109 114 CERTAIN TRANSACTIONS MONITORING AND OVERSIGHT AGREEMENTS Capstar Broadcasting Monitoring and Oversight Agreement. Capstar Broadcasting has entered into a monitoring and oversight agreement (the "Capstar Broadcasting Monitoring and Oversight Agreement") with Hicks Muse & Co. Partners, L.P. ("Hicks Muse Partners"). Pursuant thereto, Capstar Broadcasting has agreed to pay to Hicks Muse Partners an annual fee of $100,000 for ongoing financial oversight and monitoring services. The annual fee is adjustable upward or downward at the end of each fiscal year to an amount equal to 0.2% of the budgeted consolidated annual net sales of Capstar Broadcasting for the then-current fiscal year; provided, that such fee shall at no time be less than $100,000 per year. Notwithstanding the calculation of the annual fee in the preceding two sentences, the annual fee will be reduced by the amount previously paid for such period by the Company under the Monitoring and Oversight Agreement (as defined), and as a result, no annual fee is expected to be required to be paid in 1997. Hicks Muse Partners is also entitled to reimbursement for any out-of-pocket expenses incurred by it in connection with rendering services under the Capstar Broadcasting Monitoring and Oversight Agreement. In addition, Capstar Broadcasting has agreed to indemnify Hicks Muse Partners, its affiliates and shareholders, and their respective directors, officers, agents, employees and affiliates from and against all claims, actions, proceedings, demands, liabilities, damages, judgments, assessments, losses and costs, including fees and expenses, arising out of or in connection with the services rendered by Hicks Muse Partners in connection with the Capstar Broadcasting Monitoring and Oversight Agreement. Hicks Muse Partners has reserved the right to seek an increase in the amount of its annual fee based on the increased scope of Capstar Broadcasting's operations. Any such increase will be subject to the approval of the Board of Directors of Capstar Broadcasting, including a majority of the disinterested directors, based on the exercise of their independent judgment. The Capstar Broadcasting Monitoring and Oversight Agreement makes available on an ongoing basis the resources of Hicks Muse Partners concerning a variety of financial matters. The services that have been and will continue to be provided by Hicks Muse Partners could not otherwise be obtained by Capstar Broadcasting without the addition of personnel or the engagement of outside professional advisors. The Capstar Broadcasting Monitoring and Oversight Agreement expires on the earlier to occur of (i) July 1, 2007 or (ii) the date on which HM Fund III and its affiliates cease to own beneficially, directly or indirectly, any securities of Capstar Broadcasting or its successors. Monitoring and Oversight Agreement. The Company has entered into a monitoring and oversight agreement (the "Monitoring and Oversight Agreement") with Hicks Muse Partners. Pursuant thereto, the Company has agreed to pay to Hicks Muse Partners an annual fee of $100,000 for ongoing financial oversight and monitoring services. The annual fee is adjustable upward or downward at the end of each fiscal year to an amount equal to 0.2% of the budgeted consolidated annual net sales of the Company for the then-current fiscal year; provided, that such fee shall at no time be less than $100,000 per year. The annual fee in 1997 is estimated to be $278,000. The Monitoring and Oversight Agreement expires on the earlier to occur of (i) October 16, 2006 or (ii) the date on which HM Fund III and its affiliates cease to own beneficially, directly or indirectly, any securities of the Company or its successors. The remainder of the terms of the Monitoring and Oversight Agreement are substantially similar to the terms of the Capstar Broadcasting Monitoring and Oversight Agreement. FINANCIAL ADVISORY AGREEMENTS Capstar Broadcasting Financial Advisory Agreement. Capstar Broadcasting is a party to a financial advisory agreement (the "Capstar Broadcasting Financial Advisory Agreement") with Hicks Muse Partners. Pursuant to the Capstar Broadcasting Financial Advisory Agreement, Hicks Muse Partners is entitled to receive a fee equal to 1.5% of the transaction value (as defined in the Capstar Broadcasting Financial Advisory Agreement) for each add-on transaction (as defined) in which Capstar Broadcasting or any of its subsidiaries is involved. Hicks Muse Partners is also entitled to reimbursement for any out-of-pocket expenses incurred by it in connection with rendering services under the Capstar Broadcasting Financial Advisory Agreement. The term "transaction value" means the total value of any add-on transaction, including, without limitation, the aggregate amount of the funds required to complete the add-on transaction (excluding any fees payable pursuant to the Capstar Broadcasting 110 115 Financial Advisory Agreement, but including the amount of any indebtedness, preferred stock or similar items assumed or remaining outstanding). The term "add-on transaction" means any future proposal for a tender offer, acquisition, sale, merger, exchange offer, recapitalization, restructuring, or other similar transaction directly or indirectly involving Capstar Broadcasting or any of its subsidiaries, excluding the Company and its direct and indirect subsidiaries, and any other person or entity. In addition, Capstar Broadcasting has agreed to indemnify Hicks Muse Partners, its affiliates and partners, and their respective directors, officers, agents, employees and affiliates from and against all claims, actions, proceedings, demands, liabilities, damages, judgments, assessments, losses and costs, including fees and expenses, arising out of or in connection with the services rendered by Hicks Muse Partners in connection with the Capstar Broadcasting Financial Advisory Agreement. Pursuant to the Capstar Broadcasting Financial Advisory Agreement, Hicks Muse Partners provides investment banking, financial advisory and other similar services with respect to the add-on transactions in which Capstar Broadcasting is involved. Such transactions require additional attention beyond that required to monitor and advise Capstar Broadcasting on an ongoing basis and accordingly Capstar Broadcasting pays separate Capstar Broadcasting advisory fees with respect to such matters in addition to those paid in connection with the Monitoring and Oversight Agreement. The services that have been and will continue to be provided by Hicks Muse Partners could not otherwise be obtained by Capstar Broadcasting without the addition of personnel or the engagement of outside professional advisors. The Capstar Broadcasting Financial Advisory Agreement will terminate concurrently with the termination of the Capstar Broadcasting Monitoring and Oversight Agreement. Financial Advisory Agreement. The Company is a party to a financial advisory agreement (the "Capstar Financial Advisory Agreement") with Hicks Muse Partners. The terms of the Financial Advisory Agreement are substantially similar to the terms of the Capstar Broadcasting Financial Advisory Agreement. The Company has paid Hicks Muse Partners financial advisory fees of approximately $12.3 million since the Company's inception in October 1996. STOCKHOLDERS AGREEMENTS Affiliate Stockholders Agreement. R. Steven Hicks, five of his children, Capstar BT Partners, L.P., Capstar Boston Partners, L.L.C. and Capstar L.P. (the "Affiliate Stockholders") have entered into the Affiliate Stockholders Agreement with Capstar Broadcasting and Hicks Muse that provides, among other things, that the Affiliate Stockholders may require Capstar Broadcasting, subject to certain registration volume limitations, to effect up to three demand registrations of their Common Stock under the Securities Act at any time after consummation of a qualified IPO (as defined in the Affiliate Stockholders Agreement). The Affiliate Stockholders Agreement also provides that in the event Capstar Broadcasting proposes to register any shares of its Common Stock under the Securities Act, whether or not for its own account, the Affiliate Stockholders will be entitled, with certain exceptions, to include their shares of Common Stock in such registration. The Affiliate Stockholders Agreement also requires the Affiliate Stockholders, subject to certain conditions, to vote their shares (i) in favor of the election to Capstar Broadcasting's Board of Directors of such individuals as may be designated by Hicks Muse and its affiliates (including Capstar L.P.) and (ii) on other matters as the holders of a majority of the voting power of the outstanding shares of Common Stock vote on such matters. If certain conditions are met, including Mr. Hicks serving as the President and Chief Executive Officer of Capstar Broadcasting or holding not less than 3% of the fully-diluted Common Stock of Capstar Broadcasting, the Affiliate Stockholders Agreement provides that Mr. Hicks shall be one of such designees to serve on Capstar Broadcasting's Board of Directors. The Affiliate Stockholders Agreement provides that, in connection with any transfer of Capstar Broadcasting's securities held by Hicks Muse and its affiliates (which would constitute a "sale" thereof within the meaning of the Securities Act) representing more than 50% of the shares of Common Stock then held by Hicks Muse and its affiliates, Hicks Muse and its affiliates have the right to require the Affiliate Stockholders to also transfer a portion of their shares of Common Stock. If Hicks Muse and its affiliates desire to effect a sale of more than 50% of the shares of Common Stock then held by Hicks Muse and its affiliates, such stockholders may "tag along" and sell a portion of their shares of Common Stock on the same terms. Prior to the transfer of any securities subject to the Affiliate Stockholders Agreement by any stockholder other than an affiliate of Hicks Muse, Hicks Muse has the right to acquire such securities on the same terms and 111 116 conditions as the proposed transfer. If R. Steven Hicks is no longer an officer, director or employee of Capstar Broadcasting or any of its subsidiaries or a change of control (as defined in the Affiliate Stockholders Agreement) occurs, Capstar Broadcasting has the option to purchase all or any portion of Capstar Broadcasting's securities held by Mr. Hicks and his children. The Affiliate Stockholders Agreement provides that (i) R. Steven Hicks shall retain the voting rights of any securities (subject to such agreement) which he transfers, conveys, assigns or hypothecates to an affiliate or any of his family members and (ii) Mr. Hicks may not transfer, convey, assign or hypothecate any of his securities (subject to the Affiliate Stockholders Agreement) to an affiliate or any family member of Mr. Hicks unless such affiliate or family member joins in the Affiliate Stockholders Agreement. Subject to certain exceptions, if Capstar Broadcasting proposes to issue or sell any shares of Common Stock to Hicks Muse or any of its affiliates, Mr. Hicks has the right to purchase a pro rata share of such shares of Common Stock. Mr. Hicks waived his preemptive right to acquire additional shares of Common Stock in connection with the Financing. Mr. Hicks is entitled to receive, for no additional consideration, a warrant to acquire additional shares of Class C Common Stock (determined as provided in the Affiliate Stockholders Agreement) if Hicks Muse or any of its affiliates otherwise acquires additional shares of Common Stock. In connection with the Hicks Muse GulfStar Equity Investment, Mr. Hicks received a warrant to purchase 1,234,962 shares of Class C Common Stock (the "Third Warrant"). See "-- Warrants" and "-- Management and Affiliate Equity Investments." Management Stockholders Agreement. Certain employees of Capstar Broadcasting and its subsidiaries have entered into the Management Stockholders Agreement (the "Management Stockholders Agreement") with Capstar Broadcasting and Hicks Muse that provides, among other things, that in the event Capstar Broadcasting proposes to register any shares of its Common Stock under the Securities Act, whether or not for its own account, the stockholders that are parties to the Management Stockholders Agreement will be entitled, with certain exceptions, to include their shares of Common Stock in such registration. The Management Stockholders Agreement also requires the parties thereto to vote their shares in favor of the election to Capstar Broadcasting's Board of Directors of such individuals as may be designated by Hicks Muse and its affiliates. The Management Stockholders Agreement provides that, in connection with any transfer of Capstar Broadcasting's securities held by Hicks Muse and its affiliates (which would constitute a "sale" thereof within the meaning of the Securities Act) representing more than 50% of the shares of Common Stock then held by Hicks Muse and its affiliates, Hicks Muse and its affiliates have the right to require the stockholders subject to the Management Stockholders Agreement also to transfer a portion of their shares of Common Stock. If Hicks Muse and its affiliates desire to effect a sale of more than 50% of the shares of Common Stock then held by Hicks Muse and its affiliates, such stockholders may "tag along" and sell a portion of their shares of Common Stock on the same terms. Prior to the transfer of any securities subject to the Management Stockholders Agreement by any stockholder other than an affiliate of Hicks Muse, Hicks Muse has the right to acquire such securities on the same terms and conditions as the proposed transferee. If at any time a stockholder subject to the Management Stockholders Agreement is no longer an officer, director or employee of Capstar Broadcasting or any of its subsidiaries or a change of control (as defined in the Management Stockholders Agreement) of Capstar Broadcasting occurs, Capstar Broadcasting has the option to purchase all or any portion of Capstar Broadcasting's securities held by such stockholder. GulfStar Stockholders Agreement. Upon completion of the GulfStar Transaction, the stockholders of GulfStar (other than R. Steven Hicks) (the "GulfStar Stockholders") entered into the GulfStar Stockholders Agreement with Capstar Broadcasting and Hicks Muse that provides, among other things, that the GulfStar Stockholders may require Capstar Broadcasting, subject to certain registration volume limitations, to effect up to three demand registrations of their Common Stock under the Securities Act one year following the consummation of a Qualified IPO (as defined in the GulfStar Stockholders Agreement). The GulfStar Stockholders Agreement also provides that in the event Capstar Broadcasting proposes to register any shares of its Common Stock under the Securities Act, whether or not for its own account, the GulfStar Stockholders will be entitled, with certain exceptions, to include their shares of Common Stock in such registration. The GulfStar Stockholders Agreement also requires the GulfStar Stockholders, subject to certain conditions, to vote their shares (i) in favor of the election to Capstar Broadcasting's Board of Directors of such individuals as 112 117 may be designated by Hicks Muse and its affiliates (including Capstar L.P.) and (ii) on other matters as the holders of a majority of the voting power of the outstanding shares of Common Stock vote on such matters. The GulfStar Stockholders Agreement provides that, in connection with any transfer of Capstar Broadcasting's securities held by Hicks Muse and its affiliates (which would constitute a "sale" thereof within the meaning of the Securities Act) representing more than 50% of the shares of Common Stock then held by Hicks Muse and its affiliates, Hicks Muse and its affiliates have the right to require the GulfStar Stockholders to also transfer a portion of their shares of Common Stock. If Hicks Muse and its affiliates desire to effect a sale of more than 50% of the shares of Common Stock then held by Hicks Muse and its affiliates, such stockholders may "tag along" and sell a portion of their shares of Common Stock on the same terms. Prior to the transfer of any securities subject to the GulfStar Stockholders Agreement by any stockholder other than an affiliate of Hicks Muse, Hicks Muse has the right to acquire such securities on the same terms and conditions as the proposed transferee. The GulfStar Stockholders Agreement provides that (i) a GulfStar Stockholder shall retain the voting rights of any securities (subject to such agreement) which he transfers, conveys, assigns or hypothecates to an affiliate or any of his family members and (ii) a GulfStar Stockholder may not transfer, convey, assign or hypothecate any of his securities (subject to the GulfStar Stockholders Agreement) to an affiliate or any family member of such GulfStar Stockholder unless such affiliate or family member joins in the GulfStar Stockholders Agreement. REGISTRATION RIGHTS AGREEMENT Frank D. Osborn is a party to a registration rights agreement with Capstar Broadcasting which provides, among other things, that Mr. Osborn may require Capstar Broadcasting to effect a demand registration of his Common Stock under the Securities Act at any time within 30 days after the tenth anniversary of the date of the registration rights agreement. Mr. Osborn's right to demand a registration will terminate upon the first to occur of a qualified IPO or a change of control (both as defined in the registration rights agreement). After receipt of a demand for registration of Common Stock by Mr. Osborn pursuant to the registration rights agreement, Capstar Broadcasting has the option to purchase all of the shares of Common Stock, then held by Mr. Osborn for a 30-day period, at appraised value (as defined in the registration rights agreement). WARRANTS On October 16, 1996, the Company issued a warrant (the "Warrant") to R. Steven Hicks, which has been assumed by Capstar Broadcasting. Pursuant to the terms of the Warrant, Mr. Hicks is entitled to purchase 7,440,000 shares of Class C Common Stock at any time or from time to time and, upon the fulfillment of a certain triggering event, may purchase an additional 1,860,000 shares of Class C Common Stock. The exercise price of the Warrant is equal to a per share price of $1.00 as increased by an annual rate of interest equal to 8% per year commencing as of October 16, 1996. The term "triggering event" means the date upon which distributions equal to an internal rate of return of at least 30%, calculated in accordance with generally accepted financial practice, on the initial investment of Capstar L.P. of $90.0 million in the Company (which investment was made on October 16, 1996) have been made to Hicks Muse and its affiliates and its and their respective officers, directors and employees (and members of their respective families (other than Mr. Hicks) and trusts for the primary benefit of those family members). See "-- Management and Affiliate Equity Investments." The Warrant will terminate on October 16, 2006. The Warrant and the shares of Class C Common Stock issuable thereunder are subject to the Affiliate Stockholders Agreement. Under the terms of the Affiliate Stockholders Agreement, the Company issued a new warrant (the "Second Warrant") to Mr. Hicks upon completion of the Hicks Muse Osborn Equity Investment, which has been assumed by Capstar Broadcasting. Pursuant to the terms of the Second Warrant, Mr. Hicks is entitled to purchase 2,042,546 shares of Class C Common Stock at any time or from time to time and, upon the fulfillment of the triggering event (which is based on Capstar L.P.'s $34.8 million investment in the Company made on February 20, 1997), may purchase an additional 510,636 shares of Class C Common Stock. See "-- Management and Affiliate Equity Investments." The exercise price of the Second Warrant is equal to a per share price of $1.10 per share as increased by an annual rate of interest equal to 8.0% per year commencing as of February 20, 1997. The Second Warrant will terminate ten years from the date of grant. The remaining terms of the Second Warrant are substantially similar to the terms of the Warrant. 113 118 Under the terms of the Affiliate Stockholders Agreement, Capstar Broadcasting issued a new warrant (the "Third Warrant" and together with the Warrant and the Second Warrant, the "Warrants") to Mr. Hicks upon completion of the Hicks Muse GulfStar Equity Investment. Pursuant to the terms of the Third Warrant, Mr. Hicks is entitled to purchase 987,970 shares of Class C Common Stock at any time or from time to time and, upon the fulfillment of the triggering event (which is based on Capstar L.P.'s $75.0 million investment in Capstar Broadcasting), may purchase an additional 246,992 shares of Class C Common Stock. See "-- Management and Affiliate Equity Investments." The exercise price of the Third Warrant is equal to a per share price of $1.33 per share as increased by an annual rate of interest equal to 8% per year commencing as of the date of the consummation of the GulfStar Transaction. The Third Warrant will terminate 10 years from the date of grant. The remaining terms of the Third Warrant are substantially similar to the terms of the Warrant. MANAGEMENT AND AFFILIATE EQUITY INVESTMENTS HM Fund III and its affiliates (through Capstar L.P.) have invested $233.9 million in the Common Stock, including $90.0 million for 90,000,000 shares of Class C Common Stock in connection with the Commodore Acquisition, $34.8 million for 31,634,527 shares of Class C Common Stock in connection with the Hicks Muse Osborn Equity Investment, and $75.0 million for 56,390,977 shares of Class C Common Stock in connection with the GulfStar Transaction (the "Hicks Muse GulfStar Equity Investment"), and equity investments by Capstar BT Partners, L.P. and Capstar Boston Partners, L.L.C. (each of which is an affiliate of HM Fund III). HM Fund III and its affiliates have committed to invest up to an additional $50.0 million in equity of Capstar Broadcasting and Capstar Broadcasting has committed to issue additional equity to Capstar Broadcasting in exchange therefor. In connection with the Osborn Acquisition, Capstar BT Partners, L.P., an entity controlled by Hicks Muse, invested $20.0 million for 18,181,818 shares of Class B Common Stock and, in connection with the Hicks Muse GulfStar Equity Investment and upon exercise of its preemptive rights under the Affiliate Stockholders Agreement, Capstar BT Partners, L.P. invested an additional $11.1 million for 8,377,443 shares of Class B Common Stock. Capstar BT Partners, L.P. may exercise its preemptive rights under the Affiliate Stockholders Agreement in connection with HM Fund III's purchase of an additional $50.0 million of Common Stock pursuant to its commitment to purchase such shares. Capstar Boston Partners, L.L.C., an entity controlled by Hicks Muse, has invested $3.0 million for 2,727,272 shares of Class A Common Stock. R. Steven Hicks, the President and Chief Executive Officer of the Company, has invested $3.1 million for 3,100,000 shares of Class C Common Stock. James T. Shea, Jr., the chief executive officer of the Northeast Region, has invested $350,000 for 350,000 shares of Class A Common Stock. In connection with the Osborn Acquisition, Frank D. Osborn, the former President and Chief Executive Officer of Osborn contributed certain shares of common stock of Osborn to the Company in exchange for 1,636,361 shares of common stock of the Company having a deemed value of $1.8 million (which shares have been exchanged for an equal number of shares of Class A Common Stock). David J. Benjamin, who will serve as a Managing Director and Dex Allen, who serves as the president and chief executive officer of the West Region, have each invested $400,000 for 363,636 shares of Class A Common Stock. Mary K. Quass, who will serve as the president and chief executive officer of the Midwest Region upon consummation of the Quass Acquisition, has invested $1.0 million for 909,091 shares of Class A Common Stock. In connection with the Benchmark Acquisition, Joseph L. Mathias IV, received 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 Capstar Broadcasting's management have invested approximately $1.2 million for 1,205,188 shares of Class A Common Stock. INDEBTEDNESS OF MANAGEMENT In connection with his employment, Dex Allen, the president and chief executive officer of the West Region, purchased 363,636 shares of common stock of the Company, which were subsequently exchanged for shares of Class A Common Stock, in exchange for $200,000 in cash and a promissory note payable to the Company in the principal amount of $200,000. The note is secured by the Class A Common Stock purchased by Mr. Allen and bears interest at a rate of 9% per annum with interest payable monthly and principal payable at maturity. The note will mature and be payable on the first to occur of (i) October 31, 1997 or (ii) consummation of the 114 119 Commonwealth Acquisition. Such shares are subject to the Management Stockholders Agreement. See "-- Stockholders Agreements." David J. Benjamin, III who will serve as a Managing Director upon consummation of the Community Pacific Acquisition, purchased 363,636 shares of common stock of the Company, which were subsequently exchanged for shares of Class A Common Stock, in exchange for $3,636 in cash and a promissory note payable to the Company in the principal amount of $400,000. 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. Capstar Broadcasting 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." Mary K. Quass, who will serve as the president and chief executive officer of the Midwest Region upon consummation of the Quass Acquisition, purchased 909,091 shares of common stock of the Company, which were subsequently exchanged for shares of Class A Common Stock, in exchange for cash in the amount of $9,091 and a promissory note payable to the Company in the principal amount of $990,909. The note is secured by the Class A Common Stock purchased by Ms. Quass and bears interest at a rate of 9% per annum with principal and interest payments due at maturity. The note will mature and be payable on the first to occur of (i) April 30, 1998 or (ii) consummation of the Quass Acquisition. Capstar Broadcasting will have the right to repurchase Ms. Quass' shares of Class A Common Stock (by forgiveness of the note) if (i) the Quass Acquisition is not closed by April 30, 1998 or (ii) the acquisition agreement therefor is terminated. Such shares are subject to the Management Stockholders Agreement. See "-- Stockholders Agreements." Each of Eric C. Neuman, Paul D. Stone, and John D. Cullen, who are members of management of GulfStar, acquired shares of common stock of GulfStar in exchange for non-recourse promissory notes payable and recourse promissory notes payable to GulfStar in aggregate principal amounts of approximately $114,000, $428,000, and $856,000, respectively. The notes were secured by the common stock of GulfStar purchased by such persons, and upon completion of the GulfStar Merger, will be secured by the Common Stock issued in exchange therefor. The note of Eric C. Neuman bears interest at a rate of 9% per annum and the notes of Paul D. Stone and John D. Cullen bear interest at 7.6% per annum, each with principal and interest payments payable annually in arrears. Each of the notes matures 10 years after the date of the note. R. Gerald Turner, a director of Capstar Broadcasting, acquired 75,188 shares of Class A Common Stock in exchange for a non-recourse promissory note payable to Capstar Broadcasting in the principal amount of $75,000 and a recourse note payable to Capstar Broadcasting in the principal amount of $25,000. The notes, which mature on the fifth anniversary thereof, are secured by the shares of Class A Common Stock purchased by Mr. Turner and bear interest at a rate of % per annum with quarterly principal and interest payments. GULFSTAR TRANSACTIONS On April 16, 1996, GulfStar acquired all of the outstanding capital stock of Sonance Communications, Inc. ("Sonance") in exchange for 542 shares of GulfStar Class C Stock, 1,626 shares of GulfStar Class A Stock and approximately $619,000 of cash. Total consideration for the acquisition, including acquisition costs, was approximately $8,692,000, including assumed liabilities of $7,627,000. Sonance's controlling stockholder is William R. Hicks, brother of Thomas O. Hicks and R. Steven Hicks. Thomas O. Hicks was the majority stockholder of GulfStar and Sonance. The primary assets of Sonance include stations KKAM-AM, KFMX-FM, KIIZ-FM, KLTX-FM, WTAW-AM and KTSR-FM. In 1996, GulfStar recorded a charge of approximately $771,000 in connection with the write-off of a receivable from Sonance Midland, Inc. ("Sonance Midland"). Before its sale to an unrelated third party, Sonance Midland was owned by Thomas O. Hicks and William R. Hicks, brother of Thomas O. Hicks and R. Steven Hicks. Sonance Midland owed GulfStar $771,000 in connection with advances for working capital. During 1996, Sonance Midland was sold by William R. Hicks to a unrelated third party. Concurrently with the sale, GulfStar wrote-off the receivable from Sonance Midland. 115 120 GulfStar has agreed to sell (the "GulfStar -- Bryan Disposition") all of the outstanding capital stock of BBOC to William R. Hicks and Ben D. Downs in exchange for capital stock of GulfStar held by William R. Hicks and Ben D. Downs. BBOC owns and operates radio stations WTAW-FM, KTSR-FM and KAGG-FM in Bryan, Texas. FCC approval is pending. The Company anticipates that the GulfStar -- Bryan Disposition will be completed in August 1997, and, accordingly, Common Stock of Capstar Broadcasting (received by William R. Hicks and Ben D. Downs in connection with the GulfStar Merger) will be exchanged for the capital stock of BBOC. 116 121 DESCRIPTION OF CAPITAL STOCK THE COMPANY The Company's authorized capital stock consists of (i) 300,000,000 shares of Class A common stock, par value $.01 per share, of which 256,235,052 shares were issued and outstanding upon completion of the Completed Transactions, (ii) 50,000,000 shares of Class B common stock, par value $.01 per share, none of which were issued and outstanding upon completion of the Completed Transactions, and (iii) 10,000,000 shares of preferred stock, par value $.01 per share, of which 1,000,000 shares were issued and outstanding as Senior Exchangeable Preferred Stock upon completion of the Completed Transactions. Capstar Broadcasting owns all of the Company's outstanding Common Stock. Preferred Stock The Company is authorized to issue 10,000,000 shares of preferred stock. The Board of Directors of the Company, 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 the Company's Certificate of Incorporation, the Board of Directors of the Company 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 the Company, 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. The Company's outstanding preferred stock consists solely of the Senior Exchangeable Preferred Stock. The Company will offer to exchange another series of senior exchangeable preferred stock ("New Senior Exchangeable Preferred Stock") for the outstanding shares of Senior Exchangeable Preferred Stock. The terms of the New Senior Exchangeable Preferred Stock will be identical in all material respects to the Senior Exchangeable Preferred Stock, except that the New Senior Exchangeable Preferred Stock will have been registered under the Securities Act and, therefore, will not bear legends restricting its transfer. The Senior Exchangeable Preferred Stock and the New Senior Exchangeable Preferred Stock are collectively referred to herein as the "Senior Exchangeable Preferred Stock." The following description of the Senior Exchangeable Preferred Stock does not purport to be complete and is qualified in its entirety by the terms of the Certificate of Designation therefor, copies of which are available from the Company upon request. Ranking. The Senior Exchangeable Preferred Stock, with respect to dividend rights and rights on liquidation, winding-up and dissolution, ranks (a) senior to all classes of common stock of the Company and to each other series of preferred stock established after the date of the consummation of the Preferred Stock Offering (the "Preferred Stock Issuance Date") by the Board of Directors of the Company the terms of which expressly provide that such class or series will rank junior to the Senior Exchangeable Preferred Stock (the "Junior Stock"), subject to certain conditions, (b) on a parity with each other class of Preferred Stock established after the Preferred Stock Issuance Date by the Board of Directors of the Company the terms of which expressly provide that such class or series will rank on a parity with the Senior Exchangeable Preferred Stock (the "Parity Stock") and (c) subject to certain conditions, junior to each class of Preferred Stock established after the Preferred Stock Issuance Date by the Board of Directors of the Company the terms of which expressly provide that such class will rank senior to the Senior Exchangeable Preferred Stock ("Senior Stock"). Dividends. Holders of the Senior Exchangeable Preferred Stock are entitled to receive, when, as and if declared by the Board of Directors of the Company, out of funds legally available therefor, cash dividends on each share of Senior Exchangeable Preferred Stock at a rate per annum equal to 12% of the then effective liquidation preference per share of the Senior Exchangeable Preferred Stock, payable semi-annually. The Company, at its option, may pay dividends on any dividend payment date occurring on or before July 1, 2002 either in cash or in additional shares of the Senior Exchangeable Preferred Stock. If any dividend payable on any dividend payment date on or before July 1, 2002 is not declared or paid in full in cash on such dividend payment 117 122 date, the amount payable as dividends on such dividend payment date that is not paid in cash on such dividend payment date shall be paid in additional shares of the Senior Exchangeable Preferred Stock on such dividend payment date and will be deemed paid in full and will not accumulate. After July 1, 2002, dividends may be paid only in cash out of funds legally available therefor. No full dividends may be declared or paid or funds set apart for the payment of dividends on any Parity Stock for any period unless full cumulative dividends shall have been or contemporaneously are declared and paid (or are deemed declared and paid) in full or declared and, if payable in cash, a sum in cash sufficient for such payment is set apart for such payment on the Senior Exchangeable Preferred Stock. If full dividends are not so paid, the Senior Exchangeable Preferred Stock will share dividends pro rata with the Parity Stock. No dividends may be paid or set apart for such payment on Junior Stock (except dividends on Junior Stock payable in additional shares of Junior Stock) and no Junior Stock or Parity Stock may be repurchased, redeemed or otherwise retired nor may funds be set apart for payment with respect thereto, if full cumulative dividends have not been paid in full (or deemed paid) on the Senior Exchangeable Preferred Stock. So long as any shares of the Senior Exchangeable Preferred Stock are outstanding, the Company shall not make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of, any of the Parity Stock or Junior Stock or any warrants, rights, calls or options exercisable for or convertible into any of the Parity Stock or Junior Stock, and shall not permit any corporation or other entity directly or indirectly controlled by the Company to purchase or redeem any of the Parity Stock or Junior Stock or any such warrants, rights, calls or options unless full cumulative dividends determined in accordance with the foregoing on the Senior Exchangeable Preferred Stock have been paid (or are deemed paid) in full. Liquidation Preference. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of Senior Exchangeable Preferred Stock are entitled to be paid, out of the assets of the Company available for distribution to stockholders, the liquidation preference per share of Senior Exchangeable Preferred Stock, which initially is $100.00 per share, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends thereon to the date fixed for liquidation, dissolution or winding-up (including an amount equal to a prorated dividend for the period from the last dividend payment date to the date fixed for liquidation, dissolution or winding-up), before any distribution is made on any Junior Stock, including, without limitation, common stock of the Company. If, upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the amounts payable with respect to the Senior Exchangeable Preferred Stock and all other Parity Stock are not paid in full, the holders of the Senior Exchangeable Preferred Stock and the Parity Stock will share equally and ratably in any distribution of assets of the Company in proportion to the full liquidation preference to which each is entitled until such preferences are paid in full, and then in proportion to their respective amounts of accumulated but unpaid dividends. After payment of the full amount of the liquidation preference and accumulated and unpaid dividends to which they are entitled, the holders of shares of Senior Exchangeable Preferred Stock will not be entitled to any further participation in any distribution of assets of the Company. The Certificate of Designation for the Senior Exchangeable Preferred Stock does not contain any provision requiring funds to be set aside to protect the liquidation preference of the Senior Exchangeable Preferred Stock, although such liquidation preference will be substantially in excess of the par value of such shares of Senior Exchangeable Preferred Stock. 118 123 Optional Redemption. The Senior Exchangeable Preferred Stock may be redeemed (subject to contractual and other restrictions with respect thereto and to the legal availability of funds therefor) at any time on or after July 1, 2002, in whole or in part, at the option of the Company, at the redemption prices (expressed in percentages of the liquidation preference thereof) set forth below, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends to the redemption date (including an amount in cash equal to a prorated dividend for the period from the dividend payment date immediately prior to the redemption date to the redemption date), if redeemed during the 12-month period beginning July 1 of each of the years set forth below:
YEAR PERCENTAGE ---- ---------- 2002........................................................ 106.000% 2003........................................................ 104.800% 2004........................................................ 103.600% 2005........................................................ 102.400% 2006........................................................ 101.200% 2007 and thereafter......................................... 100.000%
In addition, prior to July 1, 2001, the Company may, at its option, use the net cash proceeds of one or more public equity offerings or major asset sales (each as defined in the Certificate of Designation) to redeem the Senior Exchangeable Preferred Stock, in part, at a redemption price of 112.00% of the liquidation preference thereof; provided, however, that after any such redemption, there is outstanding at least $75.0 million in aggregate liquidation preference of Senior Exchangeable Preferred Stock. Any such redemption will be required to occur on or prior to one year after the receipt by the Company of the proceeds of each public equity offering or major asset sale. Mandatory Redemption. The Senior Exchangeable Preferred Stock is subject to mandatory redemption (subject to the legal availability of funds therefor) in whole on July 1, 2009 at a price equal to 100% of the liquidation preference thereof, plus, without duplication, all accrued and unpaid dividends to the date of redemption. Exchange. The Company may, at its option, subject to certain conditions, on any scheduled dividend payment date occurring on or after the Preferred Stock Issuance Date, exchange the Senior Exchangeable Preferred Stock, in whole but not in part, for the Exchange Debentures. Holders of the Senior Exchangeable Preferred Stock will be entitled to receive $1.00 principal amount of Exchange Debentures for each $1.00 in liquidation preference of Senior Exchangeable Preferred Stock. See "Description of Other Indebtedness -- Exchange Debentures." Voting Rights. Holders of Senior Exchangeable Preferred Stock, except as otherwise required under Delaware law or as set forth below, will not be entitled or permitted to vote on any matter required or permitted to be voted upon by the sole stockholder of the Company. The Certificate of Designation provides that if (i) after July 1, 2002, cash dividends on the Senior Exchangeable Preferred Stock are in arrears and unpaid for three or more semi-annual dividend periods (whether or not consecutive); (ii) the Company fails to redeem the Senior Exchangeable Preferred Stock on July 1, 2009 or fails to otherwise discharge any redemption obligation with respect to the Senior Exchangeable Preferred Stock; (iii) the Company fails to make a change of control offer if such offer is required by the provisions of the Certificate of Designation or fails to purchase shares of Senior Exchangeable Preferred Stock from holders who elect to have such shares purchased pursuant to the change of control offer (unless, in either case, the Company has decided to effect a change of control redemption in lieu of such change of control offer as set forth in the Certificate of Designation); (iv) the Company fails to make an offer to purchase when it is obligated to do so; (v) a breach or violation of any of the provisions described under the caption "-- Certain Covenants" occurs and the breach or violation continues for a period of 30 days or more after the Company receives notice thereof specifying the default from the holders of at least 25% of the shares of Senior Exchangeable Preferred Stock then outstanding; or (vi) the Company fails 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 final stated maturity of any such indebtedness is accelerated, if the aggregate principal amount of such indebtedness, together 119 124 with the aggregate principal amount of any other such indebtedness in default for failure to pay principal at the final stated maturity (giving effect to any extensions thereof) or which has been accelerated, aggregates $10,000,000 or more at any time, in each case, after a 10-day period during which such default shall not have been cured or such acceleration rescinded, then the number of directors constituting the board of directors will be adjusted to permit the holders of a majority of the then outstanding shares of Senior Exchangeable Preferred Stock, voting separately and as a class (together with the holders of any Parity Stock having similar voting rights), to elect the lesser of two directors and that number of directors constituting at least 25% of the members of the Board of Directors of the Company. Such voting rights will continue until such time as, in the case of a dividend default, all dividends in arrears on the Senior Exchangeable Preferred Stock are paid in full in cash and, in all other cases, any failure, breach or default giving rise to such voting rights is remedied or waived by the holders of at least a majority of the shares of Senior Exchangeable Preferred Stock then outstanding, at which time the term of any directors elected pursuant to the provisions of this paragraph shall terminate. Such voting rights shall be the holders' exclusive remedy at law or in equity. Change of Control. The Certificate of Designation provides that, upon the occurrence of a change of control (as defined in the Certificate of Designation), each holder has the right to require the Company to repurchase all or a portion of such holder's Senior Exchangeable Preferred Stock in cash at a purchase price equal to 101% of the liquidation preference thereof, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends per share to the date of repurchase. In addition, the Certificate of Designation provides that, prior to July 1, 2002, upon the occurrence of a change of control, the Company has the option to redeem the Senior Exchangeable Preferred Stock in whole but not in part (a "Change of Control Redemption") at a redemption price equal to 100% of the liquidation preference thereof, plus the applicable premium (as defined in the Certificate of Designation). Certain Covenants. The Certificate of Designation contains restrictive provisions that, among other things, limit the ability of the Company and its subsidiaries to incur additional indebtedness, pay dividends or make certain other restricted payments, or merge or consolidate with or sell all or substantially all of their assets to any other person. CAPSTAR BROADCASTING Capstar Broadcasting's authorized capital stock consists of (i) 75,000,000 shares of Class A Common Stock, of which 25,147,566 shares were issued and outstanding upon completion of the Completed Transactions, (ii) 50,000,000 shares of Class B Common Stock of which 48,179,897 shares were issued and outstanding upon completion of the Completed Transactions, and (iii) 300,000,000 shares of Class C Common Stock, of which 228,123,470 shares were issued and outstanding upon completion of the Completed Transactions, and (iv) 50,000,000 shares of Preferred Stock, $.01 par value per share ("Preferred Stock"), none of which were issued and outstanding upon completion of the Completed Transactions. Common Stock The rights of holders of the Common Stock are identical in all respects, except for voting rights. All the outstanding shares of Class A Common Stock, Class B Common Stock and Class C Common Stock (collectively, the "Common Stock") are validly issued, fully paid and nonassessable. Dividends. Subject to the right of the holders of any class of Preferred Stock, holders of shares of Common Stock are entitled to receive such dividends as may be declared by Capstar Broadcasting's Board of Directors out of funds legally available for such purpose. No dividend may be declared or paid in cash or property on any share of any class of Common Stock unless simultaneously the same dividend is declared or paid on each share of the other class of Common Stock, provided that, in the event of stock dividends, holders of a specific class of Common Stock shall be entitled to receive only additional shares of such class. Voting Rights. The Class A Common Stock and the Class C Common Stock vote together as a single class on all matters submitted to a vote of stockholders, with each share of Class A Common Stock entitled to one vote and each share of Class C Common Stock entitled to ten votes, except (i) after completion of an IPO (as defined 120 125 in Capstar Broadcasting's Certificate of Incorporation) that the holders of Class A Common Stock, voting as a separate class, are entitled initially to elect two members of the Board of Directors of Capstar Broadcasting; (ii) with respect to any proposed "going private" transaction (as defined in Rule 13e-3 under the Securities Exchange Act of 1934 (the "Exchange Act")) with Hicks Muse or any of its affiliates after the completion of an IPO (a "Rule 13e-3 Transaction"), each share of Class A Common Stock and Class C Common Stock shall be entitled to one vote; and (iii) as otherwise required by law. The Class B Common Stock has no voting rights except as otherwise required by law. After the completion of an IPO, the holders of Class A Common Stock, voting as a separate class, will be entitled to elect two persons to Capstar Broadcasting's Board of Directors, each of whom must be an "independent director." For this purpose, an "independent director" means a person who is not an officer or employee of Capstar Broadcasting or its subsidiaries, and who does not have a relationship which, in the opinion of the Board of Directors of Capstar Broadcasting, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In addition, after the completion of an IPO, the holders of Class A Common Stock and Class C Common Stock, voting as a single class, are entitled to elect the remainder of the Board of Directors, which will be divided into three classes of directors with staggered three-year terms. Notwithstanding the foregoing, upon the earlier to occur of (i) the date on which Hicks Muse and its affiliates ceases to own beneficially more than 50% of the number of shares of Class C Common Stock owned by them upon completion of an IPO subject to appropriate adjustment in respect of any subdivisions or combinations affecting Class C Common Stock and (ii) the third anniversary date of the completion of an IPO, the holders of Class A Common Stock and Class C Common Stock shall vote together as a single class upon the election of all directors. Holders of Common Stock are not entitled to cumulate votes in the election of directors. Under Delaware law, the affirmative vote of the holders of a majority of the outstanding shares of any class of Common Stock is required to approve any amendment to the certificate of incorporation of Capstar Broadcasting that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class, or modify or change the powers, preferences or special rights of the shares of any class so as to affect such class adversely. Liquidation Rights. Upon liquidation, dissolution or winding-up of Capstar Broadcasting, the holders of the Common Stock are entitled to ratably share in all assets available for distribution after payment in full of creditors and holders of the Preferred Stock, if any. Conversion of Class B Common Stock. The shares of Class B Common Stock are convertible, in whole or in part, at the option of the holder or holders thereof at any time into a like number of shares of Class A Common Stock, subject to certain conditions. Upon the sale or other transfer of any share or shares of Class B Common Stock to any person (subject to certain exceptions) other than Hicks Muse and its affiliates, each share so sold or transferred shall automatically be converted into one share of Class A Common Stock, subject to certain conditions. Conversion of Class C Common Stock. The shares of Class C Common Stock are convertible, in whole or in part, at the option of the holder or holders thereof at any time into a like number of shares of Class A Common Stock subject to certain conditions. Upon the sale or other transfer of any share or shares of Class C Common Stock to any person other than Hicks Muse or its affiliates, each share so sold or transferred shall automatically be converted into one share of Class A Common Stock. Preemptive Rights. The holders of Common Stock are not entitled to preemptive or similar rights. Preferred Stock. Capstar Broadcasting is authorized to issue 50,000,000 shares of Preferred Stock. The Board of Directors of Capstar Broadcasting, in its sole discretion, may designate and issue one or more series of Preferred Stock from the authorized and unissued shares of Preferred Stock. Subject to limitations imposed by law or Capstar Broadcasting's Certificate of Incorporation, the Board of Directors of Capstar Broadcasting is empowered to determine the designation of and the number of shares constituting a series of Preferred Stock. The dividend rate for the series, the terms and conditions of any voting and conversion rights for the series, the amounts payable on 121 126 the series upon redemption or upon the liquidation, dissolution or winding-up of Capstar Broadcasting, the provisions of any sinking fund for the redemption or purchase of shares of any series, and the preferences and relative rights among the series of Preferred Stock. Such rights, preferences, privileges and limitations could adversely effect the rights of holders of Common Stock. FOREIGN OWNERSHIP The Certificates of Incorporation of the Company and Capstar Broadcasting restrict the ownership, voting and transfer of each entity's capital stock, including the such entity's common stock, in accordance with the Communications Act and the rules of the FCC, which prohibit ownership of more than 25% of such entity's outstanding capital stock (or more than 25% of the voting rights it represents) by or for the account of Aliens or corporations otherwise subject to domination or control by Aliens. The Certificates of Incorporation of the Company and Capstar Broadcasting authorize each entity's respective Board of Directors to adopt such provisions as it deems necessary to enforce these prohibitions, including the inclusion of a legend regarding restrictions on foreign ownership of such stock on the certificates representing the common stock. In addition, the Certificates of Incorporation of each of the Company and Capstar Broadcasting provides that shares of capital stock determined by such entity's Board of Directors to be owned beneficially by an Alien or an entity directly or indirectly owned by Aliens in whole or in part shall always be subject to redemption by action of the such Board of Directors to the extent necessary, in the judgment of such Board of Directors, to comply with the Alien ownership restrictions of the Communications Act and the FCC rules and regulations. SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW Generally, Section 203 of the General Corporation Law of the State of Delaware prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless one of the following events occurs: (i) prior to the date of the business combination, the transaction is approved by the board of directors of the corporation; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owns at least 85% of the outstanding voting stock; or (iii) on or after such date the business combination is approved by the board and by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years, did own) 15% or more of the corporation's voting stock. 122 127 DESCRIPTION OF OTHER INDEBTEDNESS EXISTING CAPSTAR RADIO NOTES The following summary of certain terms of the Existing Capstar Radio Notes and the Existing Capstar Radio Indenture does not purport to be complete and is qualified in its entirety by reference to the Trust Indenture Act, and to the full text of the Existing Capstar Radio Indenture, copies of which are available from the Company upon request. The Existing Capstar Radio Notes were issued pursuant to the Existing Capstar Radio Indenture among Capstar Radio, the guarantors named therein and IBJ Schroder Bank & Trust Company, as Trustee. The Existing Capstar Radio 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 Existing Capstar Radio Notes are general unsecured obligations of Capstar Radio subordinated in right of payment to all senior indebtedness (as defined in the Existing Capstar Radio Indenture) and senior in rights of payment to any current or future indebtedness of Capstar Radio which, by its terms, is subordinated to the Existing Capstar Radio Notes. The Existing Capstar Radio Notes are unconditionally guaranteed, on a senior subordinated basis, as to payment of principal, premium, if any, and interest, jointly and severally, by the guarantors named in the Existing Capstar Radio Indenture. The Existing Capstar Radio Notes are redeemable at the option of Capstar Radio, 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, Capstar Radio may redeem in the aggregate up to one-third of the original principal amount of the Existing Capstar Radio Notes at any time and from time to time prior to May 1, 1998 at a redemption price equal to 108% of the Accreted Value of the Existing Capstar Radio Notes thereof plus accrued interest to the redemption date out of the net proceeds of one or more public equity offerings (as defined in the Existing Capstar Radio Indenture), provided, that at least $50 million in aggregate principal amount of Existing Capstar Radio Notes remains outstanding immediately after the occurrence of any such redemption and that any such redemption occurs within 120 days following the closing of any such public equity offering. Limitation on Additional Indebtedness. Under the Existing Capstar Radio Indenture, Capstar Radio will not, and will not permit any restricted subsidiary of Capstar Radio to, directly or indirectly, incur any indebtedness (including acquired indebtedness as such term is defined in the Existing Capstar Radio Indenture) unless (i) after giving effect to the incurrence of such indebtedness and the receipt and application of the proceeds thereof, the ratio of Capstar Radio's total indebtedness to Capstar Radio's EBITDA (as defined in the Existing Capstar Radio Indenture and as determined on a pro forma basis for the last four fiscal quarters of Capstar Radio for which financial statements are available at the date of determination) is less than 6.75 to 1 if the indebtedness is incurred prior to May 1, 1998 and 6.25 to 1 if the indebtedness is incurred thereafter and (ii) no default or event of default (as such terms are defined in the Existing Capstar Radio Indenture) shall have occurred and be continuing at the time of or immediately after giving effect to the incurrence of such indebtedness. Limitation on Restricted Payments. Subject to certain exceptions set forth in the Existing Capstar Radio Indenture, Capstar Radio will not make, and will not permit any of its restricted subsidiaries to, directly or indirectly, make, any restricted payment (as defined in the Existing Capstar Radio 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, Capstar Radio could incur $1.00 of additional indebtedness (other than permitted indebtedness) in compliance with the covenant described above under "Limitation on Additional Indebtedness"; and (iii) immediately after giving effect to such restricted payment, the aggregate of all restricted payments declared or made after the issue date of the Existing Capstar Radio Notes does not exceed the sum of (a) 50% of Capstar Radio's cumulative consolidated net income (or in the event such consolidated net income shall be a deficit, minus 100% of such deficit) after the 123 128 issue date, plus (b) 100% of the aggregate net proceeds and the fair market value of securities or other property received by Capstar Radio from the issue or sale, after the issue date, of capital stock of Capstar Radio (other than disqualified capital stock as such term is defined in the Existing Capstar Radio Indenture or capital stock of Capstar Radio issued to any subsidiary of Capstar Radio) or any indebtedness or other securities of Capstar Radio convertible into or exercisable or exchangeable for capital stock (other than disqualified capital stock) of Capstar Radio which has been so converted or exercised or exchanged, as the case may be. Change of Control. Under the Existing Capstar Radio Indenture, in the event of a change of control (as defined therein) of Capstar Radio, Capstar Radio will be required to make an offer to purchase the outstanding Existing Capstar Radio Notes at a purchase price equal to 101% of their accreted value (as defined in the Existing Capstar Radio Indenture), plus any accrued and unpaid interest, if any, to the date of repurchase. Other Restrictive Covenants. The Existing Capstar Radio Indenture contains certain other restrictive covenants that, among other things, impose limitations (subject to certain exceptions) on Capstar Radio with respect to (i) the issuance of preferred stock by any of Capstar Radio's subsidiaries, (ii) the sale, pledge, hypothecation or other transfer of any capital stock of a subsidiary of Capstar Radio, (iii) the issuance of any capital stock of Capstar Radio's subsidiaries other than to Capstar Radio or a wholly-owned subsidiary, (iv) sales of assets by Capstar Radio and its subsidiaries, (v) transactions with stockholders and affiliates, (vi) the existence of liens on the assets of Capstar Radio or its subsidiaries, (vii) investments by Capstar Radio and its subsidiaries, (viii) the creation or acquisition of subsidiaries, (ix) the incurrence of indebtedness senior to the Existing Capstar Radio Notes and subordinate to other indebtedness of Capstar Radio, (x) the guarantee of indebtedness, (xi) the merger or sale of all or substantially all the assets of Capstar Radio and (xii) limitations on assets swaps. Events of Default. Under the Existing Capstar Radio Indenture, each of the following events constitutes an "Event of Default": (i) a default in the payment of any principal of, or premium, if any, on the Existing Capstar Radio Notes when the same becomes due and payable; (ii) a default in the payment of any interest on any Existing Capstar Radio Note when the same becomes due and payable and the default continues for a period of 30 days; (iii) Capstar Radio or any guarantor defaults in the observance or performance of any covenant in the Existing Capstar Radio Notes or Existing Capstar Radio Indenture for 60 days after written notice from the trustee or the holders of not less than 25% in the aggregate principal amount of the Existing Capstar Radio Notes then outstanding; (iv) Capstar Radio or any guarantor fails to pay when due principal, interest or premium aggregating $1,000,000 or more with respect to any indebtedness of Capstar Radio 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 Capstar Radio 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 Capstar Radio or any of its restricted subsidiaries. Upon the happening of any Event of Default specified in the Existing Capstar Radio Indenture, the trustee may, and upon the request of holders of at least 25% in principal amount of the Existing Capstar Radio Notes, shall, or the holders of at least 25% in principal amount of outstanding Existing Capstar Radio Notes may, declare the principal of and accrued but unpaid interest, if any, on all of such Existing Capstar Radio Notes to be due and payable. NEW CAPSTAR RADIO NOTES The New Capstar Radio Notes were issued under an Indenture dated as of June 17, 1997 (the "New Capstar Radio Indenture"), between Capstar Radio and U.S. Trust Company of Texas, N.A., as trustee (the "Capstar Radio Trustee"). Capstar Radio will offer (the "Capstar Radio Exchange Offer") to exchange new notes ("New Capstar Radio Exchange Notes") for the New Capstar Radio Notes. The terms of the New Capstar Radio Exchange Notes are identical in all material respects to the New Capstar Radio Notes, except that the New Capstar Radio Exchange Notes will have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer. Upon the issuance of the New Capstar Exchange Notes, the New Capstar Radio 124 129 Indenture will be subject to and governed by the Trust Indenture Act. The New Capstar Radio Notes and the New Capstar Radio Exchange Notes are collectively referred to herein as the "New Capstar Radio Notes." The following summary of certain provisions of the New Capstar Radio Indenture and the New Capstar Radio Notes does not purport to be complete, is subject to, and is qualified in its entirety by reference to, the provisions of the New Capstar Radio Indenture and the New Capstar Radio Notes and assumes that the Capstar Radio Exchange Offer has been completed. The New Capstar Radio Notes are general unsecured obligations of Capstar Radio subordinated in right of payment to all senior indebtedness (as defined in the New Capstar Radio Indenture) and senior in right of payment to any current or future indebtedness of Capstar Radio that, by its terms, is subordinated to the New Capstar Radio Notes. The New Capstar Radio Notes are limited to $200 million aggregate principal amount and will mature on July 1, 2007. Interest will accrue on the New Capstar Radio Notes from the date of issuance. The New Capstar Radio Notes may be redeemed (subject to contractual and other restrictions with respect thereto and to the legal availability of funds therefor) at any time on or after July 1, 2002, in whole or in part, at the option of Capstar Radio, at the redemption prices (expressed as a percentage of the principal amount thereof) set forth below, plus accrued and unpaid interest, if any, to the redemption date, if redeemed during the 12-month period beginning July 1 of each of the years set forth below:
YEAR PERCENTAGE ---- ---------- 2002...................................................... 104.625% 2003...................................................... 103.083% 2004...................................................... 101.542% 2005 and thereafter....................................... 100.000%
In addition, prior to July 1, 2001, Capstar Radio may, at its option, use the net cash proceeds of one or more public equity offerings (as defined in the New Capstar Radio Indenture) or major asset sales (as defined in the New Capstar Radio Indenture) to redeem New Capstar Radio Notes originally issued at a redemption price equal to 109.25% of the aggregate principal amount of the New Capstar Radio Notes to be redeemed, plus accrued and unpaid interest, if any, thereon to the date of redemption; provided, however, that after any such redemption, at least 75% of the aggregate principal amount of New Capstar Radio Notes originally issued remains outstanding immediately after giving effect to any such redemption. Any such redemption will be required to occur on or prior to the date that is one year after the receipt by Capstar Radio of the proceeds of a public equity offering or major asset sale. Capstar Radio shall effect such redemption on a pro rata basis. In addition, prior to July 1, 2002, Capstar Radio may, at its option, redeem the New Capstar Radio Notes upon a Change of Control (as defined in the New Capstar Radio Indenture). Change of Control. The New Capstar Radio Indenture provides that, upon the occurrence of a Change of Control, each holder will have the right to require that Capstar Radio purchase all or a portion of such holder's New Capstar Radio Notes at a purchase price equal to 101% of the principal amount thereof, plus, without duplication, all accrued and unpaid interest, if any, to the purchase date. In addition, prior to July 1, 2002, upon the occurrence of a Change of Control, Capstar Radio will have the option to redeem the New Capstar Radio Notes at a redemption price equal to 100% of the principal amount thereof, together with accrued and unpaid interest to the date of redemption, plus the applicable premium (as defined in the New Capstar Radio Indenture). Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock of Subsidiaries. Under the New Capstar Radio Indenture, Capstar Radio 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 Radio's subsidiaries will not issue any preferred stock (as defined in the New Capstar Radio Indenture), except Preferred Stock issued to Capstar Radio or a wholly-owned subsidiary of Capstar Radio; provided, however, that Capstar Radio and its subsidiaries may incur indebtedness and Capstar Radio's subsidiaries may issue shares of preferred stock if, in either case, Capstar Radio'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 125 130 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 New Capstar Radio Indenture provides that neither Capstar Radio nor any of its subsidiaries will, directly or indirectly, make any restricted payment (as defined in the New Capstar Radio Indenture) if at the time of such restricted payment and immediately after giving effect thereto: (i) a default or event of default shall have occurred and be continuing at the time of or after giving effect to such restricted payment; or (ii) Capstar Radio is not able to incur $1.00 of additional indebtedness (other than permitted indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock of Subsidiaries" covenant; or (iii) the aggregate amount of restricted payments made subsequent to the issue date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined by the board of directors of Capstar Radio in good faith) exceeds the sum of (a) (x) 100% of the aggregate consolidated EBITDA of Capstar Radio (or, in the event such consolidated EBITDA shall be a deficit, minus 100% of such deficit) accrued subsequent to the issue date to the most recent date for which financial information is available to Capstar Radio, taken as one accounting period, less (y) 1.4 times consolidated interest expense for the same period plus (b) 100% of the aggregate net proceeds, including the fair market value of property other than cash as determined by the board of directors of Capstar Radio in good faith, received by Capstar Radio from any person (other than a subsidiary of Capstar Radio) from the issuance and sale on or subsequent to the issue date of qualified capital stock of Capstar Radio (excluding (i) any net proceeds from issuances and sales financed directly or indirectly using funds borrowed from Capstar Radio or any subsidiary of Capstar Radio, until and to the extent such borrowing is repaid, but including the proceeds from the issuance and sale of any securities convertible into or exchangeable for qualified capital stock to the extent such securities are so converted or exchanged and including any additional proceeds received by Capstar Radio 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 Capstar Radio 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 Radio 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 Radio or any subsidiary of Capstar Radio or (ii) the redesignation of unrestricted subsidiaries as subsidiaries (valued in each case as provided in the definition of "investment") not to exceed, in the case of any subsidiary, the amount of investments previously made by Capstar Radio or any subsidiary in such unrestricted subsidiary, which amount was included in the calculation of restricted payments; provided, however, than 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 Capstar Radio in accordance with the "Merger, Consolidation and Sale of Assets" covenant subsequent to the issue date; provided, however, that concurrently with or immediately following such merger Capstar Radio uses an amount equal to such net cash proceeds to redeem or repurchase Capstar Radio's capital stock, plus (f) $5,000,000. Other Restrictive Covenants. The New Capstar Radio Indenture contains certain other restrictive covenants that, among other things, impose limitations (subject to certain exceptions) on Capstar Radio with respect to (i) sales of assets by Capstar Radio and its subsidiaries, (ii) asset swaps and (iii) the merger or sale of all or substantially all of the assets of Capstar Radio. Events of Default. The following events are defined in the New Capstar Radio Indenture as "Events of Default": (i) the failure to pay interest on the New Capstar Radio Notes when the same becomes due and payable 126 131 and the default continues for a period of 30 days; (ii) the failure to pay the principal amount on any New Capstar Radio Notes when such principal amount becomes due and payable, at maturity, upon redemption or otherwise; (iii) a default in the observance or performance of any other covenant or agreement contained in the New Capstar Radio Notes or the New Capstar Radio Indenture, which default continues for a period of 30 days after Capstar Radio receives written notice thereof specifying the default from the Capstar Radio Trustee or holders of at least 25% in aggregate principal amount at maturity of outstanding New Capstar Radio 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 Radio or any subsidiary of Capstar Radio, 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 $10,000,000 or more at any time in each case after a 10-day period during which such default shall not have been cured or such acceleration rescinded; (v) one or more judgments in an aggregate amount in excess of $10,000,000 (which are not covered by insurance as to which the insurer has not disclaimed coverage) being rendered against Capstar Radio or any of its significant subsidiaries (as defined in the New Capstar Radio 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 Radio or any of its significant subsidiaries. Upon the happening of any Event of Default specified in the New Capstar Radio Indenture, the Capstar Radio Trustee may, and the Capstar Radio Trustee upon the request of holders of 25% in principal amount of the outstanding New Capstar Radio Notes shall, or the holders of at least 25% in principal amount of outstanding New Capstar Radio Notes may, declare the principal amount of all the New Capstar Radio Notes, together with all accrued and unpaid interest and premium, if any, to be due and payable by notice in writing to Capstar Radio and the Capstar Radio Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the credit facility, will become due and payable upon the first to occur of an acceleration under the Credit Facility or five business days after receipt by Capstar Radio and the agent under the Existing 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, "Credit Facility" includes the Existing Credit Facility, as it may be amended, supplemented or otherwise modified from time to time and any renewal, extension, refunding, restructuring, replacement or refinancing thereof (whether with the original agent and lenders or another agent or agents or other lenders and whether provided under the original Credit Facility or any other credit agreement). If an Event of Default with respect to bankruptcy proceedings relating to Capstar Radio 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 Capstar Radio Trustee or any holder of the New Capstar Radio Notes. NEW CREDIT FACILITY [TO BE COMPLETED] EXCHANGE DEBENTURES The Senior Exchangeable Preferred Stock is exchangeable, at the option of the Company, for the Company's 12% Subordinated Exchange Debentures due 2009 (the "Exchange Debentures.") The Exchange Debentures, if issued, will be issued under the Exchange Indenture, entered into between the Company and U.S. Trust Company of Texas, N.A., as Trustee (the "Exchange Trustee"). The following summary of certain provisions of the Exchange Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to the provisions of the Exchange Indenture, copies of which are available from the Company upon request. The Exchange Debentures will be general unsecured obligations of the Company and will be limited in aggregate principal amount to the liquidation preference of the Senior Exchangeable Preferred Stock, plus, without duplication, accrued and unpaid dividends, on the exchange date (as defined in the Exchange Indenture) of the Senior Exchangeable Preferred Stock into Exchange Debentures (plus any additional Exchange Debentures 127 132 issued in lieu of cash interest). The Exchange Debentures will be subordinated to all existing and future senior debt (as defined in the Exchange Indenture) of the Company. The Exchange Debentures will mature on July 1, 2009. Each Exchange Debenture will bear interest at the rate of 12% per annum from the exchange date or from the most recent interest payment date to which interest has been paid or provided for or, if no interest has been paid or provided for, from the exchange date. Interest will be payable semi-annually in cash (or, on or prior to July 1, 2002, in additional Exchange Debentures, at the option of the Company) in arrears on each January 1 and July 1 commencing with the first such date after the exchange date. The Exchange Debentures will be redeemable, at the Company's option, in whole at any time or in part from time to time, on and after July 1, 2002, at the redemption prices (expressed as percentages of the principal amount thereof) set forth below if redeemed during the 12-month period beginning on July 1 of each of the years set forth below, plus, without duplication, in each case, accrued and unpaid interest thereon to the date of redemption:
YEAR PERCENTAGE ---- ---------- 2002........................................................ 106.000% 2003........................................................ 104.800% 2004........................................................ 103.600% 2005........................................................ 102.400% 2006........................................................ 101.200% 2007 and thereafter......................................... 100.000%
In addition, prior to July 1, 2001, the Company may, at its option, use the net cash proceeds of one or more public equity offerings or major asset sales (both as defined in the Exchange Indenture) to redeem the Exchange Debentures, in whole or in part, at a redemption price of 112.0% of the principal amount thereof; provided, however, that after any such redemption, the aggregate principal amount of the Exchange Debentures outstanding must equal at least $75.0 million. Any such redemption will be required to occur on or prior to one year after the receipt by the Company of the proceeds of each public equity offering or major asset sale. In addition, prior to July 1, 2002, the Company may, at its option, redeem the Exchange Debentures upon a Change of Control (as defined in the Exchange Indenture). Change of Control. The Exchange Indenture provides that upon the occurrence of a Change of Control, each holder will have the right to require that the Company repurchase all or a portion of such holder's Exchange Debentures at a purchase price equal to 101% of the principal amount thereof, plus, without duplication, accrued and unpaid interest, if any, to the date of repurchase. Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock of Subsidiaries. The Exchange Indenture provides that 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 that the Company's subsidiaries will not issue any shares of Preferred Stock (except Preferred Stock issued to the Company or a wholly-owned subsidiary of the Company); provided, however,that the Company and its subsidiaries may incur indebtedness and the Company's subsidiaries may issue shares of preferred stock if, in either case, the Company's leverage ratio at the time of incurrence of such indebtedness or the issuance of such preferred stock, as the case may be, after giving pro forma effect to such incurrence or issuance as of such date and to the use of proceeds therefrom is less than 7.0 to 1. Limitation on Restricted Payments. (a) The Exchange Indenture provides that neither the Company nor any of its subsidiaries will, directly or indirectly, make any restricted payment (as defined in the Exchange Indenture) if, at the time of such restricted payment and immediately after giving effect thereto: (i) any default or event of default shall have occurred and be continuing at the time of or after giving effect to such restricted payment; or 128 133 (ii) the Company is not able to incur $1.00 of additional indebtedness (other than permitted indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock of Subsidiaries" covenant; or (iii) the aggregate amount of restricted payments made subsequent to the issue date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined by the board of directors of the Company in good faith) exceeds the sum of (a) (x) 100% of the aggregate consolidated EBITDA of the Company (or, in the event such consolidated EBITDA shall be a deficit, minus 100% of such deficit) accrued subsequent to the issue date to the most recent date for which financial information is available to the Company, taken as one accounting period, less (y) 1.4 times consolidated interest expense for the same period, plus (b) 100% of the aggregate net proceeds, including the fair market value of property other than cash as determined by the board of directors of the Company in good faith, received by the Company from any person (other than a subsidiary of the Company) from the issuance and sale on or subsequent to the issue date of qualified capital stock of the Company (excluding (i) any net proceeds from issuances and sales financed directly or indirectly using funds borrowed from the Company or any Subsidiary of the Company, until and to the extent such borrowing is repaid, but including the proceeds from the issuance and sale of any securities convertible into or exchangeable for qualified capital stock to the extent such securities are so converted or exchanged and including any additional proceeds received by the Company upon such conversion or exchange and (ii) any net proceeds received from issuances and sales that are used to consummate certain transactions including certain purchase redemption or other acquisition or retirement of any capital stock of the Company and certain acquisition of indebtedness of the Company the subordinate or junior's right of payment to the Exchange Debentures.), plus (c) without duplication of any amount included in clause (iii)(b) above, 100% of the aggregate net proceeds, including the fair market value of property other than cash (valued as provided in clause (iii)(b) above), received as a capital contribution on or subsequent to the issue date, plus (d) the amount equal to the net reduction in investments (other than permitted investments) made by the Company or any of its subsidiaries in any person resulting from (i) repurchases or redemptions of such investments by such person, proceeds realized upon the sale of such investment to an unaffiliated purchaser, and repayments of loans or advances or other transfers of assets by such person to the Company or any subsidiary of the Company or (ii) the redesignation of unrestricted subsidiaries as subsidiaries (valued in each case as provided in the definition of "Investment") not to exceed, in the case of any subsidiary, the amount of Investments previously made by the Company or any subsidiary in such unrestricted subsidiary, which amount was included in the calculation of restricted payments; provided, however, that no amount shall be included under this clause (d) to the extent it is already included in consolidated EBITDA, plus (e) the aggregate net cash proceeds received by a person in consideration for the issuance of such person's capital stock (other than disqualified capital stock) that are held by such person at the time such person is merged with and into the Company in accordance with the "Merger, Consolidation and Sale of Assets" covenant subsequent to the issue date; provided, however, that concurrently with or immediately following such merger the Company uses an amount equal to such net cash proceeds to redeem or repurchase the Company's capital stock, plus (f) $5,000,000. Other Restrictive Covenants. The Exchange 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 definition of "Events of Default," and the consequences thereof, in the Exchange Indenture are substantially similar to the definition and consequences described in "-- New Capstar Radio Notes." LETTERS OF CREDIT The acquisition agreement for each Pending Acquisition may be terminated prior to consummation of the Pending Acquisition under various circumstances, including, generally in certain agreements, a breach (a material breach in the case of certain Pending Acquisitions) of any representation or warranty, or any breach (a material 129 134 breach in the case of certain Pending Acquisitions) of any covenant or agreement or a failure of the Company or a subsidiary thereof to consummate an acquisition even though the seller has satisfied all conditions precedent in the applicable acquisition agreement, by the Company or a subsidiary thereof. The Company or a subsidiary thereof has secured its obligation to consummate certain of the Pending Acquisitions by placing into escrow a letter of credit in connection therewith. The letters of credit (the "Letters of Credit") for all such Pending Acquisitions total approximately $18.3 million. If the Pending Acquisition is not consummated due to any such breach by the Company or a subsidiary thereof, the letter of credit in connection therewith will be released to the seller in payment of liquidated damages. In other cases, the letter of credit will be released to the Company or a subsidiary thereof. 130 135 THE EXCHANGE OFFER PURPOSE AND EFFECT The Old Notes were sold by the Company on February 20, 1997 in a private placement. In connection with that placement, the Company entered into the Registration Rights Agreement which requires that the Company file a registration statement under the Securities Act with respect to the New Notes on or prior to 90 days after the date of issuance of the Old Notes (the "Issue Date") and, upon the effectiveness of that registration statement, offer to the holders of the Old Notes the opportunity to exchange their Old Notes for a like principal amount of New Notes, which will be issued without a restrictive legend and may be reoffered and resold by the holder without registration under the Securities Act. The Registration Rights Agreement further provides that the Company must use its reasonable best efforts to cause the registration statement with respect to the Exchange Offer to be declared effective within 180 days following the Issue Date. A copy of the Registration Rights Agreement has been filed as an exhibit to the registration statement of which this Prospectus is a part. In order to participate in the Exchange Offer, a holder must represent to the Company, among other things, that (i) any New Notes to be received by it will be acquired in the ordinary course of its business, (ii) it has no arrangement with any person to participate in the distribution of the New Notes and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company, or if it is an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer should acknowledge that it acquired the Old Notes for its own account as the result of market making activities or other trading activities. Any holder who is unable to make the appropriate representations to the Company will not be permitted to tender the Old Notes in the Exchange Offer and will be required to comply with the registration and prospectus delivery requirements of the Securities Act (or an appropriate exemption therefrom) in connection with any sale or transfer of the Old Notes. If the holder is not a broker-dealer, it will be required to represent that it is not engaged in, and does not intend to engage in, the distribution of the New Notes. If the holder is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Old Notes are designated for trading in the PORTAL market. To the extent Old Notes are tendered and accepted in the Exchange Offer, the principal amount of outstanding Old Notes will decrease with a resulting decrease in the liquidity in the market therefor. Following the consummation of the Exchange Offer, holders of Old Notes who were eligible to participate in the Exchange Offer but who did not tender their Old Notes will not be entitled to certain rights under the Registration Rights Agreement and such Old Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for the Old Notes could be adversely affected. No assurance can be given as to the liquidity of the trading market for either the Old Notes or the New Notes. Based on an interpretation by the Commission's staff set forth in no-action letters issued to third parties unrelated to the Company, the Company believes that, with the exceptions discussed herein, New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by any person receiving the New Notes, whether or not that person is the holder (other than any such holder or such other person that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that (i) the New Notes are acquired in the ordinary course of business of that holder or such other person, (ii) neither the holder nor such other person is engaging in or intends to engage in a distribution of the New Notes, and (iii) neither the holder nor such other person has an arrangement or understanding with any person to participate in the distribution of the New Notes. Each brokerdealer that receives New Notes for its own account in exchange for Old Notes, where those Old Notes were acquired by the broker-dealer as a result of its market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of those New Notes. See "Plan of Distribution." 131 136 CONSEQUENCES OF FAILURE TO EXCHANGE Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the offer or sale of the Old Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act and applicable state securities laws, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not intend to register the Old Notes under the Securities Act and, after consummation of the Exchange Offer, will not be obligated to do so. Based on an interpretation by the staff of the Commission set forth in a series of no-action letters issued to third parties, the Company believes that, except as set forth in the next sentence, New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by holders thereof (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Old Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of such New Notes. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The Company will issue $1,000 principal amount at maturity of New Notes in exchange for each $1,000 principal amount at maturity of outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or all of their Old Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in integral multiples of $1,000 in principal amount. The form and terms of the New Notes are substantially the same as the form and terms of the Old Notes except that the New Notes have been registered under the Securities Act and will not bear legends restricting their transfer. The New Notes will evidence the same debt as the Old Notes and will be issued pursuant to, and entitled to the benefits of, the Indenture pursuant to which the Old Notes were, and the New Notes will be, issued. As of the date of this Prospectus, $277.0 million in aggregate principal amount at maturity of the Old Notes were outstanding. The Company has fixed the close of business on , 1997 as the record date for the Exchange Offer for purposes of determining the persons to whom this Prospectus, together with the Letter of Transmittal, will initially be sent. As of such date, there were registered holders of the Old Notes. Holders of Old Notes do not have any appraisal or dissenters' rights under the General Corporation Law of the State of Delaware or the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder. The Company shall be deemed to have accepted validly tendered Old Notes when, as, and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders for the purpose of receiving the New Notes from the Company. If any tendered Old Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, certificates for any such unaccepted Old Notes will be returned, without expense, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders who tender Old Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes, in connection with the Exchange Offer. See "The Exchange Offer -- Solicitation of Tenders; Fees and Expenses." 132 137 EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time, on , 1997, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. In order to extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by oral or written notice prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. The Company reserves the right, in its sole discretion, (i) to delay accepting any Old Notes, to extend the Exchange Offer or, if any of the conditions set forth under "The Exchange Offer -- Conditions" shall not have been satisfied, to terminate the Exchange Offer, by giving oral or written notice of such delay, extension or termination to the Exchange Agent, or (ii) to amend the terms of the Exchange Offer in any manner. PROCEDURES FOR TENDERING Only a holder of Old Notes may tender the Old Notes in the Exchange Offer. Except as set forth under "The Exchange Offer -- Book Entry Transfer," to tender in the Exchange Offer a holder must complete, sign and date the Letter of Transmittal, or a copy thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver the Letter of Transmittal or copy to the Exchange Agent prior to the Expiration Date. In addition, either (i) certificates for such Old Notes must be received by the Exchange Agent along with the Letter of Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if that procedure is available, into the Exchange Agent's account at The Depository Trust Company (the "DTC" or the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date, or (iii) the holder must comply with the guaranteed delivery procedures described below. To be tendered effectively, the Old Notes, Letter of Transmittal and other required documents must be received by the Exchange Agent at the address set forth under "The Exchange Offer -- Exchange Agent" prior to the Expiration Date. The tender by a holder that is not withdrawn before the Expiration Date will constitute an agreement between that holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE AND PROPER INSURANCE SHOULD BE OBTAINED. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct the registered holder to tender on the beneficial owner's behalf. If the beneficial owner wishes to tender on the owner's own behalf, the owner must, prior to completing and executing the Letter of Transmittal and delivering the owner's Old Notes, either make appropriate arrangements to register ownership of the Old Notes in the beneficial owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as defined herein) unless Old Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box titled "Special Registration Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. If signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, the guarantee must be by any eligible guarantor institution that is a member of or participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program, the Stock Exchange Medallion 133 138 Program, or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered holder of any Old Notes listed therein, the Old Notes must be endorsed or accompanied by a properly completed bond power, signed by the registered holder as that registered holder's name appears on the Old Notes. If the Letter of Transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal unless waived by the Company. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Old Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Old Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of Old Notes, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that the Company determines are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. In addition, the Company reserves the right in its sole discretion to purchase or make offers for any Old Notes that remain outstanding after the Expiration Date or, as set forth under "The Exchange Offer -- Conditions," to terminate the Exchange Offer and, to the extent permitted by applicable law, purchase Old Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers could differ from the terms of the Exchange Offer. By tendering, each holder will represent to the Company that, among other things, (i) the New Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the person receiving such New Notes, whether or not such person is the holder, (ii) if it is not a broker-dealer, neither the holder nor any such other person is engaging in or intends to engage in a distribution of such New Notes, (iii) neither the holder nor any such other person has an arrangement or understanding with any person to participate in the distribution of such New Notes, and (iv) neither the holder nor any such other person is an "affiliate" (as defined in Rule 405 of the Securities Act) of the Company. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities (other than Old Notes acquired directly from the Company), may participate in the Exchange Offer but may be deemed an "underwriter" under the Securities Act and, therefore, must acknowledge in the Letter of Transmittal that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. See "Plan of Distribution." In all cases, issuance of New Notes for Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility, a properly completed and duly executed Letter of Transmittal (or, with respect to the DTC and its participants, electronic instructions in which the tendering holder acknowledges its receipt of and agreement to be bound by the Letter of Transmittal), and all other required documents. If any tendered Old Notes are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or non-exchanged Old Notes 134 139 will be returned without expense to the tendering holder thereof (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described below, such non-exchanged Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility) as promptly as practicable after the expiration or termination of the Exchange Offer. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Old Notes at the Book-Entry Transfer Facility for purposes of the Exchange Offer within two business days after the date of this Prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility system may make book-entry delivery of Old Notes being tendered by causing the Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Old Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or copy thereof, with any required signature guarantees and any other required documents, must, in any case other than as set forth in the following paragraph, be transmitted to and received by the Exchange Agent at the address set forth under "The Exchange Offer -- Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery procedures described below must be complied with. The DTC's Automated Tender Offer Program ("ATOP") is the only method of processing exchange offers through the DTC. To accept the Exchange Offer through ATOP, participants in the DTC must send electronic instructions to the DTC through the DTC's communication system in place of sending a signed, hard copy Letter of Transmittal. The DTC is obligated to communicate those electronic instructions to the Exchange Agent. To tender Old Notes through ATOP, the electronic instructions sent to the DTC and transmitted by the DTC to the Exchange Agent must contain the character by which the participant acknowledges its receipt of and agrees to be bound by the Letter of Transmittal. GUARANTEED DELIVERY PROCEDURES If a registered holder of the Old Notes desires to tender such Old Notes and the Old Notes are not immediately available, or time will not permit such holder's Old Notes or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if (i) the tender is made through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent received from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by telegram, telex, facsimile transmission, mail or hand delivery), setting forth the name and address of the holder of Old Notes and the amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent, and (iii) the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by the Letter of Transmittal, are received by the Exchange Agent within three NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. WITHDRAWAL RIGHTS Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. For a withdrawal of a tender of Old Notes to be effective, a written or (for DTC participants) electronic ATOP transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old 135 140 Notes to be withdrawn (including the certificate number or numbers and principal amount at maturity of such Old Notes), (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Trustee with respect to the Old Notes register the transfer of such Old Notes into the name of the person withdrawing the tender, and (iv) specify the name in which any such Old Notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, in its sole discretion, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described under "The Exchange Offer -- Procedures for Tendering" at any time on or prior to the Expiration Date. CONDITIONS Notwithstanding any other term of the Exchange Offer, the Company shall not be required to accept for exchange, or exchange New Notes for, any Old Notes, and may terminate the Exchange Offer as provided herein before the acceptance of such Old Notes, if: (a) the Exchange Offer shall violate applicable law or any applicable interpretation of the staff of the Commission; or (b) any action or proceeding is instituted or threatened in any court or by any governmental agency that might materially impair the ability of the Company to proceed with the Exchange Offer or any material adverse development has occurred in any existing action or proceeding with respect to the Company; or (c) any governmental approval has not been obtained, which approval the Company shall deem necessary for the consummation of the Exchange Offer. If the Company determines in its sole discretion that any of the conditions are not satisfied, the Company may (i) refuse to accept any Old Notes and return all tendered Old Notes to the tendering holders (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above, such Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility), (ii) extend the Exchange Offer and retain all Old Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of holders to withdraw such Old Notes (see "-- Withdrawal Rights") or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Old Notes which have not been withdrawn. If such waiver constitutes a material change to the Exchange Offer, the Company will promptly disclose such waiver by means of a prospectus supplement that will be distributed to the registered holders, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such five-to- ten-business-day period. 136 141 EXCHANGE AGENT All executed Letters of Transmittal should be directed to the Exchange Agent. U.S. Trust Company of Texas, N.A., has been appointed as Exchange Agent for the Exchange Offer. Questions, requests for assistance and requests for additional copies of this Prospectus or of the Letter of Transmittal should be directed to the Exchange Agent addressed as follows: By Registered or Certified Mail, By Hand: by Overnight Courier or by Hand: U.S. Trust Company of Texas, N.A. U.S. Trust Company of Texas, N.A. P.O. Box 841 111 Broadway Cooper Station Lower Level New York, New York 10276-0841 Corporate Trust Window New York, New York 10006-1906 By Overnight Courier: By Facsimile: Confirm by Telephone: U.S. Trust Company of Texas, (212) 420-6504 (800) 225-2398 N.A. 770 Broadway 13th Floor -- Corporate Trust Operations New York, New York 10003
SOLICITATIONS OF TENDERS; FEES AND EXPENSES The Company will not make any payments to brokers, dealers or others soliciting acceptances of the Exchange Offer. The principal solicitation is being made by mail; however, additional solicitations may be made in person or by telephone by officers and employees of the Company. The Company has not retained any dealer-manager or similar agent in connection with the Exchange Offer and will not make any payments to brokers, dealers or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company. Such expenses include fees and expenses of the Exchange Agent and Trustee, accounting and legal fees and printing costs, among others. TRANSFER TAXES Holders who tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct the Company to register New Notes in the name of, or request that Old Notes not tendered or not accepted in the Exchange Offer be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax thereon. 137 142 DESCRIPTION OF THE NEW NOTES GENERAL The Old Notes were, and the New Notes will be, issued under an Indenture, dated as of February 20, 1997 (the "Indenture"), between the Company and U.S. Trust Company of Texas, N.A., as trustee (the "Trustee"), a copy of which is filed as an exhibit to the Registration Statement (as defined). The terms of the New Notes are identical in all material respects to the Old Notes, except that the New Notes have been registered under the Securities Act and, therefor, will not bear legends restricting their transfer. Upon the issuance of the New Notes, the Indenture will be subject to and governed by the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The following summary of certain provisions of the Indenture and the New Notes does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Indenture (including the definitions of certain terms therein and those terms made a part thereof by the Trust Indenture Act) and the New Notes. The Old Notes and the New Notes are sometimes collectively referred to herein as the "Notes." Principal of, premium, if any, and interest on the New Notes will be payable, and the New Notes may be exchanged or transferred, at the office or agency of the Company in the Borough of Manhattan, The City of New York (which initially shall be the corporate trust office of the Trustee in New York, New York), except that, at the option of the Company, payment of interest may be made by check mailed to the address of the holders as such address appears in the Note Registrar. The New Notes will be issued in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. Initially, the Trustees will act as Paying Agent and Registrar for the New Notes. The New Notes may be presented for registration of transfer and exchange at the offices of the Registrar, which initially will be the Trustee's corporate trust office. The Company may change any Paying Agent and Registrar without notice to holders of the Notes. Old Notes that remain outstanding after the consummation of the Exchange Offer and New Notes issued in connection with the Exchange Offer will be entitled to vote or consent on all matters as a single class of securities under the Indenture. PRINCIPAL, MATURITY AND INTEREST The Notes will be unsecured, senior obligations of the Company and will be limited to $277.0 million in 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 Old Notes were offered at a substantial discount from their principal amount at maturity. See "Certain Federal Income Tax Considerations -- Original Issue Discount." 138 143 OPTIONAL REDEMPTION The Notes may be redeemed (subject to contractual and other restrictions with respect thereto and to the legal availability of funds therefor) at any time on or after February 1, 2002, in whole or in part, at the option of the Company, 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, 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 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 the Company of the proceeds of a Public Equity Offering or Major Asset Sale. The Company shall effect such redemption on a pro rata basis. In addition, prior to February 1, 2002, the Company may, at its option, redeem the Notes upon a Change of Control. 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 the Company and, accordingly, may also limit the ability of the Company to redeem the Notes. See "Description of Other Indebtedness." SELECTION AND NOTICE If less than all of the Notes are to be redeemed at any time, selection of Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, in the absence of such requirements or if the Notes are not so listed, on a pro rata basis, provided that no Notes of $1,000 or less shall be redeemed in part. Notice of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount at maturity thereof to be redeemed. A new Note in principal amount at maturity equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Note. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption. CHANGE OF CONTROL The Indenture will provide that, upon the occurrence of a Change of Control, each holder will have the right to require that the Company purchase all or a portion of such holder's Notes in cash pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to (i) 101% of the Accreted Value 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. The Indenture will provide that, prior to the mailing of the notice referred to below, but in any event within 30 days following the date on which the Company becomes aware that a Change of Control has occurred, the 139 144 Company covenants that if the purchase of the Notes would violate or constitute a default under any other Indebtedness of the Company, then the Company shall, to the extent needed to permit such purchase of Notes, either (i) repay all such Indebtedness and terminate all commitments outstanding thereunder or (ii) obtain the requisite consents, if any, under such Indebtedness required to permit the purchase of the Notes as provided below. The Company will first comply with the covenant in the preceding sentence before it will be required to make the Change of Control Offer or purchase the Notes pursuant to the provisions described below. Within 30 days following the date on which the Company becomes aware that a Change of Control has occurred, the Company must send, by first-class mail postage prepaid, a notice to each holder of Notes, which notice shall govern the terms of the Change of Control Offer. Such notice shall state, among other things, the purchase date, which must be no earlier than 30 days nor later than 45 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender such Notes to the paying agent and registrar for the Notes at the address specified in the notice prior to the close of business on the business day prior to the Change of Control Payment Date. In addition, the Indenture will provide that, prior to February 1, 2002, upon the occurrence of a Change of Control, the Company will have the option to redeem the Notes in whole but not in part (a "Change of Control Redemption") at a redemption price equal to 100% of the Accreted Value thereof at the redemption date of the Notes plus the Applicable Premium. In order to effect a Change of Control Redemption, the Company must send a notice to each holder of Notes, which notice shall govern the terms of the Change of Control Redemption. Such notice must be mailed to holders of Notes within 30 days following the date the Change of Control occurred (the "Change of Control Redemption Date") and state that the Company is effecting a Change of Control Redemption in lieu of a Change of Control Offer. "Applicable Premium" means, with respect to a Note at any Change of Control Redemption Date, the greater of (i) 1.0% of the Accreted Value of such Note and (ii) the excess of (A) the present value at such time of the redemption price of such Note at February 1, 2002 (such redemption price being described under "-- Optional Redemption") computed using a discount rate equal to the Treasury Rate plus 150 basis points over (B) the principal amount at maturity of such Note. "Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15(519) that has become publicly available at least two business days prior to the Change of Control 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. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act to the extent applicable in connection with the purchase of Notes pursuant to a Change of Control Offer. This "Change of Control" covenant will not apply in the event of (a) changes in a majority of the board of directors of the Company so long as a majority of the board of directors continues to consist of Continuing Directors and (b) certain transactions with Permitted Holders. In addition, this covenant is not intended to afford holders of Notes protection in the event of certain highly leveraged transactions, reorganizations, restructurings, mergers and other similar transactions that might adversely affect the holders of Notes, but would not constitute a Change of Control. The Company could, in the future, enter into certain transactions, including certain recapitalizations of the Company, that would not constitute a Change of Control with respect to the Change of Control purchase feature of the Notes, but would increase the amount of indebtedness outstanding at such time. However, the Indenture will contain limitations on the ability of the Company to incur additional Indebtedness 140 145 and to engage in certain mergers, consolidations and sales of assets, whether or not a Change of Control is involved. See "-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock of Subsidiaries" and "-- Certain Covenants -- Merger, Consolidation and Sale of Assets" below. If a Change of Control were to occur, there can be no assurance that the Company would have sufficient funds to pay the purchase price for all Notes that the Company might be required to purchase. Moreover, as of the date hereof, after giving effect to the Old Notes Offering and the application of the proceeds therefrom, the Company would not have sufficient funds available to purchase all of the outstanding Notes pursuant to a Change of Control Offer. In the event that the Company were required to purchase outstanding Notes pursuant to a Change of Control Offer, the Company expects that it would need to seek third-party financing to the extent it does not have available funds to meet its purchase obligations. However, there can be no assurance that the Company would be able to obtain such financing on favorable terms, if at all. The Commodore Indenture and the New Credit Facility restrict the ability of Commodore to pay dividends and make other restricted payments to the Company and, accordingly, may also limit the ability of the Company to purchase the Notes. See "Description of Other Indebtedness." With respect to the sale of "all or substantially all" the assets of the Company, which would constitute a Change of Control for purposes of the Indenture, the meaning of the phrase "all or substantially all" varies according to the facts and circumstances of the subject transaction, has no clearly established meaning under relevant law and is subject to judicial interpretation. Accordingly, in certain circumstances there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of "all or substantially all" of the assets of the Company and, therefore, it may be unclear whether a Change of Control has occurred and whether the Notes should be subject to a Change of Control Offer. None of the provisions in the Indenture relating to a purchase of Notes upon a Change of Control is waiveable by the board of directors of the Company. Without the consent of each holder of Notes affected thereby, after the mailing of the notice of a Change of Control Offer, no amendment to the Indenture may, directly or indirectly, affect the Company's obligation to purchase the outstanding Notes or amend, modify or change the obligation of the Company to consummate a Change of Control Offer or waive any default in the performance thereof or modify any of the provisions of the definitions with respect to any such offer. CERTAIN COVENANTS Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock of Subsidiaries. The 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. Limitation on Restricted Payments. (a) The Indenture will provide that neither the Company nor any of its Subsidiaries will, directly or indirectly, make any Restricted Payment if at the time of such Restricted Payment and immediately after giving effect thereto: (i) a Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such Restricted Payment; or (ii) the Company is not able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock of Subsidiaries" covenant; or (iii) the aggregate amount of Restricted Payments made subsequent to the Issue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined 141 146 by the board of directors of the Company in good faith) exceeds the sum of (a) (x) 100% of the aggregate Consolidated EBITDA of the Company (or, in the event such Consolidated EBITDA shall be a deficit, minus 100% of such deficit) accrued subsequent to the Issue Date to the most recent date for which financial information is available to the Company, taken as one accounting period, less (y) 1.4 times Consolidated Interest Expense for the same period, plus (b) 100% of the aggregate net proceeds, including the fair market value of property other than cash as determined by the board of directors of the Company in good faith, received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale on or subsequent to the Issue Date of Qualified Capital Stock of the Company (excluding (i) any net proceeds from issuances and sales financed directly or indirectly using funds borrowed from the Company or any Subsidiary of the Company, until and to the extent such borrowing is repaid, but including the proceeds from the issuance and sale of any securities convertible into or exchangeable for Qualified Capital Stock to the extent such securities are so converted or exchanged and including any additional proceeds received by the Company upon such conversion or exchange and (ii) any net proceeds received from issuances and sales that are used to consummate a transaction described in clauses (2) and (3) of paragraph (b) below), plus (c) without duplication of any amount included in clause (iii)(b) above, 100% of the aggregate net proceeds, including the fair market value of property other than cash (valued as provided in clause (iii)(b) above), received by the Company as a capital contribution on or after the Issue Date, plus (d) the amount equal to the net reduction in Investments (other than Permitted Investments) made by the Company or any of its Subsidiaries in any Person resulting from (i) repurchases or redemptions of such Investments by such Person, proceeds realized upon the sale of such Investment to an unaffiliated purchaser and repayments of loans or advances or other transfers of assets by such Person to the Company or any Subsidiary of the Company or (ii) the redesignation of Unrestricted Subsidiaries as Subsidiaries (valued in each case as provided in the definition of "Investment") not to exceed, in the case of any Subsidiary, the amount of Investments previously made by the Company or any Subsidiary in such Unrestricted Subsidiary, which amount was included in the calculation of Restricted Payments; provided, however , that no amount shall be included under this clause (d) to the extent it is already included in Consolidated EBITDA, plus (e) the aggregate net cash proceeds received by a Person in consideration for the issuance of such Person's Capital Stock (other than Disqualified Capital Stock) that are held by such Person at the time such Person is merged with and into the Company in accordance with the "Merger, Consolidation and Sale of Assets" covenant subsequent to the Issue Date; provided, however , that concurrently with or immediately following such merger the Company uses an amount equal to such net cash proceeds to redeem or repurchase the Company's Capital Stock, plus (f) $2,500,000. (b) Notwithstanding the foregoing, these provisions will not prohibit: (1) the payment of any dividend or the making of any distribution within 60 days after the date of its declaration if such dividend or distribution would have been permitted on the date of declaration; (2) the purchase, redemption or other acquisition or retirement of any Capital Stock of the Company or any warrants, options or other rights to acquire shares of any class of such Capital Stock either (x) solely in exchange for shares of Qualified Capital Stock or other rights to acquire Qualified Capital Stock or (y) through the application of the net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock or warrants, options or other rights to acquire Qualified Capital Stock or (z) in the case of Disqualified Capital Stock, solely in exchange for, or through the application of the net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of, Disqualified Capital Stock that has a redemption date no earlier than, and requires the payment of current dividends or distributions in cash no earlier than, in each case, the Disqualified Capital Stock being purchased, redeemed or otherwise acquired or retired; (3) the acquisition of Indebtedness of the Company that is subordinate or junior in right of payment to the Notes either (x) solely in exchange for shares of Qualified Capital Stock (or warrants, options or other rights to acquire Qualified Capital Stock), for shares of Disqualified Capital Stock that have a redemption date no earlier than, and require the payment of current dividends or distributions in cash no earlier than, in each case, the maturity date and interest payments dates, respectively, of the Indebtedness being acquired, or for Indebtedness of the Company that is subordinate or junior in right of payment to the Notes, at least to the extent that the Indebtedness being acquired is subordinated to the Notes and has a Weighted Average Life to Maturity no less than that of the Indebtedness being acquired or (y) through the application of the net proceeds of a substantially concurrent sale for cash (other than to a 142 147 Subsidiary of the Company) of shares of Qualified Capital Stock (or warrants, options or other rights to acquire Qualified Capital Stock), shares of Disqualified Capital Stock that have a redemption date no earlier than, and require the payment of current dividends or distributions in cash no earlier than, in each case, the maturity date and interest payments dates, respectively, of the Indebtedness being refinanced, or Indebtedness of the Company that is subordinate or junior in right of payment to the Notes at least to the extent that the Indebtedness being acquired is subordinated to the Notes and has a Weighted Average Life to Maturity no less than that of the Indebtedness being refinanced; (4) payments by the Company to repurchase Capital Stock or other securities 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 the "Merger, Consolidation and Sale of Assets" covenant; 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 the "Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock of Subsidiaries" covenant such that after incurring that $1.00 of additional Indebtedness, the Leverage Ratio would be less than 6.0 to 1; and (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. Merger, Consolidation and Sale of Assets. The Indenture will provide that the Company may not, in a single transaction or a series of related transactions, consolidate with or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, another Person or adopt a plan of liquidation unless (i) either (1) the Company is the surviving or continuing Person or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the person that acquires by conveyance, transfer or lease the properties and assets of the Company substantially as an entirety or in the case of a plan of liquidation, the Person to which assets of the Company have been transferred, shall be a corporation, partnership or trust organized and existing under the laws of the United States or any State thereof or the District of Columbia; (ii) such surviving person shall assume all of the obligations of the Company under the Notes and the Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after giving effect to such transaction and the use of the proceeds therefrom (on a pro forma basis, including giving effect to any Indebtedness incurred or anticipated to be incurred in connection with such transaction), the Company (in the case of clause (1) of the foregoing clause (i)) or such Person (in the case of clause (2) of the foregoing clause (i)) shall be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock of Subsidiaries" covenant; (iv) immediately after giving effect to such transactions, no Default or Event of Default shall have occurred or be continuing; and (v) the Company has delivered to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer complies with the Indenture and that all conditions precedent in the Indenture relating to such transaction have been satisfied. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of related transactions) of all or substantially all of the properties and assets of one or more Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties or assets of the Company, will be deemed to be the transfer of all or substantially all of the properties and assets of the Company. Notwithstanding the foregoing clauses (ii) and (iii), (1) any Subsidiary of the Company may consolidate with, merge into or transfer all or part of its properties and assets to the Company 143 148 and (2) the Company may merge with a corporate Affiliate thereof incorporated solely for the purpose of reincorporating the Company in another jurisdiction in the U.S. to realize tax or other benefits. Limitation on Asset Sales. The Indenture provides that neither the Company nor any of its Subsidiaries will consummate an Asset Sale unless (i) the Company or the applicable Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by management of the Company or, if such Asset Sale involves consideration in excess of $2,500,000, by the board of directors 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 Notes tendered 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 covenant equal or exceed $5,000,000. Subject to the deferral right set forth in the final proviso of the preceding paragraph, each notice of a Net Proceeds Offer will be mailed, by first-class mail, to holders of Notes not more than 180 days after the relevant Asset Sale or, in the event the Company or a Subsidiary has entered into a binding agreement as provided in (B) above, within 180 days following the termination of such agreement but in no event later than 360 days after the relevant Asset Sale. Such notice will specify, among other things, the purchase date (which will be no earlier than 30 days nor later than 45 days from the date such notice is mailed, except as otherwise required by law) and will otherwise comply with the procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer, holders of Notes may elect to tender their Notes in whole or in part in integral multiples of $1,000. To the extent holders properly tender Notes in an amount exceeding the Net Proceeds Offer, Notes of tendering holders will be repurchased on a pro rata basis (based upon the principal amount at maturity tendered). To the extent that the aggregate principal amount at maturity of Notes tendered pursuant to any Net Proceeds Offer is less than the amount of Net Cash Proceeds subject to such Net Proceeds Offer, the Company may use any remaining portion of such Net Cash Proceeds not required to fund the repurchase of tendered Notes for any purposes otherwise permitted by the Indenture. Upon the consummation of any Net Proceeds Offer, the amount of Net Cash Proceeds subject to any future Net Proceeds Offer from the Asset Sales giving rise to such Net Cash Proceeds shall be deemed to be zero. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act to the extent applicable in connection with the repurchase of Notes pursuant to a Net Proceeds Offer. Limitation on Asset Swaps. The Indenture provides that the Company will not, and will not permit any Subsidiary to, engage in any Asset Swaps, unless: (i) at the time of entering into such Asset Swap and immediately after giving effect to such Asset Swap, no Default or Event of Default shall have occurred or be continuing or would occur as a consequence thereof, (ii) in the event such Asset Swap involves an aggregate amount in excess of $1.0 million, the terms of such Asset Swap have been approved by a majority of the members of the board of directors of the Company and (iii) in the event such Asset Swap involves an aggregate amount in excess of $5.0 million, the Company has received a written opinion from an independent investment banking firm of nationally recognized standing that such Asset Swap is fair to the Company or such Subsidiary, as the case may be, from a financial point of view. 144 149 Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. The Indenture provides that neither the Company nor any of its Subsidiaries will, directly or indirectly, create or otherwise cause to permit to exist or become effective, by operation of the charter of such Subsidiary or by reason of any agreement, instrument, judgment, decree, rule, order, statute or governmental regulation, any encumbrance or restriction on the ability of any Subsidiary to (a) pay dividends or make any other distributions on its Capital Stock; (b) make loans or advances or pay any Indebtedness or other obligation owed to the Company or any of its Subsidiaries; or (c) transfer any of its property or assets to the Company, except for such encumbrances or restrictions existing under or by reason of: (1) applicable law, (2) the 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 covenant shall not result in such encumbrances or restrictions being less favorable to the Company in any material respect, as determined in good faith by the board of directors of the Company, than the provisions as in effect before giving effect to the respective amendment or modification, (6) any restriction with respect to such a Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Subsidiary pending the closing of such sale or disposition, (7) an agreement effecting a refinancing, replacement or substitution of Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clause (2), (4) or (5) above; provided, however, that the provisions relating to such encumbrance or restriction contained in any such refinancing, replacement or substitution agreement are not less favorable to the Company in any material respect as determined in good faith by the board of directors of the Company than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clause (2), (4) or (5) above, (8) any agreement evidencing Indebtedness permitted under the 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 then the provisions relating to such encumbrance or restriction contained in the Indenture, or (9) restrictions on the transfer of the assets subject to any Lien imposed by the holder of such Lien. Limitations on Transactions with Affiliates. The Indenture provides that neither the Company nor any of its Subsidiaries will, directly or indirectly, enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with or for the benefit of any of its Affiliates (other than transactions between the Company and a Wholly Owned Subsidiary of the Company or among Wholly Owned Subsidiaries of the Company) (an "Affiliate Transaction"), other than Affiliate Transactions on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction on an arm's-length basis from a person that is not an Affiliate; provided, however, that for a transaction or series of related transactions involving value of $1,000,000 or more, such determination will be made in good faith by a majority of members of the board of directors of the Company and by a majority of the disinterested members of the board of directors of the Company, if any; provided, further, that for a transaction or series of related transactions involving value of $5,000,000 or more, the board of directors of the Company has received an opinion from a nationally recognized investment banking firm that such Affiliate Transaction is fair, from a financial point of view, to the Company or such Subsidiary. The foregoing restrictions will not apply to (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 the covenant described under "Limitation on Restricted Payments," (5) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors of the Company, (6) loans or advances to employees in the ordinary course of business of the Company or any of its Subsidiaries consistent with past 145 150 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, and (8) the issuance of Capital Stock of the Company (other than Disqualified Capital Stock). Reports. The Indenture will provide that so long as any of the Notes is outstanding, the Company will provide to the holders of Notes and file with the Commission copies of the annual reports and of the information, documents and other reports that the Company would have been required to file with the Commission pursuant to Sections 13 or 15(d) of the Exchange Act regardless of whether the Company is then obligated to file such reports. EVENTS OF DEFAULT The following events are defined in the 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 performance of any other covenant or agreement contained in the Notes or the Indenture, which default continues for a period of 30 days after the Company receives written notice thereof specifying the default from the Trustee or holders of at least 25% in aggregate principal amount 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 the Company or any Subsidiary of the Company, or the acceleration of the final stated maturity of any such Indebtedness, if the aggregate principal amount of such Indebtedness, together with the aggregate principal amount of any other such Indebtedness in default for failure to pay principal at the final stated maturity (giving effect to any extensions thereof) or which has been accelerated, aggregates $5,000,000 or more at any time in each case after a 10-day period during which such default shall not have been cured or such acceleration rescinded; (v) one or more judgments in an aggregate amount in excess of $5,000,000 (which are not covered by insurance as to which the insurer has not disclaimed coverage) being rendered against the Company or any of its Significant Subsidiaries and such judgment or judgments remain undischarged or unstayed for a period of 60 days after such judgment or judgments become final and nonappealable; and (vi) certain events of bankruptcy, insolvency or reorganization affecting the Company or any of its Significant Subsidiaries. Upon the happening of any Event of Default specified in the 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 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, 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). If an Event of Default with respect to bankruptcy proceedings relating to the Company occurs and is continuing, then such amount will ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holder of the Notes. The Indenture provides that, at any time after a declaration of acceleration with respect to the Notes as described in the preceding paragraph, the holders of a majority in principal amount at maturity of the Notes then outstanding (by notice to the Trustee) may rescind and cancel such declaration and its consequences if (i) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction, (ii) all existing Events of Default have been cured or waived except nonpayment of Accreted Value of or interest on the Notes that has become due solely by such declaration of acceleration, (iii) to the extent the payment of such interest is lawful, interest (at the same rate specified in the Notes) on overdue installments of interest and overdue payments of principal which has become due otherwise than by such declaration of acceleration has been paid, (iv) the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances and (v) in the event of the cure or waiver of a Default or Event of Default of the type 146 151 described in clause (vi) of the description of Events of Default in the first paragraph above, the Trustee has received an Officers' Certificate and Opinion of Counsel that such Default or Event of Default has been cured or waived. The holders of a majority in principal amount at maturity of the Notes may waive any existing Default or Event of Default under the Indenture, and its consequences, except a default in the payment of the Accreted Value of or interest on any Notes. The Company is required to deliver to the Trustee, within 120 days after the end of the Company's fiscal year, a certificate indicating whether the signing officers know of any Default or Event of Default that occurred during the previous year and whether the Company has complied with its obligations under the Indenture. In addition, the Company will be required to notify the Trustee of the occurrence and continuation of any Default or Event of Default promptly after the Company becomes aware of the same. Subject to the provisions of the Indenture relating to the duties of the Trustee in case an Event of Default thereunder should occur and be continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the holders of the Notes unless such holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Subject to such provision for security or indemnification and certain limitations contained in the Indenture, the holders of a majority in principal amount at maturity of the outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE The Company may terminate its obligations under the Indenture at any time by delivering all outstanding Notes to the Trustee for cancellation and paying all sums payable by it thereunder. The Company, at its option, (i) will be discharged from any and all obligations with respect to the Notes (except for certain obligations of the Company to register the transfer or exchange of such Notes, replace stolen, lost or mutilated Notes, maintain paying agencies and hold moneys for payment in trust) or (ii) need not comply with certain of the restrictive covenants with respect to the Indenture, if the Company deposits with the Trustee, in trust, U.S. Legal Tender or U.S. Government Obligations or a combination thereof that, through the payment of interest and premium thereon and principal amount at maturity in respect thereof in accordance with their terms, will be sufficient to pay all the principal amount at maturity of and interest and premium on the Notes on the dates such payments are due in accordance with the terms of such Notes as well as the Trustee's fees and expenses. To exercise either such option, the Company is required to deliver to the Trustee (A) an Opinion of Counsel or a private letter ruling issued to the Company by the Internal Revenue Service (the "Service") to the effect that the holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of the deposit and related defeasance and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such option had not been exercised and, in the case of an Opinion of Counsel furnished in connection with a discharge pursuant to clause (i) above, accompanied by a private letter ruling issued to the Company by the IRS to such effect, (B) subject to certain qualifications, an Opinion of Counsel to the effect that funds so deposited will not be subject to avoidance under applicable bankruptcy law and (C) an Officers' Certificate and an Opinion of Counsel to the effect that the Company has complied with all conditions precedent to the defeasance. Notwithstanding the foregoing, the Opinion of Counsel required by clause (A) above need not be delivered if all Notes not theretofore delivered to the Trustee for cancellation (i) have become due and payable, (ii) will become due and payable on the maturity date within one year or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company. MODIFICATION OF THE INDENTURE From time to time, the Company and the Trustee, together, without the consent of the holders of the Notes, may amend or supplement the Indenture for certain specified purposes, including curing ambiguities, defects or inconsistencies, so long as such change does not adversely affect the rights of any of the holders in any material respect. Other modifications and amendments of the Indenture may be made with the consent of the holders of a majority in principal amount at maturity of the then outstanding Notes, except that, without the consent of each 147 152 holder of the Notes affected thereby, no amendment may, directly or indirectly: (i) reduce the amount of Notes whose holders must consent to an amendment; (ii) reduce the rate of or change the time for payment of interest, including defaulted interest, on any Notes or amend the rate of accretion or amend the definition of Accreted Value; (iii) reduce the Accreted Value of or change the fixed maturity of any Notes, or change the date on which any Notes may be subject to redemption or repurchase, or reduce the redemption or repurchase price therefor; (iv) make any Notes payable in money other than that stated in the Notes and the Indenture; (v) make any change in provisions of the Indenture protecting the right of each holder of a Note to receive payment of principal of, premium on and interest on such Note on or after the due date thereof or to bring suit to enforce such payment or permitting holders of a majority in principal amount at maturity of the Notes to waive Default or Event of Default; or (vi) after the Company's obligation to purchase the Notes arises under the Indenture, amend, modify or change the obligation of the Company to make or consummate a Change of Control Offer or a Net Proceeds Offer or waive any default in the performance thereof or modify any of the provisions or definitions with respect to any such offers. CONCERNING THE TRUSTEE The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it requires any conflicting interest, it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The Holders of a majority in principal amount at maturity of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any holder of Notes, unless such holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. CERTAIN DEFINITIONS Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all such terms, as well as any other terms used herein for which no definition is provided. "Accreted Value" means, as of any date of determination, the sum of (i) the initial offering price of each Note and (ii) the portion of the excess of the principal amount at maturity of each Note 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 Notes through the date of determination; provided, that the Accreted Value of the Notes shall be 100% from February 1, 2002 to maturity of the Notes. "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Subsidiary of the Company or at the time it merges or consolidates with the Company or any of its Subsidiaries or assumed in connection with the acquisition of assets from such Person and not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Subsidiary of the Company or such acquisition, merger or consolidation. "Affiliate" means a Person who, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the Company. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Asset Acquisition" means (i) an Investment by the Company or any Subsidiary of the Company in any other Person pursuant to which such Person shall become a Subsidiary of the Company or shall be consolidated 148 153 or merged with the Company or any Subsidiary of the Company or (ii) the acquisition by the Company or any Subsidiary of the Company of assets of any Person comprising a division or line of business of such Person. "Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer for value by the Company or any of its Subsidiaries (excluding any Sale and Leaseback Transaction or any pledge of assets or stock by the Company or any of its Subsidiaries) to any Person other than the Company or a Wholly Owned Subsidiary of the Company of (i) any Capital Stock of any Subsidiary of the Company or (ii) any other property or assets of the Company or any Subsidiary of the Company other than in the ordinary course of business; provided, however, that for purposes of the "Limitation on Asset Sales" covenant, Asset Sales shall not include (a) a transaction or series of related transactions in which the Company or its Subsidiaries receive aggregate consideration of less than $500,000, (b) transactions permitted under the "Limitation on Asset Swaps" covenant or (c) transactions covered by the "Merger, Consolidation and Sale of Assets" covenant. "Asset Swap" means the execution of a definitive agreement, subject only to FCC approval, if applicable, and other customary closing conditions, that the Company in good faith believes will be satisfied, for a substantially concurrent purchase and sale, or exchange, of Productive Assets between the Company or any of its Subsidiaries and another Person or group of affiliated Persons; provided that any amendment to or waiver of any closing condition that individually or in the aggregate is material to the Asset Swap shall be deemed to be a new Asset Swap. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated) of capital stock of such Person and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "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 qualifications specified in clause (iv) above; and (vi) investments in money market funds that invest substantially all their assets in securities of the types described in clauses (i) through (v) above. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group") (whether or not otherwise in compliance with the provisions of the Indenture), other than to Hicks Muse, any of its affiliates (excluding Chancellor), officers and directors or R. Steven Hicks (the "Permitted Holders"); or (ii) a majority of the board of directors of the Company shall consist of Persons who are not Continuing Directors; or (iii) the acquisition by any Person or Group (other than the Permitted Holders) of the power, directly or indirectly, to vote or direct the voting of securities having more than 50% of the ordinary voting power for the election of directors of the Company. 149 154 "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. "Consolidated EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent Consolidated Net Income has been reduced thereby, (A) all income taxes of such Person and its Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary or nonrecurring gains or losses), (B) Consolidated Interest Expense and (C) Consolidated Non-Cash Charges, all as determined on a consolidated basis for such Person and its Subsidiaries in conformity with GAAP. "Consolidated Interest Expense" means, with respect to any Person for any period, without duplication, the sum of (i) the interest expense of such Person and its Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (a) any amortization of debt discount, (b) the net cost under Interest Swap Obligations (including any amortization of discounts), (c) the interest portion of any deferred payment obligation, (d) all commissions, discounts and other fees and charges owed with respect to letters of credit, bankers' acceptance financing or similar facilities, and (e) all accrued interest and (ii) the interest component of Capitalized Lease Obligations paid or accrued by such Person and its Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "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 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. 150 155 "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. "Disqualified Capital Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures (excluding any maturity as the result of an optional redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof (except, in each case, upon the occurrence of a Change of Control), in whole or in part, on or prior to the final maturity date of the Notes. "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. "GAAP" means generally accepted accounting principles as in effect in the United States of America as of the Issue Date. "Indebtedness" means with respect to any Person, without duplication, any liability of such Person (i) for borrowed money, (ii) evidenced by bonds, debentures, notes or other similar instruments, (iii) constituting Capitalized Lease Obligations, (iv) incurred or assumed as the deferred purchase price of property, or pursuant to conditional sale obligations and title retention agreements (but excluding trade accounts payable arising in the ordinary course of business), (v) for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (vi) for Indebtedness of others guaranteed by such Person, (vii) for Interest Swap Obligations, Commodity Agreements and Currency Agreements and (viii) for Indebtedness of any other Person of the type referred to in clauses (i) through (vii) which is secured by any Lien on any property or asset of such first referred to Person, the amount of such Indebtedness being deemed to be the lesser of the value of such property or asset or the amount of the Indebtedness so secured. The amount of Indebtedness of any Person at any date shall be the outstanding principal amount of all unconditional obligations described above, as such amount would be reflected on a balance sheet prepared in accordance with GAAP, and the maximum liability at such date of such Person for any contingent obligations described above. "Interest Swap Obligations" means the obligations of any Person under any interest rate protection agreement, interest rate future, interest rate option, interest rate swap, interest rate cap or other interest rate hedge or arrangement. "Investment" means (i) any transfer or delivery of cash, stock or other property of value in exchange for Indebtedness, stock or other security or ownership interest in any Person by way of loan, advance, capital contribution, guarantee or otherwise and (ii) an investment deemed to have been made by the Company at the time any entity which was a Subsidiary of the Company ceases to be such a Subsidiary in an amount equal to the value of the loans and advances made, and any remaining ownership interest in, such entity immediately following such entity ceasing to be a Subsidiary of the Company. The amount of any non-cash Investment shall be the fair market value of such Investment, as determined conclusively in good faith by management of the Company unless the fair market value of such Investment exceeds $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. "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 Notes on such date to (ii) the Consolidated EBITDA of the Company for the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of determination. For purposes of this definition, 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 151 156 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 or issuance (and the application of the proceeds thereof), or the repayment, as the case may be, occurred on the first day of the Four Quarter Period, (ii) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Subsidiaries (including any Person that becomes a Subsidiary as a result of such Asset Acquisition) incurring, assuming or otherwise becoming liable for Indebtedness or such Person's Subsidiaries issuing Preferred Stock) at any time on or subsequent to the first day of the Four Quarter Period and on or prior to the date of determination, as if such Asset Sale or Asset Acquisition (including the incurrence, assumption or liability for any such Indebtedness and the issuance of such Preferred Stock and also including any Consolidated EBITDA associated with such Asset Acquisition) occurred on the first day of the Four Quarter Period and (iii) cost savings resulting from employee terminations, facilities consolidations and closings, standardization of employee benefits and compensation practices, consolidation of property, casualty and other insurance coverage and policies, standardization of sales representation commissions and other contract rates, and reductions in taxes other than income taxes (collectively, "Cost Savings Measures"), which cost savings the Company reasonably believes in good faith would have been achieved during the Four Quarter Period as a result of such Asset Acquisitions (regardless of whether such cost savings could then be reflected in pro forma financial statements under GAAP, Regulation S-X promulgated by the Commission or any other regulation or policy of the Commission), provided that both (A) such cost savings and Cost Savings Measures were identified and such cost savings were quantified in an officer's certificate delivered to the Trustee at the time of the consummation of the Asset Acquisition and such officer's certificate states that such officer believes in good faith that actions will be commenced or initiated within 90 days of such Asset Acquisition to effect such Cost Savings Measures and (B) with respect to each Asset Acquisition completed prior to the 90th day preceding such date of determination, actions were commenced or initiated by the Company within 90 days of such Asset Acquisition to effect the Cost Savings Measures identified in such officer's certificate (regardless, however, of whether the corresponding cost savings have been achieved). Furthermore, in calculating "Consolidated Interest Expense" for purposes of the calculation of "Consolidated EBITDA," (i) interest on Indebtedness determined on a fluctuating basis as of the date of determination (including Indebtedness actually incurred on the date of the transaction giving rise to the need to calculate the Leverage Ratio) and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness as in effect on the date of determination and (ii) notwithstanding (i) above, interest determined on a fluctuating basis, to the extent such interest is covered by Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "Major Asset Sale" means an Asset Sale or series of related Asset Sales involving assets with a fair market value in excess of $25,000,000. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents (including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents) received by the Company or any of its Subsidiaries from such Asset Sale net of (i) reasonable out-of-pocket expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions, recording fees, title insurance premiums, appraisers fees and costs reasonably incurred in preparation of any asset or property for sale), (ii) taxes paid or reasonably estimated to be payable (calculated based on the combined state, federal and foreign statutory tax rates applicable to the 152 157 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. "New Credit Facility" means the credit agreement 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. "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 Notes 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 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 of the Company or by any Subsidiary of the Company to the Company or any Wholly Owned Subsidiary of the Company; (viii) guarantees by Subsidiaries of any Indebtedness permitted to be incurred pursuant to the 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 153 158 Indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock of Subsidiaries" covenant, (ii) Investments received by the Company or its Subsidiaries as consideration for a sale of assets, (iii) Investments by the Company or any Wholly Owned Subsidiary of the Company in any Wholly Owned Subsidiary of the Company (whether existing on the Issue Date or created thereafter) or any Person that after such Investments, and as a result thereof, becomes a Wholly Owned Subsidiary of the Company and Investments in the Company by any Wholly Owned Subsidiary of the Company, (iv) cash and Cash Equivalents, (v) Investments in securities of trade creditors, wholesalers or customers received pursuant to any plan of reorganization or similar arrangement, (vi) loans or advances to employees of the Company or any Subsidiary thereof for purposes of purchasing the 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. "Productive Assets" means assets of a kind used or usable by the Company and its Subsidiaries in broadcast businesses or businesses reasonably related thereto, and specifically includes assets acquired through Asset Acquisitions. "Public Equity Offering" means an underwritten public offering of Capital Stock (other than Disqualified Capital Stock) of the Company, 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. "Refinancing Indebtedness" means any refinancing by the Company of Indebtedness of the Company or any of its Subsidiaries incurred in accordance with the "Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock of Subsidiaries" covenant (other than pursuant to clause (iii) or (iv) of the definition of Permitted Indebtedness) that does not (i) result in an increase in the aggregate principal amount of Indebtedness (such principal amount to include, for purposes of this definition, any premiums, penalties or accrued interest paid with the proceeds of the Refinancing Indebtedness) of such Person or (ii) create Indebtedness with (A) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being refinanced or (B) a final maturity earlier than the final maturity of the Indebtedness being refinanced. "Restricted Payment" means (i) the declaration or payment of any dividend or the making of any other distribution (other than dividends or distributions payable in Qualified Capital Stock or in options, rights or warrants to acquire Qualified Capital Stock on shares of the Company's Capital Stock, (ii) the purchase, redemption, retirement or other acquisition for value of any Capital Stock of the Company, or any warrants, rights or options to acquire shares of Capital Stock of the Company, other than through the exchange of such Capital Stock or any warrants, rights or options to acquire shares of any class of such Capital Stock for Qualified Capital Stock or warrants, rights or options to acquire Qualified Capital Stock, (iii) the making of any principal payment on, or the purchase, defeasance, redemption, prepayment, decrease or other acquisition or retirement for value, prior to any scheduled final maturity, scheduled repayment or scheduled sinking fund payment, of, any Indebtedness of the Company or its Subsidiaries that is subordinated or junior in right of payment to the Notes or (iv) the making of any Investment (other than a Permitted Investment). "Senior 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 Notes. Without limiting the generality of the foregoing, "Senior 154 159 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 in the Indenture): (i) any Indebtedness of the Company to a Subsidiary of the Company; (ii) Indebtedness and other amounts owing to trade creditors incurred in connection with obtaining goods, materials or services; (iii) Indebtedness represented by Disqualified Capital Stock; 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 accordance with GAAP shall be deemed to include the Company and its Subsidiaries as to which financial statements are prepared on a consolidated basis in accordance with GAAP and to financial information prepared on such a consolidated basis. Notwithstanding anything in the Indenture to the contrary, an Unrestricted Subsidiary shall not be deemed to be a Subsidiary for purposes of the Indenture. "Unrestricted Subsidiary" means a Subsidiary of the Company created after the Issue Date and so designated by a resolution adopted by the Board of Directors of the Company, provided that (a) neither the Company nor any of its other Subsidiaries (other than Unrestricted Subsidiaries) (1) provides any credit support for any Indebtedness of such Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness) or (2) is directly or indirectly liable for any Indebtedness of such Subsidiary and (b) at the time of designation of such Subsidiary, such Subsidiary has no property or assets (other than de minimis assets resulting from the initial capitalization of such Subsidiary). The board of directors may designate any Unrestricted Subsidiary to be a Subsidiary; provided, however, that immediately after giving effect to such designation (x) the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock of Subsidiaries" covenant and (y) no Default or Event of Default shall have occurred or be continuing. Any designation pursuant to this definition by the board of directors of the Company shall be evidenced to the Trustee by the filing with the Trustee of a certified copy of the resolution of the Company's Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the 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. 155 160 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following discussion is a summary of certain federal income tax considerations relevant to the exchange of Old Notes for New Notes, but does not purport to be a complete analysis of all potential tax effects. The discussion is based upon the Internal Revenue Code of 1986, as amended, Treasury regulations, Internal Revenue Service rulings and pronouncements and judicial decisions now in effect, all of which are subject to change at any time by legislative, judicial or administrative action. Any such changes may be applied retroactively in a manner that could adversely affect a holder of the New Notes. The description does not consider the effect of any applicable foreign, state, local or other tax laws or estate or gift tax considerations. EACH HOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO IT OF EXCHANGING OLD NOTES FOR NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS. The exchange of Old Notes for New Notes should not be an exchange or otherwise a taxable event to a holder for federal income tax purposes. Accordingly, a holder should have the same adjusted issue price, adjusted basis and holding period in the New Notes as it had in the Old Notes immediately before the exchange. BOOK-ENTRY; DELIVERY AND FORM Except as described in the next paragraph, certain of the Notes are represented by a single permanent global certificate in definitive, fully registered form (the "Global Certificate"). The Global Certificate was deposited on the Issue Date with, or on behalf of, DTC and registered in the name of a nominee of DTC. The Global Certificate is subject to certain restrictions on transfer set forth therein. The Notes (i) originally purchased by or transferred to "foreign purchasers" or Accredited Investors who are not Qualified Institutional Buyers ("OIBs") under Rule 144A under the Securities Act or (ii) held by QIBs who elect to take physical delivery of their certificates instead of holding their interest through the Global Certificate (and which are thus ineligible to trade through DTC) (collectively referred to herein as the "Non-Global Purchasers") were issued in registered form (a "Certificated Security"). Upon the transfer to a QIB of any Certificated Security initially issued to a Non-Global Purchaser, such Certificated Security will, unless the transferee requests otherwise or the Global Certificate has previously been exchanged in whole for Certificated Securities, be exchanged for an interest in the Global Certificate. The Global Certificate. Pursuant to procedures established by DTC (i) upon the issuance of the Global Certificate, DTC or its custodian credited, on its internal system, the number of Notes of the individual beneficial interests represented by such global securities to the respective accounts of persons who have accounts with such depositary and (ii) ownership of beneficial interests in the Global Certificate are shown on, and the transfer of such ownership are effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). Such accounts initially were designated by or on behalf of the Initial Purchaser and ownership of beneficial interests in the Global Certificate are limited to persons who have accounts with DTC ("participants") or persons who hold interests through participants. QIBs may hold their interests in the Global Certificate directly through DTC if they are participants in such system, or indirectly through organizations which are participants in such system. So long as DTC, or its nominee, is the registered owner or holder of the Notes, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Certificate for all purposes. No beneficial owner of an interest in the Global Certificate will be able to transfer that interest except in accordance with DTC's procedures. Payments of principal of, premium, if any, and interest, if any, on the Global Certificate will be made to DTC or its nominee, as the case may be, as the registered owner thereof. Neither the Company nor the Paying Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Certificate or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. 156 161 The Company expects that DTC or its nominee, upon receipt of any payment of principal of, premium, if any, and interest, if any, in respect of the Global Certificate, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global Certificate as shown on the records of DTC or its nominee. The Company also expects that payments by participants to owners of beneficial interests in the Global Certificate held through such participants will be governed by standing instructions and customary practice, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants. Transfers between participants in DTC will be effected in the ordinary way in accordance with DTC rules and will be settled in clearinghouse funds. If a holder requires physical delivery of a Certificated Security for any reason, including to sell Notes to persons in states which require physical delivery of the certificate evidencing the Notes, or to pledge such securities, such holder must transfer its interest in the Global Certificate, in accordance with the normal procedures of DTC and with the procedures set forth in the Certificate of Designation. DTC has advised the Company that it will take any action permitted to be taken by a holder of Notes (including the presentation of Notes for exchange as described below) only at the direction of one or more participants to whose account the DTC interests in the Global Certificate are credited and only in respect of such Notes as to which such participant or participants has or have given such direction. DTC has advised the Company as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "Clearing Agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Certificate among participants of DTC, it is under no obligation to perform such procedures, and such procedures may be discontinued at any time. The Company will not have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. Certificated Securities. If DTC is at any time unwilling or unable to continue as a depositary for the Global Certificate and a successor depositary is not appointed by the Company within 90 days, Certificated Securities will be issued in exchange for the Global Certificate, which certificates will bear the legends referred to under the heading "Transfer Restrictions." 157 162 PLAN OF DISTRIBUTION Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 90 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 1997, all dealers effecting transactions in the New Notes may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of New Notes by broker-dealers. New Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such New Notes. Any broker-dealer that resells New Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of New Notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 90 days after the Expiration Date, the Company will promptly send additional copies of this Prospectus or any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company agreed to pay all expenses incident to the Exchange Offer (including the expenses of counsel for the Holders of the Old Notes) other than commissions or concessions of any broker-dealers and will indemnify the holders of the Old Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. See "The Exchange Offer" for additional information concerning the Exchange Offer and interpretations of the Commission's staff with respect to prospectus delivery obligations of broker-dealers. LEGAL MATTERS The validity of the New Notes offered hereby will be passed upon for the Company by Vinson & Elkins L.L.P., Dallas, Texas. EXPERTS The consolidated 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 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 financial statements of Capstar Radio Broadcasting Partners, Inc. and Subsidiaries, the Predecessor Company of Capstar Broadcasting Partners, Inc. and Subsidiaries, and formerly known as Commodore Media, Inc. and Subsidiaries 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 and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 158 163 The consolidated financial statements of Southern Star Communications, Inc., formerly known as Osborn Communications Corporation, as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The consolidated balance sheets of GulfStar Communications, Inc. and Subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996 included in this Prospectus, have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. The combined balance sheets of Benchmark Communications Radio Limited Partnership as of December 31, 1996 and 1995 and the related combined statements of operations, changes in partners' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1996 included in this Prospectus, have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. The balance sheet of Midcontinent Broadcasting Co. of Wisconsin, Inc. as of December 31, 1996 and the related statements of income and retained earnings, and cash flows for the year then ended included in this Prospectus, have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. The balance sheet of Point Communications Limited Partnership as of December 31, 1996, and the related statements of operations, partner's equity and cash flows for the year then ended included in this Prospectus, have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. The balance sheet of Community Pacific Broadcasting Company L.P. as of December 31, 1996, and the related statements of operations, partners' equity and cash flows for the year then ended included in this Prospectus, have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. The consolidated balance sheets of Patterson Broadcasting, Inc. and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year ended December 31, 1996 and for the period from May 1, 1995 (inception) through December 31, 1995 included in this Prospectus, have been included herein in reliance on the report of Arthur Andersen LLP, independent accountants, given on the authority of that firm as experts in accounting and auditing. The balance sheet of Ameron Broadcasting, Inc. as of December 31, 1996, and the related statements of operations, stockholders' equity and cash flows for the year then ended included in this Prospectus, have been included herein in reliance on the report of Arthur Andersen LLP, independent accountants, given on the authority of that firm as experts in accounting and auditing. The combined financial statements of Knight Quality Stations as of December 31, 1996, and for the year then ended included in this Prospectus or elsewhere in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto and are included herein upon the authority of the said firm as experts in giving said reports. The balance sheet of Quass Broadcasting Company as of December 31, 1996, and the related statements of income, common stockholders' equity (deficit) and cash flows for the year then ended December 31, 1996 included in this Prospectus, have been included herein in reliance on the report of McGladrey & Pullen, LLP, independent accountants, given on the authority of that firm as experts in accounting and auditing. The combined financial statements of Mountain Lakes Broadcasting, L.L.C. as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 159 164 The statements of operations and deficit and cash flows of Q Broadcasting, Inc. for each of the three years in the period ended September 30, 1995 included in this Prospectus, have been included herein in reliance on the report of Holtz Rubenstein & Co., LLP, independent accountants, given on the authority of that firm as experts in accounting and auditing. The statements of operations and accumulated deficit and cash flows of Danbury Broadcasting, Inc. for the year ended June 30, 1995 included in this Prospectus, have been included herein in reliance on the report of Paneth, Haber & Zimmerman LLP, independent accountants, given on the authority of that firm as experts in accounting and auditing. The balance sheet of Adventure Communications-Huntington (Division of Adventure Communications, Inc.) as of December 31, 1995, and the related statements of operations, division's deficit and cash flows for the year ended December 31, 1995 included in this Prospectus, have been included herein in reliance on the report of Brown, Edwards & Company, LLP, independent accountants, given on the authority of that firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company has filed with the Commission a registration statement (the "Registration Statement") under the Securities Act with respect to the New Notes offered hereby. As permitted by the rules and regulations of the Commission, this Prospectus does not contain all of the information set forth in the Registration Statement. For further information with respect to the Company and the New Notes offered hereby, reference is made to the Registration Statement, including the exhibits and schedules filed therewith. Statements contained in this Prospectus concerning the provisions of any contract, agreement or other document referred to herein or therein are not necessarily complete, but contain a summary of the material terms of such contracts, agreements or other documents. With respect to each contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for the complete contents of the exhibit, and each statement concerning its provisions is qualified in its entirety by such reference. The Registration Statement may be inspected, without charge, at the offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices at 7 World Trade Center, New York, New York, 10048 and Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661-2551. Copies of such materials may also be obtained by mail at prescribed rates from the Public Reference Section of the Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such materials may also be obtained from the web site that the Commission maintains at www.sec.gov. 160 165 GLOSSARY OF CERTAIN TERMS AND MARKET AND INDUSTRY DATA "advertising inventory" refers to the amount of advertising air time a radio station has available to sell to advertisers. "Ameron Acquisition" means the Company's pending acquisition of substantially all of the assets of Ameron Broadcasting, Inc. ("Ameron"), used or useful in the operation of radio stations WMJJ-FM and WERC-AM in Birmingham, Alabama and radio station WOWC-FM in Jasper, Alabama. "Benchmark Acquisition" means the completed acquisitions of, and mergers of directly and indirectly wholly-owned subsidiaries of HM Fund III with, Benchmark Communications Radio Limited Partnership, L.P. and certain of its subsidiary partnerships (collectively, "Benchmark"). "broadcast cash flow" consists of operating income before depreciation, amortization, corporate and other compensation expenses. Although broadcast cash flow is not a measure of performance calculated in accordance with generally accepted accounting principles ("GAAP"), management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcast industry to evaluate a radio company's operating performance. However, broadcast cash flow should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP as a measure of liquidity or profitability. "broadcast cash flow margin" represents the percentage of net revenue which is attributable to broadcast cash flow. "Capstar Broadcasting" means Capstar Broadcasting Corporation. "Capstar BT Equity Investment" means the purchase by Capstar BT Partners, L.P. of certain shares of Class B Common Stock for $11.1 million in cash concurrently with consummation of the GulfStar Merger. "Capstar Radio" means Capstar Radio Broadcasting Partners, Inc. "Capstar Radio Notes Offering" means Capstar Radio's private placement of the New Capstar Radio Notes. "Cavalier Acquisition" means the Company's completed acquisition of substantially all of the assets of Cavalier Communications, L.P. ("Cavalier"). "Certificate of Designation" means the Certificate of Designation that governs the Senior Exchangeable Preferred Stock. "COMCO Acquisition" means the Company's pending acquisition of substantially all of the assets of COMCO Broadcasting, Inc. ("COMCO"). "Commodore Acquisition" means the Company's completed acquisition of Commodore. "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"). "Company" means, unless the context otherwise requires, Capstar Broadcasting Partners, Inc. and its subsidiaries. "Completed Transactions" collectively refers to the Commodore Acquisition, the Osborn Transactions, the Space Coast Acquisitions, the GulfStar Transaction, the Benchmark Acquisition, the Madison Acquisition, the Cavalier Acquisition and the Emerald City Acquisition. "Credit Facilities" means the Existing Credit Facility and the New Credit Facility. "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 161 166 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 completed acquisition of substantially all of the assets of Emerald City Radio Partners, L.P. ("Emerald City") used or held for use in connection with station WNOK-FM in the Columbia, South Carolina market. "Existing Capstar Radio Indenture" means that certain indenture, between Capstar Radio, the guarantors named therein and IBJ Schroder Bank & Trust Company in connection with the Existing Capstar Radio Notes. "Existing Capstar Radio Notes" refers to Capstar Radio's 13 1/4% Senior Subordinated Notes due 2003. "Existing Credit Facility" means that certain credit facility between the Company, Capstar Radio, Bankers Trust Company, as administrative agent, and the other parties thereto. "Financing" collectively refers to the Preferred Stock Offering, the Hicks Muse GulfStar Equity Investment, the Capstar BT Equity Investment and the Capstar Radio Notes Offering. "Grant Acquisition" means the Company's pending acquisition of substantially all of the assets of Grant Communications Company ("Grant") used or useful in the operation of radio station WZBQ-FM in the Tuscaloosa, Alabama market. "Griffith Acquisition" means the Company's pending acquisition of substantially all of the assets of Griffith Communications Corporation ("Griffith") used or useful in the operation of radio stations WTAK-FM, WXQW-FM and WWXQ-FM in the Huntsville, Alabama market. "GulfStar" means, prior to the GulfStar Merger, GulfStar Communications, Inc. and, from and after the GulfStar Merger, the surviving corporation in the GulfStar Merger. "GulfStar Merger" means the merger of GulfStar with and into a subsidiary of Capstar Broadcasting, pursuant to which the subsidiary was the surviving corporation and was named GulfStar Communications, Inc. "GulfStar Transaction" means the GulfStar Merger and Capstar Broadcasting's contribution of GulfStar through the Company to Capstar Radio upon completion of the GulfStar Merger. "GulfStar -- American General Acquisition" means the Company's pending acquisition of substantially all of the assets of American General Media ("American General") used or useful in the operation of radio station KKCL-FM in the Lubbock, Texas market. "GulfStar -- Booneville Acquisition" means the Company's pending acquisition of substantially all of the assets of Booneville Broadcasting Company and Oklahoma Communications Company (collectively, "Booneville") used or useful in the operation of radio station KZBB-FM in the Ft. Smith, Arkansas market. "GulfStar -- Bryan Disposition" means the Company's pending sale of Bryan Broadcasting Operating Company, a wholly owned subsidiary that owns three FM stations in Bryan, Texas. "GulfStar -- KJEM Acquisition Option" means the Company's option to acquire substantially all of the assets of KJEM-FM, Inc. ("KJEM") used or useful in the operation of radio station KJEM-FM in the Seligman, Missouri market. "GulfStar -- KLAW Acquisition" means the Company's pending acquisition of substantially all of the assets of KLAW Broadcasting, Inc. ("KLAW") used or useful in the operation of radio stations KLAW-FM and KZCD-FM, which serves the Lawton, Oklahoma market. 162 167 "GulfStar -- Noalmark Acquisition" means the Company's option to purchase substantially all of the assets of Noalmark Broadcasting Corp. ("Noalmark") used or held for use in the operation of radio stations KKTX-FM and KKTX-AM, which serve the Longview, Texas market. "Hicks Muse" means Hicks, Muse, Tate & Furst Incorporated. "Hicks Muse GulfStar Equity Investment" means the purchase by an affiliate of Hicks Muse of certain shares of Class C Common Stock for $75.0 million in cash concurrently with consummation of the GulfStar Merger. "Hicks Muse Osborn Equity Investment" means the purchase by an affiliate of Hicks Muse of certain shares of Class A Common Stock for $34.8 million in cash concurrently with the consummation of the Osborn Acquisition. "HM Fund III" means Hicks, Muse, Tate & Furst Equity Fund III, L.P. "Huntington Acquisition" collectively refers to certain defined assets of radio stations WKEE-FM and WKEE-AM in Huntington, West Virginia; WZZW-AM and WFXN-FM in Milton, West Virginia; WBVB-FM in Coal Grove, Ohio; and WIRO-AM and WMLV-FM in Ironton, Ohio, acquired by the Company. "JSA" refers to a joint sales agreement, whereby a station licensee obtains, for a fee, the right to sell substantially all of the commercial advertising on a separately-owned and licensed station. JSAs take varying forms. A JSA, unlike an LMA, normally does not involve programming. "Knight Quality Acquisition" means the Company's pending acquisition of substantially all of the assets of Knight Radio, Inc., Knight Communications Corporation and Knight Broadcasting of New Hampshire, Inc. (collectively, "Knight Quality") used or useful in the operations of eight radio stations owned and operated by Knight Quality. "LMA" refers to a local marketing agreement, whereby a radio station outsources the management of certain limited functions of its operations. LMAs take varying forms; however, the FCC requires that, in all cases, the licensee maintain independent control over the programming and operations of the station. "Madison Acquisition" means the Company's completed 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. "New Capstar Radio Indenture" means that certain indenture, dated June 17, 1997, between the Company and U.S. Trust Company of Texas, N.A. in connection with the New Capstar Radio Notes. "New Capstar Radio Notes" means Capstar Radio's 9 1/4% Senior Subordinated Notes due 2007. "Notes" means the Company's 12 3/4% Senior Discount Notes due 2009. "Notes Indenture" means that certain indenture, dated February 20, 1997 between the Company and U.S. Trust Company of Texas, N.A. in connection with the Notes. "Osborn Acquisition" means the Company's completed acquisition of Osborn Communications, Inc. "Osborn Add-on Acquisitions" means the Company's completed acquisitions of (i) all of the issued and outstanding capital stock of Dixie Broadcasting, Inc. and Radio WBHP, Inc. (the "Osborn Huntsville Acquisition") and (ii) substantially all of the assets of Taylor Communications Corporation ("Taylor") utilized in the operations of Taylor's stations in the Tuscaloosa, Alabama market (the "Osborn Tuscaloosa Acquisition"). "Osborn Combination" means the Osborn Transactions and all acquisitions or dispositions completed by Osborn since January 1, 1996 through the date of the Osborn Acquisition. "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. 163 168 "Osborn Transactions" collectively refers to the Osborn Acquisition, the Osborn Add-on Acquisitions and the Osborn Ft. Myers Disposition. "Patterson Acquisition" means the Company's pending acquisition of all of the outstanding capital stock of Patterson Broadcasting, Inc. ("Patterson"). "Pending Acquisitions" collectively refers to the Ameron Acquisition, the COMCO Acquisition, the Commonwealth Acquisition, the Community Pacific Acquisition, the Grant Acquisition, the Griffith Acquisition, the Knight Quality Acquisition, the Patterson Acquisition, the Quass Acquisition, the SFX Exchange, the WRIS Acquisition, the GulfStar -- American General Acquisition, the GulfStar -- Booneville Acquisition, the GulfStar -- Noalmark Acquisition, the GulfStar -- KJEM Acquisition and the GulfStar -- KLAW Acquisition. "Pending Transactions" collectively refers to the Pending Acquisitions and the GulfStar -- Bryan Disposition. "Quass Acquisition" means the Company's pending acquisition of all of the outstanding capital stock of Quass Broadcasting Company ("Quass"). "SFX Exchange" means the Company's pending exchange of substantially all of the assets used or useful in the operation of three radio stations that will be owned by the Company upon completion of the Benchmark Acquisition in the Greenville, South Carolina market for substantially all of the assets used or useful in the operation of four radio stations owned by SFX in Wichita, Kansas and Daytona Beach, Florida. "Space Coast Acquisitions" collectively refers to the Company's completed acquisitions of substantially all of the assets of EZY Com, Inc., City Broadcasting Co., Inc., and Roper Broadcasting, Inc. "WRIS Acquisition" means the Company's pending acquisition of substantially all of the assets of WRIS, Inc. ("WRIS"). Unless otherwise indicated herein, (i) MSA rankings by population were obtained from the Summer 1996 Radio Market Survey Schedule (copyright 1996), as provided by The Arbitron Company ("Arbitron"), (ii) all audience share rankings, except for the Yuma, Arizona market and where specifically stated to the contrary, have been derived from surveys of persons, ages 25 to 54, listening Monday through Sunday, 6 a.m. to 12 midnight, and are based on either the Spring or Fall 1996 survey period, as reported in Radio Market Reports, Metro Audience Trends (copyright 1996), a publication of Arbitron, (iii) audience share rankings in Yuma, Arizona, are based on the Spring 1996 survey period, as reported in AccuRatings(TM) (Copyright 1996), a publication of Strategic Radio Research, Inc. ("AccuRatings(TM)") and (iv) all revenue share rankings are based on data compiled as of February 27, 1997, as reported in BIA Publications Radio Analyzer -- BIA's Master Access, Version 1.7 (copyright 1996), a computer database by BIA Publications Inc. ("BIA"). 164 169 INDEX TO FINANCIAL STATEMENTS CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR Report of Independent Accountants......................... F-4 Report of Independent Auditors............................ F-5 Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996 and 1995............................. F-6 Consolidated Statements of Operations for the three months ended March 31, 1997 and 1996, 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 Stockholders' Equity (Deficit) for the three months ended March 31, 1997, 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 Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1996, 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-9 Notes to Consolidated Financial Statements................ F-10 SOUTHERN STAR COMMUNICATIONS INC. (FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION) Report of Independent Auditors............................ F-38 Consolidated Balance Sheets as of December 31, 1996 and 1995................................................... F-39 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994....................... F-40 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994... F-41 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994....................... F-42 Notes to Consolidated Financial Statements................ F-43 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES Report of Independent Accountants......................... F-55 Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996 and 1995............................. F-56 Consolidated Statements of Operations for the three months ended March 31, 1997 and 1996 and for the years ended December 31, 1996, 1995 and 1994....................... F-57 Consolidated Statements of Changes in Stockholders' Equity for the three months ended March 31, 1997 and for the years ended December 31, 1996, 1995 and 1994........... F-58 Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1996 and for the years ended December 31, 1996, 1995 and 1994....................... F-59 Notes to Consolidated Financial Statements................ F-60 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP Report of Independent Accountants......................... F-75 Combined Balance Sheets as of March 31, 1997 and December 31, 1996 and 1995...................................... F-76 Combined Statements of Operations for the three months ended March 31, 1997 and 1996 and for the years ended December 31, 1996, 1995 and 1994....................... F-77 Combined Statements of Changes in Partners' Equity (Deficit) for the three months ended March 31, 1997 and for the years ended December 31, 1996, 1995 and 1994... F-78 Combined Statements of Cash Flows for the three months ended March 31, 1997 and 1996 and for the years ended December 31, 1996, 1995 and 1994....................... F-79 Notes to Combined Financial Statements.................... F-80 MADISON RADIO GROUP Condensed Balance Sheet as of March 31, 1997.............. F-90 Condensed Statement of Operations for the period from January 2, 1997 to March 31, 1997...................... F-91 Condensed Statement of Partners' Equity for the period from January 2, 1997 to March 31, 1997................. F-92 Condensed Statement of Cash Flows for the period from January 2, 1997 to March 31, 1997...................... F-93 Notes to Financial Statements............................. F-94
F-1 170 MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC. Report of Independent Accountants......................... F-98 Balance Sheet as of December 31, 1996..................... F-99 Statement of Income and Retained Earnings for the year ended December 31, 1996................................ F-100 Statement of Cash Flows for the year ended December 31, 1996................................................... F-101 Notes to Financial Statements............................. F-102 POINT COMMUNICATIONS LIMITED PARTNERSHIP Report of Independent Accountants......................... F-105 Balance Sheet as of December 31, 1996..................... F-106 Statement of Operations for the year ended December 31, 1996................................................... F-107 Statement of Partners' Equity for the year ended December 31, 1996............................................... F-108 Statement of Cash Flows for the year ended December 31, 1996................................................... F-109 Notes to Financial Statements............................. F-110 COMMUNITY PACIFIC BROADCASTING COMPANY L.P. Report of Independent Accountants......................... F-114 Balance Sheets as of March 31, 1997 and December 31, 1996................................................... F-115 Statements of Operations for the three months ended March 31, 1997 and for the year ended December 31, 1996...... F-116 Statements of Changes in Partners' Equity for the three months ended March 31, 1997 and for the year ended December 31, 1996...................................... F-117 Statements of Cash Flows for the three months ended March 31, 1997 and for the year ended December 31, 1996...... F-118 Notes to Financial Statements............................. F-119 PATTERSON BROADCASTING, INC. AND SUBSIDIARIES Report of Independent Public Accountants.................. F-124 Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996 and 1995............................. F-125 Consolidated Statements of Operations for the three months ended March 31, 1997 and 1996 and for the year ended December 31, 1996 and the period from May 1, 1995 (inception) through December 31, 1995.................. F-126 Consolidated Statements of Changes in Stockholders' Equity for the three months ended March 31, 1997 and for the year ended December 31, 1996 and the period from May 1, 1995 (inception) through December 31, 1995............. F-127 Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1996 and for the year ended December 31, 1996 and the period from May 1, 1995 (inception) through December 31, 1995.................. F-128 Notes to Consolidated Financial Statements................ F-129 AMERON BROADCASTING, INC. Report of Independent Public Accountants.................. F-138 Balance Sheets as of March 31, 1997 and December 31, 1996................................................... F-139 Statements of Operations for the three months ended March 31, 1997 and for the year ended December 31, 1996...... F-140 Statements of Stockholders' Equity for the three months ended March 31, 1997 and for the year ended December 31, 1996............................................... F-141 Statements of Cash Flows for the three months ended March 31, 1997 and for the year ended December 31, 1996...... F-142 Notes to Financial Statements............................. F-143 KNIGHT QUALITY STATIONS Report of Independent Public Accountants.................. F-148 Combined Balance Sheets as of March 31, 1997 and December 31, 1996............................................... F-149 Combined Statements of Operations for the three months ended March 31, 1997 and for the year ended December 31, 1996............................................... F-150 Combined Statements of Stockholders' Equity for the three months ended March 31, 1997 and for the year ended December 31, 1996...................................... F-151 Combined Statements of Cash Flows for the three months ended March 31, 1997 and for the year ended December 31, 1996............................................... F-152 Notes to Combined Financial Statements.................... F-153 F-2 171 QUASS BROADCASTING COMPANY Independent Auditor's Report.............................. F-160 Balance Sheets as of December 31, 1996 and March 31, 1997................................................... F-161 Statements of Income for the year ended December 31, 1996 and for the three months ended March 31, 1996 and 1997................................................... F-162 Statements of Common Stockholders' Equity (Deficit) for the year ended December 31, 1996 and for the three months ended March 31, 1997............................ F-163 Statements of Cash Flows for the year ended December 31, 1996 and for the three months ended March 31, 1996 and 1997................................................... F-164 Notes to Financial Statements............................. F-165 MOUNTAIN LAKES BROADCASTING, L.L.C. Report of Independent Auditors............................ F-169 Balance Sheets as of December 31, 1996 and 1995........... F-170 Statements of Operations and Station Equity for the years ended December 31, 1996, 1995 and 1994................. F-171 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994.................................... F-172 Notes to Financial Statements............................. F-173 Q BROADCASTING, INC. Independent Auditors' Report.............................. F-177 Statements of Operations and Deficit for the years ended September 30, 1995, 1994 and 1993...................... F-178 Statements of Cash Flows for the years ended September 30, 1995, 1994 and 1993.................................... F-179 Notes to Financial Statements............................. F-180 DANBURY BROADCASTING, INC. Report of Independent Auditors............................ F-183 Statement of Operations and Accumulated Deficit for the year ended June 30, 1995............................... F-184 Statement of Cash Flows for the year ended June 30, 1995................................................... F-185 Notes to Financial Statements............................. F-186 ADVENTURE COMMUNICATIONS -- HUNTINGTON (DIVISION OF ADVENTURE COMMUNICATIONS, INC.) Independent Auditors' Report.............................. F-189 Balance Sheet as of December 31, 1995..................... F-190 Statement of Operations for the year ended December 31, 1995................................................... F-191 Statement of Division's Deficit for the year ended December 31, 1995...................................... F-192 Statement of Cash Flows for the year ended December 31, 1995................................................... F-193 Notes to Financial Statements............................. F-194 F-3 172 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-4 173 REPORT OF INDEPENDENT AUDITORS To the Board of Directors Capstar Broadcasting Partners, Inc. We have audited the accompanying consolidated balance sheet of Capstar Radio Broadcasting Partners, Inc. and Subsidiaries, the Predecessor Company of Capstar Broadcasting Partners, Inc. and Subsidiaries, and formerly known as Commodore Media, Inc. and Subsidiaries 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 the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Capstar Radio Broadcasting Partners, Inc. and Subsidiaries as of December 31, 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-5 174 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR CONSOLIDATED BALANCE SHEETS
ASSETS PREDECESSOR ------------ DECEMBER 31, MARCH 31, ----------------------------- 1997 1996 1995 ------------ ------------- ------------ (UNAUDITED) Current assets: Cash and short-term cash investments...................... $ 13,024,555 $ 5,028,014 $ 10,891,489 Accounts receivable, less allowance of $838,081 in 1996 and $700,336 in 1995.................................... 13,051,132 8,913,390 6,131,447 Note receivable........................................... 13,513,179 -- -- Prepaid expenses and other current assets................. 3,629,218 443,900 285,412 ------------ ------------- ------------ Total current assets................................ 43,218,084 14,385,304 17,308,348 Property, plant and equipment, net.......................... 41,991,383 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.............. 346,234,719 229,004,546 20,767,625 Other intangible assets, net................................ 1,001,278 3,178,469 1,761,306 Deferred charges, net....................................... 9,711,614 1,800,234 3,910,582 Deposits and other assets................................... 1,943,413 931,340 982,876 ------------ ------------- ------------ Total assets........................................ $444,100,491 $ 264,928,254 $ 52,810,780 ============ ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable and accrued expenses..................... $ 11,226,300 $ 3,046,883 $ 1,774,256 Accrued compensation...................................... 378,629 422,062 815,162 Accrued interest.......................................... 2,400,228 1,810,292 960,368 Accrued income taxes...................................... 1,268,418 -- 16,840 Current maturities of capital lease obligations........... 124,056 16,056 11,977 Current maturities of long-term debt...................... -- 3,750,000 -- Due to affiliate.......................................... 92,421 536,738 -- ------------ ------------- ------------ Total current liabilities........................... 15,490,052 9,582,031 3,578,603 Long-term capital lease obligation.......................... 262,025 49,629 43,130 Long-term debt.............................................. 229,955,145 132,622,467 66,261,339 Noncurrent compensation..................................... 1,022,655 -- 1,482,275 Deferred income taxes....................................... 56,472,630 31,531,580 -- ------------ ------------- ------------ Total liabilities................................... 303,202,507 173,785,707 71,365,347 ------------ ------------- ------------ Stockholders' equity (deficit): CAPSTAR PARTNERS: 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, 128,578,160 and 94,155,000 shares issued and outstanding at March 31, 1997 and December 31, 1996, respectively............................................ 1,285,782 941,550 Class B Common Stock, convertible into Class A Common Stock, $.01 par value, 50,000,000 shares authorized, 18,181,818 issued and outstanding at March 31, 1997, none issued and outstanding at December 31, 1996........ 181,818 -- -- Additional paid-in capital................................ 151,254,380 93,957,450 Accumulated deficit....................................... (11,227,632) (3,756,453) CAPSTAR RADIO: Common Stock, $.01 par value, 350,000,000 shares authorized; 106,757,000 shares issued and outstanding in 1995.................................................... -- -- 1,067,570 Additional paid-in capital................................ -- -- 22,492,943 Accumulated deficit....................................... -- -- (42,115,080) ------------ ------------- ------------ 141,494,348 91,142,547 (18,554,567) Receivables from stockholders............................. (596,364) -- -- ------------ ------------- ------------ Total stockholders' equity (deficit)................ 140,897,984 91,142,547 (18,554,567) ------------ ------------- ------------ Total liabilities and stockholders' equity (deficit)......................................... $444,100,491 $ 264,928,254 $ 52,810,780 ============ ============= ============
See accompanying notes. F-6 175 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR CONSOLIDATED STATEMENTS OF OPERATIONS
PREDECESSOR PREDECESSOR ----------- ---------------------------------------- THREE MONTHS ENDED PERIOD ENDED MARCH 31, --------------------------- YEAR ENDED DECEMBER 31, -------------------------- DECEMBER 31, OCTOBER 16, ------------------------- 1997 1996 1996 1996 1995 1994 ------------ ----------- ------------ ------------ ----------- ----------- (UNAUDITED) Total revenue..................... $ 15,149,894 $ 8,047,568 $11,133,586 $ 34,826,060 $33,652,677 $28,686,381 Less agency commissions........... (1,042,534) (631,887) (830,271) (2,869,014) (2,857,912) (2,461,478) ------------ ----------- ----------- ------------ ----------- ----------- Net revenue....................... 14,107,360 7,415,681 10,303,315 31,957,046 30,794,765 26,224,903 Operating expenses: Programming, technical and news.......................... 2,533,691 1,513,468 1,836,667 5,906,967 5,365,686 4,601,374 Sales and promotion............. 4,015,973 2,421,153 2,935,890 9,303,914 8,796,481 7,325,549 General and administrative...... 2,767,300 1,440,612 1,511,143 6,081,262 4,870,463 4,556,515 Direct programmed music and entertainment................. 1,039,250 -- -- -- -- -- Corporate expenses................ 1,423,892 465,684 600,532 1,756,797 2,051,181 2,109,741 Depreciation and amortization..... 2,389,250 480,210 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)........... (61,996) 1,094,554 1,343,697 (7,083,372) 5,778,154 3,306,523 Interest expense.................. 6,791,672 2,451,638 5,035,142 8,860,958 7,805,525 3,152,352 Interest income................... 127,621 115,252 34,063 221,806 420,659 266 Other expenses, net............... 100,562 167,594 99,071 1,980,908 48,796 381,550 ------------ ----------- ----------- ------------ ----------- ----------- Loss before provision for income taxes and extraordinary loss.... (6,826,609) (1,409,426) (3,756,453) (17,703,432) (1,655,508) (227,113) Provision for income taxes........ 46,345 27,000 -- 133,000 140,634 300,000 ------------ ----------- ----------- ------------ ----------- ----------- Loss before extraordinary loss.... (6,872,954) (1,436,426) (3,756,453) (17,836,432) (1,796,142) (527,113) Extraordinary loss on extinguishment of debt.......... (598,225) -- -- -- (443,521) -- ------------ ----------- ----------- ------------ ----------- ----------- Net loss.......................... $ (7,471,179) $(1,436,426) $(3,756,453) $(17,836,432) $(2,239,663) $ (527,113) ============ =========== =========== ============ =========== =========== Loss per common share: Loss before extraordinary loss.......................... $ (.05) $ (.04) ============ =========== Extraordinary loss.............. $ (.01) $ -- ============ =========== Net loss........................ $ (.06) $ (.04) ============ =========== Weighted average number of shares outstanding..................... 123,446,098 93,691,842
See accompanying notes. F-7 176 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK PAR VALUE -------------------------- COMMON TOTAL STOCK ADDITIONAL RECEIVABLES STOCKHOLDERS' PAR PAID IN ACCUMULATED FROM EQUITY VALUE CAPITAL DEFICIT STOCKHOLDERS (DEFICIT) ----------- ------------ ------------ ------------ ------------- PREDECESSOR: Balance at January 1, 1994............................. $ 1,020,597 $ 21,507,651 $(38,348,304) $ -- $(15,820,056) Cumulative dividends on redeemable preferred stock..... -- (690,660) -- -- (690,660) Adjustment to carrying value of redeemable warrant..... -- -- (1,000,000) -- (1,000,000) Loss for the year...................................... -- -- (527,113) -- (527,113) ----------- ------------ ------------ --------- ------------ Balance at December 31, 1994........................... 1,020,597 20,816,991 (39,875,417) -- (18,037,829) Cumulative dividends on redeemable preferred stock..... -- (252,175) -- -- (252,175) Allocation of net proceeds of debt offering to warrants............................................. -- 2,000,000 -- -- 2,000,000 Repurchase of common stock............................. -- (25,000) -- -- (25,000) Exercise of warrants................................... 46,973 (46,873) -- -- 100 Loss for the year...................................... -- -- (2,239,663) -- (2,239,663) ----------- ------------ ------------ --------- ------------ Balance at December 31, 1995........................... 1,067,570 22,492,943 (42,115,080) -- (18,554,567) Warrants issued with preferred stock facility.......... -- 981,500 -- -- 981,500 Dividends on senior exchangeable redeemable preferred stock................................................ -- (359,957) -- -- (359,957) EFFECTS OF THE CAPSTAR RADIO ACQUISITION (NOTE 1): Recapitalization and acquisition of common shares by Capstar Partners..................................... 32,112,081 -- -- 32,112,081 Redemption of preferred stock.......................... -- (1,101,235) -- -- (1,101,235) Net loss for the period................................ -- -- (17,836,432) -- (17,836,432) ----------- ------------ ------------ --------- ------------ Balance at October 16, 1996............................ $ 1,067,570 $ 54,125,332 $(59,951,512) $ -- $ (4,758,610) =========== ============ ============ ========= ============
COMMON STOCK TOTAL PAR VALUE ADDITIONAL RECEIVABLES STOCKHOLDERS' ------------------------ PAID IN ACCUMULATED FROM EQUITY CLASS A CLASS B CAPITAL DEFICIT STOCKHOLDERS (DEFICIT) ---------- ----------- ------------ ------------ ------------ ------------- CAPSTAR PARTNERS: Balance at inception (October 11, 1996)... $ -- $ -- $ -- $ -- -- $ -- ---------- ----------- ------------ ------------ --------- ------------ Issuance of common stock in connection with the Capstar Radio Acquisition (Note 1)...................................... 932,750 -- 92,342,250 -- -- 93,275,000 Issuance of warrants...................... -- -- 744,000 -- -- 744,000 Issuance of common stock (November 26, 1996)................................... 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 Repurchase and cancellation of Class A Common Stock (unaudited)................ (1,750) -- (173,250) -- -- (175,000) Issuance of Class A Common Stock (unaudited)............................. 345,982 -- 37,651,998 -- (596,364) 37,401,616 Issuance of Class B Common Stock (unaudited)............................. -- 181,818 19,818,182 -- -- 20,000,000 Net loss for the period (unaudited)....... -- -- -- (7,471,179) -- (7,471,179) ---------- ----------- ------------ ------------ --------- ------------ Balance at March 31, 1997 (unaudited)..... $1,285,782 $ 181,818 $151,254,380 $(11,227,632) $(596,364) $140,897,984 ========== =========== ============ ============ ========= ============
See accompanying notes. F-8 177 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR CONSOLIDATED STATEMENTS OF CASH FLOWS
PREDECESSOR PREDECESSOR ------------ ----------------------------------------- THREE MONTHS ENDED PERIOD ENDED MARCH 31, ---------------------------- YEAR ENDED DECEMBER 31, ---------------------------- DECEMBER 31, OCTOBER 16, -------------------------- 1997 1996 1996 1996 1995 1994 ------------- ------------ ------------- ------------ ------------ ----------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net loss............................... $ (7,471,179) $ (1,436,426) $ (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....... 598,225 -- -- -- 443,521 -- Depreciation and amortization........ 2,389,250 480,210 1,331,386 2,157,750 2,311,162 2,365,111 Noncash interest..................... 2,866,098 998,244 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............... 136,013 104,981 104,838 488,320 556,137 468,155 (Gain) loss on disposition of assets............................. -- (44,864) -- -- 9,819 335,736 Net barter income.................... (47,953) -- -- (222,645) (184,300) (122,163) Initial public offering and pending merger expenses.................... -- -- -- 1,909,648 -- -- Write off of financing related costs.............................. 1,014,000 -- -- -- -- -- Changes in assets and liabilities, net of amounts acquired: Increase in accounts receivable.... 735,840 1,137,320 (1,057,861) (2,351,753) (1,847,015) (1,509,195) (Increase) decrease in prepaid expenses and other current assets........................... (739,337) (153,096) 91,280 (208,462) (88,787) (267,196) Increase (decrease) in accounts payable and accrued expenses..... 864,028 (159,141) 341,308 (337,896) (158,855) 326,251 (Decrease) increase in accrued compensation..................... (43,794) (457,120) 110,127 (496,177) (230,645) 197,881 (Decrease) increase in accrued interest......................... 551,757 1,452,360 (902,248) 1,752,172 582,525 351,639 (Decrease) increase in accrued income taxes..................... -- (31,908) -- 20,952 (277,135) 261,541 Increase in due to affiliate....... (444,317) -- 536,738 -- -- -- ------------- ------------ ------------- ------------ ------------ ----------- Total adjustments.............. 7,879,810 3,326,986 3,707,307 19,826,058 3,484,344 4,587,760 ------------- ------------ ------------- ------------ ------------ ----------- Net cash provided by operating activities........................... 408,631 1,890,560 (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............................ (916,350) (124,192) (807,532) (448,677) (320,980) (623,414) Acquisition of Capstar Radio........... -- -- (125,494,171) -- -- -- Payments for acquisitions.............. (114,907,739) (14,400,000) -- (31,900,000) (3,100,000) -- Deferred acquisition costs incurred.... -- -- (1,070,262) (1,326,673) (417,020) (172,558) Deposits on pending acquisitions....... (90,000) (915,000) -- (745,000) (525,000) -- Loans to employees..................... -- -- -- -- (315,863) (57,500) Loan to Emerald City................... (13,475,000) -- -- -- -- -- Other investing activities, net........ -- (358,943) -- (187,528) 87,528 -- ------------- ------------ ------------- ------------ ------------ ----------- Net cash used in investing activities........................... (129,389,089) (15,798,135) (127,371,965) (34,357,503) (4,408,347) (50,454) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of Capstar Radio Notes and warrants................... -- -- -- -- 64,956,422 -- Proceeds from Existing Credit Facility............................. -- 8,500,000 6,000,000 18,700,000 -- -- Proceeds from Existing Term Loan Facility............................. -- -- 35,000,000 -- -- -- Proceeds from debt issuance............ 150,283,580 -- -- -- -- -- Net proceeds from issuance of preferred stock................................ -- -- -- 9,822,520 -- -- Proceeds from issuance of common stock................................ 55,601,616 -- 94,155,000 -- 100 -- Payment of initial public offering and merger expenses...................... -- -- -- (1,007,297) -- -- Repayment of amounts borrowed.......... (59,700,000) -- -- -- (39,014,833) (2,738,166) Payment of financing related costs..... (8,925,380) (393,734) (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............. (175,000) -- -- -- (25,000) -- Principal payments on capital leases... (107,817) (3,455) -- (9,812) (11,186) (12,389) ------------- ------------ ------------- ------------ ------------ ----------- Net cash provided by (used in) financing activities................. 136,976,999 8,102,811 132,449,125 26,724,241 12,012,906 (2,854,800) ------------- ------------ ------------- ------------ ------------ ----------- Net (decrease) increase in cash and short-term cash investments.......... 7,996,541 (5,804,764) 5,028,014 (5,643,636) 8,849,240 1,155,393 Cash and short-term cash investments at beginning of period.................. 5,028,014 10,891,489 -- 10,891,489 2,042,249 886,856 ------------- ------------ ------------- ------------ ------------ ----------- Cash and short-term cash investments at end of period........................ $ 13,024,555 $ 5,086,725 $ 5,028,014 $ 5,247,853 $ 10,891,489 $ 2,042,249 ============= ============ ============= ============ ============ =========== SUPPLEMENTARY CASH FLOW INFORMATION Cash paid for interest................. $ 337,097 $ 46,738 $ 3,529,651 $ 3,793,117 $ 4,474,789 $ 2,580,522 Cash paid for income taxes............. 164,386 58,908 -- 112,049 417,769 38,209 SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Asset acquisitions recorded in connection with barter transactions......................... $ 76,400 $ 35,599 $ -- $ 189,982 $ 112,636 $ 144,500
See accompanying notes. F-9 178 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CAPSTAR RADIO ACQUISITION AND BASIS OF PRESENTATION The financial statements and following notes, insofar as they are applicable to the three-month periods ended March 31, 1997 and 1996, and transactions subsequent to February 14, 1997, the date of the Report of Independent Accountants, are not covered by the Report of Independent Accountants. In the opinion of management, all adjustments, consisting of only normal recurring accruals considered necessary for a fair presentation of the unaudited consolidated results of operations for the three-month periods ended March 31, 1997 and 1996, have been included. 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, Capstar Radio Broadcasting Partners, Inc. and Subsidiaries ("Capstar Radio") , the Company's predecessor, and formerly known as Commodore Media, Inc. 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. Capstar Radio 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 Partners and its wholly-owned subsidiary, Capstar Radio, since October 16, 1996, the date of the Capstar Radio Acquisition. The Company had no substantive operations until its acquisition of Capstar Radio and Capstar Radio is considered the Company's predecessor for financial reporting purposes. The accompanying consolidated financial statements include the results of operations of Capstar Radio 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 Capstar Radio prior to the acquisition by the Company have not been adjusted to give effect to the Capstar Radio Acquisition. All intercompany accounts and transactions have been eliminated in consolidation. Capstar Radio Acquisition On October 16, 1996, the Company acquired Capstar Radio pursuant to a merger agreement dated June 21, 1996 (the "Capstar Radio 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 Capstar Radio 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. F-10 179 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 ============
At the time of the merger, the holders of Capstar Radio Class A Common Stock and Class B Common Stock (collectively, the "Capstar Radio 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. Capstar Radio 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 Capstar Radio Acquisition. As a result of the Capstar Radio Acquisition and the change of control effected thereby, Capstar Radio 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, Capstar Radio was required to make an offer to purchase the outstanding 13 1/4% Senior Subordinated Notes due 2003 ("Capstar Radio 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, Capstar Radio did not proceed with its previously announced intention to undertake an initial public equity offering and has, therefore, withdrawn 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 Capstar Radio 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 Capstar Radio invest their excess cash in U.S. Treasury Bills. Income Taxes The Company and Capstar Radio 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. F-11 180 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. 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 Capstar Radio to concentration of credit risk consist primarily of trade receivables. The Company's and Capstar Radio's revenue is principally derived from local broadcast advertisers who are impacted by the local economy. The Company and Capstar Radio 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 Capstar Radio 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. F-12 181 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 Capstar Radio 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 Capstar Radio Notes and associated warrants at December 31, 1996 were $930 per unit and $105 per warrant, respectively based on published market prices. 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 Capstar Radio 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 Capstar Radio recognize revenue upon the airing of advertisements. F-13 182 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 Capstar Radio consider operating results, trends and prospects of the Company's and Capstar Radio's stations, as well as competitive comparisons. The Company and Capstar Radio 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 Capstar Radio. Advertising Costs The Company and Capstar Radio 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 Capstar Radio. F-14 183 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 ---------------------------------------- PERIOD ENDED PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, OCTOBER 16, ------------------------- 1996 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 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 Capstar Radio have been reclassified to conform to the current year presentation. 2. THE RECAPITALIZATION TRANSACTION On April 21, 1995, Capstar Radio completed the offering of the Capstar Radio 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, Capstar Radio 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. Capstar Radio 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, Capstar Radio's then President and its then Chief Operating Officer purchased 27,369 shares and 6,319 shares, F-15 184 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) respectively, of Class A from Capstar Radio. In addition, William A.M. Burden and Company, an affiliated entity, exercised its option to acquire 27,314 shares of Class A from Capstar Radio. 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 Capstar Radio 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, MARCH 31, -------------------------- 1997 1996 1995 ----------- ----------- ----------- Land and land improvements................... $ 6,668,092 $ 2,274,510 $ 2,813,139 Buildings.................................... 8,719,560 2,404,538 2,499,399 Furniture, fixtures and equipment............ 6,381,258 1,846,692 2,188,502 Broadcasting and technical equipment......... 20,085,626 5,548,233 5,907,905 Towers and antennas.......................... 8,927,646 3,046,783 3,401,300 Music library................................ 254,400 235,237 250,456 Leasehold improvements....................... 1,683,081 278,614 365,825 Vehicles..................................... 230,277 125,693 147,567 Property held under capital leases........... 430,261 41,399 81,497 ----------- ----------- ----------- 53,380,201 15,801,699 17,655,590 Less accumulated depreciation and amortization............................... (11,388,818) (173,338) (9,575,547) ----------- ----------- ----------- Property, plant and equipment, net........... $41,991,383 $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 Capstar Radio. 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 Capstar Radio. 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 expenses............................... 1,569,767 953,441 Pre-sold advertising contracts.............................. 311,056 103,642 Network affiliation agreement............................... 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 Capstar Radio. Amortization of FCC licenses and goodwill F-16 185 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 Capstar Radio. 5. LONG-TERM DEBT Long-term debt consisted of the following:
PREDECESSOR ----------- DECEMBER 31, MARCH 31, --------------------------- 1997 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 $ -- Capstar Radio Notes, $76,808,000 principal, including unamortized discount of $135,533 at December 31, 1996 and unamortized discount of $10,546,661 at December 31, 1995, due 2003............................. 77,613,740 76,672,467 66,261,339 Senior Discount Notes, $277,000,000 Principal, including unamortized discount of 124,658,595 at March 31, 1997, due 2009....................................... $152,341,405 -- -- Former Term Loan Facility.................... -- 35,000,000 -- ------------ ------------ ----------- Total debt................................... 229,955,145 136,372,467 66,261,339 Less current maturities...................... -- (3,750,000) -- ------------ ------------ ----------- Long-term debt............................... $229,955,145 $132,622,467 $66,261,339 ============ ============ ===========
Former Credit Facility On March 13, 1996, Capstar Radio entered into a Senior Credit Facility (the "Former Credit Facility") with AT&T Commercial Finance Corporation ("AT&T") pursuant to which AT&T will make available to Capstar Radio 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 Capstar Radio (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 Capstar Radio'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, Capstar Radio had additional available borrowings under the revolving and accounts receivable loans of approximately $9,000,000 and $1,300,000, respectively. Capstar Radio pays a commitment fee of .25% every six months on the unused commitment. Capstar Radio Notes The Capstar Radio 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 Capstar Radio Notes may be redeemed at the option of Capstar Radio at any time on or after May 1, 1999 at redemption prices specified in the indenture. The terms of the Capstar Radio Notes contain various covenants for the benefit of the holders that, among other things, restrict the ability of Capstar Radio 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 Capstar Radio Notes. Upon an event of default, the trustee may or upon the request of 25% of the F-17 186 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) holders declare the principal and unpaid interest due and payable. The Capstar Radio Notes, excluding the notes that were held for the benefit of the former President of Capstar Radio, 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. Capstar Radio 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 Southern Star 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.................................................. 132,758,000 ------------ $136,508,000 ============
In connection with the debt restructuring of The Bank of New York loan on December 28, 1993, Capstar Radio issued the bank a warrant to purchase 4.99% of the common stock of Capstar Radio, 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 Capstar Radio to purchase the warrant at any time after January 1, 1997 up until expiration or upon an initial public offering or a sale of Capstar Radio at a price based upon (1) the actual proceeds received by Capstar Radio 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. Capstar Radio repurchased the warrant in March 1995 for a negotiated price of $1,000,000. In 1995, Capstar Radio wrote off the balance of the unamortized deferred financing costs on its retired debt of $443,521. Inasmuch as Capstar Radio 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 Capstar Radio 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 F-18 187 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the board of directors may determine, including dividend, conversion, redemption, and liquidation rights and preferences. Senior Exchangeable Redeemable Preferred Stock On May 1, 1996, Capstar Radio 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 Capstar Radio, if and when requested by Capstar Radio, up to an aggregate liquidation value of $12,500,000 of Senior Exchangeable Redeemable Preferred Stock, Series A, $.01 par value per share, of Capstar Radio in such amounts as Capstar Radio 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), Capstar Radio 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, Capstar Radio issued to the CIBC Merchant Fund a warrant to purchase 7,550 shares of Capstar Radio'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 Capstar Radio, converted $7.7 million of outstanding debt and accrued interest into 10,000 shares of Capstar Radio's newly issued 8.87% cumulative redeemable preferred stock. Capstar Radio 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, Capstar Radio 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. Capstar Radio provided programming to these stations under an LMA effective April 1996 until the purchase date. In addition, Capstar Radio has an option to purchase WHRD-AM in Huntington, West Virginia and provides programming services to the station under an LMA arrangement. On May 31, 1996, Capstar Radio 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. Capstar Radio sold advertising time on these stations under a JSA from February 1996 until the purchase date. On May 30, 1996, Capstar Radio 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, Capstar Radio 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 F-19 188 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 Capstar Radio's existing cash and borrowings under the AT&T Senior Credit Facility. Capstar Radio provided programming to these stations under LMAs from October 1995 until the purchase date. On June 27, 1995, Capstar Radio 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 Capstar Radio Acquisition had been consummated on January 1, 1995 are as follows (in thousands):
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1996 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. The Southern Star Acquisition On February 20, 1997, the Company acquired Southern Star Communications, Inc., formerly known as Osborn Communications Corporation, ("Southern Star"). The purchase price of the Southern Star Acquisition was approximately $118.8 million (excluding $17.4 million in transaction fees and expenses) payable in cash and common stock. The purchase price includes $113.0 million for the twenty 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 Southern Star 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 Southern Star. F-20 189 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In April 1997, the Company acquired substantially all the assets of Taylor Communications Corporation ("Taylor") in Tuscaloosa, Alabama. The purchase price of the Taylor Acquisition was approximately $1.0 million payable in cash. In April 1997, the Company disposed of substantially all of the assets used or held for use in connection with the operation of the Company's stations in the Port Charlotte and Ft. Myers, Florida markets for a sale price of $11.0 million in cash. In May 1997, the Company acquired all of the outstanding capital stock of Dixie Broadcasting, Inc. and Radio WBHP, Inc., the owners of three radio stations (one FM and two AM) in the Huntsville, Alabama market (the "Huntsville Acquisition"). The purchase price of the acquisition was $24.5 million. Unaudited pro forma results of the Company for the aforementioned acquisitions which were completed during the period ended March 31, 1997 are as follows:
THREE MONTHS ENDED MARCH 31, ------------------ 1997 1996 ------- ------- Net revenue................................................. $17,684 $16,534 ======= ======= Loss before extraordinary item.............................. 2,641 1,741 ======= ======= Net loss.................................................... 3,239 1,741 ======= =======
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 Southern Star purchase price and certain other acquisitions and repay certain existing indebtedness of Southern Star, Capstar Radio and the Company. Also in February 1997 and in connection with the Southern Star 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") ("Benchmark"). The purchase price of the Benchmark Acquisition is estimated to be approximately $186.4 million (including $13.0 million in transaction fees and expenses). Benchmark owns and operates twenty-eight radio stations (nineteen FM and nine AM), has agreed to acquire two radio stations in the Montgomery, Alabama market (the "Benchmark Montgomery Acquisition") and has agreed to acquire substantially all of the assets of WSCQ-FM in the Columbia, South Carolina market (the "Benchmark Columbia Acquisition"). Those stations are located in ten markets in the Southeastern United States, including Dover, Delaware, Salisbury-Ocean City, Maryland, Montgomery, Alabama, Shreveport, Louisiana, Jackson, Mississippi, Statesville, North Carolina, Columbia, South Carolina, Greenville, South Carolina, Roanoke-Lynchburg, Virginia and Winchester, Virginia markets. The Company anticipates that the Benchmark Acquisition will be consummated in 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 F-21 190 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 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 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 eleven radio stations (six FM and five AM) in four markets located in the Western United States and Iowa, including 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 F-22 191 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 August 1997. 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 a material breach of any representation or warranty, or any other 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 of any 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. 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 seven radio stations (four FM and three AM) in the Anchorage, Alaska market, which number exceeds the ownership limitations under the Telecom Act. Accordingly, the Company intends to obtain permission from the FCC to consummate both the Community Pacific Acquisition and the COMCO Acquisition provided that the Company sell radio station KASH-AM in Anchorage, Alaska within eighteen 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 F-23 192 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 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 (Unaudited) 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 F-24 193 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 ChannelRadio, Inc. in the amount of approximately $13.3 million, including principal and interest, and (ii) for other business purposes in the amount of approximately $200,000. The loan matures on the earlier to occur of (i) October 31, 1997, (ii) the closing of the Emerald City Acquisition or (iii) within 75 days after the termination of the acquisition agreement with WNOK Acquisition Co. WRIS Acquisition (Unaudited) 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. Ameron Acquisition (Unaudited) In April 1997, the Company agreed to acquire substantially all of the assets of Ameron Broadcasting, Inc. used or held for use in the operation of three radio stations (two FM and one AM) in the Birmingham, Alabama market (the "Ameron Acquisition"). The purchase price of the Ameron Acquisition will equal approximately $31.5 million payable in cash. FCC approval is pending. The Company anticipates that the Ameron Acquisition will be consummated in October 1997. SFX Exchange (Unaudited) In May 1997, the Company agreed to exchange substantially all of the assets used or useful in the Company's operation of three radio stations (two FM and one AM) in the Greenville, South Carolina market for substantially all of the assets used or useful in SFX's operation of four radio stations (three FM and one AM) in Wichita, Kansas and Daytona Beach, Florida (the "SFX Exchange"). The Company anticipates that the SFX Exchange will be consummated in September 1997. Quass Acquisition (Unaudited) In June 1997, the Company agreed to acquire all of the outstanding common stock of Quass (the "Quass Acquisition"). The purchase price of the Quass Acquisition will equal approximately $14.9 million payable in F-25 194 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) cash. Quass owns and operates three radio stations (two FM and one AM) in the Cedar Rapids, Iowa market. The Company anticipates that the Quass Acquisition will be consummated in January 1998. Patterson Acquisition (Unaudited) In June 1997, the Company entered into an agreement to acquire all of the outstanding preferred stock, common stock and common stock equivalents of Patterson (the "Patterson Acquisition"). The purchase price of the Patterson Acquisition will equal approximately $215.0 million payable in cash. Patterson owns and operates thirty-five radio stations (twenty-two FM and thirteen AM) in the Savannah, Georgia; Allentown and Harrisburg, Pennsylvania; Fresno, California; Honolulu, Hawaii; Battle Creek and Grand Rapids, Michigan; Reno, Nevada; Springfield, Illinois; and Pensacola, Florida markets. The Company anticipates that the Patterson Acquisition will be consummated in February 1998. GulfStar Merger (Unaudited) Capstar Broadcasting Corporation ("Capstar Broadcasting") will enter into an agreement with GulfStar Communications, Inc. ("GulfStar") whereby Capstar Broadcasting will acquire GulfStar through a merger (the "GulfStar Merger"). Capstar Broadcasting will then contribute the surviving entity in the GulfStar Merger through the Company to Capstar Radio. Grant Acquisition (Unaudited) In June 1997, the Company agreed to acquire all of the assets of Grant used or held for use in the operations of their FM radio station in the Tuscaloosa, Alabama market (the "Grant Acquisition"). The purchase price of the Grant Acquisition will equal approximately $3.2 million payable in cash. FCC approval is pending. The Company anticipates the Grant Acquisition will be consummated in September 1997. Knight Quality (Unaudited) In June 1997, the Company agreed to acquire all of the assets of Knight Quality. Knight Quality owns and operates eight radio stations (five FM and three AM) in five markets located in Worcester, Massachusetts, Manchester, New Hampshire, Burlington, Vermont, Portsmouth, New Hampshire, and York Center, Main (the "Knight Quality Acquisition"). The purchase price of the Knight Quality Acquisition will equal approximately $60 million payable in cash. FCC approval is pending. The Company anticipates the Knight Quality Acquisition will be consummated in January 1998. Griffith Acquisition (Unaudited) In May 1997, the Company agreed to acquire all of the assets of Griffith Broadcasting, Inc. used or held for use in the operation of stations WTAK-FM, WXQW-FM and WWXQ-FM which serve the Huntsville, Alabama market (the "Griffith Acquisition"). The purchase price of the Griffith Acquisition will equal approximately $5.4 million payable in cash. FCC approval is pending. The Company anticipates that the Griffith Acquisition will be consummated in September 1997. Letters of Intent (Unaudited) The Company has entered into four 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 F-26 195 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) into to acquire such assets or that such acquisitions will be consummated. As part of the Company's ongoing acquisition strategy, the Company is continually evaluating certain other potential acquisition opportunities. 7(D) LOCAL MARKETING AND JOINT SALES AGREEMENTS The Company and Capstar Radio 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, Capstar Radio currently has LMAs or JSAs with WKAP-AM, Allentown, PA, WPAW-FM, Vero Beach, FL and WHRD-AM in Huntington, WV. Capstar Radio 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 Capstar Radio have recorded a provision for income taxes as follows:
PREDECESSOR --------------------------------------- PERIOD PERIOD ENDED ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, OCTOBER 16, ------------------------ 1996 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 Capstar Radio 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, Capstar Radio 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. Capstar Radio 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. Capstar Radio 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 Capstar Radio for tax purposes is approximately $12.1 million. F-27 196 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 Capstar Radio Notes........... 54,000 959,200 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..................... 23,716,543 15,287,960 Deferred tax liabilities: Intangibles........................................... (52,180,900) -- Depreciation.......................................... (848,080) (537,260) Unamortized premium on Capstar Radio Notes............ -- -- Other................................................. -- (4,800) ------------ ------------ Total deferred tax liabilities................ (53,028,980) (542,060) ------------ ------------ Net deferred tax (liability) asset...................... (29,312,437) 14,745,900 Less valuation allowance................................ (2,219,143) (14,745,900) ------------ ------------ Net deferred tax liability, net of allowance............ $(31,531,580) $ -- ============ ============
The Company and Capstar Radio have provided valuation allowances equivalent to their net deferred tax assets in 1995, 1994 and 1993 as the historical results of the Company and Capstar Radio make the realization of taxable income in the future years uncertain. During 1996, the Company and Capstar Radio 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 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 Capstar Radio, the utilization of F-28 197 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) net operating losses of Capstar Radio incurred through the date of acquisition, approximately $49.2 million, are limited under Section 382 of the Internal Revenue Code. Capstar Radio 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. The increase in the net deferred tax liability, net of allowance, from December 31, 1996 to March 31, 1997 relates primarily to the net tax effect of temporary differences associated with the recording of the Osborn and Space Coast Acquisitions (unaudited). 9. COMMITMENTS Lease Commitments The principal types of property leased by the Company and its subsidiaries and Capstar Radio 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 Capstar Radio. 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 Capstar Radio entered into a separation agreement with its former President effective December 31, 1993, under which Capstar Radio 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 Capstar Radio. The agreements generally provide for terms of employment, annual salaries, bonuses, eligibility for option awards and severance benefits. Effective January 1, 1994, Capstar Radio 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 F-29 198 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) $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, Capstar Radio paid the then President $1.5 million in cash, issued $1.3 million principal ($1.1 million net of discount) of Capstar Radio's Capstar Radio 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. Capstar Radio 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 Capstar Radio. Capstar Radio 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. Capstar Radio 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 Capstar Radio. As a result of the merger and the change of control effected thereby, Capstar Radio 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. Capstar Radio'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-30 199 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 Capstar Radio Acquisition. Registration Rights Agreement (Unaudited) Frank D. Osborn entered into a registration rights agreement with the Company upon consummation of the Southern Star 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. F-31 200 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 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. F-32 201 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During the period ended October 16, 1996 and the year ended December 31, 1995, Capstar Radio paid the majority stockholder a salary of approximately $185,000 and $175,000, respectively. In addition, the majority 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 Capstar Radio $117,500 as of December 31, 1994, which was reflected in other current assets. On April 10, 1992, Capstar Radio 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. Capstar Radio repaid the outstanding balance of the note and redeemed the preferred stock on April 21, 1995. During May 1995, Capstar Radio 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 Capstar Radio 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, Capstar Radio 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, Capstar Radio 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-33 202 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 Capstar Radio 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, Capstar Radio'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 F-34 203 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 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. F-35 204 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes the stock options and warrants granted from May 1, 1996 through May 27, 1997.
OPTIONS NUMBER DATE OPTION PRICE OF SHARES -------- ------------ --------- Nonqualified 11/26/96 $1.00 841,760 --------- Total issued as of 12/31/96..................... 841,760 2/20/97(unaudited) $1.10 1,186,365 3/31/97(unaudited) $1.00 (420,880) --------- 1,607,245 ========= Incentive 10/16/96 $1.00 685,140 11/18/96 $1.00 856,350 11/26/96 $1.00 1,354,180 --------- Total issued as of 12/31/96..................... 2,895,670 1/03/97 $1.00 (75,000) 2/03/97 $1.00 27,400 2/20/97(unaudited) $1.10 3,193,635 3/31/97(unaudited) $1.00 (300,000) 4/24/97(unaudited) $1.00 65,360 --------- 5,807,065 =========
WARRANTS EXERCISE NUMBER DATE PRICE OF WARRANTS -------- -------- ----------- 10/16/96 $1.00 7,440,000
13. DEFINED CONTRIBUTION PLAN During 1995, Capstar Radio 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. Capstar Radio 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 Capstar Radio is involved in various legal proceedings from time to time in the normal course of business. In management's opinion, the litigation in which Capstar Radio is currently involved, individually and in the aggregate, is not material to Capstar Radio's financial condition or results of operations. F-36 205 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 15. SUBSEQUENT EVENTS (UNAUDITED) Stockholder's Equity On February 20, 1997, the Company issued 31,634,527 shares of Class A Common Stock and 18,181,818 shares of Class B Common Stock (as defined) to affiliates of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") at a purchase price of $1.10 per share. The proceeds were used in part to fund the Southern Star Acquisition and retire existing indebtedness of Capstar Radio and Southern Star. In addition, on February 20, 1997 the Company exchanged 1,636,361 shares of Class A Common Stock having a deemed value of $1.8 million for shares of common stock of Southern Star as part of the purchase price of the Southern Star Acquisition and contributed its interest in Southern Star to Capstar Radio. Additionally, during the three months ended March 31, 1997, the Company issued 1,327,272 shares of Class A Common Stock to related parties in exchange for cash and receivables totaling $1.4 million. Extraordinary Item On February 20, 1997, in connection with the financing of the Southern Star Acquisition, the Company repaid the outstanding loan balance under the Former Credit Facility of Capstar Radio with AT&T Commercial Finance Corporation and recognized an extraordinary loss of $598,000 as a result of a prepayment penalty. On February 20, 1997, in connection with Capstar's offering of 12 3/4% Senior Discount Note, the Company repaid its Former Term Loan Facility. Existing Credit Facility On February 20, 1997, the Company entered into a credit facility (the "Existing Credit Facility") with various banks and Bankers Trust Company, as administrative agent, which consists of a $50,000,000 revolving loan facility. The indebtedness under the Existing Credit Facility is secured by a first property perfected pledge of substantially all of Capstar's assets, including, without limitation, the capital stock of the subsidiaries of Capstar, and is guaranteed by Capstar and all of the direct and indirect subsidiaries of Capstar (other than the Company). Borrowings under the Existing Credit Facility bear interest at floating rates and require interest payments on varying dates depending on the interest rate option selected by the Company. All loans outstanding under the Existing Credit Facility will mature in 2002. Private Placement Financings In June 1997, the Company commenced a private placement of $100,000,000 senior exchangeable preferred stock and Capstar Radio commenced a private placement of $200,000,000 senior subordinated notes, the proceeds of which will be held in escrow to finance future acquisitions. F-37 206 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Southern Star Communications, Inc. We have audited the accompanying consolidated balance sheets of Southern Star Communications Inc., formerly known as Osborn Communications Corporation, as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Southern Star Communications, Inc. at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP New York, New York February 3, 1997 F-38 207 SOUTHERN STAR COMMUNICATIONS, INC. (FORMERLY KNOWN AS 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 $468,597 in 1996 and $518,157 in 1995............... 5,032,903 5,759,562 Inventory................................................. 1,095,157 889,942 Prepaid expenses and other current assets................. 1,018,701 1,525,308 Assets held for sale...................................... 7,539,190 -- ----------- ------------ Total current assets.............................. 17,630,156 21,169,591 Investment in affiliated companies.......................... 512,088 524,084 Property, plant and equipment, at cost, less accumulated depreciation of $15,894,081 in 1996 and $18,624,021 in 1995...................................................... 11,676,395 15,358,070 Intangible assets, net of accumulated amortization of $15,437,481 in 1996 and $15,238,193 in 1995............... 26,711,629 40,463,595 Other noncurrent assets..................................... 925,000 118,753 ----------- ------------ Total assets...................................... $57,455,268 $ 77,634,093 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses..................... $ 4,809,264 $ 4,509,292 Accrued wages and sales commissions....................... 434,986 434,309 Accrued interest payable.................................. 46,173 459,114 Accrued income taxes...................................... 1,492,114 825,712 Current portion of long-term debt......................... 320,000 2,718,000 ----------- ------------ Total current liabilities......................... 7,102,537 8,946,427 Long-term debt.............................................. 13,880,000 44,482,000 Deferred income taxes....................................... 3,061,298 2,275,711 Other noncurrent liabilities................................ 1,501,279 432,916 Commitments and contingencies Stockholders' equity: Preferred stock, par value $.01 per share; authorized 5,000,000 shares, none issued and outstanding.......... -- -- Common stock, par value $.01 per share; authorized 7,425,000 shares, issued and outstanding shares: 5,547,497 and 5,537,497, respectively, in 1996; 5,286,347 and 5,276,347, respectively, in 1995......... 55,376 52,764 Non-voting common stock, par value $.01 per share; authorized 75,000 shares, none issued and outstanding............................................ -- -- Additional paid-in capital.................................. 40,869,408 39,694,601 Accumulated deficit......................................... (9,014,630) (18,250,326) ----------- ------------ Total stockholders' equity........................ 31,910,154 21,497,039 ----------- ------------ Total liabilities and stockholders' equity........ $57,455,268 $ 77,634,093 =========== ============
See accompanying notes. F-39 208 SOUTHERN STAR COMMUNICATIONS, INC. (FORMERLY KNOWN AS 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 Other........................................... 1,200,000 -- -- ----------- ------------ ------------ Total operating expenses................ 36,629,584 37,290,135 33,667,300 Operating income.................................. 585,464 2,215,058 1,314,810 Other income (expense)............................ (291,163) 2,314,508 2,246,450 Interest expense.................................. 2,201,616 5,212,999 4,385,827 Equity in results of affiliated company........... -- (11,829) -- Other gains, including gains on sales of stations........................................ 13,521,760 8,094,993 -- ----------- ------------ ------------ Income (loss) before income taxes and extraordinary item.............................. 11,614,445 7,399,731 (824,567) Provision for income taxes........................ 2,378,749 775,982 289,220 ----------- ------------ ------------ Income (loss) before extraordinary item........... 9,235,696 6,623,749 (1,113,787) Extraordinary item: Loss on debt extinguishment..................... -- (3,921,061) (436,329) ----------- ------------ ------------ Net income (loss)................................. $ 9,235,696 $ 2,702,688 $ (1,550,116) =========== ============ ============ Primary earnings per common share: Income (loss) before extraordinary item......... $ 1.65 $ 1.23 $ (0.21) Loss on extinguishment of debt.................. -- (0.73) (0.08) ----------- ------------ ------------ Net income (loss) per common share................ $ 1.65 $ 0.50 $ (0.29) =========== ============ ============ Fully diluted earnings per common share: Income (loss) before extraordinary item......... $ 1.62 $ 1.22 $ (0.21) Loss on extinguishment of debt.................. -- (0.72) (0.08) ----------- ------------ ------------ Net income (loss) per common share................ $ 1.62 $ 0.50 $ (0.29) =========== ============ ============ Weighted average common shares outstanding: Primary shares.................................. 5,598,237 5,388,001 5,376,715 =========== ============ ============ Fully diluted shares............................ 5,687,927 5,459,353 5,376,715 =========== ============ ============
See accompanying notes. F-40 209 SOUTHERN STAR COMMUNICATIONS, INC. (FORMERLY KNOWN AS 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-41 210 SOUTHERN STAR COMMUNICATIONS, INC. (FORMERLY KNOWN AS 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................................................ (13,521,760) (8,094,993) -- Other operating expenses.................................. 1,200,000 -- -- Deferred income taxes..................................... 785,587 240,664 175,000 Transaction costs for proposed merger..................... 479,754 -- -- Loss on extinguishment of debt............................ -- 3,921,061 436,329 Write-off of registration statement costs................. -- -- 397,583 Non-cash interest expense................................. 244,363 332,284 210,421 Equity in results of affiliated company................... -- 11,829 -- Distributions from affiliated companies................... (62,500) (1,942,731) -- Changes in current assets and current liabilities: Decrease (increase) in accounts receivable.............. 254,211 (323,770) (2,165,123) (Increase) decrease in inventory........................ (205,215) 190,705 (214,241) Decrease (increase) in prepaid expenses and other current assets........................................ 506,607 (742,764) (177,499) Acquisition deposit held in escrow...................... -- 180,000 -- Increase in distribution receivable..................... -- -- (2,264,552) Increase in accounts payable and accrued expenses....... 299,972 721,764 1,069,534 (Decrease) increase in accrued wages and sales commissions........................................... 677 129,528 (96,287) Increase (decrease) in accrued interest payable......... (412,941) (1,485,673) 1,632,742 Increase in accrued income taxes........................ 666,402 290,223 15,009 ------------ ------------ ------------ Total adjustments................................... (5,008,518) (789,469) 4,304,196 ------------ ------------ ------------ Net cash provided by operating activities........... 4,227,178 1,913,219 2,754,080 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Distributions from affiliated companies..................... 62,500 4,207,283 -- Payments for business acquisitions.......................... (13,605,591) -- (21,825,094) Net proceeds from sale of stations.......................... 34,687,928 10,000,000 -- Accrued transaction costs................................... (479,754) (1,411,981) -- Net proceeds from sale of other assets...................... 580,653 -- -- Proceeds from note receivable............................... -- 1,620,455 329,545 Capital expenditures........................................ (1,707,351) (1,326,492) (942,771) Acquisition deposit held in escrow.......................... (925,000) (180,000) -- Reclassification of other noncurrent assets................. 118,753 -- -- Expenditures for intangible assets.......................... -- (524,863) -- ------------ ------------ ------------ Net cash provided by (used in) investing activities......... 18,732,138 12,384,402 (22,438,320) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt.................... -- 44,500,000 48,460,982 Proceeds from issuance of stock warrant..................... -- -- 1,774,837 Debt issuance costs......................................... (79,807) (1,183,824) (1,887,965) Registration statement costs................................ -- -- (228,587) Proceeds from exercise of stock options..................... 69,917 154,863 6,000 Purchase and retirement of treasury stock................... -- (642,354) (107,058) Prepayment penalty on debt retirement....................... -- (500,000) -- Principal payments on long-term debt and notes payable...... (33,000,000) (50,000,000) (23,286,671) ------------ ------------ ------------ Net cash (used in) provided by financing activities......... (33,009,890) (7,671,315) 24,731,538 ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents........ (10,050,574) 6,626,306 5,047,298 Cash and cash equivalents at beginning of period............ 12,994,779 6,368,473 1,321,175 ------------ ------------ ------------ Cash and cash equivalents at end of period.................. $ 2,944,205 $ 12,994,779 $ 6,368,473 ============ ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest...................................... $ 2,370,194 $ 6,366,388 $ 2,542,664 ============ ============ ============ Cash paid for income taxes.................................. $ 926,760 $ 245,095 $ 99,211 ============ ============ ============
See accompanying notes. F-42 211 SOUTHERN STAR COMMUNICATIONS, INC. (FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 1. NATURE OF BUSINESS AND ORGANIZATION Southern Star Communications, Inc. (the "Company" or "Southern Star"), formerly known as Osborn Communications Corporation, is engaged in the operation of radio stations, programmed music, cable television and other communications properties throughout the United States. 2. PLAN OF MERGER On July 23, 1996, Southern Star entered into an agreement and plan of merger with a subsidiary of Capstar Radio Broadcasting Partners, Inc. ("Capstar Radio") whereby Capstar Radio will acquire all of Southern Star's common stock for $15.375 per share. A majority of the holders of the Southern Star's common stock voted to approve the merger in December 1996 and the Federal Communications Commission ("FCC") approved the transfer of Southern Star's broadcast licenses to Capstar Radio in January 1997. The merger is expected to be completed in February 1997. Concurrently with the execution of the merger agreement and as security for liquidated damages that may be payable by Capstar Radio to Southern Star for Capstar Radio's failure to consummate the merger, Capstar Radio has deposited in an escrow account an irrevocable letter of credit in favor of Southern Star for the sum of $5.0 million. If Southern Star terminates the merger agreement by reason of receiving an alternative proposal which is deemed more favorable to Southern Star's stockholders, Southern Star must pay a termination fee of $3,750,000 to Capstar Radio. 3. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements include the accounts of Southern Star and its subsidiaries. All material intercompany items and transactions have been eliminated. Investments in affiliated companies are accounted for using the equity method. Certain prior years' amounts have been reclassified to conform with the current year's presentation. Change of Name The Company changed its name from Osborn Communications Corporation to Southern Star Communications, Inc. in May 1997. Depreciation Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets, as follows: 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 F-43 212 SOUTHERN STAR COMMUNICATIONS, INC. (FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Muzak customer contracts acquired in 1990 and 1986, which are being amortized over their estimated useful lives. Deferred financing costs of $1.3 million and $1.2 million in 1996 and 1995, respectively, are being amortized over the term of the related debt on a straight-line basis, which approximates the interest method. The remainder in the amount of $34.7 million and $48.6 million in 1996 and 1995, respectively, represents the excess of acquisition cost over the amounts assigned to other assets acquired in Southern Star's acquisitions, and is being amortized on a straight-line basis principally over a 40-year period. It is Southern Star's policy to account for goodwill and all other intangible assets at the lower of amortized cost or estimated realizable value. As part of an ongoing review of the valuation and amortization of intangible assets of Southern Star and its subsidiaries, management assesses the carrying value of the intangible assets, if facts and circumstances suggest that there may be impairment. If this review indicates that the intangibles will not be recoverable as determined by a non-discounted cash flow analysis of the operating assets over the remaining amortization period, the carrying value of the intangible assets would be reduced to estimated realizable value. During 1996, Southern Star adopted SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which established standards for the recognition and measurement of impairment losses on long-lived assets, certain identifiable intangible assets, and goodwill (see Note 5). Barter Transactions Revenue from barter transactions (advertising provided in exchange for goods and services) is recognized as income when advertisements are broadcast, and merchandise or services received are charged to expense (or capitalized as appropriate) when received or used. Revenue Broadcast revenue is presented net of advertising commissions of approximately $1.3 million, $2.1 million and $1.7 million for the years ended December 31, 1996, 1995 and 1994, respectively. Per Share Data Primary earnings per common share for 1996 and 1995 is based on the net income for the year divided by the weighted average number of common and common equivalent shares. Common stock equivalents consist of stock options and warrants (see Notes 12 and 13). Shares issuable upon the exercise of all common stock equivalents and other potentially dilutive securities are not included in the computations for 1994 since their effect is not dilutive. Cash Equivalents Cash equivalents consist of short-term, highly liquid investments which are readily convertible into cash and have an original maturity of three months or less when purchased. Inventory Inventories, consisting of merchandise for Southern Star's entertainment properties, sound equipment held for resale by Southern Star's Muzak franchises and equipment held for resale by Southern Star's healthcare cable business, are valued at the lower of cost or market using the first-in, first-out method. Risks and Uncertainties The preparation of financial statements in conformity with generally accepted accounting principles requires Southern Star to make estimates and assumptions that affect the reported amounts of assets and liabilities and F-44 213 SOUTHERN STAR COMMUNICATIONS, INC. (FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results may differ from those estimates. 4. ACQUISITIONS/DISPOSITIONS/PENDING TRANSACTIONS At December 31, 1996, Southern Star owned and operated ten FM and six AM radio stations, four programmed music and sound equipment distributorships, a hospital cable television company and certain entertainment properties. 1996 In March 1996, Southern Star acquired substantially all the assets of radio station WRIR-FM (formerly WHLX-FM), Wheeling, West Virginia, for $0.8 million plus transaction costs. In June 1996, Southern Star acquired substantially all the assets of radio stations WBBD-AM/WKWK-FM (formerly WKWK-AM/FM), Wheeling, West Virginia, for $2.7 million plus transaction costs. Southern Star programmed WBBD-AM/WKWK-FM pursuant to a local marketing agreement ("LMA") from March 1996 through the closing of the acquisition. In October 1996, Southern Star acquired substantially all the assets of radio station WEGW-FM, Wheeling, West Virginia, for $0.8 million. Southern Star already owned radio stations WWVA-AM/WOVK-FM in Wheeling, West Virginia. In April 1996, Southern Star acquired substantially all the assets of radio stations WKII-AM/WFSN-FM (formerly WKII-AM/WEEJ-FM). Port Charlotte, Florida, for $2.85 million plus transaction costs. Upon completion of the relocation of WFSN-FM's broadcast antenna to Southern Star's Pine Island, Florida tower in order to better serve the Port Charlotte/Ft. Myers market, additional consideration of $750,000 will be paid. The additional consideration is included in other noncurrent liabilities in the consolidated balance sheet at December 31, 1996. The additional consideration was paid in January 1997. Pending the closing of the acquisition, the stations were programmed by Southern Star pursuant to an LMA since September 1995. Southern Star already owns radio station WOLZ-FM, Ft. Myers, and has a 50% non-voting ownership interest in radio station WDRR-FM, San Carlos Park/Ft. Myers. Southern Star plans to dispose of radio stations WOLZ-FM/WFSN-FM/ WKII-AM in 1997 (see Pending Transactions below). In May 1996, Southern Star acquired substantially all the assets of radio stations KNAX-FM/KRBT-FM, Fresno, California. Consideration for the acquisition consisted of $6.0 million plus 120,000 shares of Southern Star's common stock. Pending the closing of the acquisition, the stations were programmed by Southern Star since January 1996 pursuant to an LMA. In December 1996, Southern Star sold substantially all the assets of radio stations KNAX-FM/ KRBT-FM for $11.0 million, resulting in a pre-tax gain of approximately $3.5 million. Pending the closing of the transaction, the purchaser managed the stations pursuant to an LMA since August 1, 1996. In January 1996, Southern Star sold substantially all the assets of radio station WWRD-FM, Jacksonville, Florida/Brunswick, Georgia, for $2.5 million, resulting in a pre-tax gain of approximately $0.8 million. Pending the closing of the disposition, the station was programmed by the purchaser pursuant to an LMA. In February 1996, Southern Star sold substantially all the assets of radio stations WNDR-AM/WNTQ-FM, Syracuse, New York, for $12.5 million, resulting in a pre-tax gain of approximately $6.0 million. Pending the closing of the disposition, the stations were programmed by the purchaser pursuant to an LMA. In June 1996, Southern Star sold substantially all the assets of radio station WFXK-FM, Raleigh/Tarboro, North Carolina, for $5.9 million, resulting in a pre-tax gain of approximately $2.2 million. Pending the closing of the transaction, the purchaser programmed the station pursuant to an LMA. F-45 214 SOUTHERN STAR COMMUNICATIONS, INC. (FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In June 1996, Southern Star sold substantially all the assets of radio station WAYV-FM, Atlantic City, New Jersey, for $3.1 million, resulting in a pre-tax gain of approximately $0.2 million. Pending the closing of the transaction, the purchaser programmed the station pursuant to an LMA since March 1996. In June 1996, Southern Star sold substantially all the assets of radio station WFKS-FM, Daytona Beach/Palatka, Florida, for $4.0 million, resulting in a pre-tax gain of approximately $0.8 million. Pending the closing of the transaction, the purchaser programmed the station pursuant to an LMA. The net cash proceeds from each of the dispositions were used principally to repay long-term debt and fund transaction costs. All of the acquisitions have been accounted for using the purchase method of accounting. Accordingly, the purchase price of each acquisition has been allocated to the assets based upon their fair values at the date of acquisition. The results of operations of the properties acquired are included in Southern Star's consolidated results of operations from the respective dates of acquisition and until the date of disposition for properties disposed. 1995 In December 1995, Southern Star entered into an option agreement with Allbritton Communications Company for the sale of television station WJSU-TV, Anniston, Alabama, and an associated 10-year LMA. In consideration for the option, Southern Star received a nonrefundable cash payment of $10.0 million. Because the cash proceeds from the option are nonrefundable, Southern Star accounted for the economic substance of the transaction as if a sale of substantially all the assets of the station had occurred. Accordingly, a gain of approximately $8.1 million was recorded. In addition, upon the exercise of the option and the necessary FCC consent, Southern Star will receive an additional cash payment of $2.0 million. Upon the grant of the necessary regulatory approvals to relocate the station's broadcast transmitter to maximize broadcast coverage of the facility, Southern Star could have received additional cash payments of up to $7.0 million. In January 1997, the regulatory approvals were granted for the relocation of the station's broadcast transmitter, and a cash payment of approximately $5.3 million was paid to Southern Star. An additional payment relating to the transmitter relocation of approximately $1.4 million will be payable upon exercise of the option. 1994 In June 1994, Southern Star acquired substantially all the assets of three FM radio stations and one AM radio station for $20.0 million plus transaction costs. The acquisition included radio stations WWNC-AM/ WKSF-FM, Asheville, North Carolina; WOLZ-FM, Ft. Myers, Florida; and WFKS-FM, Daytona Beach, Florida. In August 1994, Southern Star acquired substantially all the assets of radio stations WAAX-AM/WQEN-FM, Gadsden, Alabama, (the "Gadsden Acquisition") for $1.75 million plus transaction costs. Prior to the grant of the waiver of the FCC's cross-ownership regulations, the Gadsden acquisition was accounted for using the equity method of accounting. Accordingly, prior year financial statements have been reclassified to reflect the consolidation of the Gadsden radio stations. In March 1994, Southern Star, through a wholly-owned subsidiary, acquired radio station WAYV-FM, Atlantic City, New Jersey, for consideration of approximately $2.5 million. Pending Transactions In January 1997, Southern Star acquired substantially all the assets of radio station WYNU-FM, Jackson/ Milan, Tennessee for $3.6 million plus transaction costs. Southern Star already owns one FM and one AM radio station in the market. F-46 215 SOUTHERN STAR COMMUNICATIONS, INC. (FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In November 1996, Southern Star agreed to acquire substantially all the assets of radio station WTXT-FM, Tuscaloosa/Fayette, Alabama from Tuscaloosa Broadcasting Company, Inc. for approximately $5.8 million, subject to FCC approval. The transaction is expected to close in February 1997. In December 1996, Southern Star agreed to acquire substantially all the assets of radio stations WACT-AM/FM, Tuscaloosa, Alabama from Taylor Communications Corporation for $1.0 million, subject to FCC approval. Pending the closing of the transaction, which is expected in the first quarter of 1997, Southern Star is managing the stations pursuant to an LMA. In November 1996, Southern Star agreed to acquire the stock of Dixie Broadcasting, Inc. and Radio WBHP, Inc., the owners of radio stations WDRM-FM/WHOS-AM/WBHP-AM, Huntsville, Alabama. Consideration for the acquisition consists of (i) $23.0 million; (ii) a three year consulting agreement valued at $2.5 million; and (iii) a $1.5 million earn-out based on future operating results. The transaction, which is subject to FCC approval, is expected to close in 1997. In December 1996, Southern Star agreed to sell substantially all the assets of WOLZ-FM, WFSN-FM and WKII-AM, Fort Myers/Port Charlotte, Florida for approximately $11.0 million to Clear Channel Radio, Inc., subject to FCC approval. Pending the closing of the transaction, which is expected in 1997, the stations are being managed by the Purchaser pursuant to a LMA starting in January 1997. Other Investments In 1989, Southern Star acquired, for $620,000, a 50% non-voting ownership interest (without control) in a corporation that owns and operates radio station WDRR-FM, San Carlos Park, Florida. The station became operational in September 1995. Southern Star's net investment is included in investment in affiliated companies on the consolidated balance sheet. In 1989, Southern Star acquired a 32% ownership interest in Northstar Television Group, Inc. ("Northstar") for $329,000. From Northstar's inception through May 1994, Southern Star managed Northstar's four television stations for an annual fee of up to $250,000, plus reimbursement of out-of-pocket expenses and allocated overhead costs. In 1994, as a result of a proposed restructuring of Northstar, Southern Star agreed, as payment for prior services rendered, to receive an immediate payment of $250,000, another payment of $250,000 within two years, and the retention of an economic interest. Southern Star's management agreement terminated following the restructuring. In 1995, three of Northstar's four television stations were sold and Southern Star received a distribution of $1.6 million, classified as other income in the consolidated statement of operations, plus accrued management fees of $250,000. In 1987, Southern Star acquired 25% of the stock of Fairmont Communications Corporation ("Fairmont") for $500,000. Fairmont owned seven radio stations in four large and medium sized markets. In August 1992, Fairmont filed for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code. In September 1993, Fairmont emerged from Chapter 11 upon approval by the bankruptcy court of a plan of reorganization (the "Plan"). The Plan provided for the sale of Fairmont's assets, distribution of the proceeds in accordance with the Plan, and subsequent liquidation of Fairmont. All of Fairmont's stations were sold by the second quarter of 1994. Southern Star will continue to manage Fairmont pursuant to a management agreement which expires upon the liquidation of Fairmont, which is expected in 1997. For managing Fairmont, Southern Star receives an annual fee of $125,000, plus reimbursement of out-of-pocket expenses and allocated overhead costs. In 1994, Southern Star received additional management fees of $728,000 related to the sale of Fairmont's stations. Southern Star also earned distributions of $400,000 and $2.3 million in 1995 and 1994, respectively, classified as other income and distribution receivable in the consolidated financial statements, determined by the amount realized by Fairmont from sales of its assets. F-47 216 SOUTHERN STAR COMMUNICATIONS, INC. (FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. OSBORN HEALTHCARE Osborn Healthcare, a division of Osborn Entertainment Enterprises Corporation, continued to experience operating losses through the second quarter of 1996. Consistent with Southern Star's previously stated intention to evaluate options to increase shareholder value, management has reviewed the strategic direction and long-term prospects of the Osborn Healthcare operations and has restructured the operations. Southern Star plans to focus resources on only the more profitable product lines. In conjunction with these plans, Southern Star has combined the Osborn Healthcare operations and Southern Star's programmed music operations, terminating certain employees of the Osborn Healthcare operations, and consolidating certain overhead. In the second quarter of 1996, Southern Star accrued costs of approximately $300,000, principally severance costs, in connection with the consolidation of operations. In addition, Southern Star has reduced goodwill by approximately $900,000 to reflect the anticipated discounted cash flow from the remaining healthcare operations. The charges, totaling $1.2 million, are included in other operating expenses in the consolidated statement of operations. 6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
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. F-48 217 SOUTHERN STAR COMMUNICATIONS, INC. (FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. LONG-TERM DEBT A summary of long-term debt is as follows:
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, Southern Star entered into a credit facility of $56.0 million with KeyBank National Association (the "Credit Facility"). The Credit Facility consists of a $46.0 million revolving credit facility and a $10.0 million facility which may be used for acquisitions. The initial drawdown of $44.5 million, along with Southern Star's internally generated funds, was used to repay existing loans totaling $50.0 million and pay transaction costs. The Credit Facility contains covenants which require, among other things, that Southern Star and its subsidiaries (excluding Atlantic City Broadcasting Corp.) maintain certain financial levels, principally with respect to EBITDA (earnings before interest, income tax, depreciation and amortization) and leverage ratios, and limit the amount of capital expenditures. The Credit Facility also restricts the payment of cash dividends. The Credit Facility is collateralized by pledges of the tangible and intangible assets of Southern Star and its subsidiaries, as well as the stock of those subsidiaries. At December 31, 1996, Southern Star has additional availability under the revolving credit facility of $14.1 million. Effective December 31, 1996 the outstanding balance under the acquisition facility will convert to a term loan. Under the current terms of the Credit Facility, no additional amounts under the acquisition facility may be borrowed after December 31, 1996 unless the terms are modified. Southern Star pays an annual commitment fee of 0.5% of the unused commitment. (B) The term loan contained covenants with respect to Southern Star's wholly-owned subsidiary, Atlantic City Broadcasting Corp., which, among other things, restricted cash distributions to Southern Star and limited the amount of annual capital expenditures. The loan was collateralized by pledges of the tangible and intangible assets and stock of Atlantic City Broadcasting Corp. ("Atlantic City"), and were otherwise nonrecourse to Southern Star and its other assets. In June 1996, Southern Star sold substantially all the assets of Atlantic City. The net proceeds were used primarily to repay long-term debt and fund transaction costs. F-49 218 SOUTHERN STAR COMMUNICATIONS, INC. (FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 1996, the aggregate amounts of long-term debt due during the next five years are as follows:
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.................................................... $ 3,095,266 $ 4,256,414 Buildings............................................... 3,967,805 4,168,839 Equipment............................................... 20,507,405 25,556,838 ------------ ------------ 27,570,476 33,982,091 Less accumulated depreciation........................... (15,894,081) (18,624,021) ------------ ------------ $ 11,676,395 $ 15,358,070 ============ ============
At December 31, 1996, all property, plant and equipment is pledged as collateral for the debt disclosed in Note 7. 9. INCOME TAXES At December 31, 1996, Southern Star has consolidated net operating loss carryforwards for income tax purposes of $20.6 million that expire in years 2006 through 2010. Of the total net operating loss carryforwards, $11.0 million may be used only to offset future income of Southern Star's subsidiary, Osborn Entertainment Enterprises Corporation. F-50 219 SOUTHERN STAR COMMUNICATIONS, INC. (FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of Southern Star's deferred tax assets and liabilities are as follows:
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 valuation allowance decreased to approximately $5,941,000 from approximately $9,089,000 during 1996. The reconciliation of income tax computed at the U.S. federal statutory tax rate to income tax expense is as follows:
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 =========== =========== =========
F-51 220 SOUTHERN STAR COMMUNICATIONS, INC. (FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. COMMITMENTS Southern Star leases office and broadcast tower space, vehicles and office equipment. Rental expense amounted to $1,113,000, $994,000 and $768,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The minimum aggregate annual rentals under noncancellable operating leases are payable as follows:
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 ==========
11. EMPLOYEE BENEFIT PLANS Southern Star sponsors a profit sharing plan which qualifies under Section 401(k) of the Internal Revenue Code (the "IRC"). The Plan is available to all full-time employees with at least one year of employment with Southern Star. All eligible employees may elect to contribute a portion of their compensation to the profit sharing plan, subject to IRC limitations. Effective January 1, 1996, the Plan provides for employer contributions based upon an employee's salary. In December 1994, Southern Star adopted a non-qualified deferred compensation plan available to certain management employees. 12. STOCK OPTION PLAN Southern Star's Incentive Stock Option Plan (the "Plan") provides for the granting to officers and key employees of incentive and non-qualified stock options to purchase Southern Star's voting common stock as defined under current tax laws. Incentive stock options are exercisable at a price equal to the fair market value, as defined, on the date of grant, for a maximum 10-year period from the date of grant. Non-qualified stock options may be granted at an exercise price equal to at least 85% of the fair market value on the date of grant, for a maximum 11-year period from the date of grant. The exercise prices of all options granted in 1994 through 1996 were at fair market value at the date of grant. F-52 221 SOUTHERN STAR COMMUNICATIONS, INC. (FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes the Plan's transactions for the years ended December 31, 1996, 1995 and 1994:
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. Southern Star applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its Plan. Had compensation cost for the Plan been determined based upon the fair value at the grant date for awards under the Plan consistent with the methodology prescribed under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, Southern Star's net income and earnings per share would have been reduced by approximately $144,000, or $0.03 per share, and $46,000, or $0.01 per share for the years ended December 31, 1996 and 1995, respectively. The fair value of the options granted during the years ended December 31, 1996 and 1995 is estimated as $102,000 and $114,000, respectively, on the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 0.0%, volatility of 40.7%, risk-free interest rate of 6.5%, assumed forfeiture rate of 0.0%, and an expected life of 1 to 2 years. The assumptions used assume that the proposed merger as described in Note 2 is consummated in the first quarter of 1997. 13. STOCKHOLDERS' EQUITY During 1996, approximately 174,000 shares of common stock were issued pursuant to the exercise of stock options. Approximately 45,000 existing shares were retired to fund the exercise of certain of these options. In January 1995, Southern Star paid $642,000 to repurchase and subsequently retired 107,059 unregistered shares of its common stock which were held by an institution. In December 1994, Southern Star paid $107,000 to repurchase and subsequently retired 17,843 shares of its common stock at $6.00 per share. In June 1994, Southern Star entered into two credit agreements totaling $50.0 million with Citicorp Mezzanine Investment Fund ("CMIF"). As partial consideration for making the loans, CMIF received a warrant to purchase 1,014,193 shares (after giving effect to the reverse stock split described below) of Southern Star's common stock at $7.00 per share. The warrant is exercisable for a 10-year period. Under the terms of the warrant agreement, in the event that the CMIF loans were repaid by December 31, 1995, purchase rights with respect to 676,162 warrant shares will be canceled. The loans were repaid in August 1995 and, accordingly, the purchase rights with respect to 676,162 warrant shares were canceled. F-53 222 SOUTHERN STAR COMMUNICATIONS, INC. (FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In July 1994, Southern Star effected a 1-for-2 reverse stock split for shareholders of record on that date. Cash was paid in lieu of fractional shares. All per share amounts in the consolidated statement of operations reflect the reverse stock split. 14. SUBSEQUENT EVENT (UNAUDITED) On February 20, 1997, Capstar Radio Broadcasting Partners, Inc. acquired all of Southern Star's common stock and Southern Star was merged with Capstar Radio. F-54 223 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors GulfStar Communications, Inc.: We have audited the accompanying consolidated balance sheets of GulfStar Communications, Inc. and Subsidiaries (collectively the "Company") as of December 31, 1996 and 1995 and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 1996 and 1995 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Austin, Texas April 4, 1997 F-55 224 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, MARCH 31, -------------------------- 1997 1996 1995 ------------ ----------- ----------- (UNAUDITED) Current assets: Cash and cash equivalents................................. $ 5,978,752 $ 4,792,847 $ 220,049 Accounts receivable, net of allowance for doubtful accounts of $410,910, $328,753 and $136,206, respectively............................................ 8,232,489 8,336,005 3,560,050 Refundable income taxes................................... 1,111,940 1,111,940 -- Cash held in escrow....................................... -- 2,100,000 10,000 Prepaid expenses and other................................ 423,827 156,306 120,359 ------------ ----------- ----------- Total current assets 15,747,008 16,497,098 3,910,458 Property and equipment, net................................. 17,484,782 13,697,163 6,086,683 Intangible assets, net...................................... 79,207,856 60,369,684 33,048,036 Deferred station acquisition costs.......................... 2,696,134 68,144 3,100,776 Deferred financing costs, net............................... 2,271,701 229,528 2,113,617 Other assets................................................ 629,045 468,315 740,587 ------------ ----------- ----------- Total assets....................................... $118,036,526 $91,329,932 $49,000,157 ============ =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 2,098,443 $ 2,428,048 $ 1,137,230 Accrued liabilities....................................... 2,288,430 2,739,576 2,142,055 Accrued interest.......................................... 308,964 36,390 513,232 Current portion of long-term debt......................... 213,683 90,667 2,107,390 Current portion of capital lease obligations.............. 123,921 79,594 36,886 ------------ ----------- ----------- Total current liabilities.......................... 5,033,441 5,374,275 5,936,793 Long-term debt, net of current portion...................... 82,346,102 54,393,419 35,192,650 Capital lease obligations................................... 342,107 168,457 89,608 Deferred income taxes....................................... 5,597,176 5,702,283 4,460,652 ------------ ----------- ----------- Total liabilities.................................. 93,318,826 65,638,434 45,679,703 ------------ ----------- ----------- Commitments and contingencies (Notes 13 and 14) Redeemable preferred stocks, aggregate liquidation preference of $27,000,000, $27,052,500 and $757,500, respectively.............................................. 23,080,611 23,097,788 757,500 ------------ ----------- ----------- Stockholders' equity: Common stock, voting, $0.01 par value, 100,000 and 2,000,000 shares authorized, 10,986 and 10,151 shares issued and outstanding at December 31, 1996 and 1995, respectively............................................ 113 109 101 Common stock, Class A, nonvoting, $0.01 par value, 60,000 and 600,000 shares authorized, 49,033 and 37,500 shares issued and outstanding at December 31, 1996 and 1995, respectively............................................ 100 490 375 Common stock, Class B, nonvoting, $0.01 par value, 10,000 and 600,000 shares authorized, no shares issued and outstanding and 6,081 at December 31, 1996 and 1995, respectively............................................ -- -- 61 Common stock, Class C, voting, $0.01 par value, 100,000 shares authorized, 3,172 shares issued and outstanding at December 31, 1996.................................... 421 31 -- Additional paid-in capital................................ 15,006,417 11,871,525 366,091 Stock subscriptions receivable............................ (2,414,365) (2,090,024) (333,525) Retained earnings (accumulated deficit)................... (8,319,221) (5,670,301) 2,529,851 Unearned compensation..................................... (2,636,376) (1,518,120) -- ------------ ----------- ----------- Total stockholders' equity......................... 1,637,089 2,593,710 2,562,954 ------------ ----------- ----------- Total liabilities and stockholders' equity..... $118,036,526 $91,329,932 $49,000,157 ============ =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-56 225 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ------------------------ --------------------------------------- 1997 1996 1996 1995 1994 ----------- ---------- ----------- ----------- ----------- (UNAUDITED) Gross broadcasting revenues....... $12,030,130 $5,082,621 $36,066,561 $17,321,673 $10,639,226 Less agency commissions........... 1,035,526 487,838 3,503,610 1,525,088 805,332 ----------- ---------- ----------- ----------- ----------- Net revenues...................... 10,994,604 4,594,783 32,562,951 15,796,585 9,833,894 ----------- ---------- ----------- ----------- ----------- Operating expenses: Programming, technical and news......................... 2,784,013 1,217,956 7,534,906 2,873,677 2,122,044 Sales and promotion............. 2,720,534 1,313,343 9,871,778 4,638,142 2,470,962 General and administrative...... 2,442,706 1,072,520 6,892,971 4,225,281 2,069,388 Depreciation and amortization... 1,001,150 676,939 2,809,677 1,133,901 711,622 Corporate expenses.............. 517,926 170,765 1,922,744 513,153 338,799 Non-cash compensation expense... 2,469,162 272,644 5,431,880 -- -- ----------- ---------- ----------- ----------- ----------- Total operating expenses.............. 11,935,491 4,724,167 34,463,956 13,384,154 7,712,815 ----------- ---------- ----------- ----------- ----------- Gain on sale of broadcasting property........................ -- -- -- 2,389,567 -- ----------- ---------- ----------- ----------- ----------- Income (loss) from operations..... (940,887) (129,384) (1,901,005) 4,801,998 2,121,079 Other expense (income): Interest expense (income)....... 1,846,320 851,171 4,604,115 2,146,151 964,638 Other........................... (36,256) (4,044) 829,544 53,590 42,344 ----------- ---------- ----------- ----------- ----------- Income (loss) before provision (benefit) for income taxes and extraordinary loss.............. (2,750,951) (976,511) (7,334,664) 2,602,257 1,114,097 Provision (benefit) for income taxes........................... (101,892) (190,889) (322,330) 1,032,476 469,526 ----------- ---------- ----------- ----------- ----------- Income (loss) before extraordinary loss............................ (2,649,059) (785,622) (7,012,334) 1,569,781 644,571 Extraordinary charge, net of tax benefit of $707,535............. -- -- 1,187,818 -- -- ----------- ---------- ----------- ----------- ----------- Net income (loss)................. (2,649,059) (785,622) (8,200,152) 1,569,781 644,571 Dividends and accretion on preferred stocks................ 785,323 -- 1,350,115 7,500 -- ----------- ---------- ----------- ----------- ----------- Net income (loss) attributable to common stock.................... $(3,434,382) $ (785,622) $(9,550,267) $ 1,562,281 $ 644,571 =========== ========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-57 226 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
CLASS A CLASS B COMMON STOCK COMMON STOCK COMMON STOCK --------------------- --------------------- --------------------- NUMBER OF NUMBER OF NUMBER OF SHARES PAR VALUE SHARES PAR VALUE SHARES PAR VALUE --------- --------- --------- --------- --------- --------- Balance, January 1, 1994...................... -- $ -- -- $ -- -- $ -- Issuance of voting common stock.............. 10,000 100 -- -- -- -- Issuance of Class A common stock............. -- -- 40,000 400 -- -- Net income................................... -- -- -- -- -- -- ------- ----- ------- ------- ------- --- Balance, December 31, 1994................... 10,000 100 40,000 400 -- -- Shares of Class A common stock contributed to the Company by a stockholder............... -- -- (2,500) (25) -- -- Issuance of voting common.................... 151 1 -- -- -- -- Issuance of Class B common stock............. -- -- -- -- 6,081 61 Accrued interest on subscriptions receivable................................. -- -- -- -- -- -- Dividends on preferred stock................. -- -- -- -- -- -- Net income................................... -- -- -- -- -- -- ------- ----- ------- ------- ------- --- Balance, December 31, 1995.................... 10,151 101 37,500 375 6,081 61 Issuance of common stock..................... 4,504 45 -- -- -- -- Issuance of Class A common stock............. -- -- 1,626 16 -- -- Issuance of Class B common stock............. -- -- -- -- 157 1 Issuance of Class C common stock............. -- -- -- -- -- -- Conversion of common stock to Class A common stock...................................... (10,151) (101) 10,151 101 -- -- Conversion of Class A and B common stock to common stock............................... 6,482 64 (244) (2) (6,238) (62) Issuance of preferred stock.................. -- -- -- -- -- -- Accrued interest on subscriptions receivable................................. -- -- -- -- -- -- Dividends and accretion on preferred stocks..................................... -- -- -- -- -- -- Unearned compensation -- stock issued for nonrecourse notes.......................... -- -- -- -- -- -- Net loss..................................... -- -- -- -- -- -- ------- ----- ------- ------- ------- --- Balance, December 31, 1996.................... 10,986 109 49,033 490 -- -- Issuance of common stock (unaudited)......... 356 4 -- -- -- -- Conversion of Class A common stock to Class C common stock (unaudited)................... -- -- (39,033) (390) -- -- Payment received on subscribed stock (unaudited)................................ -- -- -- -- -- -- Accrued interest on subscriptions receivable (unaudited)................................ -- -- -- -- -- -- Dividends and accretion on preferred stocks (unaudited)................................ -- -- -- -- -- -- Unearned compensation-stock issued for nonrecourse notes (unaudited).............. -- -- -- -- -- -- Net loss (unaudited)......................... -- -- -- -- -- -- ------- ----- ------- ------- ------- --- Balance, March 31, 1997 (unaudited)........... 11,342 $ 113 10,000 $ 100 0 $ 0 ======= ===== ======= ======= ======= === CLASS C COMMON STOCK RETAINED --------------------- ADDITIONAL STOCK EARNINGS NUMBER OF PAID-IN SUBSCRIPTIONS (ACCUMULATED UNEARNED SHARES PAR VALUE CAPITAL RECEIVABLE DEFICIT) COMPENSATION --------- --------- ----------- ------------- ------------ ------------ Balance, January 1, 1994...................... -- $ -- $ -- $ -- $ 322,999 $ -- Issuance of voting common stock.............. -- -- 300 -- -- -- Issuance of Class A common stock............. -- -- 1,200 -- -- -- Net income................................... -- -- -- -- 644,571 -- ------ --- ----------- ----------- ----------- ----------- Balance, December 31, 1994................... -- -- 1,500 -- 967,570 -- Shares of Class A common stock contributed to the Company by a stockholder............... -- -- 25 -- -- -- Issuance of voting common.................... -- -- 8,530 (4,265) -- -- Issuance of Class B common stock............. -- -- 330,637 (303,861) -- -- Accrued interest on subscriptions receivable................................. -- -- 25,399 (25,399) -- -- Dividends on preferred stock................. -- -- -- -- (7,500) -- Net income................................... -- -- -- -- 1,569,781 -- ------ --- ----------- ----------- ----------- ----------- Balance, December 31, 1995.................... -- -- 366,091 (333,525) 2,529,851 -- Issuance of common stock..................... -- -- 1,378,840 (1,390,385) -- -- Issuance of Class A common stock............. -- -- 183,722 -- -- -- Issuance of Class B common stock............. -- -- 31,399 -- -- -- Issuance of Class C common stock............. 3,172 31 358,405 (297,190) -- -- Conversion of common stock to Class A common stock...................................... -- -- -- -- -- -- Conversion of Class A and B common stock to common stock............................... -- -- -- -- -- -- Issuance of preferred stock.................. -- -- 3,884,259 -- -- -- Accrued interest on subscriptions receivable................................. -- -- 68,924 (68,924) -- -- Dividends and accretion on preferred stocks..................................... -- -- (1,350,115) -- -- -- Unearned compensation -- stock issued for nonrecourse notes.......................... -- -- 6,950,000 -- -- (1,518,120) Net loss..................................... -- -- -- -- (8,200,152) -- ------ --- ----------- ----------- ----------- ----------- Balance, December 31, 1996.................... 3,172 31 11,871,525 (2,090,024) (5,670,301) (1,518,120) Issuance of common stock (unaudited)......... -- -- 299,621 (299,625) -- -- Conversion of Class A common stock to Class C common stock (unaudited)................... 39,033 390 -- -- -- -- Payment received on subscribed stock (unaudited)................................ -- -- -- 16,973 -- -- Accrued interest on subscriptions receivable (unaudited)................................ -- -- 41,689 (41,689) -- -- Dividends and accretion on preferred stocks (unaudited)................................ -- -- (793,836) -- 139 -- Unearned compensation-stock issued for nonrecourse notes (unaudited).............. -- -- 3,587,418 -- -- (1,118,256) Net loss (unaudited)......................... -- -- -- -- (2,649,059) -- ------ --- ----------- ----------- ----------- ----------- Balance, March 31, 1997 (unaudited)........... 42,205 $421 $15,006,417 $(2,414,365) $(8,319,221) $(2,636,376) ====== === =========== =========== =========== =========== TOTAL STOCKHOLDERS' EQUITY ------------- Balance, January 1, 1994...................... $ 322,999 Issuance of voting common stock.............. 400 Issuance of Class A common stock............. 1,600 Net income................................... 644,571 ----------- Balance, December 31, 1994................... 969,570 Shares of Class A common stock contributed to the Company by a stockholder............... -- Issuance of voting common.................... 4,266 Issuance of Class B common stock............. 26,837 Accrued interest on subscriptions receivable................................. -- Dividends on preferred stock................. (7,500) Net income................................... 1,569,781 ----------- Balance, December 31, 1995.................... 2,562,954 Issuance of common stock..................... (11,500) Issuance of Class A common stock............. 183,738 Issuance of Class B common stock............. 31,400 Issuance of Class C common stock............. 61,246 Conversion of common stock to Class A common stock...................................... -- Conversion of Class A and B common stock to common stock............................... -- Issuance of preferred stock.................. 3,884,259 Accrued interest on subscriptions receivable................................. -- Dividends and accretion on preferred stocks..................................... (1,350,115) Unearned compensation -- stock issued for nonrecourse notes.......................... 5,431,880 Net loss..................................... (8,200,152) ----------- Balance, December 31, 1996.................... 2,593,710 Issuance of common stock (unaudited)......... -- Conversion of Class A common stock to Class C common stock (unaudited)................... -- Payment received on subscribed stock (unaudited)................................ 16,973 Accrued interest on subscriptions receivable (unaudited)................................ -- Dividends and accretion on preferred stocks (unaudited)................................ (793,697) Unearned compensation-stock issued for nonrecourse notes (unaudited).............. 2,469,162 Net loss (unaudited)......................... (2,649,059) ----------- Balance, March 31, 1997 (unaudited)........... $ 1,637,089 ===========
The accompanying notes are an integral part of the consolidated financial statements. F-58 227 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ------------------------- ------------------------------------------ 1997 1996 1996 1995 1994 ------------ ---------- ------------ ------------ ------------ (UNAUDITED) Cash flows from operating activities: Net income (loss).............................. $ (2,649,059) $ (785,622) $ (8,200,152) $ 1,569,761 $ 644,571 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization................ 1,001,150 676,940 2,809,677 1,133,901 711,622 Provision for doubtful accounts.............. 86,614 68,737 555,765 194,572 105,381 Deferred income taxes........................ (105,107) -- 546,754 (63,928) 261,197 Gain (loss) on sale of assets................ -- -- -- (2,389,567) -- Noncash interest expense..................... -- -- 218,264 247,625 204,070 Noncash compensation expense................. 2,469,162 272,644 5,431,880 -- -- Interest expense financed through long-term borrowing.................................. 54,228 108,440 -- 75,971 41,198 Extraordinary loss........................... -- -- 1,187,818 -- -- Write-off of deferred acquisition costs...... -- -- 104,182 -- -- Other........................................ -- -- -- -- 2,744 Changes in assets and liabilities, net of affects of acquired businesses: Accounts receivable........................ 16,902 30,517 (4,272,007) (1,689,965) (479,903) Refundable income taxes.................... -- (190,889) (1,111,940) -- -- Prepaid expenses and other................. (267,522) (85,582) 18,744 159,791 (22,271) Accounts payable........................... (329,605) (222,807) 1,181,671 932,228 31,047 Accrued liabilities........................ (178,555) (28,352) (760,928) 1,088,809 333,447 ------------ ---------- ------------ ------------ ------------ Net cash provided by (used in) operating activities............................. 98,208 (155,974) (2,290,272) 1,259,198 1,833,103 ------------ ---------- ------------ ------------ ------------ Cash flows from investing activities: Purchases of broadcasting properties........... (14,735,669) -- (24,118,028) (20,217,242) (9,205,860) Transfers to escrow accounts for broadcasting property acquisition......................... -- -- (2,100,000) (10,000) (1,041,000) Purchases of property, equipment and intangibles.................................. (763,043) (426,001) (1,669,587) (494,651) (1,192,497) Payments for pending broadcasting property acquisitions................................. (2,628,005) -- (172,326) (1,968,203) (91,573) Proceeds from sale of broadcasting property.... -- -- -- 3,650,000 -- Increase in other assets....................... (160,730) (403,125) (147,037) (608,300) -- ------------ ---------- ------------ ------------ ------------ Net cash used in investing activities.... (18,287,447) (829,126) (28,206,978) (19,648,396) (11,530,930) ------------ ---------- ------------ ------------ ------------ Cash flows from financing activities: Proceeds from term loan........................ -- -- -- 6,000,000 12,708,415 Proceeds from borrowings under revolving debt facility..................................... 22,300,000 800,000 23,647,309 30,145,561 -- Repayment of term loan......................... -- -- (6,000,000) (17,500,000) (770,750) Repayment of notes payable and debt assumed in acquisitions................................. (14,301) -- (7,158,327) -- -- Proceeds from issuance of common and preferred stocks, net.................................. 16,973 -- 24,862,932 31,103 2,000 Payments for redemption of preferred stock..... (811,014) -- -- -- -- Repayment of capital lease obligations......... (20,113) (7,285) (52,338) (83,595) (30,624) Payment of financing costs..................... (2,096,401) -- (229,528) (897,000) (1,584,000) ------------ ---------- ------------ ------------ ------------ Net cash provided by financing activities............................. 19,375,144 792,715 35,070,048 17,696,069 10,325,041 ------------ ---------- ------------ ------------ ------------ Net increase (decrease) in cash.................. 1,185,905 (192,385) 4,572,798 (693,129) 627,214 Cash and cash equivalents, at beginning of period......................................... 4,792,847 220,049 220,049 913,178 285,964 ------------ ---------- ------------ ------------ ------------ Cash and cash equivalents, at end of period...... $ 5,978,752 $ 27,664 $ 4,792,847 $ 220,049 $ 913,178 ============ ========== ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. F-59 228 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED) 1. BUSINESS AND ORGANIZATION: The financial statements and following notes, insofar as they are applicable to the three-month periods ended March 31, 1997 and 1996, and transactions subsequent to April 4, 1997, the date of the Report of Independent Accountants, are not covered by the Report of Independent Accountants. In the opinion of management, all adjustments, consisting of only normal recurring accruals considered necessary for a fair presentation of the unaudited consolidated results of operations for the three-month periods ended March 31, 1997 and 1996, have been included. The results of operations for the three months ended March 31, 1997 are not necessarily indicative of the results to be expected for the entire year. GulfStar Communications, Inc. (the "Company") was incorporated as a Delaware corporation to own and operate radio stations. Effective April 18, 1994, the Company's stockholders contributed to the Company, their interests in GulfStar Broadcasting L.C., a Texas limited liability company wholly-owned by the Company's stockholders. For financial reporting purposes, this transaction was treated in a manner similar to a pooling-of-interests. Consequently, the historical cost and income statement data of the separate enterprises have been combined for presentation of the Company's financial statements for 1994. At December 31, 1996, the Company operated thirty radio stations that it owns and twelve radio stations that it manages under time brokerage agreements. From time to time, the Company enters into time brokerage agreements with radio stations which it intends to acquire. Under these agreements, the Company is responsible for fixed, monthly payments for the use of the owners' broadcast rights and for the operating expenses of the stations. The Company classifies the payments as interest expense to the extent interest is imputed based on the purchase price of the radio station. These payments are expensed as incurred. The radio stations are located in the following markets: Beaumont, Tyler, Texarkana, Waco, Lufkin, Victoria, Corpus Christi, Lubbock, Killeen, Bryan, Texas; Baton Rouge, Louisiana; and Fayetteville, Fort Smith, Arkansas. The Company extends credit to its customers in the ordinary course of business. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Revenue Recognition Broadcasting operations derive revenue primarily from the sale of program time and commercial announcements to local, regional and national advertisers. Revenue is recognized when the programs and commercial announcements are broadcast. Cash and Cash Equivalents For purposes of the statements of cash flow, the Company considers highly liquid investments with maturities of three months or less to be cash equivalents. Risks and Uncertainties and Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and F-60 229 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On February 8, 1996, the President signed into law the Telecommunications Act of 1996. Among other things, this legislation requires the Federal Communications Commission to relax its numerical restrictions on local ownership and affords renewal applicants significant new protections from competing applications for their broadcast licenses. The ultimate effect of this legislation on the competitive environment is currently undeterminable. Property and Equipment Property and equipment are stated at cost, less accumulated depreciation. Equipment under capital lease obligations is recorded at the lower of cost or fair market value at the inception of the lease. Depreciation is determined using the straight-line method over the estimated useful lives of the various classes of assets, which range from three to twenty years. Leasehold improvements are amortized over the shorter of their useful lives or the terms of the related leases. Costs of ordinary repairs and maintenance are charged to operations as incurred; betterments which increase the value or materially extend the life of the related asset are capitalized. Upon sale or disposal, the asset cost and accumulated depreciation are removed and any gain or loss is recognized in earnings. Intangible Assets FCC licenses represent the excess of cost over the fair values of the identifiable tangible and other intangible net assets acquired and is being amortized using the straight-line method over forty years. Other intangible assets comprise amounts paid for agreements not to compete, favorable tower and facility leases and organization costs incurred in the incorporation of the Company. Other intangibles are being amortized using the straight-line method over their estimated useful lives ranging from three to fourteen years. The Company evaluates intangible assets for potential impairment by analyzing the operating results, future cash flows on an undiscounted basis, trends and prospects of the Company's stations, as well as by comparing them to their competitors. The Company also takes into consideration recent acquisition patterns within the broadcast industry, the impact of recently enacted or potential FCC rules and regulations and any other events or circumstances which might indicate potential impairment. Deferred Station Acquisition Costs Costs incurred by the Company for acquisitions of radio stations expected to be consummated upon approval by the FCC are included as deferred station acquisition costs in the accompanying financial statements. Such costs are not being amortized and will be included as acquisition costs upon consummation of the transaction to acquire the station. Deferred Financing Costs Costs associated with obtaining debt financing are capitalized and amortized using the interest method over the term of the related debt. Subscriptions Receivable Subscriptions receivable represent promissory notes issued in connection with the purchase of capital stock. Capital stock issued in connection with such promissory notes is reported as issued and outstanding and included in capital stock and additional paid-in capital in the accompanying financial statements in the amount of the related promissory note plus accrued interest. The promissory notes and related accrued interest receivable are classified as subscriptions receivable and included as a reduction of stockholders' equity. F-61 230 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income Taxes Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable earnings. Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. Advertising Costs The Company incurs various marketing and promotional costs to add and maintain listenership. These costs are expensed as incurred and totaled approximately $2,387,000, $575,000 and $345,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Concentration of Credit Risk As of December 31, 1996, the Company had cash deposits with financial institutions of $3,223,369 in excess of the amount insured by the Federal Deposit Insurance Corporation. Management believes that credit risk in these deposits is minimal. The Company's revenue and accounts receivable primarily relate to advertising of products and services within the radio stations' broadcast areas. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. Credit losses have been within management's expectations and adequate allowances for any uncollectible trade receivables are maintained. Fair Value of Financial Instruments The carrying values of cash, receivables, payables, and accrued liabilities approximate the fair values of these instruments because of their short-term maturities. The carrying value of the Company's debt also approximates fair value as interest rates on the Company's existing debt approximates market. Redeemable preferred stock is not traded in the open market and as such, a market price is not readily available. Barter Transactions Barter transactions represent advertising time exchanged for promotional items, advertising, supplies, equipment, and services. Barter revenue is recorded at the fair value of the goods or services received and is recognized in income when the advertisements are broadcast. Goods or services are charged to expense when received or used. Advertising time owed and goods or services due the Company are included in accounts payable and accounts receivable, respectively. Recent Pronouncements In February 1997, the FASB issued FASB Statement No. 128 "Earnings Per Share ("SFAS No. 128")" which establishes standards for computing and presenting earnings per share. SFAS No. 128 is effective for fiscal years beginning after December 15, 1997. Management does not believe the implementation of SFAS No. 128 will have a material effect on its financial statements. In February 1997, the FASB issued FASB Statement No. 129 "Disclosure of Information About Capital Structure ("SFAS No. 129")" which establishes disclosure requirements for an entity's capital structure. SFAS No. 129 is effective for fiscal years beginning after December 15, 1997. Management does not believe the implementation of SFAS No. 129 will have a material effect on its financial statements. Financial Statement Presentation Certain prior year financial statement items of Capstar Radio have been reclassified to conform to the current year presentation. F-62 231 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. PROPERTY AND EQUIPMENT: Property and equipment consist of the following:
DEPRECIABLE DECEMBER 31, LIFE MARCH 31, ------------------------- (YEARS) 1997 1996 1995 ----------- ----------- ----------- ----------- Land................................... -- $ 1,273,391 $ 1,203,022 $ 358,958 Building and building improvements..... 5 to 20 3,185,731 2,128,101 994,998 Broadcast and other equipment.......... 3 to 20 16,191,879 13,259,746 6,458,201 Equipment under capital lease obligations.......................... 3 to 5 605,730 358,944 171,138 ----------- ----------- ----------- 21,256,731 16,949,813 7,983,295 Less accumulated depreciation and amortization......................... (3,771,949) (3,252,650) (1,896,612) ----------- ----------- ----------- $17,484,782 $13,697,163 $ 6,086,683 =========== =========== ===========
Depreciation expense for the three-month periods ended March 31, 1997 and 1996 and the years ended December 31, 1996, 1995 and 1994 was $519,299, $370,549, $1,361,564, $580,336 and $393,871, respectively. 4. INTANGIBLE ASSETS: Intangible assets consist of the following:
DECEMBER 31, MARCH 31, ------------------------- 1997 1996 1995 ----------- ----------- ----------- Noncompete agreements......................... $ 2,735,000 $ 1,335,000 $ 1,085,000 FCC licenses.................................. 78,972,867 61,052,844 32,499,190 Favorable tower and facility leases........... 406,817 406,817 406,817 Organization and start-up costs............... 360,718 360,718 360,718 ----------- ----------- ----------- 82,475,402 63,155,379 34,351,725 Less accumulated amortization................. (3,267,546) (2,785,695) (1,303,689) ----------- ----------- ----------- $79,207,856 $60,369,684 $33,048,036 =========== =========== ===========
The significant change in intangible assets between periods is due to acquisitions of broadcast properties. Amortization expense for intangible assets for the three-month periods ended March 31, 1997 and 1996 and the years ended December 31, 1996, 1995 and 1994 was $481,851, $306,391, $1,448,113, $553,565 and $317,751, respectively. 5. DISPOSITIONS OF BROADCASTING PROPERTIES: Effective June 1, 1992, the Company entered into a broadcast time brokerage agreement for a period of five years to lease the KLTN-FM station in Port Arthur, Texas, to another broadcasting company. Under the terms of the agreement, the time broker had the option to purchase the FCC license and broadcast facilities for a price which escalated each year from $3,375,000 to $4,500,000. On June 16, 1995, the time broker exercised the option to purchase the KLTN-FM station in Port Arthur, Texas, for cash in the amount of $3,650,000, resulting in a gain of $2,389,567. In connection with this transaction, the purchaser also assumed the Company's obligation for a tower lease. The Company recorded time brokerage revenues prior to the sale of the KLTN-FM station of approximately $275,000 and $630,000 for the years ended December 31, 1995 and 1994, respectively. F-63 232 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In August 1996, the Company entered into an agreement to exchange KLTX-FM and $1.3 million in cash, including acquisition costs, for KCKR-FM. The exchange has been accounted for using the fair values of the assets exchanged plus the $1.3 million of additional cash, including acquisition costs, and was allocated to the net assets acquired based upon their estimated fair market values. 6. ACQUISITIONS OF BROADCASTING PROPERTIES: During the three months ended March 31, 1997 and the years ended December 31, 1996, 1995 and 1994, the Company acquired numerous broadcasting properties, all of which have been accounted for as purchases and, accordingly, the results of operations associated with the acquired properties have been included in the accompanying statements from the dates of acquisition. Acquisition activity during the periods is as follows:
DATE OF PROPERTY ACQUIRED ACQUISITION PURCHASE OF COST ----------------- -------------- ------------ ----------- 1997 (Unaudited): KNCN-FM....................................... January 1997 Assets $ 2,289,873 KFYO-FM, KZII-FM.............................. February 1997 Assets 3,209,375 KTRA-FM, KDAG-FM, KCQL-AM, KKFG-FM............ March 1997 Assets 5,407,469 KKIX-FM, KKZQ-FM.............................. March 1997 Assets 11,478,952 ----------- $22,385,669 ===========
Unaudited proforma results of the Company for the aforementioned acquisitions which were completed during the three months ended March 31, 1997, which were accounted for using the purchase method of accounting, and the aforementioned disposition as if they were purchased or sold on January 1, 1996 are as follows:
THREE MONTHS ENDED MARCH 31, ----------------------- 1997 1996 ---------- --------- (DOLLARS IN THOUSANDS) Net revenue................................................. $11,364 $9,118 ======= ====== Operating income (loss)..................................... $ (845) $ 551 ======= ====== Net loss.................................................... $(2,553) $ (105) ======= ======
F-64 233 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DATE OF PROPERTY ACQUIRED ACQUISITION PURCHASE OF COST ----------------- -------------- ------------ ----------- 1996: KKAM-AM, KFMX-FM, KRLB-FM, KBRQ-FM, KIIZ-FM, KLTX-FM, WTAW-AM, KTSR-FM......... April 1996 Common stock $ 1,064,581 WACO-AM, WACO-FM.............................. July 1996 Assets 4,037,165 KRYS-AM, KRYS-FM, KMXR-FM..................... July 1996 Assets 6,305,256 KLUB-FM....................................... July 1996 Assets 315,399 KAFX-FM....................................... August 1996 Assets 728,243 KTYL-FM....................................... August 1996 Assets 2,061,477 KISX-FM....................................... September 1996 Assets 1,551,393 KCKR-FM....................................... September 1996 Assets 1,812,164 KWTX-AM, KWTX-FM.............................. November 1996 Assets 4,171,647 KEZA-FM....................................... December 1996 Assets 6,384,402 ----------- $28,431,727 =========== 1995: WJBO-AM, WLSS-FM.............................. November 1995 Common stock $ 8,205,288 WYNK-AM, WYNK-FM.............................. November 1995 Assets 11,908,067 KKMY-FM....................................... November 1995 Assets 1,586,167 ----------- $21,699,522 =========== 1994: KNUE-FM, KKYR-FM.............................. September 1994 Common stock $ 9,843,679 ===========
F-65 234 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The acquisitions are summarized in the aggregate by period as follows:
1997 1996 1995 1994 ----------- ----------- ----------- ----------- (UNAUDITED) Consideration: Cash and notes................. $21,350,000 $25,639,099 $19,628,631 $ 9,361,000 Common stock (2,325 shares).... -- 276,384 -- -- Preferred stock (7,500 shares)..................... -- -- 750,000 -- Acquisition costs.............. 1,035,669 2,045,938 1,140,891 482,679 Exchange of assets............. -- 470,306 -- -- ----------- ----------- ----------- ----------- Total.................. $22,385,669 $28,431,727 $21,519,522 $ 9,843,679 =========== =========== =========== =========== Assets acquired and liabilities assumed: Cash........................... $ -- $ 45,104 $ -- $ 637,819 Accounts receivable............ -- 1,059,713 28,297 745,521 Prepaid expenses and other..... -- 54,691 152,296 33,197 Property and equipment......... 3,065,646 7,127,228 3,352,602 817,098 Intangible assets.............. 19,320,023 29,144,077 21,088,284 9,224,333 Other assets................... -- 121,703 -- -- Accounts payable............... -- (109,147) -- -- Accrued liabilities............ -- (881,607) (249,692) (205,723) Long-term debt................. -- (6,695,064) -- -- Capital lease obligations...... -- (32,559) (44,321) -- Deferred income taxes.......... -- (1,402,412) (2,807,944) (1,408,566) ----------- ----------- ----------- ----------- Total acquisition...... $22,385,669 $28,431,727 $21,519,522 $ 9,843,679 =========== =========== =========== ===========
The following summarizes the unaudited consolidated pro forma data for the years ended December 31, 1996 and 1995, as though these acquisitions had occurred as of the beginning of 1995:
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------- ------------------------- HISTORICAL PRO FORMA HISTORICAL PRO FORMA ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) Net revenues..................... $32,562,951 $38,918,951 $15,796,585 $34,363,585 Income (loss) before extraordinary loss........................... $(7,012,334) $(7,936,252) $ 1,569,781 $ (208,043) Net income (loss)................ $(8,200,152) $(9,124,070) $ 1,569,781 $ (208,043)
For purposes of the pro forma disclosures, dividends on preferred stock, used to finance certain of the acquisitions, have been included in the pro forma amounts as interest expense. F-66 235 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. LONG-TERM DEBT: Long-term debt consists of the following:
DECEMBER 31, MARCH 31, ------------------------- 1997 1996 1995 ----------- ----------- ----------- Term loan from a bank, bearing variable interest as indicated below, interest payments are due quarterly on prime rate based loans or at the earlier of the expiration of the applicable LIBOR period, or in the case of a six-month LIBOR rate, quarterly, principal due September 30, 1997, collateralized by substantially all assets of the Company and common stock of one of the Company's subsidiaries......... $ -- $ -- $ 6,000,000 Reducing revolver loan from a bank expiring December 31, 1996, bearing variable interest as indicated below (8.7% at December 31, 1996), interest payments are due quarterly on prime rate based loans or at the earlier of the expiration of the applicable LIBOR period, or in the case of a six-month LIBOR rate, quarterly, collateralized by substantially all assets of the Company and common stock of one of the Company's subsidiaries................ 76,093,620 53,793,620 30,146,311 Note payable in connection with acquisition.... 5,820,666 -- -- Note payable to a stockholder, bearing interest at 6.87%, interest accretes into the note quarterly, principal and interest due January 1, 2002, collateralized by certain assets of the Company..................... -- -- 1,153,729 Note payable, 8%, principal and interest payable monthly through November 2008, collateralized by certain assets of the Company................................... 570,667 573,325 -- Other notes payable at various interest rates..................................... 74,832 117,141 -- ----------- ----------- ----------- 82,559,785 54,484,086 37,300,040 Less current portion, as adjusted for refinancing subsequent to December 31, 1996...................................... (213,683) (90,667) (2,107,390) ----------- ----------- ----------- $82,346,102 $54,393,419 $35,192,650 =========== =========== ===========
Interest on the term loan and reducing revolver loan is calculated at the Company's option of (1) the bank's prime rate plus a margin of 2% or (2) a one, two, three, or six-month LIBOR rate plus a margin of 3.25%. The Company's reducing revolver loan provides the Company with a revolving line of credit of up to $54,000,000, of which $206,380 is unused as of December 31, 1996. During 1996, the Company significantly modified the terms of its existing reducing revolver loan and accelerated the maturity date from March 31, 2003 to December 31, 1996. In connection with this modification, the Company recognized an extraordinary charge in 1996 relating to the write off of approximately $1,895,000 of unamortized deferred financing costs. F-67 236 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Subsequent to December 31, 1996, the Company entered into a financing agreement with a syndicate of banks that permits the Company to borrow at any time through March 31, 1998 up to $100,000,000 at variable rates (depending on the Company's leverage ratio) ranging from the lesser of the bank's prime rate plus .25% or LIBOR plus 1.5% to the lesser of the bank's prime rate plus 1.625% or LIBOR plus 2.875%. The Company must pay an annual commitment fee of one-half percent of the unused commitment. Borrowings under the financing agreement mature ratably on a quarterly basis beginning June 30, 1998 and finishing June 30, 2004. Among other things, the agreement limits the level of capital expenditures and operating leases and places the maintenance of certain leverage ratios based on pro forma operating cash flow. In January 1997, the Company borrowed amounts under the agreement sufficient to replace the reducing revolver loan, and accordingly, amounts outstanding under the reducing revolver loan at December 31, 1996 have been classified as long-term in the accompanying financial statements. Scheduled debt maturities for each of the next five calendar years and thereafter are as follows: 1997........................................................ $ 90,667 1998........................................................ 79,733 1999........................................................ 43,267 2000........................................................ 38,745 2001........................................................ 6,334,709 Thereafter.................................................. 47,896,965 ----------- $54,484,086 ===========
The reducing revolver loan contains certain covenants, including, among others, limitations on the incurrence of additional debt, requirements to maintain certain financial ratios, and restrictions on the payment of dividends. 8. REDEEMABLE PREFERRED STOCKS: The Company has authorized 507,500 shares of $.01 par value per share preferred stock. During 1995, 7,500 shares were designated 6% redeemable convertible preferred shares and issued in connection with the acquisition of broadcast properties. During 1996, 500,000 shares were designated 12% redeemable preferred shares and issued for cash. The relevant preferences and terms of each designation are described below. 6% Redeemable Convertible Preferred Stock Holders of the Company's 6% redeemable convertible preferred stock are entitled to receive annual cumulative dividends on October 31 of each year equal to 6% of the liquidation value of $100 per share prior and in preference to any dividend on common stock. Dividends are payable when and as declared by the Company. Interest accrues on unpaid dividends at a rate of 5% per annum. Holders are also entitled to a liquidation preference of $100 per share plus unpaid dividends and interest. Holders may convert their shares into common shares of the Company at any time. The conversion ratio is calculated by dividing the liquidation value of $100 per share by the then fair market value per share of the Company's common stock. The Company may at its option convert the preferred shares to common shares upon the occurrence of certain events. Preferences of the 6% redeemable convertible preferred stock are subordinate to those of the Company's 12% redeemable preferred shares. The Company may at its option any time after October 31, 1999, redeem the 6% redeemable convertible preferred shares for $100 per share. The Company has also entered into a Put Rights Agreement whereby the Company has agreed to redeem the shares at any time through October 31, 1999 upon notice of the current holders at a rate of $100 per share plus unpaid dividends. F-68 237 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The liquidation preference of the 6% redeemable convertible preferred shares at December 31, 1996 amounted to $802,500 including accrued dividends. Subsequent to December 31, 1996, the Company redeemed its 6% redeemable convertible preferred stock for its then liquidation preference of $811,013. 12% Redeemable Preferred Stock Holders of the Company's 12% redeemable preferred stock are entitled to receive quarterly cumulative dividends equal to 12% of the liquidation value of $50 per share per annum prior and in preference to any dividend on common stock or other preferred shares. Dividends are payable when and as declared by the Company. No interest accrues with respect to unpaid dividends. Any dividends due on or before July 31, 2001 which are not declared and paid shall be added to the liquidation preference and shall be deemed paid and not accumulate. Holders are also entitled to a liquidation preference of $50 per share plus unpaid dividends. Preferences of the 12% redeemable preferred stock are senior to those of any other shares of capital stock of the Company. The Company is required to redeem the preferred shares on July 31, 2006, at the then liquidation preference of $50 per share plus unpaid dividends. The Company may at its option redeem the preferred shares at any time at $50 per share plus (1) a 6% premium through July 31, 1998; (2) a 4% premium through July 31, 2000, and (3) no premium thereafter, in all cases plus unpaid dividends. The liquidation preference of the 12% redeemable preferred shares at December 31, 1996 amounted to $26,250,000 including accrued dividends. The preferred stock agreement contains certain restrictions which limit the incurrence of additional debt, prohibit certain transactions and restrict certain payments under certain conditions. In connection with issuance of the 12% redeemable preferred shares, the Company granted, to the holders of the preferred shares, warrants for the purchase of 8,098 shares of the Company's common stock at a rate of $.01 per share. Such warrants may be exercised at any time during the earlier to occur of (1) the period beginning on January 31, 2003 and ending on July 31, 2003 or (2) in the event of a sale of the Company or initial public offering of the Company's capital stock. Of the proceeds received from issuance of the preferred shares, $4,009,827 was assigned to the warrants and credited to additional paid-in capital in the accompanying financial statements. Such value is being accreted to redeemable preferred stock using the interest method over the period from issuance to mandatory redemption. 9. COMMON STOCK The Common Stock has one vote per share; the Class A and Class B Common Stock have no voting rights; and the Class C Common Stock has ten votes per share. The Common Stock may be converted at any time into shares of Class B Common Stock. The Class B and Class C Common Stock may be converted at any time into shares of Common Stock. The Class A Common Stock may be converted at any time into shares of Common Stock or Class C Common Stock. The Company is required to reserve and keep available out of its authorized but unissued Common Stock such number of shares that will be deliverable upon the conversion of all the then outstanding shares of Class A, Class B, Class C or Preferred Stock, and issue additional shares of Common Stock as may be necessary upon such conversion. F-69 238 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Subscriptions receivable consisted of the following:
DECEMBER 31, ---------------------- 1996 1995 ---------- -------- Promissory notes bearing interest at 9% per annum, compounded annually; principal and accrued interest due December 30, 2004, with accelerated payments required under certain conditions; collateralized by certain shares of stock of the Company........................... $ 277,023 $277,023 Promissory notes bearing interest at 9% per annum, compounded annually; principal and accrued interest due September 29, 2000, with accelerated payments required under certain conditions; collateralized by certain shares of stock of the Company........................... 31,103 31,103 Promissory notes bearing interest at 9% per annum, compounded annually; principal and accrued interest due April 16, 2006, with accelerated payments required under certain conditions; collateralized by certain shares of the Company.............................................. 297,190 -- Promissory notes bearing interest at 7.6% per annum, compounded annually; principal and accrued interest due October 15, 2006, with accelerated payments required under certain conditions; collateralized by certain shares of the Company.................................... 1,390,385 -- Accrued interest receivable related to these promissory notes.................................................... 94,323 25,399 ---------- -------- Total subscriptions receivable............................. $2,090,024 $333,525 ========== ========
In connection with these notes, the Company has issued 7,134, 1,101 and 5,131 shares of common stock in 1996, 1995 and 1994, respectively, for prices ranging from $28 to $309 per share. In each case, the Company received recourse and nonrecourse notes for twenty-five and seventy-five percent of the purchase price, respectively. The Company has applied APB Opinion 25 and related Interpretations in accounting for the stock issued. The compensation cost that has been charged against income for its stock plan was approximately $5,432,000 for 1996. For certain of the sales to employees during 1996, compensation expense is considered unearned until the Company's rights to repurchase the shares expire in accordance with the terms of underlying securities purchase agreement. Such rights expire five years from the date of the sale. Unearned compensation totaled $1,518,000 at December 31, 1996. Had compensation cost for the Company's stock awards been determined based on the fair value at the grant dates for awards under those plans consistent with the method of FASB Statement 123, the Company's net loss would have been reduced to the pro forma amounts indicated below: Net loss -- as reported..................................... $8,200,152 Net loss -- pro forma....................................... $3,065,072
F-70 239 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. INCOME TAXES: All of the Company's revenues were generated in the United States. The components of the provision (benefit) for income taxes are as follows:
YEARS ENDED DECEMBER 31, ----------------------------------- 1996 1995 1994 ----------- ---------- -------- Current: Federal.......................................... $(1,111,940) $ 998,605 $189,746 State............................................ 242,856 97,799 18,583 Deferred: Federal.......................................... 502,889 (58,226) 237,898 State............................................ 43,865 (5,702) 23,299 ----------- ---------- -------- Total provision (benefit).......................... $ (322,330) $1,032,476 $469,526 =========== ========== ========
$707,535 of benefit for income taxes was allocated to an extraordinary item, loss on early extinguishment of debt, in the statement of operations for the year ended December 31, 1996. For purposes of the foregoing components of provision (benefit) for income taxes, such intra-period allocation is treated to have affected the deferred components. Income tax expense (benefit) differs from the amount computed by applying the federal statutory income tax rate of 34% to income (loss) before income taxes and extraordinary items for the following reasons:
YEARS ENDED DECEMBER 31, ----------------------------------- 1996 1995 1994 ----------- ---------- -------- U.S. federal income tax at statutory rate.......... $(2,493,785) $ 884,767 $378,793 State income taxes, net of federal benefit......... 189,236 60,784 27,642 Nondeductible compensation expense................. 1,846,839 -- -- Other items, primarily nondeductible expenses and deferred tax adjustments......................... 135,380 86,925 63,091 ----------- ---------- -------- $ (322,330) $1,032,476 $469,526 =========== ========== ========
The net deferred tax liability consists of the following:
DECEMBER 31, ----------------------- 1996 1995 ---------- ---------- Deferred tax liabilities: Property and equipment and intangible basis differences and related depreciation and amortization.............. $6,727,822 $4,629,610 ---------- ---------- Total deferred tax liabilities.................... 6,727,822 4,629,610 ---------- ---------- Deferred tax assets: Miscellaneous............................................. 181,750 168,958 Net operating loss carryforwards.......................... 1,293,977 -- ---------- ---------- Total deferred tax assets......................... 1,475,727 168,958 Valuation allowance for deferred tax assets............... (450,188) -- ---------- ---------- Net deferred tax assets........................... 1,025,539 168,958 ---------- ---------- Net deferred tax liabilities...................... $5,702,283 $4,460,652 ========== ==========
The Company has net operating loss carryforwards for U.S. tax purposes of $2,205,000, which expire in 2011. Additionally, the Company acquired approximately $1,200,000 of net operating loss carryforwards in F-71 240 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) connection with the acquisition of certain subsidiaries. Such operating loss carryforwards expire in 2009 and 2010. The acquired net operating loss carryforwards are SRLY to the acquired subsidiaries which generated the losses. Due to the level of uncertainty regarding the ability of these subsidiaries to generate sufficient taxable income to fully utilize these carryforwards, a valuation allowance has been recorded related to such carryforwards. To the extent such carryforwards are realized in the future, the recognized benefits will be allocated to reduce intangible assets related to the acquired subsidiaries. Management believes that it is more likely than not that the Company will generate taxable income sufficient to realize the tax benefit associated with future deductible temporary differences and the non-SRLY NOL carryforwards prior to their expiration. 11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
YEARS ENDED DECEMBER 31, ------------------------------------ 1996 1995 1994 ---------- ---------- ---------- Cash paid during the period for: Interest........................................ $4,862,693 $1,394,317 $ 643,835 Income taxes.................................... $ 998,989 $ 199,782 $ 56,751 Noncash investing and financing activities: Liabilities assumed in connection with acquisition of broadcasting properties....... $9,120,789 $3,101,957 $1,614,289 Issuance of capital stock in connection with broadcasting property acquisitions........... $ 276,384 $ 750,000 $ -- Note receivable taken in connection with broadcasting property acquisition............ $ -- $ -- $ 100,000 Financed property and equipment purchases....... $ 88,812 $ -- $ 110,669 Book value of assets exchanged in connection with broadcast property acquisition.......... $ 470,306 $ -- $ -- Dividends and accretion on preferred stock...... $1,350,115 $ 7,500 $ -- Notes receivable and accrued interest taken in connection with subscribed stock............. $1,744,999 $ 333,525 $ --
12. EMPLOYEE BENEFIT PLAN: The Company has a 401(k) Savings Plan, whereby substantially all employees with three months of service may contribute a percentage of their compensation on a tax deferred basis. The Company matches employee contributions at a rate of fifty percent, to an annual maximum of $200 per employee. Company expense under the plan was $22,283, $12,528, and $0 for the years ended December 31, 1996, 1995 and 1994. 13. COMMITMENTS: The Company has acquired, under long-term capital lease obligations, broadcast and other equipment with capitalized cost of $358,944 and $270,132 at December 31, 1996 and 1995, respectively. The leases are noncancelable, with options to purchase the equipment at the expiration of the lease. The capital lease obligations bear interest at 9.4% to 15.2% with principal and interest due in monthly installments through 2002. The Company leases real property, office space, broadcasting equipment and office equipment under various noncancelable operating leases. Certain of the Company's leases contain escalation clauses, renewal options and/or purchase options. F-72 241 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Future minimum payments under capital and noncancelable operating lease agreements are as follows:
CAPITAL OPERATING LEASES LEASES -------- ---------- 1997........................................................ $107,132 $1,214,870 1998........................................................ 102,147 916,530 1999........................................................ 79,064 747,625 2000........................................................ 5,633 539,494 2001........................................................ 5,633 292,241 Thereafter.................................................. 469 1,101,400 -------- ---------- Total minimum lease payments................................ 300,078 $4,812,160 ========== Less amounts representing interest.......................... (52,027) -------- Present value of future minimum lease payments, included as current ($79,594) and noncurrent ($168,457) capital lease obligations............................................... $248,051 ========
Rent expense was approximately $500,000, $290,000 and $216,000 for the years ended December 31, 1996, 1995 and 1994, respectively. 14. CONTINGENCIES: The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not have a material impact on the financial position or results of operations or cash flows of the Company. The Company is partially self-insured for employee medical insurance risks, subject to specific retention levels. Self-insurance costs are accrued based upon the aggregate of the estimated liability for reported claims and estimated liabilities for claims incurred but not reported. 15. RELATED PARTY TRANSACTIONS: On April 16, 1996, the Company acquired all of the outstanding capital stock of Sonance Communications, Inc. ("Sonance") in exchange for 542 shares of the Company's Class C Common Stock, 1,626 shares of the Company's Class A Common Stock and approximately $619,000 of cash. Total consideration for the acquisition, including acquisition costs, was approximately $1,065,000. The primary assets of Sonance include broadcasting properties KKAM-AM, KFMX-FM, KIIZ-FM, KLTX-FM, WTAW-AM and KTSR-FM. Liabilities of Sonance assumed by the Company in connection with the acquisition approximated $7,627,000. The controlling stockholder of the Company is a family member of the controlling stockholder of Sonance. The majority stockholder of the Company, who is a family member of both the controlling stockholder of the Company and the controlling stockholder of Sonance was also the majority stockholder of Sonance. The Company disbursed $178,500 and $132,624 to an affiliated entity during the years ended December 31, 1995 and 1994, respectively, related to services rendered in connection with the acquisition of various radio stations and for certain administrative expenses. Broker fees of $125,000 and consulting fees of $60,000 were disbursed to affiliated entities in connection with the disposal of KLTN-FM on June 16, 1995. As of December 31, 1996, the Company had made advances to an affiliated company in the amount of approximately $277,000 which is included in accounts receivable. F-73 242 GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company recorded a charge of approximately $771,000 during 1996 in connection with the write-off of a receivable from an entity owned by a family member of the controlling stockholder of the Company. The charge is included in other expense in the accompanying consolidated financial statements. 16. SUBSEQUENT EVENTS: As more fully described in Note 7, the Company's borrowing facility was refinanced subsequent to December 31, 1996. Subsequent to December 31, 1996, the Company acquired several broadcast properties (KNCN, KZII, KFYO, KKIX, KKZQ, KTRA, KDAG, KCQL, KKFG) for aggregate consideration of approximately $22,000,000. The Company previously operated five of these stations under time brokerage agreements during 1996. Subsequent to December 31, 1996, the Company entered into other agreements for acquisition of three additional broadcast properties for aggregate consideration of approximately $13.7 million. The Company currently operates all of these broadcast properties under time brokerage agreements. Subsequent to December 31, 1996, the Company reached an agreement to dispose of two of its broadcast properties (WTAW-AM and KTSR-FM), previously acquired through the acquisition of Sonance (Note 15), in exchange for 1,000 shares of the Company's Class C Common Stock. The stockholder to receive the broadcast properties is a family member of the majority stockholder of the Company. The related aggregate net assets of the broadcast properties approximated $800,000 at December 31, 1996. The Company recorded revenues related to these broadcast properties of approximately $1,703,000 during 1996. On February 24, 1997, Thomas O. Hicks converted the 39,033 shares of Class A Nonvoting Common Stock of GulfStar held by him to 39,033 shares of Class C Voting Common Stock of GulfStar. On March 4, 1997, GulfStar repurchased the 7,500 shares of GulfStar Convertible Preferred Stock for an amount equal to the initial liquidation or redemption value of $100 per share, plus dividends accrued to the date of purchase in the amount of $8.135 per share, or an aggregate of $811,013. As a result of this repurchase the 7,500 shares were retired and are no longer authorized, resulting in only 500,000 authorized preferred shares, consisting of 500,000 outstanding shares of 12% Redeemable Preferred Stock. 17. SUBSEQUENT EVENTS (UNAUDITED): The Company will enter into an agreement with Capstar Broadcasting Corporation ("Capstar Broadcasting") whereby Capstar Broadcasting will acquire the Company through a merger (the "GulfStar Merger"). Capstar Broadcasting will then contribute the surviving entity in the GulfStar Merger through Capstar Broadcasting Partners, Inc. to Capstar Radio Broadcasting Partners, Inc. Subsequent to March 31, 1997, the Company entered into various Local Marketing Agreements ("LMA's") and contracts, pending FCC approval. While each agreement is unique in its terms and conditions, generally under an LMA the brokering station purchases substantially all of the commercial time available on the brokered station and provides promotional and sales related services. The brokering station may also provide programming. The brokering station pays a fee to the brokered station for the services provided based upon a flat monthly amount and/or an amount contingent on the net revenue or profit as calculated in the agreement. The Company currently has LMA's or contracts pending FCC approval with KZBB-FM in Ft. Smith, Arkansas; KLAW-FM and KZCD-FM in Lawton, Oklahoma; KRVE-FM and WBIU-AM in Baton Rouge, Louisiana; KKCL-FM in Lubbock, Texas; KJEM-FM in Fayetteville, Arkansas; and KKTX-FM/AM in Longview, Texas. The Company provided programming to and sold advertising time on various stations that were under contract to purchase under LMA's. Subsequent to March 31, 1997, the Company acquired several broadcast properties (KIOC, KWHN, KMAG, KLLI, KYGL) for aggregate consideration of approximately $10.0 million. The Company previously operated all of these stations under time brokerage agreements. F-74 243 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-75 244 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP COMBINED BALANCE SHEETS ASSETS
AS OF DECEMBER 31, MARCH 31, -------------------------- 1997 1996 1995 ----------- ----------- ----------- (UNAUDITED) Current assets: Cash.............................................. $ 4,020,802 $11,029,177 $ 825,403 Escrow deposit.................................... 330,393 150,000 -- Accounts receivable, net of allowance for doubtful accounts of $323,369, $324,719 and $280,366, respectively................................... 4,563,340 4,731,405 4,016,421 Due from related entities......................... 545,921 23,753 10,884 Prepaid expenses and other current assets......... 355,514 244,784 354,211 ----------- ----------- ----------- Total current assets...................... 9,815,970 16,179,119 5,206,919 Property and equipment, net......................... 14,055,253 13,721,546 14,156,177 Investment in limited partnership................... 66,331 66,331 82,721 Intangible assets, net.............................. 46,041,437 43,788,173 30,204,762 Deferred acquisition costs.......................... 113,014 375,882 -- ----------- ----------- ----------- Total assets.............................. $70,092,005 $74,131,051 $49,650,579 =========== =========== =========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable and accrued expenses............. $ 2,491,703 $ 2,900,204 $ 1,645,018 Due to related entities........................... 1,564,493 2,865,164 65,345 Current portion of long-term debt................. 14,223,007 14,219,155 12,846,733 Obligations under capital leases, current portion........................................ 55,868 78,984 114,451 ----------- ----------- ----------- Total current liabilities................. 18,335,071 20,063,507 14,671,547 Long-term debt...................................... 29,849,426 29,841,341 14,127,693 Obligations under capital leases, net of current portion........................................... 55,750 78,820 220,058 ----------- ----------- ----------- Total liabilities................................. 48,240,247 49,983,668 29,019,298 ----------- ----------- ----------- Commitments (Note 8) Partners' capital................................... 21,851,758 24,147,383 20,631,281 ----------- ----------- ----------- Total liabilities and partners' capital... $70,092,005 $74,131,051 $49,650,579 =========== =========== ===========
The accompanying notes are an integral part of the combined financial statements. F-76 245 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ------------------------- --------------------------------------- 1997 1996 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) Gross broadcast revenue......... $ 6,999,900 $ 6,760,055 $29,697,028 $25,198,304 $17,621,955 Less agency commissions......... 555,850 542,832 2,441,800 2,051,455 1,449,843 ----------- ----------- ----------- ----------- ----------- Net revenue................... 6,444,050 6,217,223 27,255,228 23,146,849 16,172,112 ----------- ----------- ----------- ----------- ----------- Operating expenses: Programming, technical and news....................... 1,400,341 1,523,647 6,760,363 5,210,641 3,804,695 Sales and promotion........... 2,423,220 2,104,382 9,233,843 8,245,763 5,787,235 General and administrative.... 1,514,043 1,336,624 5,257,968 4,823,394 3,383,768 Depreciation and amortization............... 1,336,402 1,329,982 5,320,258 5,005,245 4,149,542 Corporate expenses............ 265,076 818,671 1,513,438 1,271,455 569,480 ----------- ----------- ----------- ----------- ----------- 6,939,082 7,113,306 28,085,870 24,556,498 17,694,720 ----------- ----------- ----------- ----------- ----------- Loss from operations.......... (495,032) (896,083) (830,642) (1,409,649) (1,522,608) Other income (expense): Interest expense.............. (936,552) (646,212) (3,384,388) (2,519,578) (1,799,169) Gain on sale of broadcasting properties (Note 6b)....... -- -- 9,612,496 -- 1,437,817 Other, net.................... 60,660 58,092 678,636 (414,561) 96,920 ----------- ----------- ----------- ----------- ----------- Net income (loss)............. $(1,370,924) $(1,484,203) $ 6,076,102 $(4,343,788) $(1,787,040) =========== =========== =========== =========== ===========
The accompanying notes are an integral part of the combined financial statements. F-77 246 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 Capital distributions to partners (unaudited)...... (83,542) (841,159) (924,701) Net income (loss) (unaudited)...................... (199,087) (1,171,837) (1,370,924) ----------- ----------- ----------- Balance, March 31, 1997 (unaudited).................. $ (492,291) $22,344,049 $$21,851,758 =========== =========== ===========
The accompanying notes are an integral part of the combined financial statements. F-78 247 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ------------------------- ----------------------------------------- 1997 1996 1996 1995 1994 ----------- ----------- ------------ ------------ ----------- (UNAUDITED) Cash flows from operating activities: Net income (loss)...................................... $(1,370,924) $(1,484,203) $ 6,076,102 $ (4,343,788) $(1,787,040) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................ 1,336,402 1,329,982 5,320,258 5,005,245 4,149,542 Provision for doubtful accounts...................... 77,504 -- 332,487 280,760 342,038 Loss from investment in limited partnership.......... -- -- 16,490 7,381 7,914 Gain on sale of broadcast properties and equipment... -- -- (9,612,496) (4,766) (1,437,817) Change in barter receivable/payable, net............. (105,399) (188,863) (83,433) 197,335 35,795 Changes in assets and liabilities, net of the effects of acquired broadcasting properties: Accounts receivable................................ 89,572 (62,959) (996,735) (1,528,818) (569,941) Due from/due to related entities, net.............. (1,822,839) (417,397) 2,786,950 (332,505) 167,622 Prepaid expenses and other current assets.......... (110,730) (128,012) (109,427) (277,703) 42,261 Accounts payable and accrued expenses.............. (302,113) 456,846 1,375,292 635,184 (227,408) ----------- ----------- ------------ ------------ ----------- Net cash flows provided by (used in) operating activities..................................... (2,208,527) (494,606) 5,105,488 (361,675) 722,966 ----------- ----------- ------------ ------------ ----------- Cash flows from investing activities: Purchases of property and equipment.................... (69,617) (82,618) (1,133,074) (1,140,417) (542,749) Purchases of broadcasting properties................... (3,771,281) (7,754,829) (22,225,278) (16,535,198) (5,189,233) Net proceeds from sales of broadcasting properties..... -- -- 14,123,152 -- 4,866,629 Capital contribution to limited partnerships........... -- -- -- -- 3,900,000 ----------- ----------- ------------ ------------ ----------- Net cash flows provided by (used in) investing activities..................................... (3,840,898) (7,837,447) (9,235,200) (17,675,615) 3,034,647 ----------- ----------- ------------ ------------ ----------- Cash flows from financing activities: Repayments of notes payable and capital leases......... (34,249) (122,006) (6,903,389) (9,341,629) (5,363,989) Proceeds from borrowing under notes payable and promissory notes..................................... -- 8,022,516 23,846,875 15,652,627 1,755,000 Distributions to partners.............................. (924,701) (24,299) (3,360,000) (599,745) (255,000) Capital contributions for acquisition of broadcasting properties........................................... -- -- 800,000 7,393,804 5,700,000 Cash paid for syndication costs........................ -- -- -- (178,847) (584,313) Borrowings under line of credit........................ -- -- 647,075 215,535 -- Repayments under line of credit........................ -- -- (697,075) -- -- Proceeds from sale leaseback transaction............... -- -- -- -- 141,000 Proceeds from assumption of capital lease obligation... -- -- -- -- 28,000 ----------- ----------- ------------ ------------ ----------- Net cash flows provided by financing activities..................................... (958,950) 7,876,211 14,333,486 13,141,745 1,420,698 ----------- ----------- ------------ ------------ ----------- Net increase (decrease) in cash.......................... (7,008,375) (455,842) 10,203,774 (4,895,545) 5,178,311 Cash, at beginning of period............................. 11,029,177 825,403 825,403 5,720,948 542,637 ----------- ----------- ------------ ------------ ----------- Cash, at end of period................................... $ 4,020,802 $ 369,561 $ 11,029,177 $ 825,403 $ 5,720,948 =========== =========== ============ ============ =========== Supplementary information: Cash paid for interest................................. $ 946,455 $ 533,102 $ 3,459,331 $ 2,473,568 $ 1,363,052 Noncash activities: Asset additions under capital lease obligations...... -- -- 15,882 16,936 211,371 Assumption of note payable in connection with fund merger............................................. -- -- -- 500,000 --
The accompanying notes are an integral part of the combined financial statements. F-79 248 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP NOTES TO COMBINED FINANCIAL STATEMENTS (DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION: The financial statements and following notes, insofar as they are applicable to the three-month periods ended March 31, 1997 and 1996, and transactions subsequent to February 8, 1997, the date of the Report of Independent Accountants, are not covered by the Report of Independent Accountants. In the opinion of management, all adjustments, consisting of only normal recurring accruals considered necessary for a fair presentation of the unaudited consolidated results of operations for the three-month periods ended March 31, 1997 and 1996, have been included. The results of operations for the three months ended March 31, 1997 are not necessarily indicative of the results to be expected for the entire year. The accompanying financial statements include the combined radio station holdings of Benchmark Communications Radio Limited Partnership (BCRLP), and Benchmark Radio Acquisition Fund I Limited Partnership (BRAF I), Benchmark Radio Acquisition Fund IV Limited Partnership (BRAF IV), Benchmark Radio Acquisition Fund VII Limited Partnership (BRAF VII), and Benchmark Radio Acquisition Fund VIII Limited Partnership (BRAF VIII) (collectively, Benchmark). BCRLP is a Maryland limited partnership formed on June 1, 1991 to invest in and manage radio stations and serves as the general partner for the four funds listed above, as well as other funds not included in these combined financial statements. Benchmark serves certain radio markets in Delaware, Maryland, South Carolina, Virginia, Louisiana, Mississippi and Alabama. All significant intercompany accounts and transactions have been eliminated. BENCHMARK RADIO ACQUISITION FUND I LIMITED PARTNERSHIP BRAF I is a Maryland limited partnership formed on May 16, 1990, and operates radio stations WDOV-AM, WDSD-FM and WSRV-FM. BENCHMARK RADIO ACQUISITION FUND IV LIMITED PARTNERSHIP BRAF IV is a Maryland limited partnership formed on December 10, 1992, to operate radio stations and its 99.99999% owned subsidiary, Benchmark Radio Acquisition Fund V Limited Partnership (BRAF V) (together, the Fund IV Partnership). BRAF IV is the general partner in BRAF V and BCRLP is the limited partner. The Fund IV Partnership operates radio stations WOSC-FM, WWFG-FM, WCOS-AM/FM, WHKZ-FM, WVOC-AM, and KRMD-AM/FM. BENCHMARK RADIO ACQUISITION FUND VII LIMITED PARTNERSHIP BRAF VII is a Maryland limited partnership formed on June 20, 1994, and operates WESC-AM/FM, WFNQ-FM and WJMZ-FM. BENCHMARK RADIO ACQUISITION FUND VIII LIMITED PARTNERSHIP BRAF VIII is a Maryland limited partnership formed on November 15, 1994, and operates WUSQ-FM, WNTW-AM, WYYD-FM, WROV-AM/FM and WFQX-FM. On January 1, 1995, Benchmark Radio Acquisition Fund II Limited Partnership (BRAF II), which owned WUSQ-FM and WNTW-AM in Winchester, Virginia, and Benchmark Radio Acquisition Fund VI Limited Partnership (BRAF VI), which owned WFQX-FM in Front Royal, Virginia, were merged into BRAF VIII. The limited partners of BRAF II and BRAF VI collectively received approximately 33 units, of the total of 73 units, in BRAF VIII. The merger has been accounted for in a manner similar to a pooling of interests, whereby the net assets of the merged partnerships are recorded at their carrying amounts at the time of the merger. F-80 249 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 Communications Commission (the FCC) rules and regulations and any other events or circumstances which might indicate potential impairment. F-81 250 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) ADVERTISING COSTS Benchmark incurs various marketing and promotional costs to add and maintain listenership. These costs are expensed as incurred or deferred and amortized over the interim periods which they benefit and totaled approximately $1.6 million, $1.6 million and $1.2 million for the years ended December 31, 1996, 1995 and 1994, respectively. CONCENTRATION OF CREDIT RISK Benchmark's revenue and accounts receivable primarily relate to advertising of products and services within the radio stations' broadcast areas. Benchmark's management performs ongoing credit evaluations of the customers' financial condition and, generally, requires no collateral from their customers. Credit losses have been within management's expectations and adequate allowances for any uncollectible trade receivables are maintained. INCOME TAXES Benchmark is comprised of limited partnerships which are exempt from federal and state income taxes. Accordingly, no provision for income taxes has been made in the accompanying financial statements as all items of tax attributes pass through pro rata to each partner in accordance with the partnership agreements. 3. UNCERTAINTIES AND USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On February 8, 1996, the President signed into law the Telecommunications Act of 1996. Among other things, this legislation requires the FCC to relax its numerical restrictions on local ownership and affords renewal applicants significant new protections from competing applications for their broadcast licenses. The ultimate effect of this legislation on the competitive environment is currently undeterminable. 4. PROPERTY AND EQUIPMENT: Property and equipment at December 31, 1996 and 1995 consist of the following:
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 =========== ===========
Depreciation expense for the years ended December 31, 1996, 1995 and 1994 was $2,409,696, $2,227,478 and $1,680,039, respectively. F-82 251 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 5. INTANGIBLE ASSETS: Intangible assets at December 31, 1996 and 1995 consist of the following:
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 ======
On March 1, 1995, BRAF VII purchased substantially all the assets of WESC-AM/FM for approximately $8.1 million, including acquisition costs and an agreement by the seller not to compete with the station. The acquisition has been accounted for as a purchase and, accordingly, the results of operations associated with the acquired assets have been included in the accompanying statements from the date of acquisition. F-83 252 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 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 ======
UNAUDITED On March 11, 1997, BRAF IV purchased substantially all the assets of WSCQ-FM in the Columbia, South Carolina market for approximately $4.1 million, including acquisition costs. The acquisition has been accounted for as a purchase and, accordingly, the results of operations associated with the acquired assets have been included in the accompanying statements from the date of acquisition. F-84 253 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) The acquisition is summarized as follows (in thousands): Assets acquired: Property and equipment.................................... $ 736 Goodwill and other intangibles............................ 3,364 ------ Purchase price.............................................. $4,100 ======
The following table presents the operating results of Benchmark for the three months ended March 31, 1997 and 1996, compared to pro forma operating results for such periods, reflecting the acquisition of WSCQ-FM. The unaudited pro forma information presents combined operating results as though the acquisition of WSCQ-FM and acquisitions completed during 1996 had occurred at the beginning of the period.
THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 1997 MARCH 31, 1996 ------------------- ------------------- ACTUAL PRO FORMA ACTUAL PRO FORMA ------ --------- ------ --------- (UNAUDITED) (UNAUDITED) Net revenue............................... $6,440 $6,647 $6,217 $6,525 Net loss.................................. $1,371 $1,457 $1,484 $1,520
The following summarizes the combined historical and unaudited pro forma data for the years ended December 31, 1996 and 1995, as though Benchmark's acquisitions of WYYD-FM, WVOC-AM, WESC-AM/FM, WROV-AM/FM, KRMD-AM/FM and WJMZ-FM, had occurred as of January 1, 1995 (in thousands):
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. F-85 254 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 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 --
F-86 255 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
1996 1995 ----------- ----------- 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 =========== ===========
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. F-87 256 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Future minimum lease payments (which reflect leases having noncancelable lease terms in excess of one year) are as follows for the year ended December 31:
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. 9. PROFIT SHARING PLAN: The employees of Benchmark are included in a 401(k) profit sharing plan (the "Plan"). All full-time employees of Benchmark who have attained the age of 21 years are eligible for participation in the Plan after one year and one thousand hours of service. The Plan allows the employees to defer up to 16% of their compensation through a salary reduction arrangement. Benchmark makes a matching contribution equal to 25% of the employees' salary reduction. In addition, Benchmark may make a discretionary contribution to the Plan. Participation in the Plan is subject to a five year vesting schedule. During the years ended December 31, 1996, 1995 and 1994, Benchmark's combined expense related to the Plan was approximately $85,900, $70,700 and $40,300, respectively. 10. RELATED PARTY TRANSACTIONS: The various entities defined in Note 1 are involved in certain transactions with each other related to sharing of services and purchasing. These transactions are settled on a current basis through adjustments to partners' equity accounts. In February 1996, BRAF VII borrowed $1,500,000 from a limited partner to finance the escrow deposit for the acquisition of WJMZ-FM (Greenville). The note was paid in full on December 9, 1996. In connection with such debt, interest expense of $287,436 was recorded for the year ended December 31, 1996. As of July 1, 1992, BCRLP assumed $37,500 of a note payable to limited partners in Benchmark made by an affiliated entity. Interest expense related to this note was immaterial for the years ended December 31, 1996, 1995 and 1994, respectively. 11. LITIGATION: Benchmark is the plaintiff or the defendant in several legal actions, the probable outcomes of which are not considered material, either individually or in the aggregate. F-88 257 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 12. PENDING SALE OF BENCHMARK AND OTHER TRANSACTIONS (UNAUDITED): On December 9, 1996, Benchmark agreed to be acquired by Capstar Radio Broadcasting Partners, Inc. (Capstar Radio), a Delaware corporation, through an acquisition affiliate, Fund III Acquisition Sub. In June, 1997, the FCC approved the sale. The purchase price will equal approximately $173.4 million and is subject to adjustment. The sale is expected to be completed in July 1997. In connection with the sale, a general partner will receive 1,538,461 shares of Capstar Class A Common Stock in lieu of cash, in consideration of a portion of his ownership interest in Benchmark. In the event the acquisition is terminated by Capstar or its affiliates, Benchmark could be entitled to certain liquidation damages up to approximately $8.2 million. No adjustments have been made to the combined financial statements to reflect the pending sale, except as described in Note 8 relating to the participation agreement. Benchmark and certain other related entities (BRAF IX, BRAF X and BRAF XI) under common control of the Benchmark General Partners also have agreed to acquire two radio stations in the Montgomery, Alabama market (the "Benchmark Montgomery Acquisition") for an aggregate cash price of approximately $17.0 to $18.0 million. The acquisition was completed in April 1997. In May 1996, BRAF IX entered into an agreement to acquire substantially all the assets and certain liabilities of WFMX-FM and WSIC-AM in Statesville, North Carolina (Statesville) for an aggregate cash price of approximately $9.6 million. Liabilities assumed were limited to certain ongoing contractual rights and obligations. The acquisition was completed in January 1997. In September, 1996, BRAF X entered into an agreement to acquire substantially all the assets and certain liabilities of WJMI-FM, WKXI-AM/FM and WOAD-FM in Jackson, Mississippi (Jackson) for an aggregate cash price of approximately $15.0 million. Liabilities assumed were limited to certain ongoing contractual rights and obligations. The acquisition was completed in December 1996. As part of the acquisition of Benchmark by Capstar Radio and Fund III Acquisition Sub, BRAF VII, (along with certain other partnerships not included in these combined financial statements, specifically referred to as BRAF IX, BRAF X and BRAF XI) entered into separate senior credit agreements with Fund III Acquisition Sub. Under these agreements, BRAF VII, BRAF IX, BRAF X and BRAF XI can collectively borrow up to approximately $60.0 million. Approximately $60.0 million has been loaned to BRAF VII , BRAF IX and BRAF X, net of expenses, of which approximately $12.6 million as of December 31, 1996 has been loaned to BRAF VII, to consummate the acquisition of substantially all of the assets of WJMZ-FM (Greenville) and to refinance debt, and, during January 1997, the remainder has been borrowed by BRAF IX, BRAF X, and BRAF XI to consummate the acquisitions of Statesville, Jackson, and Montgomery and for working capital purposes. F-89 258 MADISON RADIO GROUP CONDENSED BALANCE SHEET MARCH 31, 1997 (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 347,800 Certificate of deposit.................................... 93,441 Accounts receivable, net of $17,000 allowance for doubtful accounts............................................... 1,310,973 Accounts receivable, related party........................ 103,688 Prepaid expenses.......................................... 39,139 ----------- Total current assets.............................. 1,895,041 Property and equipment, net................................. 2,738,963 Intangible assets, net...................................... 12,833,288 Other....................................................... 18,665 ----------- Total assets...................................... $17,485,957 =========== LIABILITIES AND PARTNERS' EQUITY Current liabilities: Current portion of long-term debt......................... $ 250,000 Accounts payable.......................................... 317,004 Accounts payable, related party........................... 232,026 Accrued expenses.......................................... 210,143 Trade payable, net........................................ 31,260 ----------- Total current liabilities......................... 1,040,433 Long-term debt.............................................. 13,250,000 Partners' equity............................................ 3,195,524 ----------- Total liabilities and partners' equity............ $17,485,957 ===========
The accompanying notes are an integral part of these financial statements. F-90 259 MADISON RADIO GROUP CONDENSED STATEMENT OF OPERATIONS FOR THE PERIOD FROM JANUARY 2, 1997 TO MARCH 31, 1997 (UNAUDITED) Broadcasting revenue: Gross revenue............................................. $2,269,996 Less agency commissions................................... 241,570 ---------- Net broadcasting revenue.......................... 2,028,426 Operating expenses: Sales and promotion....................................... 417,186 Programming, engineering and news......................... 613,666 General and administrative................................ 214,863 Depreciation and amortization............................. 376,204 Management fees and other expenses........................ 47,160 ---------- 1,669,079 ---------- Operating income.................................. 359,347 Interest expense............................................ (347,906) ---------- Net income........................................ $ 11,441 ==========
The accompanying notes are an integral part of these financial statements. F-91 260 MADISON RADIO GROUP CONDENSED STATEMENT OF PARTNERS' EQUITY FOR THE PERIOD FROM JANUARY 2, 1997 TO MARCH 31, 1997 (UNAUDITED) Partners' initial capital contributions, January 2, 1997.... $ 7,146,583 Distribution to partner..................................... (3,962,500) Net income for the period from January 2, 1997 to March 31, 1997...................................................... 11,441 ----------- Partners' equity, March 31, 1997............................ $ 3,195,524 ===========
The accompanying notes are an integral part of these financial statements. F-92 261 MADISON RADIO GROUP CONDENSED STATEMENT OF CASH FLOWS FOR THE PERIOD FROM JANUARY 2, 1997 TO MARCH 31, 1997 (UNAUDITED) Cash from operating activities: Net income................................................ $ 11,441 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization.......................... 376,204 Changes in operating assets and liabilities: Accounts receivable.................................. (1,310,973) Prepaid expenses..................................... 19,466 Accounts payable and accrued expenses................ 562,282 Trade payable, net................................... 3,269 ----------- Net cash used in operating activities............. (338,311) ----------- Cash flows from investing activities: Advances to related party................................. (103,688) Purchases of property and equipment....................... (36,381) Capstar Broadcasting Partners, Inc. related costs......... (18,665) ----------- Net cash used in investing activities............. (158,734) ----------- Cash flows from financing activities: Proceeds from term loan................................... 3,962,500 Distribution to partner................................... (3,962,500) Proceeds from capital contributions....................... 612,819 Advances from related party............................... 232,026 ----------- Net cash provided by financing activities......... 844,845 ----------- Net increase in cash and cash equivalents......... 347,800 Cash and cash equivalents, beginning of period.............. -- ----------- Cash and cash equivalents, end of period.................... $ 347,800 =========== Supplemental disclosure of cash flow information: Cash paid for interest.................................... $ 347,906 ===========
The accompanying notes are an integral part of these financial statements. F-93 262 MADISON RADIO GROUP NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: a. Organization and Basis of Presentation: Madison Radio Group (the "Company"), a general partnership, was formed on January 2, 1997, to own and operate radio stations WIBA-AM, WIBA-FM, WMAD-FM, WZEE-FM, WMLI-FM and WTSO-AM, servicing the Madison, Wisconsin area. At Madison Radio Group's inception, Point Communications Limited Partnership ("Point") exchanged its broadcasting and real estate assets of stations WIBA-AM, WIBA-FM, and WMAD-FM and $400,000 cash, subject to its long-term debt, for a 50% partnership interest in the Company and $3,962,500 cash (which was financed by Madison Radio Group borrowings). Simultaneously, Midcontinent Broadcasting Company of Wisconsin, Inc. ("Midcontinent") exchanged its broadcasting and real estate assets of stations WZEE-FM, WMLI-FM and WTSO-AM and $400,000 cash for the remaining 50% partnership interest in the Company. The broadcasting and real estate assets exchanged were recorded at the transferors' cost basis by the Company. The Company's financial statements have been prepared in accordance with generally accepted accounting principles, which require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses for the period presented. They also affect the disclosures of contingencies. Actual results could differ from those estimates. On February 8, 1996, the President signed into law the Telecommunications Act of 1996. Among other things, this legislation requires the Federal Communications Commission (the "FCC") to relax its numerical restrictions on local ownership and affords renewal applicants significant new protections from competing applications for the broadcast licenses. The ultimate effect of this legislation on the competitive environment is currently undeterminable. b. Cash Equivalents: For purposes of the Statement of Cash Flows, the Company considers all highly liquid, short-term investments purchased with original maturities of three months or less to be cash equivalents. c. Property and Equipment: Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, as follows: buildings and improvements 5-39 years, tower and antennae 3-15 years, equipment 5-15 years, and other 3-10 years. Expenditures for repairs are expensed while major additions are capitalized. Upon sale or disposal, the asset cost and accumulated depreciation are removed and any gain or loss is recognized in earnings. d. Intangible Assets: Intangible assets are stated at cost and amortized on a straight-line basis over their estimated useful lives, as follows: FCC broadcast licenses -- 15 years. Accumulated amortization as of March 31, 1997 was $205,992. Other intangibles -- 5-15 years. Accumulated amortization as of March 31, 1997 was $7,290. Goodwill -- Goodwill acquired prior to November 1, 1970 ($374,223) is not being amortized. Goodwill arising from acquisitions subsequent to November 1, 1970 is being amortized over 15-40 years. Accumulated amortization as of March 31, 1997, was $5,746. Deferred financing costs -- loan term. Accumulated amortization as of March 31, 1997 was $12,737. Organization costs -- 5 years. Accumulated amortization as of March 31, 1997 was $5,155. On an ongoing basis, management evaluates the recoverability of the net carrying value of intangible assets by reference to the Company's undiscounted anticipated future cash flows. e. Barter Transactions: The Company exchanges advertising airtime for goods and services, as is customary in the broadcast industry. In accordance with Statement of Financial Accounting Standards No. 63, "Financial Reporting by Broadcasters", revenue is recognized as the advertising is broadcast at the estimated fair F-94 263 MADISON RADIO GROUP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): market value of goods or services received or to be received. The value of the goods and services received in barter transactions is charged to expense when received or used. Barter revenues and expenses approximated $42,000 for the period from January 2, 1997 to March 31, 1997. f. Revenue Recognition: Revenue from the sale of air-time is recognized at the time the related program or advertisement is broadcast. g. Concentration of Risk: The Stations operate within the Madison, Wisconsin geographic area. They extend credit to their various customers in the form of accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains an allowance for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends and other information. h. Allocations and Distributions: The profits and losses of the Company are being allocated among the partners, and cash flow from operations or cash from capital transactions, if any, will be distributed to the partners in accordance with the terms of the partnership agreement. i. Income Taxes: No provision for federal or state income taxes has been provided as the partners report their pro rata share of the partnership profits or losses on their tax returns. 2. PROPERTY AND EQUIPMENT: Property and equipment consisted of the following at March 31, 1997: Land and improvements....................................... $277,058 Buildings................................................... 830,738 Tower and antennae.......................................... 833,199 Equipment................................................... 849,762 Other....................................................... 87,490 ---------- 2,878,247 Less accumulated depreciation............................... 139,284 ---------- $2,738,963 ==========
Depreciation expense was $139,284 for the period from January 2, 1997 to March 31, 1997. 3. INTANGIBLE ASSETS: Intangible assets consisted of the following at March 31, 1997: FCC broadcast licenses...................................... $11,210,008 Other intangibles........................................... 850,277 Goodwill.................................................... 720,010 Deferred financing costs.................................... 186,816 Organization costs.......................................... 103,097 ----------- 13,070,208 Less accumulated amortization............................... 236,920 ----------- $12,833,288 ===========
F-95 264 MADISON RADIO GROUP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) 4. LONG-TERM DEBT: Long-term debt consisted of the following at March 31, 1997: Term loan payable in quarterly installments of $250,000 to $400,000 beginning January, 1998, with a balloon payment of remaining balance due October 1, 2001.................. $13,500,000 Less current portion........................................ 250,000 ----------- $13,250,000 ===========
The term loan is subject to certain restrictive financial covenants, including the maintenance of minimum broadcast operating cash flow amounts, and limitations on additional indebtedness, capital expenditures, lease agreements, investments and distributions to partners. The term loan is collateralized by substantially all assets of the Company. The term loan bears interest at the bank's reference rate plus 1.25%-2.50% subject to operating cash flow results (the reference rate was 8.50% at March 31, 1997). The carrying amount reported for long-term debt approximates fair value since the underlying instrument bears interest at a variable rate that reprices frequently. The aggregate scheduled maturities of debt is as follows: April 1, 1997 to December 31, 1997.......................... $ -- 1998........................................................ 1,000,000 1999........................................................ 1,250,000 2000........................................................ 1,400,000 2001........................................................ 9,850,000 ----------- $13,500,000 ===========
5. OPERATING LEASES: The Company leases vehicles, office equipment, office space and a tower site under operating leases with future minimum rental payments as follows: April 1, 1997 to December 31, 1997.......................... $ 62,924 1998........................................................ 67,512 1999........................................................ 67,512 2000........................................................ 67,512 2001........................................................ 38,707 Thereafter.................................................. 331,000 -------- $635,167 ========
Rental expense charged to operations was $27,230 for the period from January 2, 1997 to March 31, 1997. 6. LETTER OF CREDIT: At March 31, 1997, the Company had a letter of credit outstanding for $90,000. The letter of credit can be drawn upon if the Company fails to make payments due under the terms and conditions of a network agreement which expires in May 1997. The Company has pledged a certificate of deposit as collateral for the letter of credit. F-96 265 MADISON RADIO GROUP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) 7. SALE TO CAPSTAR RADIO BROADCASTING PARTNERS, INC.: On February 4, 1997, the Company entered into an agreement to sell substantially all the assets of its stations to Capstar Radio Broadcasting Partners, Inc., a radio investment group. The closing of the transaction, which is subject to various conditions and approvals as defined in the agreement, is expected to occur in the fourth quarter of 1997. During the period from January 2, 1997 to March 31, 1997, the Company incurred $18,665 of costs directly related to the pending sale to Capstar Radio Broadcasting Partners, Inc., which are included in other assets in the accompanying balance sheet. F-97 266 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Capstar Radio Broadcasting Partners, Inc.: We have audited the accompanying balance sheet of Midcontinent Broadcasting Co. of Wisconsin, Inc. (the "Company") as of December 31, 1996, and the related statements of income and retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Midcontinent Broadcasting Co. of Wisconsin, Inc. as of December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Milwaukee, Wisconsin February 3, 1997 F-98 267 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-99 268 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-100 269 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-101 270 MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: a. Organization and Basis of Presentation: Midcontinent Broadcasting Co. of Wisconsin, Inc. (the "Company") is a wholly-owned subsidiary of Midcontinent Broadcasting Co., which in turn is wholly-owned by Midcontinent Media, Inc. (the "Parent"). The Company owns and operates radio stations WZEE-FM, WTSO-AM and WMLI-FM (the "Stations") serving the Madison, Wisconsin area. The Company's financial statements have been prepared in accordance with generally accepted accounting principles, which require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses for the period presented. They also affect the disclosures of contingencies. Actual results could differ from those estimates. On February 8, 1996, the President signed into law the Telecommunications Act of 1996. Among other things, this legislation requires the Federal Communications Commission (the "FCC") to relax its numerical restrictions on local ownership and affords renewal applicants significant new protections from competing applications for the broadcast licenses. The ultimate effect of this legislation on the competitive environment is currently undeterminable. b. Property and Equipment: Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using accelerated and straight-line methods over the estimated useful lives of the assets as follows: buildings and improvements 5-39 years, tower and antennae 3-15 years, equipment 5-15 years, and other 3-10 years. Expenditures for repairs are expensed while major additions are capitalized. Upon sale or disposal, the asset cost and accumulated depreciation are removed and any gain or loss is recognized in earnings. c. Intangible Assets: Intangible assets are stated at cost and amortized on a straight-line basis over their estimated useful lives, as follows: FCC broadcast licenses -- 15 years. Accumulated amortization as of December 31, 1996 was $190,903. Goodwill -- Goodwill acquired prior to November 1, 1970 ($374,223) is not being amortized. Goodwill arising from acquisitions subsequent to November 1, 1970 is being amortized over 40 years. Accumulated amortization as of December 31, 1996 was $88,098. Other -- Five years. Accumulated amortization at December 31, 1996 was $7,048. On an ongoing basis, management evaluates the recoverability of the net carrying value of intangible assets by reference to the Company's undiscounted anticipated future cash flows. d. Barter Transactions: The Company exchanges advertising airtime for goods and services, as is customary in the broadcast industry. In accordance with Statement of Financial Accounting Standards No. 63, "Financial Reporting by Broadcasters", revenue is recognized as the advertising is broadcast at the estimated fair market value of goods or services received or to be received. The value of the goods and services received in barter transactions is charged to expense when received or used. Barter revenues and expenses were approximately $45,000 and $53,000, respectively, for 1996. e. Revenue Recognition: Revenue from the sale of air-time is recognized at the time the related program or advertisement is broadcast. f. Concentration of Risk: The Stations operate within the Madison, Wisconsin geographic area. They extend credit to their various customers in the form of accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains an allowance for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends and other information. F-102 271 MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) g. Income Taxes: The Company files a consolidated federal income tax return with the Parent, which provides for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", which requires the liability method of accounting for deferred income taxes. The consolidated provision for income taxes is allocated among the members of the consolidated group based upon each member's pre-tax earnings compared to the consolidated pre-tax earnings. The liability for income taxes is included in Due to Parent in the accompanying balance sheet. At December 31, 1996, there was no provision for deferred income taxes, as temporary differences between tax and financial reporting bases of assets and liabilities are immaterial. 2. PROPERTY AND EQUIPMENT: Property and equipment consisted of the following at December 31, 1996: 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-103 272 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 $3,962,500 cash (which was financed by Madison Radio Group borrowings). During 1996, the Company incurred $101,085 of costs directly related to its investment in Madison Radio Group, which are included in other assets on the accompanying balance sheet. In February 1997, Madison Radio Group entered into an agreement to sell substantially all the assets of its stations to Capstar Broadcasting Partners, Inc., a radio investment group. The closing of this transaction, which is subject to various conditions and approvals as defined in the agreement, is expected to occur in the fourth quarter of 1997. F-104 273 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-105 274 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-106 275 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-107 276 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-108 277 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-109 278 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-110 279 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-111 280 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-112 281 POINT COMMUNICATIONS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 7. SUBSEQUENT EVENTS: On January 2, 1997, the Partnership exchanged its broadcasting and real estate assets of stations WMAD-FM, WIBA-FM and WIBA-AM and $400,000 cash, subject to its long-term debt, for a 50% partnership interest in Madison Radio Group (a general partnership), and $3,962,500 cash (which was financed by Madison Radio Group borrowings). Simultaneously, Midcontinent Broadcasting Co. of Wisconsin, Inc. ("Midcontinent"), a company that also owns and operates radio stations serving the Madison, Wisconsin area, exchanged its broadcasting and real estate assets of stations WZEE-FM, WMLI-FM and WTSO-AM and $400,000 cash for the remaining 50% partnership interest in Madison Radio Group. During 1996, the Partnership incurred $103,097 of costs directly related to its investment in Madison Radio Group, which are included in other assets on the accompanying balance sheet. Also, on January 2, 1997, the Partnership contributed the assets of its WMAD-AM station with a net book value of approximately $230,000 to an educational institution and received $85,000 cash. On February 4, 1997, Madison Radio Group entered into an agreement to sell substantially all the assets of its stations to Capstar Radio Broadcasting Partners, Inc., a radio investment group. The closing of the transaction, which is subject to various conditions and approvals as defined in the agreement, is expected to occur in the fourth quarter of 1997. F-113 282 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-114 283 COMMUNITY PACIFIC BROADCASTING COMPANY L.P. (A DELAWARE LIMITED PARTNERSHIP) BALANCE SHEETS ASSETS
MARCH 31, DECEMBER 31, 1997 1996 ----------- ------------ (UNAUDITED) Current assets: Cash...................................................... $ 330,770 $ 38,532 Accounts receivable, net of allowance for doubtful accounts of $58,982 and $70,525, respectively.......... 745,638 1,708,213 Prepaid expenses and other current assets................. 144,731 97,239 ----------- ----------- Total current assets.............................. 1,221,139 1,843,984 Property and equipment, net................................. 3,806,144 3,843,508 Intangible assets, net...................................... 12,595,121 12,817,337 Other assets................................................ 100,661 125,453 ----------- ----------- Total assets........................................... $17,723,065 $18,630,282 =========== =========== LIABILITIES AND PARTNERS' EQUITY Current liabilities: Accounts payable.......................................... $ 68,679 $ 237,996 Accrued liabilities....................................... 189,477 483,065 Due to Pacific Star....................................... 72,026 -- Current portion of long-term debt......................... 1,437,500.. 1,175,125 ----------- ----------- Total current liabilities......................... 1,767,682 1,896,186 Long-term debt, net of current portion...................... 8,337,500 8,696,875 ----------- ----------- Total liabilities................................. 10,105,182 10,593,061 ----------- ----------- Commitments (Note 9) Partners' equity............................................ 7,617,883 8,037,221 ----------- ----------- Total liabilities and partners' equity............ $17,723,065 $18,630,282 =========== ===========
The accompanying notes are an integral part of these financial statements. F-115 284 COMMUNITY PACIFIC BROADCASTING COMPANY L.P. (A DELAWARE LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS
THREE MONTHS ENDED YEAR ENDED MARCH 31, 1997 DECEMBER 31, 1996 -------------- ----------------- (UNAUDITED) Revenue: Broadcasting revenue...................................... $1,849,044 $12,318,547 Less agency commissions................................... 168,049 1,119,613 ---------- ----------- Net revenue....................................... 1,680,995 11,198,934 ---------- ----------- Station operating expenses: Programming and technical expense......................... 623,566 3,935,571 Selling and promotion expense............................. 331,592 2,981,563 General and administrative expense........................ 354,878 1,998,698 ---------- ----------- Total station operating expenses.................. 1,310,036 8,915,832 Corporate expenses.......................................... 197,220 760,150 Depreciation and amortization............................... 350,270 1,416,077 ---------- ----------- Operating income (loss)................................... (176,531) 106,875 Other expense, net.......................................... (2,424) (8,438) Loss on disposal of assets.................................. -- (10,611) Interest expense............................................ (237,774) (933,315) ---------- ----------- Net loss.......................................... $ (416,729) $ (845,489) ========== ===========
The accompanying notes are an integral part of these financial statements. F-116 285 COMMUNITY PACIFIC BROADCASTING COMPANY L.P. (A DELAWARE LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' EQUITY
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 Capital distributions to partners (unaudited)......... (800) (1,809) (2,609) Net loss (unaudited).................................. (86,971) (329,758) (416,729) --------- ----------- ----------- Balances as of March 31, 1997 (unaudited)............... $ 27,827 $ 7,590,056 $ 7,617,883 ========= =========== ===========
The accompanying notes are an integral part of these financial statements. F-117 286 COMMUNITY PACIFIC BROADCASTING COMPANY L.P. (A DELAWARE LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED YEAR ENDED MARCH 31, 1997 DECEMBER 31, 1996 -------------- ----------------- (UNAUDITED) Cash flows from operating activities: Net loss.................................................. $(416,729) $ (845,489) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization.......................... 350,270 1,416,077 Loss on sale of fixed assets........................... -- 10,611 Changes in operating assets and liabilities: Accounts receivable, net............................. 962,575 116,834 Prepaid expenses and other current assets............ (47,492) 41,643 Other assets......................................... 24,792 -- Accounts payable..................................... (169,317) (345,207) Accrued liabilities.................................. (293,588) (108,490) Due to Pacific Star.................................. 72,026 -- --------- ----------- Net cash provided by operating activities......... 482,537 285,979 --------- ----------- Cash flows from investing activities: Purchase of property and equipment, net of acquisition.... (90,690) (408,731) Proceeds from sale of fixed assets........................ -- 3,500 Intangible assets, net of acquisition..................... -- (103,635) Increase in other assets.................................. -- (17,919) Cash used in acquisition.................................. -- (450,000) --------- ----------- Net cash used in investing activities............. (90,690) (976,785) --------- ----------- Cash flows from financing activities: Proceeds from notes payable............................... 190,500 1,408,000 Repayment of notes payable................................ (287,500) (1,650,000) Capital contributions from partners....................... -- 3,092,954 Capital distributions to partners......................... (2,609) (2,209,658) --------- ----------- Net cash (used in) provided by financing activities...................................... (99,609) 641,296 --------- ----------- Net increase (decrease) in cash............................. 292,238 (49,510) Cash, beginning of year..................................... 38,532 88,042 --------- ----------- Cash, end of year........................................... $ 330,770 $ 38,532 ========= =========== Supplemental disclosure of cash flow information: Interest paid............................................. $ 991,233 =========== Supplemental disclosure of noncash activities: Revenue related to barter transactions.................... $ 322,837 $ 2,171,006 ========= =========== Advances from partners converted into equity.............. $ -- $ 427,046 ========= ===========
The accompanying notes are an integral part of these financial statements. F-118 287 COMMUNITY PACIFIC BROADCASTING COMPANY L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION: Community Pacific Broadcasting Company L.P. (the Partnership), a Delaware limited partnership, was formed April 1, 1992 and operates AM and FM radio broadcasting stations in the following communities as of December 31, 1996: - Modesto, California -- KFIV-AM, KJSN-FM, KVFX-FM and KJAX-AM - Anchorage, Alaska -- KASH-AM, KASH-FM, KENI-AM and KBFX-FM - Des Moines, Iowa -- KGGO-FM, KDMI-AM, and KHKI-FM Effective March 1, 1997, the Partnership entered into an LMA with Pacific Star in connection with the Partnership's radio stations pursuant to which Pacific Star provides certain sales, programming and marketing services for the Partnership's radio stations (unaudited). Interim Periods The balance sheet as of March 31, 1997 and the statements of operations, partners' equity and cash flows for the three month period ended March 31, 1997 are unaudited. However, in the opinion of management, all adjustments necessary (consisting only of normal recurring adjustments) for a fair presentation of such financial statements have been included. Interim results are not necessarily indicative of results for a full year. 2. USE OF ESTIMATES AND UNCERTAINTIES: The Partnership's financial statements have been prepared in accordance with generally accepted accounting principles, which require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses for the period presented. They also affect the disclosures of contingencies. Actual results could differ from those estimates. On February 8, 1996, the President signed into law the Telecommunications Act of 1996. Among other things, this legislation requires the Federal Communications Commission (the "FCC") to relax its numerical restrictions on local ownership and affords renewal applicants significant new protections from competing applications for the broadcast licenses. The ultimate effect of this legislation on the competitive environment is currently undeterminable. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Property and Equipment Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows: 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-119 288 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-120 289 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-121 290 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 pre-tax contributions to the Plan. The Partnership may make discretionary contributions to the Plan. No amounts have been accrued or paid for such discretionary contributions in respect of the year ended December 31, 1996. 9. COMMITMENTS: The Partnership rents certain facilities and equipment under noncancelable operating leases. Minimum annual payments under these leases as of December 31, 1996 are as follows: 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. The Partnership has entered into several royalty agreements in order to broadcast music. Most of these contracts require payments based upon related advertising revenue. F-122 291 COMMUNITY PACIFIC BROADCASTING COMPANY L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 10. ACQUISITION: In April 1996, the Partnership acquired substantially all the assets of KJAX-AM in Stockton, California, for $450,000 plus acquisition costs of $64,757. The purchase price has been allocated $100,000 to property and equipment, $325,000 to FCC licenses and goodwill and $25,000 to other intangibles. The acquisition has been accounted for as an asset purchase. The purchase price has been allocated to the assets acquired based on their estimated fair market value at the date of the acquisition. Accordingly, the accompanying financial statements include the results of operations of the acquired entity from the date of acquisition. Had the acquisition occurred January 1, 1996 the Partnership's results of operations for the year ended December 31, 1996 would not have been materially different. 11. PENDING SALE OF PARTNERSHIP: On December 26, 1996, the Partnership agreed to be acquired by Capstar Radio Broadcasting Partners, Inc., a Delaware corporation, through an acquisition affiliate, Community Acquisition Company, Inc. The sale is subject to regulatory approval. The purchase price is estimated to be approximately $35.0 million and is subject to adjustment. No adjustments have been made to the financial statements to reflect the pending sale. F-123 292 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Patterson Broadcasting, Inc.: We have audited the accompanying consolidated balance sheets of Patterson Broadcasting, Inc. and subsidiaries (a Delaware corporation) as of December 31, 1996 and 1995 and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year ended December 31, 1996 and for the period from May 1, 1995 (inception) through December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Patterson Broadcasting, Inc. and subsidiaries at December 31, 1996 and 1995 and the results of their operations and cash flows for the year ended December 31, 1996 and for the period from May 1, 1995 (inception) through December 31, 1995 in conformity with generally accepted accounting principles. As explained in Note 1 to the financial statements, the Company has given effect to a change in accounting principle for redeemable warrants. ARTHUR ANDERSEN LLP New York, New York February 28, 1997 (except with respect to the matter discussed in Note 13, as to which the date is April 16, 1997) F-124 293 PATTERSON BROADCASTING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, MARCH 31, --------------------------- 1997 1996 1995 ------------ ------------ ----------- (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents................................. $ 1,177,000 $ 3,046,000 $ 214,000 Accounts receivable, less allowances for doubtful accounts of $452,000 at March 31, 1997, $402,000 at December 31, 1996 and $32,000 at December 31, 1995................... 8,171,000 9,426,000 2,498,000 Prepaid expenses and other current assets................. 1,231,000 932,000 497,000 Deferred income taxes (Note 6)............................ 658,000 458,000 -- ------------ ------------ ----------- Total current assets............................... 11,237,000 13,862,000 3,209,000 ------------ ------------ ----------- PROPERTY, PLANT, AND EQUIPMENT: Land and land improvements................................ 1,265,000 1,261,000 387,000 Buildings and leasehold improvements...................... 3,379,000 3,362,000 1,836,000 Equipment................................................. 16,140,000 15,809,000 5,510,000 ------------ ------------ ----------- 20,784,000 20,432,000 7,733,000 Less accumulated depreciation............................. (1,670,000) (1,305,000) (166,000) ------------ ------------ ----------- Total property, plant, and equipment -- net........ 19,114,000 19,127,000 7,567,000 ------------ ------------ ----------- INTANGIBLE AND OTHER ASSETS -- Net: Cost of purchased businesses in excess of net tangible assets acquired (Note 2)....................................... 108,768,000 109,089,000 29,795,000 Deposits (Note 2)......................................... 290,000 40,000 2,916,000 Other assets (Note 2)..................................... 4,073,000 4,315,000 2,575,000 Deferred income taxes (Note 6)............................ 4,957,000 2,258,000 -- ------------ ------------ ----------- Total intangible and other assets -- net........... 118,088,000 115,702,000 35,286,000 ------------ ------------ ----------- $148,439,000 $148,691,000 $46,062,000 ============ ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses..................... $ 2,898,000 $ 3,503,000 $ 1,947,000 Accrued interest.......................................... 383,000 393,000 34,000 Accrued dividends......................................... 250,000 250,000 -- Note payable (Note 2)..................................... -- 600,000 -- Accrued income taxes...................................... 211,000 173,000 -- ------------ ------------ ----------- Total current liabilities.......................... 3,742,000 4,919,000 1,981,000 ------------ ------------ ----------- LONG-TERM DEBT (Note 3)..................................... 66,500,000 67,000,000 10,000,000 ------------ ------------ ----------- OTHER LIABILITIES........................................... 87,000 97,000 58,000 ------------ ------------ ----------- REDEEMABLE PREFERRED STOCK, $1.00 par value, 100,000 shares authorized, 2,775, 2,700 and -0- issued and outstanding at March 31, 1997 and December 31, 1996 and 1995, respectively (Note 4)..................................... 20,747,000 19,816,000 -- ------------ ------------ ----------- REDEEMABLE WARRANTS (Note 4)................................ 17,803,000 11,921,000 -- ------------ ------------ ----------- COMMITMENTS AND CONTINGENCIES (Note 7) STOCKHOLDERS' EQUITY (Note 5): Class A Common Stock, $.01 par value, 200,000 shares authorized, 70,571.91, 70,571.91 and 50,140.91 issued and outstanding at March 31, 1997 and December 31, 1996 and 1995, respectively.................................. 1,000 1,000 1,000 Class B Common Stock, $.01 par value, 200,000 shares authorized, 4,227, 4,227 and -0- issued and outstanding at March 31, 1997 and December 31, 1996 and 1995, respectively............................................ -- Additional paid-in capital................................ 52,562,000 52,137,000 35,099,000 Accumulated deficit....................................... (13,003,000) (7,200,000) (1,077,000) ------------ ------------ ----------- Total stockholders' equity......................... 39,560,000 44,938,000 34,023,000 ------------ ------------ ----------- $148,439,000 $148,691,000 $46,062,000 ============ ============ ===========
See notes to consolidated financial statements. F-125 294 PATTERSON BROADCASTING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM MAY 1, 1995 (INCEPTION) QUARTER ENDED MARCH 31, YEAR ENDED THROUGH ------------------------ DECEMBER 31, DECEMBER 31, 1997 1996 1996 1995 ----------- ---------- ------------ ------------ (UNAUDITED) Net Revenues................................ $10,727,000 $6,097,000 $ 41,369,000 $ 4,613,000 Operating Expenses, excluding Depreciation and Amortization.......................... 8,319,000 5,144,000 29,725,000 3,623,000 LMA Fee..................................... -- -- 500,000 -- ----------- ---------- ------------ ----------- Income Before Corporate and Regional Expense, Patterson Planning Management Fee, Depreciation and Amortization........ 2,408,000 953,000 11,144,000 990,000 Corporate Expense........................... 1,088,000 513,000 2,374,000 1,217,000 Regional Expense............................ 233,000 -- 143,000 -- Patterson Planning Management Fee........... 63,000 63,000 250,000 146,000 ----------- ---------- ------------ ----------- Income (Loss) Before Depreciation and Amortization.............................. 1,024,000 377,000 8,377,000 (373,000) Depreciation and Amortization............... 1,162,000 522,000 3,537,000 391,000 ----------- ---------- ------------ ----------- Income (Loss) From Operations............... (138,000) (145,000) 4,840,000 (764,000) ----------- ---------- ------------ ----------- Other Income (Expense): Interest expense.......................... (1,716,000) (821,000) (5,052,000) (458,000) Increase in fair value of redeemable warrants (Note 4)...................... (5,882,000) -- (5,499,000) -- Interest income........................... 1,000 55,000 70,000 148,000 Other - net............................... 2,000 -- (33,000) (3,000) ----------- ---------- ------------ ----------- Total other income (expense)...... (7,595,000) (766,000) (10,514,000) (313,000) ----------- ---------- ------------ ----------- Loss Before Income Taxes.................... (7,733,000) (911,000) (5,674,000) (1,077,000) Income Tax Benefit (Note 6)................. 2,861,000 -- 2,344,000 -- ----------- ---------- ------------ ----------- Net Loss.................................... $(4,872,000) $ (911,000) $ (3,330,000) $(1,077,000) =========== ========== ============ ===========
See notes to consolidated financial statements. F-126 295 PATTERSON BROADCASTING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ADDITIONAL COMMON PAID-IN ACCUMULATED STOCK CAPITAL DEFICIT ------ ----------- ------------ BALANCE, May 1, 1995 (inception)........................ $ -- $ -- $ -- Equity contribution................................... 1,000 35,099,000 -- Net loss.............................................. -- -- (1,077,000) ------ ----------- ------------ BALANCE, December 31, 1995 1,000 35,099,000 (1,077,000) Equity contribution, net of issuance costs of $462,000........................................... -- 17,038,000 -- Accretion of redeemable preferred stock............... -- -- (543,000) Dividends declared on redeemable preferred stock...... -- -- (2,250,000) Net loss.............................................. -- -- (3,330,000) ------ ----------- ------------ BALANCE, December 31, 1996.............................. 1,000 52,137,000 (7,200,000) Accretion of redeemable preferred stock (unaudited)... -- -- (181,000) Dividends declared on redeemable preferred stock (unaudited)........................................ -- -- (750,000) Contingent award of common stock pursuant to compensation plan (unaudited)...................... -- 425,000 -- Net loss (unaudited).................................. -- -- (4,872,000) ------ ----------- ------------ BALANCE, March 31, 1997 (unaudited)..................... $1,000 $52,562,000 $(13,003,000) ====== =========== ============
See notes to consolidated financial statements. F-127 296 PATTERSON BROADCASTING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM MAY 1, 1995 QUARTER ENDED (INCEPTION) MARCH 31, YEAR ENDED THROUGH ------------------------- DECEMBER 31, DECEMBER 31, 1997 1996 1996 1995 ----------- ----------- ------------ ------------ (UNAUDITED) OPERATING ACTIVITIES: Net loss........................................ $(4,872,000) $ (911,000) $ (3,330,000) $ (1,077,000) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation................................. 366,000 188,000 1,175,000 166,000 Amortization................................. 796,000 334,000 2,362,000 225,000 Deferred financing costs..................... 159,000 56,000 429,000 -- Increase in fair value of redeemable warrants................................... 5,882,000 -- 5,499,000 -- Loss on sale of property, plant, and equipment.................................. -- -- 31,000 -- Provision for contingent stock compensation............................... 425,000 -- -- -- Changes in assets and liabilities, net of effects from acquisitions and dispositions: Accounts receivable........................ 1,255,000 (1,186,000) (5,243,000) (2,492,000) Prepaid expenses and other current assets.................................. (299,000) (40,000) (53,000) (279,000) Accounts payable and accrued expenses...... (605,000) (120,000) 955,000 1,219,000 Accrued interest........................... (10,000) 116,000 359,000 34,000 Accrued income taxes....................... 38,000 -- 173,000 -- Deferred income taxes...................... (2,899,000) -- (2,517,000) -- Other...................................... (11,000) 15,000 35,000 (28,000) ----------- ----------- ------------ ------------ Net cash provided by (used in) operating activities............................ 225,000 (1,548,000) (125,000) (2,232,000) ----------- ----------- ------------ ------------ INVESTING ACTIVITIES: Purchases of media properties, net of cash acquired..................................... (600,000) (60,309,000) (92,915,000) (36,923,000) Purchases of property, plant, and equipment..... (279,000) (296,000) (1,036,000) (107,000) Disposal of property, plant, and equipment...... -- -- 21,000 -- Deposits in escrow.............................. (250,000) -- -- (2,900,000) Net proceeds on disposal of media property...... -- 2,100,000 2,100,000 -- Deferred acquisition costs...................... (465,000) (587,000) (84,000) (768,000) Other........................................... -- -- -- (156,000) ----------- ----------- ------------ ------------ Net cash used in investing activities... (1,594,000) (59,092,000) (91,914,000) (40,854,000) ----------- ----------- ------------ ------------ FINANCING ACTIVITIES: Equity contributions............................ -- 8,125,000 17,500,000 35,100,000 Issuance of redeemable preferred stock and warrants..................................... -- -- 25,000,000 -- Borrowings under bank credit facility........... 2,000,000 62,500,000 86,500,000 10,000,000 Repayment of borrowings under bank credit facility..................................... (2,500,000) (7,500,000) (29,500,000) -- Financing and issuance costs.................... -- (224,000) (4,629,000) (1,800,000) ----------- ----------- ------------ ------------ Net cash provided by (used in) financing activities............................ (500,000) 62,901,000 94,871,000 43,300,000 ----------- ----------- ------------ ------------ NET INCREASE (DECREASE) IN CASH................... (1,869,000) 2,261,000 2,832,000 214,000 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.... 3,046,000 214,000 214,000 -- ----------- ----------- ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD................................ $ 1,177,000 $ 2,475,000 $ 3,046,000 $ 214,000 =========== =========== ============ ============
See notes to consolidated financial statements. F-128 297 PATTERSON BROADCASTING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES Patterson Broadcasting, Inc. was organized in May 1995 for the purpose of owning and operating radio stations. At December 31, 1996, the Company owned and operated radio stations in Savannah, Georgia; Allentown, Pennsylvania; Honolulu, Hawaii; Fresno, California; Grand Rapids, Michigan; Battle Creek, Michigan; Reno, Nevada; Harrisburg, Pennsylvania; Pensacola, Florida; and Springfield, Illinois. Of the 70,572 issued shares of Class A common stock, 65.9% are held by The Dyson-Kissner-Moran Corporation ("DKM"). Change in Accounting Principle -- In order to conform the Company's accounting principles with the accounting requirements of the Securities and Exchange Commission, the accompanying financial statements reflect a change in accounting principle for the redeemable warrants. Previously issued financial statements presented the redeemable warrants as equity. The warrant value was being accreted to its earliest potential put value, with the accretion included in stockholders' equity. The accompanying financial statements present the warrants as liabilities, measured at their fair value, with changes in the fair value included in earnings, in conformity with EITF 96-13, Accounting For Sales Of Call Options Or Warrants On Issuer's Stock With Various Forms Of Settlement, which is only applicable to public companies. Principles of Consolidation -- The consolidated financial statements include the accounts of Patterson Broadcasting, Inc. and its wholly-owned subsidiaries (the "Company"). All significant intercompany accounts and transactions are eliminated in consolidation. Revenue Recognition -- Radio advertising revenues are recognized when the related advertisements are broadcast and are recorded net of advertising agency commissions. Exchanges of advertising time for products and services are recorded at the estimated fair value of the products or services received. Cash and Cash Equivalents -- Cash and cash equivalents consist of cash, money market funds, overnight deposits, and investments with maturities of three months or less when purchased. Property, Plant, and Equipment -- Property, plant, and equipment is stated at cost. Depreciation is computed by the straight-line method using estimated useful lives of the individual assets which range from 5 to 40 years. Deferred Financing Costs -- Costs associated with obtaining debt financing are capitalized and amortized over the term of the related debt. Intangible and Other Assets -- Costs of purchased businesses in excess of net tangible assets acquired are stated at cost less accumulated amortization and primarily consist of FCC broadcast licenses and goodwill. These costs are being amortized using the straight-line method over periods not exceeding 40 years. Accumulated amortization at December 31, 1996 and 1995 was $2,575,000 and $225,000, respectively. On a continuing basis, the Company reviews the financial statement carrying amounts of its operating units for impairment. Specifically, this process includes a comparison of the carrying amounts of the operating units to their estimated fair values, an analysis of estimated future cash flows and an evaluation as to whether an operating unit might be sold in the near future. If this process concludes that the carrying amount of an operating unit's assets will not be recovered from either future operations or sale, a write down of the operating unit's assets is recognized through a charge to operations. Incomes Taxes -- Deferred income taxes are recorded using Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". SFAS No. 109 requires the Company to compute deferred income taxes based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. F-129 298 PATTERSON BROADCASTING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Unaudited Interim Financial Statements -- In the opinion of management, interim unaudited financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, the results of operations and the cash flows for the periods presented. Results for the interim periods are not necessarily indicative of results to be expected for the full year. The unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. 2. ACQUISITION, DISPOSITIONS AND PRO FORMA FINANCIAL INFORMATION In July 1995, the Company purchased radio stations WCHY-AM/FM in Savannah, Georgia, for $5,200,000 in cash. In September 1995, the Company purchased radio stations WEEX-AM and WODE-FM in Allentown, Pennsylvania, radio stations KRZR-FM and KTHT-FM in Fresno, California, and radio stations KSSK-AM/FM and KUCD-FM in Honolulu, Hawaii for $30,590,000 in cash. In January 1996, the Company purchased radio stations WLHT-FM, WGRD-FM, and WRCV-AM in Grand Rapids, Michigan and radio stations WBCK-AM, WBXX-FM, WRCC-AM and WWKN-FM in Battle Creek, Michigan for $21,400,000 in cash. In January 1996, the Company purchased stations KCBN-AM, KRNO-FM, KWNZ-FM in Reno, Nevada for $4,100,000 in cash. In January 1996, the Company purchased radio stations KCBL-AM and KBOS-FM in Fresno, California for $6,250,000 in cash. In January 1996, the Company sold radio station KTHT-FM in Fresno, California for $2,200,000 in cash. In March 1996, the Company purchased radio stations WTCY-AM, WNNK-FM in Harrisburg, Pennsylvania and radio station WXBM-FM in Pensacola, Florida for $31,200,000 in cash, including accounts receivable. In April 1996, the Company purchased radio station WYKZ-FM in Savannah, Georgia for $1,500,000 in cash. In August 1996, the Company purchased radio stations WFMB-AM/FM, WCVS-FM in Springfield, Illinois for $7,000,000 in cash. In November 1996, the Company purchased radio stations KIKI-AM/FM, KKLV-FM, KHVH-AM in Honolulu, Hawaii for $9,100,000 in cash, of which $600,000 was paid in January 1997. Such amount is recorded as a note payable at December 31, 1996. In November 1996, the Company purchased radio stations WAEV-FM, WLVH-FM, WSOK-AM in Savannah, Georgia for $11,000,000 in cash, including accounts receivable. In November 1996, the Company purchased radio station WWSF-FM in Pensacola, Florida for $1,820,000 in cash, including accounts receivable. F-130 299 PATTERSON BROADCASTING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The acquisitions have been accounted for using the purchase method of accounting. The consolidated statements of operations include the operations of the acquired businesses since their respective date of acquisition. The following unaudited pro forma financial information gives effect to the above acquisitions and disposition as if such transactions had occurred on January 1, 1995.
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ------------------------ ------------------------- 1997 1996 1996 1995 ----------- ---------- ----------- ----------- Net revenues...................... $10,727,000 $9,930,000 $48,615,000 $44,750,000 Income (loss) from operations..... (138,000) 357,000 6,560,000 5,762,000 Net loss.......................... (1,166,000) (875,000) (503,000) (1,105,000)
The pro forma information also reflects adjustments to interest expense and income taxes resulting from the transactions, and is not necessarily indicative of the results of operations that would have been achieved if such transactions had occurred at the beginning of the periods presented or of future results of operations. The Company has operated stations under time brokerage agreements ("TBAs") or local marketing agreements ("LMAs") whereby the Company agreed to purchase from the broadcast station licensee certain broadcast time on the station and to provide programming to and sell advertising on the station during the purchased time. Accordingly, the Company received all the revenue derived from the advertising sold during the purchased time, paid certain expenses of the station and performed other functions. The broadcast station licensee retains responsibility for ultimate control of the station in accordance with FCC policies. At December 31, 1996, the Company had acquired all stations operated under LMAs during 1996. At December 31, 1996 and 1995, the Company had deferred $84,000 and $768,000, respectively, in acquisition costs, primarily legal, related to future acquisitions. The Company had placed $2,900,000 of deposits in escrow related to future acquisitions at December 31, 1995. The $2,900,000 deposits in escrow were utilized in the 1996 acquisitions outlined above. At December 31, 1996, there were no deposits in escrow. The deferred acquisition costs and deposits in escrow are included in other assets and deposits, respectively, in the accompanying consolidated balance sheets. 3. LONG-TERM DEBT Long-term debt is summarized as follows:
DECEMBER 31, 1996 DECEMBER 31, 1995 ----------------- ----------------- Bank Credit Facility................................ $67,000,000 $10,000,000
On June 20, 1996, the Company amended and restated its variable rate loan agreement (the "Credit Facility"). The agreement was amended to increase the available credit up to $150,000,000 by adding new lenders and amending certain other provisions. The interest rate on the Credit Facility floats with the prime rate established by the agent but can be fixed by the Company for up to six months based upon a Eurodollar rate. The interest rate includes a borrowing premium which varies from 1/4% to 3 1/4% depending on the Company's ratio of total indebtedness to annualized operating cash flow for revolving credit loans, as defined in the Credit Facility, and based on the interest rate option selected. The Credit Facility also includes a commitment fee of 1/2% on the unused portion of the Credit Facility. The Company may incur borrowings under the Credit Facility until June 30, 2003; however, commitment reductions begin December 31, 1997 with a final commitment reduction date of June 30, 2003. In addition, beginning in 1998, the Company is required to prepay outstanding borrowings to the extent of any excess of any cash flow, as defined. The Credit Facility is secured by a pledge of the stock of and is guaranteed by all subsidiaries of the Company and contains certain restrictive covenants, including the F-131 300 PATTERSON BROADCASTING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) maintenance of cash flow ratios and limitations on additional borrowings, mergers, acquisitions, dispositions, and certain restricted payments. Of long-term debt outstanding at December 31, 1996, $43,000,000 matures in 2003 and $24,000,000 matures in 2004. 4. REDEEMABLE PREFERRED STOCK AND WARRANTS In April 1996, the Company issued 2,500 shares of Series A Cumulative Redeemable Preferred Stock (the "Preferred Stock") along with warrants for total proceeds of $25,000,000. The Preferred Stock carries a 12% per annum cumulative dividend rate and is redeemable April 2005 at $25,000,000 plus accrued and unpaid dividends. The proceeds were allocated between the Preferred Stock and warrants based on their estimated fair values. The Preferred Stock is being increased to its redemption price during the period from date of issuance until April 2005. The dividends are payable in cash or at the option of the Company in additional shares of Preferred Stock at a rate of 3/100 of one share for $300 of such dividends paid. The dividend payment date is each March 1, June 1, September 1 and December 1, beginning June 1, 1996. During 1996, the Company paid $2,000,000 in dividends by issuing 200 additional shares. In addition, the shares of Preferred Stock are subject to mandatory redemption upon the occurrence of certain specified events and are subject to optional redemption by the Company at any time and upon the occurrence of certain specified events, in each case at specified redemption prices based upon the date of any such event. There are no redemption requirements for the next five years. The warrants, which are exercisable upon issuance, entitle the holder to receive 12,177 shares of Class A Common Stock at an exercise price of $.01 per share. The warrants expire April 2006. In addition, subject to certain conditions, the warrants (and any shares of Common Stock issued upon the exercise thereof) may be put to the Company at any one time after April 1, 2001 and may be called at the option of the Company after April 1, 2002. The warrants are measured at their fair value at December 31, 1996 and, as a result, a change in the fair value of $5,499,000 was recorded as other expense during 1996. 5. STOCKHOLDERS' EQUITY In February 1996, the Company reclassified the initial Common Stock to Class A Common Stock and increased the authorized shares to 200,000, $.01 par value per share. The Company also created a new class of non-voting Common Stock known as Class B Common Stock, with 200,000 shares authorized, $.01 par value per share. The Company issued Class A Common Stock of 7,221.25 shares for $5,125,000 in February 1996, 3,452.16 shares for $2,450,000 in July 1996, and 9,757.59 shares for $6,925,000 in October 1996. The Company also issued 4,227 shares of Class B Common Stock for $3,000,000 in February 1996. One of the shareholders has the right to purchase up to 1,160 additional shares of Class A Common Stock at a price of $.01 per share, on the earlier of the occurrence of certain specified events or February 27, 1999. F-132 301 PATTERSON BROADCASTING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. INCOME TAXES Income tax expense (benefit) is summarized as follows:
PERIOD FROM MAY 1, 1995 YEAR ENDED (INCEPTION) THROUGH DECEMBER 31, DECEMBER 31, 1996 1995 ------------ ------------------- Current: Federal..................................................... $ -- $ -- State....................................................... 173,000 -- ----------- --------- Total....................................................... 173,000 -- ----------- --------- Deferred: Federal..................................................... (1,791,000) (374,000) State....................................................... (306,000) (46,000) Change in valuation allowance............................... (420,000) 420,000 ----------- --------- Total....................................................... (2,517,000) -- ----------- --------- Income tax expense (benefit)................................ $(2,344,000) $ -- =========== =========
Income tax expense (benefit) computed using the federal statutory tax rate is reconciled to the reported income tax expense (benefit) as follows:
PERIOD FROM MAY 1, 1995 YEAR ENDED (INCEPTION) THROUGH DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------- ------------------- Federal statutory tax rate................. $(1,986,000) (35%) $(377,000) (35%) State income taxes, net of federal tax benefit.................................. (183,000) (3%) (46,000) (4%) Change in valuation allowance.............. (420,000) (7%) 420,000 39% Nondeductible amortization................. 131,000 2% -- 0% Nondeductible meals and entertainment...... 59,000 1% -- 0% Other -- net............................... 55,000 1% 3,000 0% ----------- --------- Total...................................... $(2,344,000) (41%) $ -- 0% =========== =========
F-133 302 PATTERSON BROADCASTING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax effects of significant items comprising the Company's net deferred tax asset are as follows:
DECEMBER 31, DECEMBER 31, 1996 1995 ------------ ------------ Deferred tax assets: Accruals and reserves not currently deductible........... $ 374,000 $ 289,000 Compensation accruals not currently deductible........... 84,000 -- Increase in fair value of redeemable warrants............ 2,062,000 -- Operating loss carryforward.............................. 4,053,000 466,000 Other.................................................... 5,000 -- ----------- --------- Total deferred tax assets........................ 6,578,000 755,000 Deferred tax liabilities: Difference in book and tax basis of property............. (1,503,000) (335,000) Difference in book and tax basis of intangible assets.... (913,000) -- ----------- --------- Total deferred tax liabilities................... (2,416,000) (335,000) Valuation Allowance........................................ (1,446,000) (420,000) ----------- --------- Net deferred tax asset..................................... $ 2,716,000 $ -- =========== =========
For 1995, the Company was included in the consolidated federal income tax return of DKM. Effective February 27, 1996, the Company was no longer included in DKM's consolidated federal income tax return. This deconsolidation resulted from additional equity contributions which lowered DKM's stock ownership below eighty percent. The Company and DKM have a tax sharing agreement addressing the utilization of the Company's net operating losses in DKM's consolidated federal tax return. Per this agreement, the Company computed its tax liability as if it filed a separate tax return. DKM will reimburse the Company when the Company would have utilized the net operating loss carryforward generated through February 27, 1996 on a stand alone basis. DKM's obligation to reimburse remains in effect although the Company no longer files a consolidated return with DKM. At February 27, 1996, the net operating loss carryforward included in DKM's consolidated federal income tax return was estimated at $2,180,000. This net operating loss carryforward is subject to separate return limitations as the result of the deconsolidation discussed above. At December 31, 1996 and 1995, the Company had approximately $10,509,000 and $1,222,000, respectively, in net operating loss carryforwards for federal income tax purposes. Such amounts include the portion attributable to losses included in DKM's consolidated return. These loss carryforwards, unless utilized, will expire between 2008 and 2011. At December 31, 1996, $3,982,000 of these loss carryforwards result from an acquisition and are subject to separate return limitations as well as certain limitations under Section 382 described below. Limitations imposed by Section 382 of the Internal Revenue Code, after a change of control, will limit the amount of net operating loss which will be available to offset future taxable income. At December 31, 1996, the Company has a valuation allowance against such restricted net operating loss for the excess of the net operating loss over the amount of taxable temporary differences which will reverse during the permitted carryover period. 7. COMMITMENTS AND CONTINGENCIES The Company leases office facilities, transmitter sites, and various items of equipment under noncancelable operating leases. Many of these lease agreements contain renewal options. Total rental expense was $1,062,000 and $179,000, for the year ended December 31, 1996 and for the period from May 1, 1995 through December 31, 1995, respectively. F-134 303 PATTERSON BROADCASTING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following summary sets forth annual commitments under noncancelable leases, net of sublease rentals of $129,000, $135,000, $125,000, $62,000, and $28,000 for the years ending December 31, 1997, 1998, 1999, 2000, and 2001, respectively.
YEAR ENDING DECEMBER 31, ------------------------ 1997................................................... $ 1,003,000 1998................................................... 1,014,000 1999................................................... 782,000 2000................................................... 538,000 2001................................................... 308,000 Thereafter............................................. 6,494,000 ----------- $10,139,000 ===========
The Company has employment agreements with its two top executive officers. Pursuant to the agreements, which expire in 2000, the executives receive an aggregate annual salary of $500,000 plus beginning in 1996, an incentive bonus based upon the Company achieving certain operating objectives. Bonus amounts for 1995 were determined at the discretion of the Board of Directors of the Company. At December 31, 1996 and 1995, amounts accrued under these agreements were $294,000 and $120,000, respectively. The Company from time to time is involved in litigation incidental to the conduct of its business. The Company is not a party to any lawsuit or legal proceedings that, in the opinion of management, is likely to have a material adverse effect on the Company's financial position or results of operations. 8. STATEMENTS OF CASH FLOWS, SUPPLEMENTAL INFORMATION
PERIOD FROM THREE MONTHS ENDED MAY 1, 1995 MARCH 31, YEAR ENDED (INCEPTION) THROUGH ---------------------- DECEMBER 31, DECEMBER 31, 1997 1996 1996 1995 ---------- -------- ------------ ------------------- (UNAUDITED) Cash paid for interest........ $1,548,000 $628,000 $4,264,000 $313,000 Cash paid for income taxes.... -- -- -- --
Net cash used for purchases of media properties, net of cash acquired, was allocated as follows:
YEAR ENDED DECEMBER 31, ---------------------------- 1996 1995 ----------- ----------- Purchase price in excess of the net tangible assets acquired.............................................. $81,353,000 $29,864,000 Property, plant and equipment........................... 12,426,000 7,628,000 Other assets............................................ 1,200,000 -- Working capital, net.................................... (1,464,000) (505,000) Other liabilities....................................... (600,000) (64,000) ----------- ----------- Net cash used for purchases of media properties......... $92,915,000 $36,923,000 =========== ===========
9. RELATED PARTY TRANSACTIONS The Company is a party to a management agreement with an affiliate of DKM. Under the agreement, the Company pays an annual fee of $250,000 for various financial services. This amount is deemed to be reflective of the fair value of such services. As discussed in Note 6, the Company has a tax sharing agreement with DKM. F-135 304 PATTERSON BROADCASTING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In May 1995, the Company received a 5 1/2% promissory note, payable on demand, from DKM, representing a portion of DKM's initial capital contribution. This note was repaid in October 1995. The Company recorded $107,000 in interest income related to this note for the period from May 1, 1995 (inception) through December 31, 1995. 10. STOCK-BASED COMPENSATION Pursuant to the formation of the Company, certain members of the Company's management were granted the right to receive up to a total of 2,840 additional shares of Common Stock, on the earlier of the occurrence of certain events or May 3, 2000. The number of shares to be granted is based upon the appreciation in the fair value of the Company. As of December 31, 1996, no compensation expense has been recorded due to the uncertainty associated with estimating the total ultimate value of the shares to be granted. Based upon the pending sale transaction (Note 13), for the three months ended March 31, 1997, the Company recorded $425,000 of compensation expense based on an estimate of the total ultimate number of shares to be granted. This amount is included in corporate expense. In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." In accordance with the provisions of SFAS No. 123, the Company has applied APB Opinion 25 and related interpretations in accounting for its stock compensation plans. If the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by SFAS No. 123, there would have been no impact on net income for the year and period ended December 31, 1996 and 1995, respectively. 11. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." The estimated fair value amounts have been determined by the Company, using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------- ------------------------- CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE ----------- ----------- ----------- ----------- Assets: Cash and cash equivalents............... $ 3,046,000 $ 3,046,000 $ 214,000 $ 214,000 Liabilities: Long-term debt.......................... 67,000,00 67,000,000 10,000,000 10,000,000
The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and Cash Equivalents -- The carrying amount approximates fair value because of the short maturity of those instruments. Long-term Debt -- The fair value of long-term debt is estimated based on financial instruments with similar terms, credit characteristics, and expected maturities. The fair value estimates presented herein are based on pertinent information available to the Company as of December 31, 1996 and 1995. Although the Company is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively reevaluated for purposes of these F-136 305 PATTERSON BROADCASTING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) financial statements since that date, and current estimates of fair value may differ significantly from the amounts presented herein. 12. SUBSEQUENT EVENT -- 401(k) PLAN Effective January 1, 1997, the Company sponsors a 401(k) Plan for the benefit of eligible employees. The Company matches 25% of the first 6% of each participant's salary contributed to the plan. 13. SUBSEQUENT EVENT -- SALE TRANSACTION In April 1997, the Company and its stockholders signed a letter of intent pursuant to which all of the outstanding common stock and common stock equivalents will be sold to Capstar Radio Broadcasting Partners, Inc. for $220,000,000 subject to certain conditions. Completion of the transaction, which is subject to the execution of a definitive agreement, FCC approval and other closing conditions, is expected to occur by the end of the first quarter of 1998. 14. PENDING ACQUISITIONS In January 1997, the Company signed an agreement to purchase radio station WMEZ-FM in Pensacola, Florida for $7,000,000 in cash. In April 1997, the Company signed an agreement to purchase radio stations KJOI-FM and KRDU-AM in Fresno, California for $6,000,000 in cash. The Company signed a letter of credit for $500,000 in connection with this transaction. In May 1997, the Company signed an agreement to purchase radio station WQFN-FM in Grand Rapids, Michigan for $1,900,000 in cash. The Company began to operate KJOI-FM and KRDU-AM in Fresno, California and WQFN-FM in Grand Rapids, Michigan under LMA agreements in April 1997 and May 1997, respectively. F-137 306 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Ameron Broadcasting, Inc.: We have audited the accompanying balance sheet of Ameron Broadcasting, Inc. (a Missouri corporation) as of December 31, 1996, and the related statements of operations, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ameron Broadcasting, Inc. as of December 31, 1996, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP St. Louis, Missouri May 14, 1997 F-138 307 AMERON BROADCASTING, INC. BALANCE SHEETS ASSETS
MARCH 31, DECEMBER 31, 1997 1996 ----------- ------------ (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents................................. $ 90,108 $ 54,237 Accounts receivable, net of allowance for doubtful accounts of $75,000 and $115,697, respectively......... 1,405,017 1,758,295 Prepaid assets and other.................................. 205,761 158,131 ----------- ----------- Total current assets.............................. 1,700,886 1,970,663 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT............................... 3,950,470 3,949,846 ACCUMULATED DEPRECIATION.................................... (2,033,595) (1,962,993) ----------- ----------- Net property, plant and equipment................. 1,916,875 1,986,853 ----------- ----------- INTANGIBLE ASSETS: Federal Communications Commission licenses................ 7,130,104 7,182,920 Goodwill.................................................. 5,876,425 5,919,954 ----------- ----------- Total intangible assets........................... 13,006,529 13,102,874 ----------- ----------- Total assets...................................... $16,624,290 $17,060,390 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Note payable to related party............................. $ 4,200,000 $ 4,320,000 Current maturities of long-term debt...................... 1,000,000 1,000,000 Accounts payable and accrued liabilities.................. 761,495 677,154 ----------- ----------- Total current liabilities......................... 5,961,495 5,997,154 LONG-TERM DEBT.............................................. 4,562,500 4,812,500 ----------- ----------- Total liabilities................................. 10,523,995 10,809,654 ----------- ----------- STOCKHOLDERS' EQUITY: Common stock, $1 par value, 1,410,000 shares authorized, 1,316,502 shares issued and outstanding................ 1,316,502 1,316,502 Additional paid-in capital................................ 12,433,654 12,433,654 Accumulated deficit....................................... (7,649,861) (7,499,420) ----------- ----------- Total stockholders' equity........................ 6,100,295 6,250,736 ----------- ----------- Total liabilities and stockholders' equity........ $16,624,290 $17,060,390 =========== ===========
The accompanying notes are an integral part of these financial statements. F-139 308 AMERON BROADCASTING, INC. STATEMENTS OF OPERATIONS
THREE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, 1997 1996 ------------- ------------ (UNAUDITED) REVENUE..................................................... $2,087,508 $ 9,123,212 LESS Agency commissions..................................... 231,988 992,249 ---------- ----------- Total net revenue................................. 1,855,520 8,130,963 ---------- ----------- OPERATING EXPENSES: Engineering and programming............................... 705,628 2,581,547 Selling, general and administrative....................... 910,090 3,276,141 Depreciation and amortization............................. 166,947 662,903 ---------- ----------- Total operating expenses.......................... 1,782,665 6,520,591 ---------- ----------- Income from operations............................ 72,855 1,610,372 ---------- ----------- OTHER EXPENSE (INCOME): Interest expense.......................................... 218,288 842,881 Interest income........................................... (3,825) (6,810) Other, net................................................ 8,833 83,446 ---------- ----------- Other expense, net................................ 223,296 919,517 ---------- ----------- Net income (loss)................................. $ (150,441) $ 690,855 ========== ===========
The accompanying notes are an integral part of these financial statements. F-140 309 AMERON BROADCASTING, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
ADDITIONAL TOTAL COMMON PAID-IN ACCUMULATED STOCKHOLDERS' STOCK CAPITAL DEFICIT EQUITY ---------- ----------- ------------ ------------- BALANCE, December 31, 1995................ $1,316,002 $12,426,559 $(8,190,275) $5,552,286 Net income.............................. -- -- 690,855 690,855 Issuance of 500 shares of common stock................................ 500 7,095 -- 7,595 ---------- ----------- ----------- ---------- BALANCE, December 31, 1996................ 1,316,502 12,433,654 (7,499,420) 6,250,736 Net loss (unaudited).................... -- -- -- (150,441) ---------- ----------- ----------- ---------- BALANCE, March 31, 1997 (unaudited)....... $1,316,502 $12,433,654 $(7,499,420) $6,100,295 ========== =========== =========== ==========
The accompanying notes are an integral part of these financial statements. F-141 310 AMERON BROADCASTING, INC. STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, 1997 1996 ------------ ------------ (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)......................................... $(150,441) $ 690,855 Adjustments to reconcile net income (loss) to cash provided by operating activities -- Depreciation and amortization.......................... 166,947 663,106 Loss on sale of fixed assets........................... -- 592 Changes in net assets and liabilities -- Accounts receivable.................................... 353,278 (372,472) Prepaid and other assets............................... (47,630) (41,068) Accounts payable and accrued liabilities............... 84,341 (54,011) --------- ----------- Net cash provided by operating activities......... 406,495 887,002 --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures...................................... (624) (177,444) Proceeds from sale of fixed assets........................ -- 4,900 --------- ----------- Net cash used in investing activities............. (624) (172,544) --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on note payable to related party........... (120,000) 390,000 Payments on long-term debt................................ (250,000) (1,000,000) Decrease in outstanding check liability................... -- (57,916) Proceeds from issuance of common stock.................... -- 7,595 --------- ----------- Net cash used in financing activities............. (370,000) (660,321) --------- ----------- Net increase in cash.............................. 35,871 54,137 CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD............... 54,237 100 --------- ----------- CASH AND CASH EQUIVALENTS END OF PERIOD..................... $ 90,108 $ 54,237 ========= =========== SUPPLEMENTAL CASH FLOW DISCLOSURE INFORMATION -- Cash paid during the period for interest............................ $ 301,928 $ 776,618 ========= ===========
The accompanying notes are an integral part of these financial statements. F-142 311 AMERON BROADCASTING, INC. NOTES TO FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS: Ameron Broadcasting, Inc. (the Company), a Missouri corporation, operates three radio stations in the Birmingham, Alabama, market. The Company operates in a highly competitive market and revenues may fluctuate significantly based on programming ratings of the stations within the market. Unaudited Interim Financial Statements The financial statements and notes, in so far as they are applicable to the three-month period ended March 31, 1997, are not covered by the Report of Independent Accountants. The unaudited interim financial statements reflect all adjustments consisting of only normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of financial position and results of operations. Operating results for the three months ended March 31, 1997, are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Uncertainties and Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. On February 8, 1996, the President signed into law the Telecommunications Act of 1996. Among other things, this legislation requires the Federal Communications Commission to relax its numerical restrictions on local ownership and affords renewal applicants significant new protections from competing applications for their broadcast licenses. The ultimate effect of this legislation on the competitive environment is currently indeterminable. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and other investments with original maturities of three months or less. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets as follows:
ASSET LIFE ----- Buildings................................................... 30 Towers and transmitters..................................... 10 Leasehold improvements...................................... 10 Studio equipment............................................ 5-10 Office furniture............................................ 5 Automobiles................................................. 2-5
F-143 312 AMERON BROADCASTING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Property, plant and equipment consists of the following as of December 31, 1996: Land........................................................ $ 465,370 Buildings and equipment..................................... 1,035,595 Towers and transmitters..................................... 1,673,707 Furniture and fixtures...................................... 512,593 Leasehold improvements and other............................ 262,581 ---------- $3,949,846 ==========
Intangible Assets Intangible assets are being amortized on a straight-line basis over the life of the assets as follows:
Federal Communications Commission licenses.................. 40 Goodwill.................................................... 40
Amortization expense on intangible assets totaled approximately $385,000 for the year ended December 31, 1996. Accumulated amortization aggregated $2,106,649 at December 31, 1996. Revenue Recognition Broadcasting revenue is recognized when commercials are aired. Concentration of Credit Risk The Company's revenue and accounts receivable primarily relate to advertising of products and services within the radio stations' broadcast areas. The Company performs ongoing credit evaluation of its customers and maintains an allowance for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends and other information. Barter Transactions The Company enters into barter agreements involving the exchange of advertising time for products or services. In accordance with industry standards, all barter transactions are valued at the estimated fair value of the products or goods received. Barter revenue is recorded when the advertisement is broadcast and barter expenses are recorded when the products or services are used. Income Taxes The Company has made an election to be treated as an S Corporation under the provisions of the Internal Revenue Code. All income and losses flow through to the stockholders who are responsible for all applicable income taxes. Accordingly, no provision or credit is reflected in the financial statements for federal and state income taxes. F-144 313 AMERON BROADCASTING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): The accounting methods used by the Company are substantially the same for financial reporting and tax purposes with the exception of accounting for depreciation and amortization expenses and the allowance for doubtful accounts. The following summarizes the significant differences between the financial reporting basis and federal income tax basis of certain assets and liabilities: Assets: FCC licenses and other intangible assets.................. $ 992,000 Accrued expenses.......................................... 28,000 Reserve for bad debts..................................... 13,000 ---------- $1,033,000 ========== Liabilities: Property, plant and equipment............................. $ (282,000) ==========
3. LONG-TERM DEBT: Long-term debt at December 31, 1996, consists of a term loan payable to SouthTrust Bank of Alabama, N.A. (the "Bank") maturing on June 30, 2000. Interest on this loan is at the Bank's base rate or LIBOR plus 1.75%, as elected by the Company. In 1996, the Company changed its election from the Bank's base rate to LIBOR plus 1.75%. At December 31, 1996, LIBOR plus 1.75% was 7.10%. The term loan is secured by securities pledged by the primary stockholder of the Company. Long-term debt maturities as of December 31, 1996, are summarized as follows: 1997........................................................ $1,000,000 1998........................................................ 1,000,000 1999........................................................ 1,000,000 2000........................................................ 2,812,500 2001........................................................ -- ---------- Total debt........................................ 5,812,500 Less -- Current maturities.................................. 1,000,000 ---------- Long-term debt.................................... $4,812,500 ==========
The carrying amount of the Company's debt approximates market value. 4. COMMITMENTS AND CONTINGENCIES: The Company has entered into operating leases related to the stations' corporate offices, tower and the studio facilities. Future minimum lease payments excluding amounts payable for common area maintenance as of December 31, 1996, are as follows: 1997........................................................ $ 90,007 1998........................................................ 90,007 1999........................................................ 90,007 2000........................................................ 67,506 2001........................................................ -- -------- $337,527 ========
F-145 314 AMERON BROADCASTING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 4. COMMITMENTS AND CONTINGENCIES (CONTINUED): Rent expense excluding amounts related to common area maintenance for the year ended December 31, 1996, was approximately $76,000. The Company recognizes rent expense on a straight-line method over the lease term. As of December 31, 1996, cumulative rent expense in excess of rent payments totaled $51,000 and is included in accounts payable and accrued liabilities in the accompanying balance sheet. The Company is involved in certain legal proceedings and other claims arising in the ordinary course of business. The Company's management believes the final resolution of these matters will not have a material impact on the financial statements. 5. BENEFIT PLANS: The Company has a defined contribution plan which covers substantially all full-time employees. The plan is a combined 401(k) plan with companies affiliated by common ownership. Under the plan, employees are permitted to defer receipt of a portion of their compensation. The Company's matching rate is discretionary, with a current rate of 65% of each employee's contribution up to 6% of compensation. Additionally, the Company can make additional discretionary contributions. Total matching contributions were $47,000 for the year ended December 31, 1996. There were no additional discretionary contributions made in 1996. 6. RELATED-PARTY TRANSACTIONS: The Company has a $4,320,000 short-term note payable due to Ameron Fund, Inc., an entity related by common ownership. The note is a revolving line of credit which is due upon demand and expires July 1999. Under the agreement, borrowings up to $4,500,000 are available. Interest is payable monthly based on the prime rate. The prime interest rate was 8.25% at December 31, 1996. The Company paid approximately $403,000 in interest to Ameron Fund, Inc. during 1996. The carrying amount of the related party debt approximates market value. The Company has a management agreement with a company owned by the Company's principal stockholder. Management services include general management, employee benefits administration, banking and financing services. The management fee is based on a set agreement and totaled $40,000 in 1996. Management fees payable to the management company totaled $10,000 at December 31, 1996, and are included in accounts payable and accrued liabilities in the accompanying balance sheet. 7. STOCK OPTIONS: The Company has a stock option plan for key executives and certain board members. The Company, at its discretion, offers the participant the option to purchase a number of shares of common stock. The option expires 60 days after the option date. With the exercise of these options, the participant receives four additional options which are immediately exercisable, and expire seven years from the issuance date or upon the participant's termination. All options are exercisable at prices based upon a formula as defined in the agreement. In addition, the Company has a stock agreement with an officer which allows the officer to earn options to purchase up to 7% of the Company's outstanding common stock at $1 per share based upon the Company achieving specified levels of operating profits. As of December 31, 1996, 10,460 options have been earned under the plan. The agreement also contains provisions allowing the Company and the major stockholder a right of first refusal for any prospective sale of stock earned under the agreement. In the event of the officer's employment termination, he has the right to require the Company to repurchase all shares purchased under the agreement and the Company has the right to require the officer to sell all shares purchased under the agreement at a selling price based on the appraised market value of the shares. Neither the officer nor the Company may exercise these rights under the earlier of the sale of the corporation to a third party or five years from the date of the agreement. F-146 315 AMERON BROADCASTING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 7. STOCK OPTIONS (CONTINUED): No compensation expense has been recorded since inception of the stock option plans described above as the amount was not material to the financial statements. During 1996, the Company adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date for awards in 1996 consistent with the provisions of this statement, the Company's net income would have been reduced by approximately $33,000 to arrive at pro forma net income for December 31, 1996. The fair value of each option has been estimated on the date of grant using the estimated fair value of the Company divided by the total number of shares of stock and options outstanding as of December 31, 1996. The fair value of the Company is based upon the estimated prospective selling price of the Company's assets net of reserves and other liabilities. A summary of the combined activity and balances for the Company's stock options for the two plans as of December 31, 1996, and changes during the year ended on that date is as follows:
WEIGHTED AVERAGE EXERCISE SHARES PRICE ------ -------- Options outstanding, beginning of year...................... 40,680 $10.37 Options granted............................................. 2,500 12.15 Options exercised........................................... (500) 15.19 Options canceled............................................ -- -- ------ Options outstanding, end of year............................ 42,680 10.60 ====== Options exercisable at year-end............................. 42,680 10.60 Weighted average fair value of options granted during the year...................................................... $13.40 ======
The following table summarizes information about stock options outstanding at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------- ----------------------- NUMBER WEIGHTED NUMBER OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED AT REMAINING AVERAGE AT AVERAGE RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE EXERCISE PRICES 1996 LIFE PRICE 1996 PRICE --------------- ------------ ----------- -------- ------------ -------- $ 1.00 to $ 4.36..................... 19,132 48.2 months $ 2.23 19,132 $ 2.23 $10.06 to $14.10..................... 6,672 36.2 months 12.24 6,672 12.24 $15.19 to $20.00..................... 16,876 36.6 months 19.43 16,876 19.43 ------ ------ 42,680 $10.60 42,680 $10.60 ====== ======
8. SUBSEQUENT EVENT: On April 24, 1997, a contract was signed with another broadcast company for the sale of the Company. The sale is expected to close in August 1997 pending FCC approval. F-147 316 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Knight Quality Stations: We have audited the accompanying combined balance sheet of Knight Quality Stations as of December 31, 1996, and the related combined statements of operations, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Knight Quality Stations as of December 31, 1996, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts May 8, 1997 F-148 317 KNIGHT QUALITY STATIONS COMBINED BALANCE SHEETS ASSETS
DECEMBER 31, MARCH 31, 1996 1997 ------------ ----------- (UNAUDITED) Current Assets: Cash and cash equivalents................................. $ 1,752,647 $ 2,419,314 Short-term investments.................................... -- 78,298 Accounts receivable, net of reserves of approximately $472,000 at December 31, 1996 and March 31, 1997....... 3,298,155 2,631,480 Prepaids and other current assets......................... 387,046 385,397 ----------- ----------- Total current assets.............................. 5,437,848 5,514,489 ----------- ----------- Property, Land and Equipment: Land...................................................... 416,223 416,223 Buildings and improvements................................ 5,106,227 5,106,227 Furniture and fixtures.................................... 1,182,935 1,182,935 Equipment................................................. 8,388,183 8,439,431 Motor vehicles............................................ 538,222 534,222 ----------- ----------- 15,631,790 15,679,038 Less -- Accumulated depreciation and amortization......... 10,721,314 10,895,570 ----------- ----------- 4,910,476 4,783,468 ----------- ----------- Other Assets: Goodwill, net of accumulated amortization of approximately $2,473,000 and $2,481,000 at December 31, 1996 and March 31, 1997, respectively........................... 238,576 230,689 Other..................................................... 470,151 445,548 ----------- ----------- $11,057,051 $10,974,194 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of notes payable.......................... $ 683,332 $ 848,332 Accrued expenses and accounts payable..................... 1,132,622 1,219,213 ----------- ----------- Total current liabilities......................... 1,815,954 2,067,545 ----------- ----------- Notes Payable, net of current portion....................... 8,081,228 7,772,893 ----------- ----------- Commitments (Note 5) Stockholders' Equity: Common stock, no par value Authorized -- 2,200 shares; Issued and outstanding -- 2,200 shares................. 36,000 36,000 Retained earnings......................................... 1,123,869 1,097,756 ----------- ----------- Total stockholders' equity........................ 1,159,869 1,133,756 ----------- ----------- $11,057,051 $10,974,194 =========== ===========
The accompanying notes are an integral part of these combined financial statements. F-149 318 KNIGHT QUALITY STATIONS COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED THREE MONTHS DECEMBER 31, ENDED 1996 MARCH 31, 1997 ------------ -------------- (UNAUDITED) Broadcast Revenues.......................................... $18,452,001 $ 4,061,302 Less -- Agency commissions.................................. (1,855,089) (398,619) ----------- ----------- Net revenues...................................... 16,596,912 3,662,683 ----------- ----------- National Commissions........................................ 1,242,505 293,045 Operating Expenses: Technical................................................. 660,265 149,741 Program................................................... 3,041,634 784,504 Selling................................................... 6,051,723 1,287,469 General and administrative................................ 3,899,553 820,919 Depreciation and Amortization Expense....................... 1,005,427 205,580 ----------- ----------- Income from operations............................ 695,805 121,425 Interest Expense, net....................................... (709,923) (165,281) Realty Expense, net......................................... (102,221) (22,624) Nonbroadcast Revenue........................................ 162,721 57,820 Gain on Sale of Property and Equipment...................... 567,762 6,414 ----------- ----------- Net income (loss) before provision for state income taxes.................................... 614,144 (2,246) Provision for State Income Taxes............................ 76,660 23,867 ----------- ----------- Net income (loss)................................. $ 537,484 $ (26,113) =========== ===========
The accompanying notes are an integral part of these combined financial statements. F-150 319 KNIGHT QUALITY STATIONS COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK TOTAL ----------------- RETAINED STOCKHOLDERS' SHARES AMOUNT EARNINGS EQUITY ------ ------- ---------- ------------- Balance, December 31, 1995 (unaudited).......... 2,200 $36,000 $1,230,643 $1,266,643 Net income.................................... -- -- 537,484 537,484 Distributions to stockholders................. -- -- (644,258) (644,258) ----- ------- ---------- ---------- Balance, December 31, 1996...................... 2,200 36,000 1,123,869 1,159,869 Net loss (unaudited).......................... -- -- (26,113) (26,113) ----- ------- ---------- ---------- Balance, March 31, 1997 (unaudited)............. 2,200 $36,000 $1,097,756 $1,133,756 ===== ======= ========== ==========
The accompanying notes are an integral part of these combined financial statements. F-151 320 KNIGHT QUALITY STATIONS COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, 1996 1997 ------------ ------------ (UNAUDITED) Cash Flows from Operating Activities: Net income (loss)......................................... $ 537,484 $ (26,113) Adjustments to reconcile net income (loss) to net cash provided by operating activities -- Depreciation and amortization.......................... 1,024,774 205,580 Gain on sale of real estate............................ (567,762) (6,414) Write-off of uncollectible note receivable............. 600,000 -- Changes in current assets and current liabilities -- Accounts receivable.................................. (617,810) 666,675 Prepaids and other current assets.................... (29,751) (198,351) Accrued expenses and accounts payable................ 258,251 86,591 ----------- ---------- Net cash provided by operating activities......... 1,205,186 727,968 ----------- ---------- Cash Flows from Investing Activities: Purchase of available-for-sale investments................ -- (78,298) Purchase of property, land and equipment.................. (1,227,815) (67,003) Proceeds from the sale of property and equipment.......... 818,905 14,000 (Issuance) repayment of notes receivable.................. (300,000) 200,000 Increase in other assets.................................. (5,454) -- ----------- ---------- Net cash (used in) provided by investing activities...................................... (714,364) 68,699 ----------- ---------- Cash Flows from Financing Activities: Distributions to stockholders............................. (644,258) -- Repayment of debt......................................... (5,015,202) (130,000) Proceeds from issuance of debt............................ 4,850,000 -- ----------- ---------- Net cash used in financing activities............. (809,460) (130,000) ----------- ---------- Net (Decrease) Increase in Cash and Cash Equivalents........ (318,638) 666,667 Cash and Cash Equivalents, beginning of period.............. 2,071,285 1,752,647 ----------- ---------- Cash and Cash Equivalents, end of period.................... $ 1,752,647 $2,419,314 =========== ========== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for -- Interest............................................... $ 733,187 $ 173,220 =========== ========== State income taxes..................................... $ 33,484 $ 23,867 =========== ==========
The accompanying notes are an integral part of these combined financial statements. F-152 321 KNIGHT QUALITY STATIONS NOTES TO COMBINED FINANCIAL STATEMENTS (INCLUDED DATA APPLICABLE TO UNAUDITED PERIODS) (1) BACKGROUND INFORMATION Knight Quality Stations (the Company) is the operating name of the following entities' combined operations: - Knight Broadcasting of New Hampshire, Inc. (KBNH) (a New Hampshire corporation) operates the following radio stations: -- WHEB-FM (Portsmouth, New Hampshire), which operates on a frequency of 100.3 MHz, utilizing a rock format. -- WXHT-FM (Portsmouth, New Hampshire) formerly WCQL-FM, which operates on a frequency of 95.3 MHz, utilizing a modern adult contemporary format. -- WTMN-AM (Portsmouth, New Hampshire) formerly WCQL-AM, which operates on a frequency of 1380 kc, utilizing an all sports format. - Knight Radio, Inc. (KRI) (a New Hampshire corporation) operates the following stations: -- WGIR-AM/FM (Manchester, New Hampshire), which operates on a frequency of 610 kc and 101.1 MHz, utilizing a news, talk and sports format on WGIR-AM and a rock format on WGIR-FM. -- WEZF-FM (Burlington, Vermont), which operates on a frequency of 92.9 MHz, utilizing an adult contemporary format. - Knight Communications Corporation (KCC) (a Massachusetts corporation) operates the following stations: -- WSRS-FM (Worcester, Massachusetts), which operates on a frequency of 96.1 MHz, utilizing a soft adult contemporary format. -- WTAG-AM (Worcester, Massachusetts), which operates on a frequency of 580 kc, utilizing a news, talk and sports format. In addition to its broadcast radio operations, the Company holds certain real estate and properties for business purposes. In February 1996, KCC sold certain real estate, for which the Company received net proceeds of approximately $770,000 and realized a gain on the sale of approximately $530,000, which is included in the accompanying combined statements of operations for the year ended December 31, 1996. (2) SIGNIFICANT ACCOUNTING POLICIES (a) Principles of Combination The accompanying combined financial statements for the year ended December 31, 1996 and for the three months ended March 31, 1997 include the combined operating results of the entities referred to in Note 1, as they are entities under common control and common management. All material intercompany accounts and transactions have been eliminated in the combination. (b) Interim Financial Statements The accompanying combined balance sheet as of March 31, 1997, the combined statements of operations, cash flows and stockholders' equity for the three months ended March 31, 1997 are unaudited, but in the opinion F-153 322 KNIGHT QUALITY STATIONS NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) of management, include all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation of the results for those interim periods. The results of operations for the three months ended March 31, 1997 are not necessarily indicative of results to be expected for the entire year. (c) Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (d) Cash and Cash Equivalents and Short-Term Investments The Company considers all highly liquid investments with a remaining maturity of 90 days or less from the date of purchase to be cash equivalents. The Company accounts for its cash equivalents and short-term investments in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Under SFAS No. 115, investments that the Company has the positive intent and ability to hold to maturity are reported at amortized cost, which approximates fair market value, and are classified as held-to-maturity. As of December 31, 1996 and March 31, 1997, the Company had approximately $1,073,000 and $882,000, respectively, invested in repurchase agreements collateralized by government securities, which the Company has deemed to be held-to-maturity investments and are included as cash equivalents in the accompanying combined balance sheets. Short-term investments have maturities of greater than three months and consist of equity securities at March 31, 1997. These investments were purchased to be held for indefinite periods of time and were not intended at the time of purchase to be held to maturity; therefore, they are classified as available-for-sale. These investments are carried at cost, which approximates fair market value. (e) Depreciation and Amortization The Company provides for depreciation and amortization on property and equipment using both the straight-line and declining-balance methods by charges to operations in amounts that allocate the cost of the assets over their estimated useful lives as follows:
ESTIMATED USEFUL ASSET CLASSIFICATION LIFE -------------------- ---------------- Buildings and improvements.................................. 18 - 39 years Furniture and fixtures...................................... 5 - 7 years Equipment................................................... 5 - 15 years Motor vehicles.............................................. 5 - 7 years
(f) Revenue Recognition The Company recognizes broadcast revenues and records the related commission during the period that the advertising is aired. F-154 323 KNIGHT QUALITY STATIONS NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (g) Trade and Barter Transactions Gross revenues and operating expenses include trade and barter transactions at the fair market value of the product or service received. These transactions represent the exchange of advertising time for merchandise and services. Trade and barter transactions charged to operations were as follows:
THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, 1996 1997 ------------ ------------ Trade revenues............................................. $ 1,613,192 $ 401,430 Trade expenses............................................. (1,664,042) (313,773) ----------- --------- Net barter transactions.......................... $ (50,850) $ 87,657 =========== =========
(h) Prepaids and Other Current Assets At December 31, 1996 and March 31, 1997, other current assets included $300,000 and $100,000, respectively, of a note receivable bearing interest at 9% which is payable monthly, and the note receivable matures in June 1997. (i) Goodwill Goodwill represents the excess of acquisition costs over the fair market value of the assets acquired and is being amortized over 10 years. For the year ended December 31, 1996 and for the three months ended March 31, 1997, approximately $99,000 and $8,000, respectively, was charged to operations for goodwill amortization and is included in depreciation and amortization expense in the accompanying combined statements of operations. The Company assesses the realizability of its long-lived assets, including goodwill, using the undiscounted cash flows method, in accordance with SFAS No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of. As of December 31, 1996 and March 31, 1997, the Company believes that the carrying values have not been impaired. (j) Other Assets Other assets include the following: - A noncompete agreement related to the acquisition of WEZF. In connection with the acquisition of the station, the Company entered into a noncompete agreement with the former owner. Total payments under this agreement totaled $80,000 and $20,000 for the year ended December 31, 1996 and for the three months ended March 31, 1997, respectively. - Approximately $433,000 related to Federal Communications Commission (FCC) licenses acquired through the purchase of WCQL-AM/FM, which is being amortized over 10 years. For the year ended December 31, 1996 and for the three months ended March 31, 1997, approximately $44,000 and $11,000, respectively, of amortization was charged to operations. As of December 31, 1996 and March 31, 1997, accumulated amortization totaled approximately $97,000 and $108,000, respectively. In 1996, the Company held a $600,000 note receivable from the owner of WEIM for the purchase of station WEIM-AM in Fitchburg, Massachusetts, in July 1987. In September 1996, management deemed this note to be uncollectible and charged the balance of the note to operations. The write-off is included in general and administrative expenses in the accompanying combined statement of operations. F-155 324 KNIGHT QUALITY STATIONS NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (k) Fair Value of Financial Instruments The Company's financial instruments consist mainly of cash and cash equivalents, investments, accounts receivable, accounts payable and notes payable. The carrying amount of these financial instruments approximates their fair value. (l) Concentration of Credit Risk SFAS No. 105, Disclosure of Information About Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk, requires disclosure of any significant off-balance-sheet and credit risk concentrations. Financial instruments, which potentially subject the Company to concentrations of credit risk, are principally cash and cash equivalents, investments, and accounts receivable. The company places its cash and investments in highly rated institutions. No single customer accounted for greater than 10% of revenues in any of the periods presented. (m) Recent Accounting Pronouncements In February 1997, the Financial Accounting Standards Board issued SFAS No. 129, Disclosure of Information About Capital Structure, which established disclosure requirements for an entity's capital structure. SFAS No. 129 is effective for fiscal years beginning after December 15, 1997. Management does not believe the implementation of SFAS No. 129 will have a material effect on its financial statements. F-156 325 KNIGHT QUALITY STATIONS NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (3) NOTES PAYABLE The following are the Company's outstanding notes payable as of December 31, 1996 and March 31, 1997:
DECEMBER 31, MARCH 31, 1996 1997 ------------ ---------- WSRS -- Note payable to USTrust to borrow up to $4,550,000, bearing interest at the bank's prime rate (8.50% at March 31, 1997), with principal payments of $65,000 plus interest due monthly beginning in July 1997, secured by the personal guarantee of all stockholders............... $4,030,000 $3,900,000 WHEB -- Note payable to The Bank of New Hampshire to borrow up to $3,600,000, bearing interest at the bank's prime rate (8.50% at March 31, 1997), with principal payments of $90,000 plus interest due quarterly, secured by the real estate of KBNH and the personal guarantee of a stockholder.............................................. 3,330,000 3,330,000 WGIR -- Note payable to The Bank of New Hampshire to borrow up to $1,500,000, bearing interest at the bank's prime rate (8.50% at March 31, 1997), with principal payments of $75,000 plus interest due quarterly, secured by the real estate of KRI............................................ 975,000 975,000 Demand note payable to The Bank of New Hampshire to borrow $300,000, bearing interest at the bank's prime rate (8.50% at March 31, 1997), payable upon demand with interest payable monthly and guaranteed by a stockholder.............................................. 300,000 300,000 WEZF -- Obligation related to a noncompete agreement with the former owner of WEZF, with quarterly payments of $20,000 due through June 1999.................................... 129,560 116,225 ---------- ---------- Total Notes Payable.............................. 8,764,560 8,621,225 Less -- Current portion of notes payable................. 683,332 848,332 ---------- ---------- Notes Payable, net of current portion............ $8,081,228 $7,772,893 ========== ==========
In accordance with certain debt agreements, the Company is required to maintain certain financial and operating covenants. The combined financial statements and the following table summarize approximate scheduled principal payments required on the notes payable as of December 31, 1996:
YEAR AMOUNT ---- ---------- 1997..................................................... $ 683,000 1998..................................................... 1,364,000 1999..................................................... 1,463,000 2000..................................................... 1,365,000 2001..................................................... 1,140,000 Thereafter............................................... 2,750,000 ---------- $8,765,000 ==========
F-157 326 KNIGHT QUALITY STATIONS NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (4) INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. The Company has not recorded a deferred tax asset in any period presented, as it was insignificant. Each of the entities has elected to be taxed as an S corporation pursuant to Section 1362(a) of the Internal Revenue Code for federal income tax purposes. Therefore, taxable income and federal tax credits of the Company are included in the tax returns of its stockholders. During 1987, the Commonwealth of Massachusetts adopted legislation that modified S corporation status for the Company on a combined basis after fiscal 1988, requiring it to pay ceratin taxes at a corporate level. In addition, New Hampshire, New York and Vermont do not recognize S corporation status, and therefore, taxes are paid at the corporate level in all of these states. For the year ended December 31, 1996 and for the three months ended March 31, 1997, a current state income tax provision of approximately $77,000 and $24,000, respectively, has been recognized for certain corporate taxes for financial reporting purposes. (5) COMMITMENTS The Company owns most of its buildings, land, towers and equipment, with the exception of a radio tower in Vermont and certain office equipment, which are leased. The Company's future minimum lease payments under operating leases as of December 31, 1996 are approximately as follows:
YEAR AMOUNT ---- -------- 1997...................................................... $111,000 1998...................................................... 28,000 1999...................................................... 4,000 -------- $143,000 ========
Payments under these leases totaled approximately $63,000 and $23,000 for the year ended December 31, 1996 and for the three months ended March 31, 1997, respectively. (6) RELATED PARTY TRANSACTIONS In January 1995, a new entity, KQS Radio Sales, LLC (KQS Sales), was established by employees and stockholders of the Company to represent the Company and other stations for national sales. For the year ended December 31, 1996 and for the three months ended March 31, 1997, the Company paid commissions to KQS Sales of approximately $556,000 and $173,000, respectively, related to national sales, which is included as commissions on the accompanying combined statements of operations. In 1996, these same employees and stockholders formed Knight Communications of the Virgin Islands (KCVI). During the three months ended March 31, 1997, the Company advanced $100,000 to KCVI, interest free. This advance is expected to be repaid within twelve months and has been included in other current assets in the accompanying combined balance sheet as of March 31, 1997. (7) RETIREMENT PLAN During 1996, the Company adopted a defined contribution retirement plan (the Plan) under Section 401(k) of the Internal Revenue Code. The Plan provides for a discretionary matching contributions by the Company. There were no contributions made by the Company for the year ended December 31, 1996 or for the three months ended March 31, 1997. F-158 327 KNIGHT QUALITY STATIONS NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (8) ACCRUED EXPENSES AND ACCOUNTS PAYABLE Accrued expenses and accounts payable in the accompanying combined balance sheets consist of the following:
DECEMBER 31, MARCH 31, 1996 1997 ------------ ---------- Accounts payable........................................... $ 359,135 $ 361,184 Accrued taxes.............................................. 99,561 99,561 Accrued payroll and payroll-related........................ 420,475 641,125 Other accrued expenses..................................... 253,451 117,343 ---------- ---------- $1,132,622 $1,219,213 ========== ==========
(9) SUBSEQUENT EVENT Subsequent to year-end, the Company entered into an asset purchase agreement with Capstar Acquisition Company, Inc. ("Capstar"), whereby the Company agreed to sell substantially all of its assets to Capstar in exchange for approximately $55.0 million. F-159 328 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Quass Broadcasting Company Cedar Rapids, Iowa We have audited the accompanying balance sheet of Quass Broadcasting Company as of December 31, 1996 and the related statements of income, common stockholders' equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Quass Broadcasting Company as of December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. McGLADREY & PULLEN, LLP Cedar Rapids, Iowa February 20, 1997, except for Note 6, as to which the date is June 12, 1997 F-160 329 QUASS BROADCASTING COMPANY BALANCE SHEETS ASSETS (Note 2)
DECEMBER 31, MARCH 31, 1996 1997 ------------ ----------- (UNAUDITED) Current Assets Cash and cash equivalents................................. $ 608,643 $ 54,530 Accounts receivable, less allowance for doubtful accounts 1996 $75,996; 1997 $37,568............................. 642,549 532,484 Inventories............................................... 3,636 3,687 Prepaid expenses.......................................... 41,476 28,787 Deferred income taxes (Note 4)............................ 35,000 35,000 ---------- ---------- Total current assets.............................. 1,331,304 654,488 ---------- ---------- Property and Equipment Land...................................................... 241,786 241,786 Buildings and building improvements....................... 68,664 68,664 Transmitting equipment.................................... 851,754 851,754 Studio technical equipment................................ 604,065 604,065 Furniture and fixtures.................................... 111,058 111,058 Office and shop equipment................................. 156,793 159,248 ---------- ---------- 2,034,120 2,036,575 Less accumulated depreciation............................. 811,691 854,285 ---------- ---------- 1,222,429 1,182,290 ---------- ---------- Intangibles Broadcast rights, at cost, less accumulated amortization 1996 $227,097; 1997 $244,581........................... 2,122,392 2,104,908 Other intangibles, at cost, less accumulated amortization 1996 $298,852; 1997 $312,070........................... 281,201 267,983 ---------- ---------- 2,403,593 2,372,891 ---------- ---------- $4,957,326 $4,209,669 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current maturities of long-term debt (Note 2)............. $ 250,000 $ 250,000 Accounts payable.......................................... 53,764 37,897 Accrued payroll and payroll related expenses.............. 101,410 57,480 Other accrued liabilities................................. 51,419 43,454 Income taxes payable...................................... 13,766 30,097 ---------- ---------- Total current liabilities......................... 470,359 418,928 ---------- ---------- Long-Term Debt, including $100,000 due to stockholder (Note 2)........................................................ 4,155,000 3,417,500 ---------- ---------- Deferred Income Taxes (Note 4).............................. 203,000 203,000 ---------- ---------- Commitments (Note 3) Redeemable Preferred Stock, $7.50 par value; 20,000 shares authorized; 12% cumulative dividends; none issued......... -- -- ---------- ---------- Stockholders' Equity (Notes 2 and 6) Capital stock, common, no par or stated value; 80,000 shares authorized; issued and outstanding 17,000 shares................................................. 17,000 17,000 Additional paid-in capital................................ 133,000 133,000 Retained earnings (deficit)............................... (21,033) 20,241 ---------- ---------- 128,967 170,241 ---------- ---------- $4,957,326 $4,209,669 ========== ==========
See Notes to Financial Statements. F-161 330 QUASS BROADCASTING COMPANY STATEMENTS OF INCOME
THREE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, --------------------- 1996 1996 1997 ------------ --------- -------- (UNAUDITED) Broadcasting revenue...................................... $4,037,270 $ 894,066 $920,915 Broadcasting expenses before depreciation and amortization............................................ 3,272,713 707,665 688,961 ---------- --------- -------- 764,557 186,401 231,954 Depreciation and amortization............................. 293,069 68,889 73,296 ---------- --------- -------- Operating income, broadcasting.................. 471,488 117,512 158,658 ---------- --------- -------- Net sales, signage........................................ 151,105 32,562 29,236 Cost of sales............................................. 79,009 20,071 17,721 Operating expenses........................................ 41,484 10,266 13,112 ---------- --------- -------- Operating income (loss), signage................ 30,612 2,225 (1,597) ---------- --------- -------- Operating income................................ 502,100 119,737 157,061 Financial income (expense): Interest expense........................................ (428,436) (103,377) (86,026) Interest income......................................... 26,125 7,069 220 ---------- --------- -------- Income before income taxes...................... 99,789 23,429 71,255 Federal and state income taxes (Note 4)................... 38,826 10,850 29,981 ---------- --------- -------- Net income...................................... $ 60,963 $ 12,579 $ 41,274 ========== ========= ======== Net income attributable to common stockholders............ $ 58,694 $ 10,310 $ 41,274 ========== ========= ======== Earnings per common share................................. $ 3.45 $ 0.61 $ 2.43 ========== ========= ======== Weighted average common shares outstanding................ 17,000 17,000 17,000 ========== ========= ========
See Notes to Financial Statements. F-162 331 QUASS BROADCASTING COMPANY STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT) (NOTE 2) YEAR ENDED DECEMBER 31, 1996 AND THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
CAPITAL ADDITIONAL RETAINED STOCK, PAID-IN EARNINGS COMMON CAPITAL (DEFICIT) TOTAL ------- ---------- --------- -------- Balance, December 31, 1995........................... $17,000 $133,000 $(79,727) $ 70,273 Dividends on preferred stock, $.11 per share....... -- -- (2,269) (2,269) Net income......................................... -- -- 60,963 60,963 ------- -------- -------- -------- Balance, December 31, 1996........................... 17,000 133,000 (21,033) 128,967 Net income (unaudited)............................. -- -- 41,274 41,274 ------- -------- -------- -------- Balance, March 31, 1997 (unaudited).................. $17,000 $133,000 $ 20,241 $170,241 ======= ======== ======== ========
See Notes to Financial Statements. F-163 332 QUASS BROADCASTING COMPANY STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED YEARS ENDED MARCH 31, DECEMBER 31, --------------------- 1996 1996 1997 ------------ --------- --------- Cash Flows from Operating Activities Net income.............................................. $ 60,963 $ 12,579 $ 41,274 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation......................................... 170,374 38,215 42,594 Amortization......................................... 122,695 30,674 30,702 Provision for doubtful accounts...................... 63,889 7,756 (21,070) Deferred income taxes................................ 25,000 -- -- Changes in assets and liabilities: (Increase) decrease in accounts receivable......... (164,944) (7,507) 131,135 (Increase) decrease in inventories................. 1,889 960 (51) Decrease in prepaid expense........................ 10,425 13,986 12,689 (Increase) decrease in accounts payable............ 30,963 6,776 (15,867) (Decrease) in accrued expenses..................... (10,223) (39,867) (51,895) Increase in income taxes payable................... 13,766 10,850 16,331 --------- --------- --------- Net cash provided by operating activities....... 324,797 74,422 185,842 --------- --------- --------- Cash Flows from Investing Activities, purchase of property and equipment........................................... (222,106) (142,553) (2,455) --------- --------- --------- Cash Flows from Financing Activities Proceeds from long-term debt............................ -- -- 100,000 Repayments of long-term debt............................ (50,000) (12,500) (837,500) Dividends paid.......................................... (2,269) (2,269) -- Redemption of preferred stock........................... (150,000) (150,000) -- --------- --------- --------- Net cash (used in) financing activities......... (202,269) (164,769) (737,500) --------- --------- --------- (Decrease) in cash and cash equivalents......... (99,578) (232,900) (554,113) Cash and cash equivalents, beginning...................... 708,221 708,221 608,643 --------- --------- --------- Cash and cash equivalents, ending......................... $ 608,643 $ 475,321 $ 54,530 ========= ========= ========= Supplemental Disclosures of Cash Flow Information Cash payments for: Interest............................................. $ 431,919 $ 107,322 $ 90,355 Income taxes......................................... -- -- 13,650
See Notes to Financial Statements. F-164 333 QUASS BROADCASTING COMPANY NOTES TO FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of business: The Company's primary business is the operation of radio stations in Cedar Rapids, Iowa. The radio stations operated are KHAK-FM, KDAT-FM and KTOF-AM. The Company also manufactures, produces and sells multimedia signage, excluding neon, billboards and electric signs. Accounting estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the Company's significant accounting policies: Cash and cash equivalents: For purposes of reporting cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Inventories: Inventories, which are related to the sign business, are valued at the lower of cost (first-in, first-out method) or market. Property and equipment and depreciation: Property and equipment is carried at cost. Depreciation of property and equipment for book purposes is computed by the straight-line method over the following estimated useful lives:
YEARS ----- Buildings and building improvements......................... 31 1/2 Transmitting equipment...................................... 10-20 Studio technical equipment.................................. 10 Furniture and fixtures...................................... 10 Office and shop equipment................................... 5-10
Intangibles: The intangibles are being amortized by the straight-line method over the following estimated useful lives:
YEARS ----- Broadcast rights............................................ 32-40 Other, primarily goodwill................................... 4-40
Intangible assets are periodically reviewed for impairment based upon an assessment of future operations to ensure that they are appropriately valued. Revenue recognition: Revenue from the sale of time slots is recognized upon airing of the slot. Revenue from the sale of signage is recognized upon delivery. Income taxes: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Earnings per common share: Earnings per common share are determined by dividing net income less dividends on preferred stock by the weighted average number of common shares outstanding during each of the periods presented. F-165 334 QUASS BROADCASTING COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Fair value of financial instruments: The carrying amount of long-term debt approximates fair value because these obligations bear interest at current rates. Interim financial information (unaudited): The financial statements and notes related thereto as of March 31, 1997 and for the three-month periods ended March 31, 1996 and 1997 are unaudited, but in the opinion of management include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations. The operating results for the interim periods are not indicative of the operating results to be expected for a full year or for other interim periods. Not all disclosures required by generally accepted accounting principles necessary for a complete presentation have been included. Recently issued accounting standards: In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), and SFAS No. 129, "Disclosure of Information about Capital Structure" (SFAS 129). SFAS 128 specifies the computation, presentation and disclosure requirements for earnings per share for entities with publicly-held common stock. Its objective is to simplify the computation of earnings per share and to make the U.S. standard for computing earnings per share more compatible with the standards of other countries and with that of the International Accounting Standards Committee. SFAS 129 incorporates related disclosure requirements from APB Opinion No. 10, "Disclosure of Long-Term Obligations," and SFAS No. 47, "Disclosure of Long-Term Obligations," for entities that were subject to the requirements for those standards. Both statements are effective for fiscal years beginning after December 15, 1997. The Company will adopt the statements effective December 31, 1997 and does not expect adoption of the statements to have a significant impact on its current earnings per share calculation and disclosures. NOTE 2. PLEDGED ASSETS AND LONG-TERM DEBT Long-term debt at December 31, 1996 consists of the following: Line of credit agreement(A)................................. $2,350,000 Subordinated debenture(B)................................... 100,000 Note payable to an individual(C)............................ 977,500 Note payable to an individual(C)............................ 977,500 ---------- 4,405,000 Less current maturities..................................... 250,000 ---------- $4,155,000 ==========
- --------------- (A) On December 24, 1996, the Company amended its note payable agreement with a bank to provide for a variable balance line of credit agreement. Under this agreement, the original loan balance of $2,350,000 is reduced by scheduled principal payments through December 1999. The amount available to be borrowed under this agreement will be reduced during the term of the agreement by the scheduled principal payments. This agreement is collateralized by substantially all of the Company's assets, an assignment of the proceeds of a term life insurance policy on a stockholder, a second lien on the assets of KTOF-AM and is guaranteed by one of the stockholders of the Company. This stockholder has also pledged 11,000 shares of common stock as additional collateral. All borrowings under this agreement bear interest at 9.5% and will be due in varying quarterly installments through December 1999. The agreement contains various restrictions, including, among others, restrictions on the payment of any dividends other than preferred dividends as well as maintaining various financial ratios. Every other year, the Company is also required to provide to the bank an updated appraisal of the Company. The Company was in compliance with these covenants at December 31, 1996 and March 31, 1997. F-166 335 QUASS BROADCASTING COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (B) The subordinated debenture payable is due to a stockholder, is unsecured, bears interest at 12% and is due December 1999. (C) These notes payable are collateralized by substantially all of the assets of KTOF-AM and the assignment of the proceeds of a term life insurance policy on a stockholder. The loans bear interest at 9.5% and require interest only total payments of $15,477 per month through December 1997 and total principal and interest payments of $17,000 per month through November 2004 with the balances due December 2004. The agreements contain various restrictions, including, among others, restrictions on the payment of any dividends other than preferred dividends as well as maintaining various financial ratios. The Company was in compliance with these covenants at December 31, 1996 and March 31, 1997. Aggregate maturities required on long-term debt at December 31, 1996 are as follows: 1997........................................................ $ 250,000 1998........................................................ 319,324 1999........................................................ 1,921,010 2000........................................................ 23,096 2001........................................................ 25,388 Thereafter.................................................. 1,866,182 ---------- $4,405,000 ==========
NOTE 3. LEASE COMMITMENT AND TOTAL RENT EXPENSE The Company leases its offices and studio space under various agreements which expire between June 30, 1997 and January 31, 1998 and require that the lessee pay property taxes plus various annual rentals. The total minimum rental commitment at December 31, 1996 under the leases mentioned above is $24,296 which is due as follows: During the year ending December 31: 1997........................................................ $23,396 1998........................................................ 900 ------- $24,296 =======
The total rental expense included in the income statement for the year ended December 31, 1996 is $87,432. NOTE 4. INCOME TAX MATTERS Net deferred tax liabilities consist of the following components as of December 31, 1996: Deferred tax liabilities: Property and equipment.................................... $ 24,000 Broadcasting rights....................................... 189,000 -------- 213,000 -------- Deferred tax assets: Accrued expenses.......................................... 5,000 Receivable allowances..................................... 30,000 Noncompete agreement...................................... 10,000 -------- 45,000 -------- $168,000 ========
F-167 336 QUASS BROADCASTING COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The deferred tax amounts mentioned above have been classified on the accompanying balance sheet as of December 31, 1996 as follows: Noncurrent liabilities...................................... $203,000 Current asset............................................... (35,000) -------- $168,000 ========
The provision for income taxes charged to operations for the year ended December 31, 1996 consists of the following: Current income tax expense.................................. $ 13,826 Deferred income tax expense................................. 25,000 -------- $ 38,826 ========
The income tax provision differs from the amount of income tax determined by applying the U. S. Federal income tax rate to pretax income from continuing operations for the year ended December 31, 1996 due to the following: Computed "expected" tax expense............................. $ 34,900 Increase (decrease) in income taxes resulting from: Nondeductible items....................................... 3,400 State taxes net of federal benefit........................ 3,000 Other..................................................... (2,474) -------- $ 38,826 ========
NOTE 5. PROFIT-SHARING PLAN The Company has a profit-sharing plan that includes 401(k) provisions. Under the terms of the plan, participants may elect to defer from 2% to 15% of their compensation and matching contributions, equal to 50% of the deferred compensation of all eligible participants, which will be made by the employer up to 2% of each participant's compensation. The Company may also make discretionary contributions. The Company's contribution for the year ended December 31, 1996 was $35,000. NOTE 6. EVENTS SUBSEQUENT TO DECEMBER 31, 1996 On June 12, 1997, all of the outstanding shares of stock of the Company were acquired by Capstar Broadcasting Partners, Inc. pursuant to a stock purchase agreement. F-168 337 REPORT OF INDEPENDENT AUDITORS Board of Directors Mountain Lakes Broadcasting, L.L.C. We have audited the accompanying balance sheets of Mountain Lakes Broadcasting, L.L.C. as of December 31, 1996 and 1995, and the related statements of operations and members equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mountain Lakes Broadcasting, L.L.C. at December 31, 1996 and 1995, and the results of their operations and cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP New York, New York February 16, 1997 F-169 338 MOUNTAIN LAKES BROADCASTING, L.L.C. BALANCE SHEETS ASSETS
DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- Current assets: Cash...................................................... $ 217,151 $ 164,941 Accounts receivable, net of allowance for doubtful accounts of $69,410 in 1996 and $13,012 in 1995........ 873,871 828,595 Prepaid expenses and other current assets................. 5,035 8,212 ---------- ---------- Total current assets........................................ 1,096,057 1,001,748 Property and equipment, net, at cost........................ 214,200 274,777 Intangible assets, net, at cost............................. 1,352,815 1,723,606 Other asset................................................. 30,575 30,575 Total assets................................................ $2,693,647 $3,030,706 LIABILITIES AND STATION EQUITY Current liabilities: Accounts payable and accrued expenses..................... $ 231,036 $ 173,095 Current portion of noncompete payable..................... 394,646 370,791 Current portion of note payable........................... 122,000 122,000 Payable to affiliates..................................... 333,994 333,994 ---------- ---------- Total current liabilities................................... 1,081,676 999,880 Long-term portion of noncompete payable..................... 958,169 1,352,815 Long-term portion of note payable........................... 138,885 260,885 Members equity.............................................. 514,917 417,126 ---------- ---------- Total liabilities and station equity........................ $2,693,647 $3,030,706 ========== ==========
See accompanying notes. F-170 339 MOUNTAIN LAKES BROADCASTING, L.L.C. STATEMENTS OF OPERATIONS AND STATION EQUITY
YEAR ENDED DECEMBER 31, -------------------------------------- 1996 1995 1994 ---------- ---------- ---------- Gross advertising revenue............... $4,940,677 $4,580,139 $4,949,866 Less agency commission.................. 458,740 484,690 512,577 ---------- ---------- ---------- Net broadcast revenue................... 4,481,937 4,095,449 4,437,289 Operating expenses: Programming........................... 660,308 582,386 698,737 Technical............................. 94,165 105,443 102,410 Sales................................. 1,385,449 1,403,044 1,482,176 General and administrative............ 992,931 934,676 972,096 Depreciation and amortization......... 443,721 440,618 423,509 ---------- ---------- ---------- Income from operations.................. 905,363 629,282 758,361 Other income (expense): Interest income....................... 11,619 17,364 7,643 Interest expense...................... (136,660) (171,660) (189,958) Other expense......................... (38,866) (39,830) (35,100) ---------- ---------- ---------- Net income.............................. 741,456 435,156 540,946 Members equity, beginning of the year... 417,126 361,970 281,024 Distributions to members................ (643,665) (380,000) (460,000) ---------- ---------- ---------- Members equity, end of the year......... $ 514,917 $ 417,126 $ 361,970 ========== ========== ==========
See accompanying notes. F-171 340 MOUNTAIN LAKES BROADCASTING, L.L.C. STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------------ 1996 1995 1994 ---------- --------- --------- OPERATING ACTIVITIES Net income.............................. $ 741,456 $ 435,156 $ 540,946 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......... 443,721 440,618 423,509 Gain on sale of equipment............. (1,800) (170) (4,900) Change in current assets and liabilities: (Increase) decrease in accounts receivable....................... (45,276) 19,635 (28,071) Decrease in prepaid expenses and other current assets............. 3,177 3,195 8,166 Increase (decrease) in accounts payable and accrued expenses..... 57,941 (15,484) (46,683) ---------- --------- --------- Total adjustments....................... 457,763 447,794 352,021 ---------- --------- --------- Net cash provided by operating activities............................ 1,199,219 882,950 892,967 INVESTMENT ACTIVITIES Payments to noncompete payable.......... (370,791) (348,477) (327,598) Proceeds from the sale of property and equipment............................. 1,800 1,049 4,898 Purchase of property and equipment...... (12,353) (54,863) (115,332) Increase in other assets................ -- (30,000) (575) ---------- --------- --------- Net cash used in investing activities... (381,344) (432,291) (438,607) FINANCING ACTIVITIES Payment of notes payable................ (122,000) (106,634) (101,840) Increase in payable to affiliate........ -- 5,585 58,518 Distributions to members................ (643,665) (380,000) (460,000) ---------- --------- --------- Net cash used in financing activities... (765,665) (481,049) (503,322) Net increase (decrease) in cash......... 52,210 (30,390) (48,962) Cash, beginning of year................. 164,941 195,331 244,293 ---------- --------- --------- Cash, end of year....................... $ 217,151 $ 164,941 $ 195,331 ========== ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest.................. $ 136,660 $ 171,660 $ 189,958 ========== ========= =========
See accompanying notes. F-172 341 MOUNTAIN LAKES BROADCASTING, L.L.C. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 1. NATURE OF BUSINESS AND ORGANIZATION Mountain Lakes Broadcasting, L.L.C. (the "Company") is a limited liability company incorporated under the laws of the State of Alabama. The Company's sole members, each representing a 50% ownership interest in the Company, are Dixie Broadcasting, Inc. ("Dixie") and Radio WBHP, Inc. ("WBHP"). The Company was established for the primary purpose of owning and operating radio stations WDRM-FM, WBHP-AM and WHOS-AM in Huntsville, Alabama ( collectively, the "Stations"). On November 20, 1996, both Dixie and WBHP entered into a Stock Purchase Agreement for the sale of all of their issued and outstanding shares of common stock and the assignment of the licenses, permits and other authorizations issued to the Company by the Federal Communications Commission ("FCC") for the purposes of operating the Stations and the assets utilized in connection with the operation of the Stations to Osborn Communications Corporation ("Osborn") for approximately $24.5 million (see Note 8). 2. SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition The Company's primary source of revenue is the sale of airtime to advertisers. Revenue is recorded when the advertisements are broadcast. Property and Equipment Building, furniture and fixtures, vehicles, and studio and technical equipment are recorded at cost and depreciated using a modified accelerated method over their estimated useful lives varying from five to thirty years. Leasehold improvements are recorded at cost and depreciated over the shorter of their lease term or estimated useful life. Expenditures for maintenance and repairs are charged to operations as incurred. Advertising Costs The Company expenses advertising costs as incurred. Advertising expense for the years ended December 31, 1996, 1995 and 1994 was approximately $146,000, $251,000 and $252,000, respectively. Intangible Assets Intangible assets consist of noncompete agreements incurred in connection with the acquisitions of the Stations which are being amortized on a straight-line basis over the term of the related noncompete agreement (five or ten years). Noncompete payable represents commitments due under the noncompete agreements. Payments are due in monthly installments over the terms of the noncompete agreements. The present value discount reduced this obligation by $263,221 and $373,602 at December 31, 1996 and 1995, respectively. Interest incurred from present valuing the salary obligation outstanding for the years ended December 31, 1996, 1995 and 1994 was $110,380, $132,694 and $153,573, respectively. It is the Company's policy to account for the intangible assets at the lower of amortized cost or fair value. As part of an ongoing review of the valuation and amortization of the intangible assets, management assesses the carrying value of the Company's intangible assets if facts and circumstances suggest that there may be impairment. If this review indicates that the intangibles will not be recoverable as determined by an undiscounted cash flow analysis of the Company over the remaining amortization period, the carrying value of the Company's intangible asset would be reduced to its estimated realizable value. During 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," ("FAS 121") which established standards for the recognition F-173 342 MOUNTAIN LAKES BROADCASTING, L.L.C. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): and measurement of impairment losses on long-lived assets, certain intangible assets and goodwill. The adoption of FAS 121 did not have a material effect on the Company's combined financial statements. Income Taxes The Company has elected to be taxed as an "S Corporation" for federal income tax purposes. All items of income, losses and credits are reported by the S Corporation shareholders on their respective personal income tax returns. Accordingly, current and deferred federal corporate income taxes have not been provided in the accompanying financial statements. Risks and Uncertainties The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of trade receivables. The Company's revenue is principally derived from broadcast advertisers within the Huntsville/Decatur area who are impacted by the local economy. The Company routinely assesses the financial strength of its customers and does not require collateral or other security to support customer receivables. 3. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, ---------------------- 1996 1995 --------- --------- Land........................................................ $ 75,389 $ 75,389 Building.................................................... 14,032 14,032 Furniture and fixtures...................................... 113,142 111,562 Vehicles.................................................... 20,841 28,425 Studio and technical equipment.............................. 529,922 519,148 Leasehold improvements...................................... 21,915 21,915 --------- --------- 775,241 770,471 Less accumulated depreciation and amortization.............. (561,041) (495,694) --------- --------- $ 214,200 $ 274,777 ========= =========
Depreciation and amortization expense for the years ended December 31, 1996, 1995 and 1994 was approximately $73,000, $92,000 and $96,000, respectively. F-174 343 MOUNTAIN LAKES BROADCASTING, L.L.C. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 4. INTANGIBLE ASSETS Intangible assets consist of the following:
DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Noncompete agreements..................................... $ 2,710,008 $ 2,710,008 Less accumulated amortization............................. (1,357,193) (986,402) ----------- ----------- $ 1,352,815 $ 1,723,606 =========== ===========
5. LEASES The Company is committed to two non-cancelable operating lease covering its antenna towers located in Harvest, AL and Decatur, AL which expire on April 30, 2000 and November 1, 2001, respectively. The Decatur, AL lease can be renewed for an additional 5 years. The Company incurred rental charges of approximately $91,000, $90,000 and $83,000, during the years ended December 31, 1996, 1995 and 1994 respectively. Future minimum rental commitments for noncancellable operating leases of premises and equipment are as follows for the year ended December 31: 1997.............................................. $ 89,640 1998.............................................. 82,140 1999.............................................. 44,640 2000.............................................. 30,640 2001.............................................. 21,670 -------- $268,730 ========
6. NOTE PAYABLE Note payable consists of the following:
DECEMBER 31, -------------------- 1996 1995 -------- -------- Note payable to the First Alabama Bank...................... $260,885 $382,885 Less current portion........................................ 122,000 122,000 -------- -------- $138,885 $260,885 ======== ========
The note is being repaid in monthly installments of $12,440 less the applicable interest at a commercial base rate with the last payment due on October 27, 1998. The interest rate was 8.25% at December 31, 1996. The average interest rates accrued during 1996, 1995 and 1994 were 8.46%, 8.93% and 7.01%, respectively. The note is collateralized by a 100% membership interest in the Company. 7. PAYABLE TO AFFILIATES The Company has amounts payable to Dixie and WBHP representing amounts transferred to the Company at the time the Stations were acquired. The payable to affiliates is due upon demand and does not accrue interest. The payable to affiliates was $333,994 at December 31, 1996 and 1995. F-175 344 MOUNTAIN LAKES BROADCASTING, L.L.C. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 8. SUBSEQUENT EVENT (UNAUDITED) In May 1997 both Dixie and WBHP completed a Stock Purchase Agreement whereby they sold all of their issued and outstanding shares of common stock and assigned the licenses, permits and other authorizations issued to the Company by the FCC for the purposes of operating the Stations and the assets utilized in connection with the operation of the Stations for approximately $24.5 million to Osborn. No adjustments to the carrying value of the Company's assets and liabilities have been made to the financial statements of the Company as of December 31, 1996 in connection with the Stock Purchase Agreement. F-176 345 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-177 346 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-178 347 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-179 348 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. e. Statement of cash flows For purposes of the statement of cash flows, Q Broadcasting considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. f. Advertising Q Broadcasting charges to expense, advertising costs as incurred. Advertising costs amounted to $112,226, $41,405 and $227,094 for the years ended September 30, 1995, 1994 and 1993, respectively. F-180 349 Q BROADCASTING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 4. DUE FROM RELATED PARTIES: Q Broadcasting advanced funds on behalf of three related entities. Approximately $54,200 and $16,800 for two entities 100% owned by Q Broadcasting's owners as of September 30, 1995 and 1994, respectively and approximately $18,700 to an entity which Q Broadcasting's owners have a minority interest as of September 30, 1995 and 1994. 5. PROPERTY AND EQUIPMENT: Property and equipment, at cost, is summarized as follows:
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-181 350 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 Capstar Radio Broadcasting Partners Inc., formerly Commodore Media, Inc. on May 30, 1996. 11. SUPPLEMENTARY INFORMATION -- STATEMENT OF CASH FLOWS: Barter transactions resulted in sales and related expenses of $315,900, $314,500 and $306,600 for the years ending September 30, 1995, 1994 and 1993, respectively. Cash paid during the years ended September 30, 1995, 1994 and 1993 for interest was $493,578, $438,648 and $261,018, respectively. F-182 351 REPORT OF INDEPENDENT AUDITORS Board of Directors Danbury Broadcasting Inc. We have audited the accompanying statement of operations and accumulated deficit and cash flows of Danbury Broadcasting, Inc. for the year ended June 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of Danbury Broadcasting, Inc.'s operations and its cash flows for the year ended June 30, 1995 in conformity with generally accepted accounting principles. Paneth, Haber & Zimmerman LLP New York, NY August 18, 1995 F-183 352 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-184 353 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-185 354 DANBURY BROADCASTING INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1995 1. SIGNIFICANT ACCOUNTING POLICIES Nature of Business Danbury Broadcasting Inc. ("Danbury"), a Connecticut corporation, operates radio stations WRKI-FM and WINE-AM in Danbury, Connecticut. Its revenues are derived from advertisers consisting primarily of local businesses. Credit is extended to its advertisers in the normal course of business. Depreciation and Amortization Depreciation of property and equipment is computed over the estimated useful lives of the respective assets using the straight-line method. Estimated useful lives range from 5 to 20 years. Expenditures for repairs and maintenance are charged to operations as incurred. Goodwill, which is included in intangible assets, represents the cost of acquired assets in excess of values ascribed to the net identified assets and is being amortized using the straight-line method over 40 years. Costs incurred in obtaining long-term financing were capitalized and are included in intangible assets. They are being amortized using the straight-line method (that does not differ materially from the interest rate method) over the term of the related debt. A covenant not to compete, which restricts the seller and the previous owner from competing with Danbury in the Greater Danbury, Connecticut area for a period of four years, is included in intangible assets. This covenant is being amortized on a straight-line basis over its four year life. The stations' broadcast license is being amortized using the straight-line method over 25 years. A favorable lease for broadcast tower rental is being amortized using the straight-line method over its 30 year term. Non-Monetary Transactions Barter transactions represent the exchange of unsold advertising time for merchandise or services. Barter transactions are reported at the estimated fair value of the product or service received. Revenue is recognized when commercials are broadcast and merchandise or services obtained are reported when received or used. For merchandise or services received prior to the broadcast of the commercial, a liability is provided; conversely, a receivable is established when the commercial is broadcast prior to the receipt of the merchandise or services. Income Taxes Danbury has adopted Statement of Financial Accounting Standards 109 ("SFAS 109") and recognizes deferred tax assets and liabilities for temporary differences between amounts recorded for financial statement and tax purposes. 2. BARTER TRANSACTIONS The accompanying financial statements include the following barter transactions:
YEAR ENDED JUNE 30, 1995 ---------- Barter revenue.............................................. $271,253 ======== Barter expenditures......................................... $182,821 ========
F-186 355 DANBURY BROADCASTING INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 3. REDEEMABLE PREFERRED STOCK The Series A cumulative preferred stock carries a liquidation preference of $1,000 per share and a par value of $100 per share. Danbury may redeem the shares at this price, plus accrued but unpaid dividends, at any time through June 30, 1997. At the earlier of that date, or an event of default (as defined) the holder can require Danbury to redeem the shares in full, with accrued but unpaid dividends out of funds "legally available". An event of default occurred during the year ended June 30, 1995 in that Danbury did not pay the full dividend. This gives the holders of the shares the right to demand redemption. The Series A cumulative preferred stock provides for an annual dividend of $110 per share. Dividends of $55,000 were declared on the preferred stock and $13,750 was paid for the year ended June 30, 1995. 4. LEASES During 1995, Danbury leased space on a transmitting tower under a five year lease renewable in five (5) year terms at Danbury's option from a related party (Note 7). Automobiles under operating leases expire in various years through 1998. Rent expense on the above, for the year ended June 30, 1995 was $46,500. 5. INCOME TAXES Danbury has a net operating loss carryforward of approximately $284,000 which can be carried forward to the years 2008 and 2009 to offset taxable income resulting in a deferred tax asset of $118,000. Other temporary differences resulting from differences between book and tax amortization and depreciation result in a deferred tax asset of approximately $81,000 at June 30, 1995. Total deferred tax assets of approximately $199,000 at June 30, 1995 have been completely offset by a valuation allowance. The valuation allowance decreased by $25,000 during the year ended June 30, 1995. Income tax benefit for the year ended June 30, 1995 differs from the expected statutory rate for the following reasons:
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. F-187 356 DANBURY BROADCASTING INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 7. RELATED PARTY TRANSACTIONS During the year ended June 30, 1995, Danbury exchanged its tower and associated real property with a book value of $190,000 for a favorable lease with a Partnership formed to improve and rent the tower to Danbury and others. The Partnership has committed to the financing of tower improvements which will improve the broadcast signal. Danbury's lease for placement of its antenna on the tower at the optimal site is at below market rates. Danbury and the Partnership are related through common control. The favorable lease has been valued at $190,000, the book value of the property exchanged. F-188 357 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-189 358 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-190 359 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-191 360 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-192 361 ADVENTURE COMMUNICATIONS -- HUNTINGTON (DIVISION OF ADVENTURE COMMUNICATIONS, INC.) STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995 ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income................................................ $ 198,031 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 244,187 Deferred income taxes.................................. (26,400) Changes in current assets and liabilities: (Increase) decrease in: Accounts receivable.................................. (112,955) Prepaid expenses and other receivables............... 4,027 Increase in: Accounts payable and accrued expenses................ 28,473 ----------- Net cash provided by operating activities......... 335,363 ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment........................ (366,455) Purchase of intangible assets............................. (89,000) ----------- Net cash used in investing activities............. (455,455) ----------- CASH FLOWS FROM FINANCING ACTIVITIES Increase in inter-divisional payable...................... 975,018 Repayment of inter-divisional payable..................... (1,020,000) ----------- Net cash used in financing activities............. (44,982) ----------- Decrease in cash.................................. (165,074) CASH Beginning................................................. 271,000 ----------- Ending.................................................... $ 105,926 =========== SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS Barter revenue............................................ $ 233,219 =========== Barter expense............................................ $ 163,100 ===========
The Notes to Financial Statements are an integral part of this statement. F-193 362 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-194 363 ADVENTURE COMMUNICATIONS -- HUNTINGTON (DIVISION OF ADVENTURE COMMUNICATIONS, INC.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Statement of cash flows: Separate disclosures have not been made for cash paid for interest and income taxes because these amounts are included in inter-divisional transactions with Adventure. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. NOTE 2. ACQUISITIONS In June 1995, Adventure purchased selected assets of an AM radio station in Ironton, Ohio. The acquisition was accounted for by the purchase method, and the statement of income includes the results of operations of this station from the date of acquisition. 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-195 364 ADVENTURE COMMUNICATIONS -- HUNTINGTON (DIVISION OF ADVENTURE COMMUNICATIONS, INC.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4. INTANGIBLES Intangibles are stated at cost, net of amortization and consist of the following:
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. F-196 365 ADVENTURE COMMUNICATIONS -- HUNTINGTON (DIVISION OF ADVENTURE COMMUNICATIONS, INC.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 6. INTER-DIVISIONAL TRANSACTIONS Adventure has allocated to the Division various expenses it incurred for corporate services, overhead and interest costs. The amounts included in corporate services and overhead allocations are comprised mainly of corporate office salaries, related payroll taxes and employee benefits, professional fees and administrative expenses. These costs have been allocated based on revenues of the Division compared to total revenues of Adventure. Management believes the amounts allocated to the Division have been computed and charged to the Division on a reasonable basis. The Division is obligated to Adventure for monies received from Adventure for the original purchase of the Stations as well as the allocated expenses mentioned above. The Division, in return, transfers cash to Adventure that is in excess of its operating needs. These transactions are conducted on an interest free basis. The inter-divisional payable is analyzed below:
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. F-197 366 ADVENTURE COMMUNICATIONS -- HUNTINGTON (DIVISION OF ADVENTURE COMMUNICATIONS, INC.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 1995: 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-198 367 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 WEEX-AM IV 1230 kHz 08-01-98 WODE-FM A 99.9 MHz 08-01-98
Wilmington, DE WJBR-AM D 1290 kHz 08-01-98 WJBR-FM B 99.5 MHz 08-01-98 Roanoke, VA WROV-AM C 1240 kHz 10-01-03 WROV-FM C1 96.3 MHz 10-01-03 WRDJ-FM C3 104.9 MHz 10-01-03 WJJS-FM A 106.1 MHz 10-01-03 WJLM-FM(3) A 93.5 MHz 10-01-03 Worcester, MA WTAG-AM III 580 kHz 04-01-98 WSRS-FM B 96.1 MHz 04-01-98 Fairfield County, CT WNLK-AM B 1350 kHz 04-01-98 WEFX-FM A 95.9 MHz 04-01-98 WSTC-AM C 1400 kHz 04-01-98 WKHL-FM A 96.7 MHz 04-01-98 WINE-AM D 940 kHz 04-01-98 WRKI-FM B 95.1 MHz 04-01-98 WPUT-AM D 1510 kHz 06-01-98 WAXB-FM A 105.5 MHz 06-01-98 Portsmouth-Rochester, NH WHEB-FM B 100.3 MHz 04-01-98 WXHT-FM A 95.3 MHz 04-01-98 WTMN-AM III 1380 kHz 04-01-98 Huntington, WV-Ashland, KY WTCR-AM B 1420 kHz 10-01-02 WTCR-FM B 103.3 MHz 10-01-02 WIRO-AM C 1230 kHz 10-01-02 WHRD-AM(3) D 1470 kHz 10-01-02 WZZW-AM D 1600 kHz 10-01-02 WKEE-AM D 800 kHz 10-01-02 WKEE-FM A 100.5 MHz 10-01-02 WAMX-FM A 106.3 MHz 10-01-02 WFXN-FM A 107.1 MHz 10-01-04 WBVB-FM A 97.1 MHz 10-01-04 Salisbury-Ocean City, MD WWFG-FM B 99.9 MHz 10-01-02 WOSC-FM B1 95.9 MHz 08-01-98 Manchester, NH WGIR-AM III 610 kHz 04-01-98 WGIR-FM B 101.1 MHz 04-01-98 A-1 368
EXPIRATION FCC DATE OF MARKET(1) STATION(2) CLASS FREQUENCY LICENSE --------- ---------- ----- --------- ---------- Wheeling, WV WWVA-AM A 1170 kHz 10-01-03 WOVK-FM B 98.7 MHz 10-01-03 WKWK-FM B 97.3 MHz 10-01-03 WBBD-AM D 1400 kHz 10-01-03 WRIR-FM B1 105.5 MHz 10-01-03 WEGW-FM B 107.5 MHz 10-01-03 WEEL-FM(3) A 95.7 MHz 10-01-03 Winchester, VA WUSQ-FM B 102.5 MHz 10-01-03 WFQX-FM A 99.3 MHz 10-01-03 WNTW-AM B 610 kHz 10-01-03 Burlington, VT WEZF-FM C 92.9 MHz 04-01-98 Harrisburg-Lebanon-Carlisle, PA WTCY-AM C 1400 kHz 08-01-98 WNNK-FM B 104.1 MHz 08-01-98 Dover, DE WDSD-FM B 94.7 MHz 08-01-98 WSRV-FM A 92.9 MHz 08-01-98 WDOV-AM B 1410 kHz 08-01-98 Westchester-Putnam Counties, NY WFAS-AM C 1230 kHz 06-01-98 WFAS-FM A 103.9 MHz 06-01-98 WZZN-FM A 106.3 MHz 06-01-98 Lynchburg, VA WLDJ-FM B 102.7 MHz 10-01-03 WJJX-FM A 101.7 MHz 10-01-03 WJJS-AM B 1320 kHz 10-01-03 WYYD-FM C1 107.9 MHz 10-01-03 SOUTHEAST REGION Birmingham, AL WMJJ-FM C 96.5 MHz 04-01-04 WERC-AM B 960 kHz 04-01-04 WOWC-FM C 102.5 MHz 04-01-04 Greenville, SC WJMZ-FM C 107.3 MHz 12-01-02 Columbia, SC WCOS-FM C1 97.5 MHz 12-01-03 WHKZ-FM A 96.7 MHz 12-01-03 WVOC-AM B 560 kHz 12-01-03 WSCQ-FM A 100.1 MHz 12-01-03 WCOS-AM C 1400 kHz 12-01-03 WNOK-FM C 104.7 MHz 12-01-03 Daytona Beach, FL WGNE-FM C1 98.1 MHz 02/01/04 Melbourne-Titusville-Cocoa, FL WMMB-AM C 1240 kHz 02-01-04 WBVD-FM A 95.1 MHz 02-01-04 WMMV-AM B 1350 kHz 02-01-04 WLRQ-FM C2 99.3 MHz 02-01-04 WHKR-FM C2 102.7 MHz 02-01-04 Huntsville, AL WDRM-FM C1 102.1 MHz 04-01-04 WHOS-AM D 800 kHz 04-01-04 WBHP-AM C 1230 kHz 04-01-04 WTAK-FM(3) C3 106.1 MHz 04-01-04 WXQW-FM(3) A 94.1 MHz 04-01-04 WWXQ-FM(3) A 92.5 MHz 04-01-04
A-2 369
EXPIRATION FCC DATE OF MARKET(1) STATION(2) CLASS FREQUENCY LICENSE --------- ---------- ----- --------- ---------- Ft. Pierce-Stuart-Vero Beach, FL WZZR-FM C2 92.7 MHz 02-01-04 WQOL-FM C2 103.7 MHz 02-01-04 WPAW-FM(3) C2 99.7 MHz 02-01-04 WBBE-FM C3 94.7 MHz 02-01-04 WAVW-FM A 101.7 MHz 02-01-04 WAXE-AM D 1370 kHz 02-01-04 Pensacola, FL WMEZ-FM C 94.1 MHz 02-01-04 WXBM-FM C 102.7 MHz 02-01-04 WWSF-FM C1 98.1 MHz 04-01-04 Montgomery, AL WZHT-FM C 105.7 MHz 04-01-04 WMCZ-FM A 97.1 MHz 04-01-04 WMHS-FM A 104.3 MHz 04-01-04 Savannah, GA WCHY-AM D 1290 kHz 04-01-04 WCHY-FM C 94.1 MHz 04-01-04 WYKZ-FM C1 98.7 MHz 04-01-04 WAEV-FM C 97.3 MHz 04-01-04 WSOK-AM C 1230 kHz 04-01-04 WLVH-FM C2 101.1 MHz 12-01-03 Asheville, NC WWNC-AM B 570 kHz 12-01-03 WKSF-FM C 99.9 MHz 12-01-03 Tuscaloosa, AL WACT-AM D 1420 kHz 04-01-04 WACT-FM A 105.5 MHz 04-01-04 WTXT-FM C1 98.1 MHz 04-01-04 WZBQ-FM(3) C 94.1 MHz 04-01-04 Jackson, TN WTJS-AM B 1390 kHz 08-01-04 WTNV-FM C1 104.1 MHz 08-01-04 WYNU-FM C 92.3 MHz 08-01-04 Statesville, NC WFMX-FM C 105.7 MHz 12-01-03 WSIC-AM C 1400 kHz 12-01-03 Gadsden, AL WAAX-AM B 570 kHz 04-01-04 WQEN-FM C 103.7 MHz 04-01-04 SOUTHWEST REGION Baton Rouge, LA WYNK-FM C 101.5 MHz 06-01-04 WYNK-AM B 1380 kHz 06-01-04 WJBO-AM B 1150 kHz 06-01-04 WLSS-FM C 102.5 MHz 06-01-04 KRVE-FM C2 96.1 MHz 06-01-04 WBIU-AM B 1210 kHz 06-01-04 Wichita, KS KKRD-FM C1 107.3 MHz 06-01-05 KRZZ-FM C2 96.3 MHz 06-01-05 KNSS-AM C 1240 KHz 06-01-05 Jackson, MS WJMI-FM C 99.7 MHz 06-01-04 WOAD-AM C 1300 kHz 06-01-04 WKXI-AM B 1400 kHz 06-01-04 WKXI-FM C1 107.5 MHz 06-01-04 Shreveport, LA KRMD-FM C 101.1 MHz 06-01-04 KRMD-AM C 1340 kHz 06-01-04
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EXPIRATION FCC DATE OF MARKET(1) STATION(2) CLASS FREQUENCY LICENSE --------- ---------- ----- --------- ---------- Beaumont, TX KLVI-AM B 560 kHz 08-01-97 KYKR-FM C1 95.1 MHz 08-01-97 KKMY-FM C 104.5 MHz 08-01-97 KIOC-FM(3) C 106.1 MHz 08-01-97 Corpus Christi, TX KRYS-FM C1 99.1 MHz 08-01-97 KRYS-AM B 1360 kHz 08-01-97 KMXR-FM C1 93.9 MHz 08-01-97 KNCN-FM C1 101.3 MHz 08-01-97 Tyler-Longview, TX KNUE-FM C 101.5 MHz 08-01-97 KISX-FM C2 107.3 MHz 08-01-97 KTYL-FM C1 93.1 MHz 08-01-97 KKTX-AM(3) IV 1240 kHz 08-01-97 KKTX-FM(3) C2 96.1 MHz 08-01-97 Killeen, TX KIIZ-FM A 92.3 MHz 08-01-97 KLFX-FM(3) A 107.3 MHz 08-01-97 Fayetteville, AR KEZA-FM C 107.9 MHz 06-01-04 KKIX-FM C1 103.9 MHz 06-01-04 KKZQ-FM C2 101.9 MHz 06-01-04 KJEM-FM(3) C1 93.3 MHz 06-01-04 Ft. Smith, AR KWHN-AM B 1320 kHz 06-01-04 KMAG-FM C 99.1 MHz 06-01-04 KZBB-FM(3) C 97.9 MHz 06-01-04 Lubbock, TX KFMX-FM C1 94.5 MHz 08-01-97 KKAM-AM C 1340 kHz 08-01-97 KZII-FM C1 102.5 MHz 08-01-97 KFYO-AM B 790 kHz 08-01-97 KRLB-FM C1 99.5 MHz 08-01-97 KKCL-FM (3) C2 98.1 MHz 08-01-97 Waco, TX KBRQ-FM C1 102.5 MHz 08-01-97 KKTK-AM B 1460 kHz 08-01-97 WACO-FM C 99.9 MHz 08-01-97 KCKR-FM C1 90.5 MHz 08-01-97 KWTX-FM C 97.5 MHz 08-01-97 KWTX-AM C 1230 kHz 08-01-97 Texarkana, TX KKYR-AM B 790 kHz 06-01-04 KKYR-FM C1 102.5 MHz 08-01-97 KLLI-FM C2 95.9 MHz 08-01-97 KYGL-FM C1 106.3 MHz 06-01-04 Lawton, OK KLAW-FM (3) C1 101.5 MHz 06-01-05 KZCD-FM (3) C2 94.1 MHz 06-01-05 Lufkin, TX KYKS-FM C1 105.1 MHz 08-01-97 KAFX-FM C1 95.5 MHz 08-01-97 Victoria, TX KIXS-FM C1 107.9 MHz 08-01-97 KLUB-FM C3 106.9 MHz 08-01-97
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EXPIRATION FCC DATE OF MARKET(1) STATION(2) CLASS FREQUENCY LICENSE --------- ---------- ----- --------- ---------- MIDWEST REGION Grand Rapids, MI WGRD-FM B 97.9 MHz 10-01-04 WRCV-AM B 1410 kHz 10-01-04 WLHT-FM B 95.7 MHz 10-01-04 WQFN-FM A 100.5 MHz 10-01-04 Des Moines, IA KHKI-FM(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 Springfield, IL WFMB-AM C 1450 kHz 12-01-04 WFMB-FM B 104.5 MHz 12-01-04 WCVS-FM A 96.7 MHz 12-01-04 Cedar Rapids, IA KHAK-FM C1 98.1 MHz 02-01-05 KDAT-FM C1 104.5 MHz 02-01-05 KTOF-AM B 1360 kHz 02-01-05 Battle Creek-Kalamazoo, MI WBCK-AM B 930 kHz 10-01-04 WBXX-FM A 95.3 MHz 10-01-04 WRCC-AM C 1400 kHz 10-01-04 WWKN-FM A 104.9 MHz 10-01-04 WEST REGION Honolulu, HI KSSK-AM B 590 kHz 02-01-98 KSSK-FM C 92.3 MHz 02-01-98 KUCD-FM C 101.9 MHz 02-01-98 KHVH-AM B 830 kHz 02-01-98 KKLV-FM C1 98.5 MHz 02-01-98 KIKI-AM B 990 kHz 02-01-98 KIKI-FM C1 93.9 MHz 02-01-98 Fresno, CA KBOS-FM B 94.9 MHz 12-01-97 KCBL-AM C 1340 kHz 12-01-97 KRZR-FM B 103.7 MHz 12-01-97 KRDU-AM B 1130 kHz 12-01-97 KJOI-FM B 98.9 MHz 12-01-97 Stockton, CA KVFX-FM(3) A 96.7 MHz 12-01-97 KJAX-AM(3) B 1280 kHz 12-01-97 Modesto, CA KJSN-FM(3) A 102.3 MHz 12-01-97 KFIV-AM(3) B 1360 kHz 12-01-97 Reno, NV KRNO-FM C 106.9 MHz 10-01-97 KWNZ-FM C 97.3 MHz 10-01-97 KCBN-AM IV 1230 kHz 10-01-97
A-5 372
EXPIRATION FCC DATE OF MARKET(1) STATION(2) CLASS FREQUENCY LICENSE --------- ---------- ----- --------- ---------- Anchorage, AK KBFX-FM(3) C3 100.5 MHz 02-01-98 KENI-AM(3) A 650 kHz 02-01-98 KYAK-AM C2 101.3 MHz 02-01-98 KGOT-FM C1 98.9 MHz 02-01-98 KYMG-FM C1 107.5 MHz 02-01-98 KASH-FM(3) B 550 kHz 02-01-98 Fairbanks, AK KIAK-FM C 102.5 MHz 02-01-98 KIAK-AM B 970 kHz 02-01-98 KAKQ-FM C2 101.1 MHz 02-01-98 Farmington, NM KKFG-FM C 104.5 MHz 10-01-97 KDAG-FM C 96.9 MHz 10-01-97 KCQL-AM C 1340 kHz 10-01-97 KTRA-FM C 102.1 MHz 10-01-97 Yuma, AZ KYJT-FM A 100.9 MHz 10-01-97 KTTI-FM C 95.1 MHz 10-01-97 KBLU-AM B 560 kHz 10-01-97
- --------------- * Not licensed -- Construction Permit only. (1) Actual city of license may be different from metropolitan market served. Market may be different from market definition used under FCC multiple ownership rules. (2) The table does not include (i) station WING-FM in Dayton, Ohio, which is owned by the Company and for which an unrelated third party, who has an option to purchase such station, currently provides certain sales, programming and marketing services pursuant to an LMA, (ii) station KASH-AM in Anchorage, Alaska, which the Company will own upon consummation of the Community Pacific Acquisition, but expects to dispose of subsequent thereto to remain in compliance with the station ownership limitations under the Communications Act, and (iii) stations WESC-FM, WFNQ-FM, and WESC-AM which will be exchanged for stations owned by SFX in the SFX Exchange. See "The Acquisitions." (3) The Company provides certain sales and marketing services to stations WKAP-AM in Allentown, Pennsylvania, WPAW-FM in Ft. Pierce-Stuart-Vero Beach, Florida, WEEL-FM in Wheeling, West Virginia and KLFX-FM in Killeen, Texas pursuant to JSAs. The Company provides certain sales, programming and marketing services to station WHRD-AM in Huntington, West Virginia; 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; and pending the consummation of the respective acquisitions, to stations WTAK-FM, WXQW-FM and WWXQ-FM in Huntsville, Alabama, WZBQ-FM in Tuscaloosa, Alabama, KKTX-AM and KKTX-FM in Tyler-Longview, Texas, KZBB-FM in Ft. Smith, Arkansas, KJEM-FM in Fayetteville, Arkansas, KLAW-FM and KZCD-FM in Lawton, Oklahoma and WJLM-FM in Roanoke, Virginia pursuant to LMAs. A-6 373 ================================================================================ NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE INITIAL PURCHASER OF THE OLD NOTES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. --------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary.......................................... 1 Summary Historical Financial Data........................... 14 Summary Pro Forma Financial Data............................ 15 Risk Factors................................................ 17 Use of Proceeds............................................. 23 Capitalization.............................................. 24 Unaudited Pro Forma Financial Information................... 25 Selected Historical Financial Data.......................... 47 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 49 Business.................................................... 59 The Acquisitions............................................ 86 Management.................................................. 95 Security Ownership of Certain Beneficial Owners............. 108 Certain Transactions........................................ 110 Description of Capital Stock................................ 117 Description of Other Indebtedness........................... 123 The Exchange Offer.......................................... 131 Description of the New Notes................................ 138 Certain United States Federal Income Tax Considerations..... 156 Book-Entry; Delivery & Form................................. 156 Plan of Distribution........................................ 158 Legal Matters............................................... 158 Experts..................................................... 158 Available Information....................................... 160 Glossary of Certain Terms and Market and Industry Data...... 161 Index to Financial Statements............................... F-1 Annex A -- Table of Additional Station Information.......... A-1
--------------------- UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. [LOGO] $277,000,000 CAPSTAR BROADCASTING PARTNERS, INC. 12 3/4% SENIOR DISCOUNT NOTES DUE 2009 PROSPECTUS , 1997 ================================================================================ 374 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Article VI of the Bylaws of the Registrant provides that the Registrant shall indemnify its officers and directors to the maximum extent allowed by the Delaware General Corporation Law. Pursuant to Section 145 of the Delaware General Corporation Law, the Registrant generally has the power to indemnify its current and former directors against expenses and liabilities incurred by them in connection with any suit to which they are, or are threatened to be made, a party by reason of their serving in those positions so long as they acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of the Registrant, and with respect to any criminal action, so long as they had no reasonable cause to believe their conduct was unlawful. With respect to suits by or in the right of the Registrant, however, indemnification is generally limited to attorneys' fees and other expenses and is not available if the person is adjudged to be liable to the Registrant, unless the court determines that indemnification is appropriate. The statute expressly provides that the power to indemnify authorized thereby is not exclusive of any rights granted under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. The Registrant also has the power to purchase and maintain insurance for its directors and officers and has purchased a policy providing such insurance. The preceding discussion of the Registrant's Bylaws and Section 145 of the Delaware General Corporation Law is not intended to be exhaustive and is qualified in its entirety by the Bylaws and Section 145 of the Delaware General Corporation Law. The Registrant has entered into indemnification agreements with the Registrant's directors and officers. Pursuant to such agreements, the Registrant will, to the extent permitted by applicable law, indemnify such persons against all expenses, judgments, fines and penalties incurred in connection with the defense or settlement of any actions brought against them by reason of the fact that they were directors or officers of the Registrant or assumed certain responsibilities at the direction of the Registrant. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits
EXHIBIT NO. DESCRIPTION ------- ----------- 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) 3.1.1 -- Certificate of Incorporation of the Company.(11) 3.1.2 -- Certificate of Amendment to Certificate of Incorporation of the Company.* 3.2 -- By-Laws of the Company.(11) 4.1 -- Registration Rights Agreement dated February 20, 1997 by and between the Registrant and BT Securities Corporation.(3) 4.2.1 -- 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.(3) 4.3.1 -- Indenture, dated as of April 21, 1995, among Capstar Radio Broadcasting Partners, Inc. ("Capstar Radio"), IBJ Schroder Bank & Trust Company, as Trustee, and the Guarantors named therein, governing the Existing Capstar Radio's Notes (the "Existing Capstar Radio Indenture").(4) 4.3.2 -- Amendment No. 1 to Existing Capstar Radio Indenture.(4)
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EXHIBIT NO. DESCRIPTION ------- ----------- 4.3.3 -- Amendment No. 2 to Existing Capstar Radio Indenture.(5) 4.3.4 -- Amendment No. 3 to Existing Capstar Radio Indenture.(5) 4.3.5 -- Amendment No. 4 to Existing Capstar Radio Indenture.(6) 4.3.6 -- Amendment No. 5 to Existing Capstar Radio Indenture.(7) 4.3.7 -- Amendment No. 6 to Existing Capstar Radio Indenture.(3) 4.3.8 -- Amendment No. 7 to Existing Capstar Radio Indenture.(12) 4.3.9 -- Amendment No. 8 to Existing Capstar Radio Indenture.* 4.4 -- Indenture, dated June 17, 1997, between the Company and U.S. Trust Company of Texas, N.A., governing the Company's outstanding 9 1/4% Senior Subordinated Notes due 2007.* 4.5 -- Indenture, dated June 17, 1997, between Capstar Radio and U.S. Trust Company of Texas, N.A., governing Capstar Radio's 12% Subordinated Exchange Debentures due 2009.* 4.6 -- Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of 12% Senior Exchangeable Preferred Stock and Qualifications, Limitations and Restrictions Thereof of the Company, dated June 17, 1997.* 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").(11) 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.(11) 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.(11) 10.1.4 -- Letter Agreement amending Benchmark Merger Agreement, dated April 8, 1997, by and among Benchmark Communications Radio Limited Partnership, Benchmark Acquisition, Inc., BCR Holding, Inc., and the Company.(11) 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.(11) 10.3 -- Asset Purchase Agreement, dated as of December 26, 1996, between Community Pacific Broadcasting Company L.P. and Community Acquisition Company, Inc.(11) 10.4 -- Credit Agreement, dated February 20, 1997, among Capstar Radio, as borrower, the Company, as guarantor, various banks, and Bankers Trust Company, as administrative agent.(8) 10.5 -- New Credit Facility.+ 10.6.1 -- Financial Advisory Agreement, dated as of October 16, 1996, between the Company and Hicks, Muse & Co. Partners, L.P. ("HMCo").(3) 10.6.2 -- Financial Advisory Agreement, dated July 1, 1997, between Capstar Broadcasting Corporation ("Capstar Broadcasting") and HMCo.* 10.7.1 -- Monitoring and Oversight Agreement, dated as of October 16, 1996, between the Company and HMCo.(3)
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EXHIBIT NO. DESCRIPTION ------- ----------- 10.7.2 -- Monitoring and Oversight Agreement, dated July 1, 1997, between Capstar Broadcasting and HMCo.* 10.8 -- Form of Indemnification Agreement between Capstar Broadcasting and each of its directors and officers.* 10.9.1 -- Employment Agreement, dated February 14, 1997, between the Company and R. Steven Hicks.(3) 10.9.2 -- First Amendment to Employment Agreement, dated July 8, 1997, between R. Steven Hicks, the Company, and Capstar Broadcasting.+ 10.10 -- Employment Agreement, dated July 1, 1997, between Capstar Broadcasting and Paul D. Stone.* 10.11 -- Employment Agreement, dated July 1, 1997, between Capstar Broadcasting and William S. Banowsky, Jr.* 10.12.1 -- Amended and Restated Employment Agreement, dated October 16, 1996, between Commodore, the Company and James T. Shea, Jr.(3) 10.12.2 -- Employment Agreement among Atlantic Star Communications, Inc., Capstar Broadcasting, and James T. Shea, Jr.+ 10.13.1 -- Employment Agreement, dated January 27, 1997, between Pacific Star Communications, Inc. and Claude C. Turner (also known as Dex Allen).(3) 10.13.2 -- Employment Agreement among Pacific Star Communications, Inc., Capstar Broadcasting and Dex Allen.+ 10.14.1 -- Employment Agreement dated July 1, 1994, between Osborn Communications Corporation ("Osborn") and Frank D. Osborn.(9) 10.14.2 -- Amendment No. 1, dated July 1, 1996, to the employment agreement dated July 1, 1994 between Osborn and Frank D. Osborn.(10) 10.14.3 -- Amendment No. 2, dated July 23, 1996, to the employment agreement dated July 1, 1994 between Osborn and Frank D. Osborn.(10) 10.15.1 -- Employment Agreement, dated February 20, 1997, between Osborn and Frank D. Osborn.(7) 10.15.2 -- Amended and Restated Employment Agreement, among Capstar Radio, Capstar Broadcasting, Southern Star Communications, Inc. and Frank D. Osborn.+ 10.16 -- Form of Employment Agreement to be entered into between Capstar Radio, Capstar Broadcasting and David T. Benjamin, III.+ 10.17 -- 1997 Stock Option Plan of the Company.* 10.18.1 -- Form of Incentive Stock Option Agreement.* 10.18.2 -- Form of Non-Qualified Stock Option Agreement for Employees.* 10.18.3 -- Form of Non-Qualified Stock Option Agreement for Non-Employees.+ 10.19 -- 1997 Stock Purchase Plan of the Company.* 10.20.1 -- Affiliate 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.(3) 10.20.2 -- First Amendment and Supplement to Affiliate Stockholders Agreement, dated January 27, 1997, by and among the Company, the securityholders listed therein and Hicks Muse.(3) 10.20.3 -- Second Amendment to Affiliate Stockholders Agreement, dated February 20, 1997, by and among the Company, the security holders listed therein and Hicks Muse.(11) 10.20.4 -- Third Amendment to Affiliate Stockholders Agreement, dated June 20, 1997, by and among Capstar Broadcasting, the Company, the security holders listed therein and Hicks Muse.* 10.21.1 -- Management Stockholders Agreement, dated November 26, 1996, among the Company, the securityholders listed therein and Hicks Muse.(3)
II-3 377
EXHIBIT NO. DESCRIPTION ------- ----------- 10.21.2 -- First Amendment to Management Stockholders Agreement, dated January 27, 1997, by and among the Company and the securityholders listed therein.(3) 10.21.3 -- Second Amendment to Management Stockholders Agreement, dated June 20, 1997, by and among Capstar Broadcasting, the Company, the security holders listed therein and Hicks Muse.* 10.22.1 -- Stock Pledge, Security Agreement and Power of Attorney, dated February 20, 1997, executed by Claude C. Turner in favor of the Company.(3) 10.22.2 -- 9% Promissory Note, dated February 20, 1997, executed by Claude C. Turner in favor of the Company in the principal sum of $200,000.(3) 10.23.1 -- 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.(3) 10.23.2 -- Stock Pledge, Security Agreement and Power of Attorney, dated February 20, 1997, executed by David J. Benjamin, III in favor of the Company.(3) 10.24 -- Mandatory Buyback Agreement, dated February 20, 1997, between David J. Benjamin, III and the Company.(3) 10.25.1 -- Registration Rights Agreement, dated February 20, 1997, between the Company and Frank D. Osborn.(3) 10.25.2 -- First Amendment to Registration Rights Agreement, dated July 1, 1997, between the Company, Capstar Broadcasting, and Frank D. Osborn.* 10.26 -- Warrant, dated October 16, 1996, issued to R. Steven Hicks.(3) 10.27 -- Warrant, dated February 20, 1997, issued to R. Steven Hicks.(3) 10.28 -- Stock Purchase Agreement, dated June 5, 1997, by and among Capstar Acquisition Company, Inc., Quass Broadcasting Company and the selling stockholders named therein.* 10.29.1 -- Asset Purchase Agreement, dated April 24, 1997, between Ameron Broadcasting, Inc. and Capstar Acquisition Company, Inc., a wholly-owned subsidiary of Capstar Radio.(12) 10.29.2 -- Letter Agreement, dated April 25, 1997, between Ameron Broadcasting, Inc. and Capstar Acquisition Company, Inc.(12) 10.29.3 -- Letter Agreement, dated May 9, 1997, between Ameron Broadcasting, Inc. and Capstar Acquisition Company, Inc.* 10.29.4 -- Amendment to Asset Purchase Agreement, dated May 9, 1997, between Ameron Broadcasting, Inc. and Capstar Acquisition Company, Inc.* 10.30.1 -- Stock Purchase Agreement, dated June 12, 1997, by and among Capstar Acquisition Company, Inc., the Company, Patterson Broadcasting, Inc. and the selling stockholders name therein.* 10.30.2 -- First Amendment to Stock Purchase Agreement, dated July [ ], 1997, by and among Patterson Broadcasting, Inc., Capstar Acquisition Company, Inc. and Dyson-Kissner-Moran Corporation, as representative of the selling stockholders named therein.+ 10.31.1 -- Asset Purchase Agreement, dated June 18, 1997, between Knight Radio, Inc. and Capstar Acquisition Company, Inc.* 10.31.2 -- Asset Purchase Agreement, dated June 18, 1997, between Knight Broadcasting of New Hampshire, Inc. and Capstar Acquisition Company, Inc.* 10.31.3 -- Asset Purchase Agreement, dated June 18, 1997, between Knight Communications Corp. and Capstar Acquisition Company, Inc.* 10.32 -- Exchange Agreement, dated May 23, 1997, between SFX Broadcasting, Inc., SFX Broadcasting of Kansas, Inc., SFXKS Limited Partnership, SFX Broadcasting of Florida, Inc., Southern Starr Limited Partnership, and Capstar Acquisition Company, Inc.*
II-4 378
EXHIBIT NO. DESCRIPTION ------- ----------- 10.33 -- Agreement and Plan of Merger, dated June 16, 1997, by and among GulfStar Communications, Inc., Capstar Broadcasting, CBC-GulfStar Merger Sub, Inc. and the stockholders listed therein.* 10.34 -- Employment Agreement between GulfStar Communications, Inc. and John D. Cullen.+ 10.35 -- Form of Employment Agreement to be entered into among Central Star Communications, Inc., Capstar Broadcasting, and Mary K. Quass.+ 10.36 -- Employment Agreement among Capstar Radio, Capstar Broadcasting and Joseph L. Mathias IV.+ 10.37 -- Form of Employment Agreement to be entered into among Capstar Radio, Capstar Broadcasting and James M. Strawn.+ 10.38 -- Form of Employment Agreement to be entered into between Capstar Broadcasting and James W. Wesley.+ 10.39 -- GulfStar Stockholders Agreement, dated July 8, 1997, by and among Capstar Broadcasting, the security holders listed therein, and Hicks Muse.+ 10.40.1 -- Warrant, dated July 8, 1997, issued to R. Steven Hicks.+ 10.40.2 -- Side Agreement, dated July 8, 1997, between Capstar Broadcasting and R. Steven Hicks.+ 10.41.1 -- Promissory Note, dated July [ ], 1997, executed by R. Gerald Turner in favor of the Company in the principal sum of $25,000.+ 10.41.2 -- Promissory Note, dated July [ ], 1997, executed by R. Gerald Turner in favor of the Company in the principal sum of $75,000.+ 10.41.3 -- Stock Pledge, Security Agreement and Power of Attorney, dated July [ ], 1997, executed by R. Gerald Turner in favor of the Company.+ 12.1 -- Deficiency of Earnings to Fixed Charges.* 12.2 -- Pro Forma Deficiency of Earnings to Fixed Charges.* 21.1 -- List of Subsidiaries.* 23.1 -- Consent of Vinson & Elkins L.L.P. (included in its opinion filed as Exhibit 5.1 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. -- GulfStar Communications, Inc.* 23.5 -- Consent of Coopers & Lybrand L.L.P. -- Benchmark Communications Radio Limited Partnership.* 23.6 -- Consent of Coopers & Lybrand L.L.P. -- Midcontinent Broadcasting Co.* 23.7 -- Consent of Coopers & Lybrand L.L.P. -- Point Communications Limited Partnership.* 23.8 -- Consent of Coopers & Lybrand L.L.P. -- Community Pacific Broadcasting Company, L.P.* 23.9 -- Consent of Arthur Andersen LLP -- Patterson Broadcasting, Inc.* 23.10 -- Consent of Arthur Andersen LLP -- Ameron Broadcasting, Inc.* 23.11 -- Consent of Arthur Andersen LLP -- Knight Quality Stations.* 23.12 -- Consent of McGladrey & Pullen, LLP.* 23.13 -- Consent of Holtz Rubenstein & Co., LLP.* 23.14 -- Consent of Paneth, Haber & Zimmerman, LLP.* 23.15 -- Consent of Brown, Edward & Co., LLP.* 24.1 -- Powers of Attorney (included on the first signature page of this Registration Statement).# 25.1 -- Form T-1 of U.S. Trust Company of Texas, N.A.#
- --------------- + To be filed by amendment. II-5 379 * Filed herewith. # Previously filed. (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 the Company's Registration Statement on Form S-1 (File No. 333-25263), dated April 16, 1997. (4) Incorporated by reference to Commodore's Registration Statement on Form S-4 (File No. 33-92732), dated July 26, 1995. (5) Incorporated by reference to Commodore's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-92732. (6) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, File No. 33-92732. (7) Incorporated by reference to Commodore's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 33-92732. (8) Incorporated by reference to Commodore's Current Report on Form 8-K dated February 20, 1997, File No. 33-92732. (9) Incorporated by reference to Osborn's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, File No. 0-16841. (10) Incorporated by reference to Osborn's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, File No. 0-16841. (11) Incorporated by reference to Capstar Broadcasting Partners, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, File No. 333-25638. (12) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, File No. 33-92732. (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 22. UNDERTAKINGS. The undersigned Registrant hereby undertakes: (1) to file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) to include any prospectus required by section 10(a)(3) of the Securities Act of 1933 (the "Securities Act"); (ii) to reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment hereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement; II-6 380 (2) that, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to section 13(a) or section 15(d) of the Exchange Act that is incorporated by reference in this Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 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 the 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. The undersigned Registrant hereby undertakes to file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of Section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of the Trust Indenture Act. The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in this Registration Statement when it became effective. II-7 381 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Company has duly caused this First Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Austin, State of Texas, on the 7th day of July, 1997. CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ WILLIAM S. BANOWSKY, JR. ---------------------------------- William S. Banowsky, Jr., Executive Vice President and General Counsel Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following person in the capacities and on the date indicated.
SIGNATURE CAPACITY DATE --------- -------- ---- * Chairman of the Board, President July 7, 1997 - ----------------------------------------------------- and Chief Executive Officer R. Steven Hicks (Principal Executive Officer) * Executive Vice President and Chief July 7, 1997 - ----------------------------------------------------- Financial Officer (Principal Paul D. Stone Financial and Accounting Officer) * Executive Vice President and July 7, 1997 - ----------------------------------------------------- Director Eric C. Neuman * Director July 7, 1997 - ----------------------------------------------------- Thomas O. Hicks * Director July 7, 1997 - ----------------------------------------------------- Lawrence D. Stuart, Jr. *By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------------ William S. Banowsky, Jr. Attorney-in-Fact
II-8 382 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. Coopers & Lybrand L.L.P. Austin, Texas February 14, 1997 S-1 383 REPORT OF INDEPENDENT AUDITORS Board of Directors Capstar Broadcasting Partners, Inc. We have audited the consolidated balance sheet of Capstar Radio Broadcasting Partners, Inc. and Subsidiaries, the Predecessor Company of Capstar Broadcasting Partners, Inc., and Subsidiaries, and formerly known as Commodore Media, Inc. and Subsidiaries, 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. ERNST & YOUNG LLP February 10, 1997 New York, New York S-2 384 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............................................. $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, 10,000,00 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-3 385 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-4 386 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-5 387 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 accompanying notes. S-6 388 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 a 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-7 389 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS BALANCE -------------------------------------- DEDUCTIONS BALANCE AT BEGINNING CHARGED TO COSTS CHARGED TO DIRECT AT END DESCRIPTION OF PERIOD AND 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
S-8 390 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION ------- ----------- 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) 3.1.1 -- Certificate of Incorporation of the Company.(11) 3.1.2 -- Certificate of Amendment to Certificate of Incorporation of the Company.* 3.2 -- By-Laws of the Company.(11) 4.1 -- Registration Rights Agreement dated February 20, 1997 by and between the Registrant and BT Securities Corporation.(3) 4.2.1 -- 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.(3) 4.3.1 -- Indenture, dated as of April 21, 1995, among Capstar Radio Broadcasting Partners, Inc. ("Capstar Radio"), IBJ Schroder Bank & Trust Company, as Trustee, and the Guarantors named therein, governing the Existing Capstar Radio's Notes (the "Existing Capstar Radio Indenture").(4) 4.3.2 -- Amendment No. 1 to Existing Capstar Radio Indenture.(4) 4.3.3 -- Amendment No. 2 to Existing Capstar Radio Indenture.(5) 4.3.4 -- Amendment No. 3 to Existing Capstar Radio Indenture.(5) 4.3.5 -- Amendment No. 4 to Existing Capstar Radio Indenture.(6) 4.3.6 -- Amendment No. 5 to Existing Capstar Radio Indenture.(7) 4.3.7 -- Amendment No. 6 to Existing Capstar Radio Indenture.(3) 4.3.8 -- Amendment No. 7 to Existing Capstar Radio Indenture.(12) 4.3.9 -- Amendment No. 8 to Existing Capstar Radio Indenture.* 4.4 -- Indenture, dated June 17, 1997, between the Company and U.S. Trust Company of Texas, N.A., governing the Company's outstanding 9 1/4% Senior Subordinated Notes due 2007.* 4.5 -- Indenture, dated June 17, 1997, between Capstar Radio and U.S. Trust Company of Texas, N.A., governing Capstar Radio's 12% Subordinated Exchange Debentures due 2009.* 4.6 -- Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of 12% Senior Exchangeable Preferred Stock and Qualifications, Limitations and Restrictions Thereof of the Company, dated June 17, 1997.* 5.1 -- Opinion of Vinson & Elkins L.L.P.*
391
EXHIBIT NO. DESCRIPTION ------- ----------- 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").(11) 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.(11) 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.(11) 10.1.4 -- Letter Agreement amending Benchmark Merger Agreement, dated April 8, 1997, by and among Benchmark Communications Radio Limited Partnership, Benchmark Acquisition, Inc., BCR Holding, Inc., and the Company.(11) 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.(11) 10.3 -- Asset Purchase Agreement, dated as of December 26, 1996, between Community Pacific Broadcasting Company L.P. and Community Acquisition Company, Inc.(11) 10.4 -- Credit Agreement, dated February 20, 1997, among Capstar Radio, as borrower, the Company, as guarantor, various banks, and Bankers Trust Company, as administrative agent.(8) 10.5 -- New Credit Facility.+ 10.6.1 -- Financial Advisory Agreement, dated as of October 16, 1996, between the Company and Hicks, Muse & Co. Partners, L.P. ("HMCo").(3) 10.6.2 -- Financial Advisory Agreement, dated July 1, 1997, between Capstar Broadcasting Corporation ("Capstar Broadcasting") and HMCo.* 10.7.1 -- Monitoring and Oversight Agreement, dated as of October 16, 1996, between the Company and HMCo.(3) 10.7.2 -- Monitoring and Oversight Agreement, dated July 1, 1997, between Capstar Broadcasting and HMCo.* 10.8 -- Form of Indemnification Agreement between Capstar Broadcasting and each of its directors and officers.* 10.9.1 -- Employment Agreement, dated February 14, 1997, between the Company and R. Steven Hicks.(3) 10.9.2 -- First Amendment to Employment Agreement, dated July 8, 1997, between R. Steven Hicks, the Company, and Capstar Broadcasting.+ 10.10 -- Employment Agreement, dated July 1, 1997, between Capstar Broadcasting and Paul D. Stone.* 10.11 -- Employment Agreement, dated July 1, 1997, between Capstar Broadcasting and William S. Banowsky, Jr.* 10.12.1 -- Amended and Restated Employment Agreement, dated October 16, 1996, between Commodore, the Company and James T. Shea, Jr.(3)
392
EXHIBIT NO. DESCRIPTION ------- ----------- 10.12.2 -- Employment Agreement among Atlantic Star Communications, Inc., Capstar Broadcasting, and James T. Shea, Jr.+ 10.13.1 -- Employment Agreement, dated January 27, 1997, between Pacific Star Communications, Inc. and Claude C. Turner (also known as Dex Allen).(3) 10.13.2 -- Employment Agreement among Pacific Star Communications, Inc., Capstar Broadcasting and Dex Allen.+ 10.14.1 -- Employment Agreement dated July 1, 1994, between Osborn Communications Corporation ("Osborn") and Frank D. Osborn.(9) 10.14.2 -- Amendment No. 1, dated July 1, 1996, to the employment agreement dated July 1, 1994 between Osborn and Frank D. Osborn.(10) 10.14.3 -- Amendment No. 2, dated July 23, 1996, to the employment agreement dated July 1, 1994 between Osborn and Frank D. Osborn.(10) 10.15.1 -- Employment Agreement, dated February 20, 1997, between Osborn and Frank D. Osborn.(7) 10.15.2 -- Amended and Restated Employment Agreement, among Capstar Radio, Capstar Broadcasting, Southern Star Communications, Inc. and Frank D. Osborn.+ 10.16 -- Form of Employment Agreement to be entered into between Capstar Radio, Capstar Broadcasting and David T. Benjamin, III.+ 10.17 -- 1997 Stock Option Plan of the Company.* 10.18.1 -- Form of Incentive Stock Option Agreement.* 10.18.2 -- Form of Non-Qualified Stock Option Agreement for Employees.* 10.18.3 -- Form of Non-Qualified Stock Option Agreement for Non-Employees.+ 10.19 -- 1997 Stock Purchase Plan of the Company.* 10.20.1 -- Affiliate 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.(3) 10.20.2 -- First Amendment and Supplement to Affiliate Stockholders Agreement, dated January 27, 1997, by and among the Company, the securityholders listed therein and Hicks Muse.(3) 10.20.3 -- Second Amendment to Affiliate Stockholders Agreement, dated February 20, 1997, by and among the Company, the security holders listed therein and Hicks Muse.(11) 10.20.4 -- Third Amendment to Affiliate Stockholders Agreement, dated June 20, 1997, by and among Capstar Broadcasting, the Company, the security holders listed therein and Hicks Muse.* 10.21.1 -- Management Stockholders Agreement, dated November 26, 1996, among the Company, the securityholders listed therein and Hicks Muse.(3) 10.21.2 -- First Amendment to Management Stockholders Agreement, dated January 27, 1997, by and among the Company and the securityholders listed therein.(3) 10.21.3 -- Second Amendment to Management Stockholders Agreement, dated June 20, 1997, by and among Capstar Broadcasting, the Company, the security holders listed therein and Hicks Muse.* 10.22.1 -- Stock Pledge, Security Agreement and Power of Attorney, dated February 20, 1997, executed by Claude C. Turner in favor of the Company.(3) 10.22.2 -- 9% Promissory Note, dated February 20, 1997, executed by Claude C. Turner in favor of the Company in the principal sum of $200,000.(3)
393
EXHIBIT NO. DESCRIPTION ------- ----------- 10.23.1 -- 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.(3) 10.23.2 -- Stock Pledge, Security Agreement and Power of Attorney, dated February 20, 1997, executed by David J. Benjamin, III in favor of the Company.(3) 10.24 -- Mandatory Buyback Agreement, dated February 20, 1997, between David J. Benjamin, III and the Company.(3) 10.25.1 -- Registration Rights Agreement, dated February 20, 1997, between the Company and Frank D. Osborn.(3) 10.25.2 -- First Amendment to Registration Rights Agreement, dated July 1, 1997, between the Company, Capstar Broadcasting, and Frank D. Osborn.* 10.26 -- Warrant, dated October 16, 1996, issued to R. Steven Hicks.(3) 10.27 -- Warrant, dated February 20, 1997, issued to R. Steven Hicks.(3) 10.28 -- Stock Purchase Agreement, dated June 5, 1997, by and among Capstar Acquisition Company, Inc., Quass Broadcasting Company and the selling stockholders named therein.* 10.29.1 -- Asset Purchase Agreement, dated April 24, 1997, between Ameron Broadcasting, Inc. and Capstar Acquisition Company, Inc., a wholly-owned subsidiary of Capstar Radio.(12) 10.29.2 -- Letter Agreement, dated April 25, 1997, between Ameron Broadcasting, Inc. and Capstar Acquisition Company, Inc.(12) 10.29.3 -- Letter Agreement, dated May 9, 1997, between Ameron Broadcasting, Inc. and Capstar Acquisition Company, Inc.* 10.29.4 -- Amendment to Asset Purchase Agreement, dated May 9, 1997, between Ameron Broadcasting, Inc. and Capstar Acquisition Company, Inc.* 10.30.1 -- Stock Purchase Agreement, dated June 12, 1997, by and among Capstar Acquisition Company, Inc., the Company, Patterson Broadcasting, Inc. and the selling stockholders name therein.* 10.30.2 -- First Amendment to Stock Purchase Agreement, dated July [ ], 1997, by and among Patterson Broadcasting, Inc., Capstar Acquisition Company, Inc. and Dyson-Kissner-Moran Corporation, as representative of the selling stockholders named therein.+ 10.31.1 -- Asset Purchase Agreement, dated June 18, 1997, between Knight Radio, Inc. and Capstar Acquisition Company, Inc.* 10.31.2 -- Asset Purchase Agreement, dated June 18, 1997, between Knight Broadcasting of New Hampshire, Inc. and Capstar Acquisition Company, Inc.* 10.31.3 -- Asset Purchase Agreement, dated June 18, 1997, between Knight Communications Corp. and Capstar Acquisition Company, Inc.* 10.32 -- Exchange Agreement, dated May 23, 1997, between SFX Broadcasting, Inc., SFX Broadcasting of Kansas, Inc., SFXKS Limited Partnership, SFX Broadcasting of Florida, Inc., Southern Starr Limited Partnership, and Capstar Acquisition Company, Inc.* 10.33 -- Agreement and Plan of Merger, dated June 16, 1997, by and among GulfStar Communications, Inc., Capstar Broadcasting, CBC-GulfStar Merger Sub, Inc. and the stockholders listed therein.* 10.34 -- Employment Agreement between GulfStar Communications, Inc. and John D. Cullen.+
394
EXHIBIT NO. DESCRIPTION ------- ----------- 10.35 -- Form of Employment Agreement to be entered into among Central Star Communications, Inc., Capstar Broadcasting, and Mary K. Quass.+ 10.36 -- Employment Agreement among Capstar Radio, Capstar Broadcasting and Joseph L. Mathias IV.+ 10.37 -- Form of Employment Agreement to be entered into among Capstar Radio, Capstar Broadcasting and James M. Strawn.+ 10.38 -- Form of Employment Agreement to be entered into between Capstar Broadcasting and James W. Wesley.+ 10.39 -- GulfStar Stockholders Agreement, dated July 8, 1997, by and among Capstar Broadcasting, the security holders listed therein, and Hicks Muse.+ 10.40.1 -- Warrant, dated July 8, 1997, issued to R. Steven Hicks.+ 10.40.2 -- Side Agreement, dated July 8, 1997, between Capstar Broadcasting and R. Steven Hicks.+ 10.41.1 -- Promissory Note, dated July [ ], 1997, executed by R. Gerald Turner in favor of the Company in the principal sum of $25,000.+ 10.41.2 -- Promissory Note, dated July [ ], 1997, executed by R. Gerald Turner in favor of the Company in the principal sum of $75,000.+ 10.41.3 -- Stock Pledge, Security Agreement and Power of Attorney, dated July [ ], 1997, executed by R. Gerald Turner in favor of the Company.+ 12.1 -- Deficiency of Earnings to Fixed Charges.* 12.2 -- Pro Forma Deficiency of Earnings to Fixed Charges.* 21.1 -- List of Subsidiaries.* 23.1 -- Consent of Vinson & Elkins L.L.P. (included in its opinion filed as Exhibit 5.1 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. -- GulfStar Communications, Inc.* 23.5 -- Consent of Coopers & Lybrand L.L.P. -- Benchmark Communications Radio Limited Partnership.* 23.6 -- Consent of Coopers & Lybrand L.L.P. -- Midcontinent Broadcasting Co.* 23.7 -- Consent of Coopers & Lybrand L.L.P. -- Point Communications Limited Partnership.* 23.8 -- Consent of Coopers & Lybrand L.L.P. -- Community Pacific Broadcasting Company, L.P.* 23.9 -- Consent of Arthur Andersen LLP -- Patterson Broadcasting, Inc.* 23.10 -- Consent of Arthur Andersen LLP -- Ameron Broadcasting, Inc.* 23.11 -- Consent of Arthur Andersen LLP -- Knight Quality Stations.* 23.12 -- Consent of McGladrey & Pullen, LLP.* 23.13 -- Consent of Holtz Rubenstein & Co., LLP.* 23.14 -- Consent of Paneth, Haber & Zimmerman, LLP.* 23.15 -- Consent of Brown, Edward & Co., LLP.* 24.1 -- Powers of Attorney (included on the first signature page of this Registration Statement).#
395
EXHIBIT NO. DESCRIPTION ------- ----------- 25.1 -- Form T-1 of U.S. Trust Company of Texas, N.A.#
- --------------- + To be filed by amendment. * Filed herewith. # Previously filed. (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 the Company's Registration Statement on Form S-1 (File No. 333-25263), dated April 16, 1997. (4) Incorporated by reference to Commodore's Registration Statement on Form S-4 (File No. 33-92732), dated July 26, 1995. (5) Incorporated by reference to Commodore's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-92732. (6) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, File No. 33-92732. (7) Incorporated by reference to Commodore's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 33-92732. (8) Incorporated by reference to Commodore's Current Report on Form 8-K dated February 20, 1997, File No. 33-92732. (9) Incorporated by reference to Osborn's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, File No. 0-16841. (10) Incorporated by reference to Osborn's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, File No. 0-16841. (11) Incorporated by reference to Capstar Broadcasting Partners, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, File No. 333-25638. (12) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, File No. 33-92732. EX-3.1.2 2 CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INC. 1 EXHIBIT 3.1.2 CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF CAPSTAR BROADCASTING PARTNERS, INC. (INCORPORATED ON OCTOBER 11, 1996) (PURSUANT TO SECTION 242 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE) Capstar Broadcasting Partners, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), hereby certifies: FIRST, that the board of directors of the Corporation duly adopted resolutions proposing and declaring advisable the following amendments to the Certificate of Incorporation of the Corporation in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware: "RESOLVED, that the Board of Directors of the Corporation deems and declares advisable an amendment to the Certificate of Incorporation of the Corporation to amend the first paragraph of Article FOURTH to read as follows: FOURTH: The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 360,000,000 shares consisting of (a) 10,000,000 shares of preferred stock, par value of One Cent ($.01) per share (the "Preferred Stock"), (b) 300,000,000 shares of Class A Common Stock, par value of One Cent ($.01) per share (the "Class A Common Stock"), and (c) 50,000,000 shares of Class B Common Stock, par value of One Cent ($.01) per share (the "Class B Common Stock) (the Class A Common Stock and Class B Common Stock, collectively, the "Common Stock"). SECOND, that in lieu of a meeting and vote of stockholders, the stockholders of the Corporation have given written consent to said amendments in accordance with the provisions of Section 228(a) of the General Corporation Law of the State of Delaware. THIRD, that the previously stated amendments to the Certificate of Incorporation of the Corporation were duly adopted by the stockholders of the Corporation in accordance with the provisions of Section 242 and of the General Corporation Law of the State of Delaware. 2 IN WITNESS WHEREOF, the undersigned has executed this Certificate this 16th day of June, 1997. CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ Paul D. Stone ------------------------------ Paul D. Stone Executive Vice President EX-4.3.9 3 AMENDMENT N0.8 TO EXISTING CAPSTAR RADIO INDENTURE 1 EXHIBIT 4.3.9 ================================================================================ CAPSTAR RADIO BROADCASTING PARTNERS, INC., (FORMERLY KNOWN AS 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. 8 DATED AS OF JUNE 25, 1997 TO THE INDENTURE DATED AS OF APRIL 21, 1995 ------------------------ $76,808,000 13 1/4% SENIOR SUBORDINATED NOTES DUE 2003 ================================================================================ 2 AMENDMENT NO. 8, dated as of June 23, 1997 ("Amendment No. 8"), to the INDENTURE, dated as of April 21, 1995, as amended (the "Indenture"), among CAPSTAR RADIO BROADCASTING PARTNERS, INC. (formerly known as 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. On June 3, 1997, the corporate name of Commodore Media, Inc. was changed to Capstar Radio Broadcasting Partners, Inc. All references in the Indenture shall be to the new corporate name of such entity. 2. Pacific Star Communications, Inc., a Delaware corporation ("Pacific Star"), is a wholly-owned subsidiary of the Company and is a Restricted Subsidiary acquired or created pursuant to Section 4.14(ii) of the Indenture. Pacific Star delivers herewith the Guarantee attached as Exhibit A to this Amendment No. 8 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, Pacific Star shall be deemed a party to the Indenture by virtue of its execution of this Amendment No. 8 and the defined term the "Guarantor" contained in Article 1.01 of the Indenture shall be deemed to include Pacific Star. 3. This Amendment No. 8 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. 4. This Amendment No. 8 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. 5. THIS AMENDMENT NO. 8 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 THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION). 6. 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. 8. The Trustee makes no representation as to the validity or sufficiency of this Amendment No. 8. 3 IN WITNESS WHEREOF, the parties have caused this Amendment No. 8 to the Indenture to be duly executed and attested as of the date and year first written above. CAPSTAR RADIO BROADCASTING PARTNERS, INC. By: /s/ William S. Banowsky, Jr. ---------------------------- William S. Banowsky, Jr. Executive Vice President ATTEST: /s/ Kathy Archer - ---------------- Kathy Archer Assistant Secretary GUARANTORS: ---------- ATLANTIC STAR COMMUNICATIONS, INC. CAPSTAR ACQUISITION COMPANY, 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 PACIFIC STAR COMMUNICATIONS, INC. By: /s/ William S. Banowsky, Jr. ---------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ Kathy Archer - ---------------- Kathy Archer Assistant Secretary 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 BEATRICE BROADCASTING CORP. CURREY BROADCASTING CORPORATION OSBORN SOUND AND COMMUNICATIONS CORP WAITE BROADCASTING CORP. . AMERON BROADCASTING CORPORATION WNOK ACQUISITION COMPANY, INC. DIXIE BROADCASTING, INC. RADIO WBHP, INC. By: /s/ William S. Banowsky, Jr. ---------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ Kathy Archer - ---------------- Kathy Archer Assistant Secretary 5 MOUNTAIN LAKES BROADCASTING, L.L.C. By: Dixie Broadcasting, Inc., its Member By: /s/ William S. Banowsky, Jr. ---------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ Kathy Archer - ---------------- Kathy Archer Assistant Secretary By: Radio WBHP, Inc., its Member By: /s/ William S. Banowsky, ------------------------. William S. Banowsky, Jr. Vice President ATTEST: /s/ Kathy Archer - ---------------- Kathy Archer Assistant Secretary 6 MUSIC HALL CLUB, INC. By: /s/ Larry Anderson ------------------ Larry Anderson President ATTEST: /s/ Nancy Anderson - ------------------ Nancy Anderson Secretary and Treasurer 7 IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By: /s/ Thomas McCutcheon --------------------- Thomas McCutcheon Assistant Vice President ATTEST: /s/ Barbara McCluskey - --------------------- Barbara McCluskey Assistant Secretary 8 EXHIBIT A GUARANTEE The Guarantor (the "Guarantor," which term includes any successor Person under the Indenture, dated April 21, 1995, as amended, among Capstar Radio Broadcasting Partners, 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: PACIFIC STAR COMMUNICATIONS, INC. By: /s/ William S. Banowsky, Jr. ------------------------------- Name: William S. Banowsky, Jr. Title: Vice President EX-4.4 4 INDENTURE (9 1/4% SENIOR SUBORDINATED NOTES) 1 EXHIBIT 4.4 ================================================================================ INDENTURE Dated as of June 17, 1997 Between CAPSTAR RADIO BROADCASTING PARTNERS, INC., as Issuer, and U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee ---------------- $200,000,000 9 1/4% Senior Subordinated Notes due 2007, Series A 9 1/4% Senior Subordinated Notes due 2007, 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; 11.02 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06 (b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06; 11.02 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.07; 4.09; 11.02 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04 (c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04 (c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.05 (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A 315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(b) (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 11.02 (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. (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
- --------------- N.A. means Not Applicable NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. 3 TABLE OF CONTENTS
Page ---- ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.02 Incorporation by Reference of TIA . . . . . . . . . . . . . . . . . . . . . . 22 Section 1.03 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE TWO THE SECURITIES Section 2.01 Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 2.02 Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 2.03 Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 2.04 Paying Agent To Hold Assets in Trust . . . . . . . . . . . . . . . . . . . . . 25 Section 2.05 Securityholder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 2.06 Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 2.07 Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 2.08 Outstanding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 2.09 Treasury Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 2.10 Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 2.11 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 2.12 Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 2.13 CUSIP Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 2.14 Deposit of Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 2.15 Book-Entry Provisions for Global Securities . . . . . . . . . . . . . . . . . 30 Section 2.16 Registration of Transfers and Exchanges . . . . . . . . . . . . . . . . . . . 31 ARTICLE THREE REDEMPTION Section 3.01 Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 3.02 Selection of Securities To Be Redeemed . . . . . . . . . . . . . . . . . . . . 37 Section 3.03 Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 3.04 Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 3.05 Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 3.06 Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . 39
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Page ---- ARTICLE FOUR COVENANTS Section 4.01 Payment of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 4.02 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . 40 Section 4.03 Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . 40 Section 4.04 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 4.05 Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . 45 Section 4.06 Maintenance of Properties and Insurance . . . . . . . . . . . . . . . . . . . 45 Section 4.07 Compliance Certificate; Notice of Default . . . . . . . . . . . . . . . . . . 46 Section 4.08 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 4.09 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 4.10 Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . . . 47 Section 4.11 Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . 48 Section 4.12 Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 49 Section 4.13 Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries . 49 Section 4.14 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 4.15 Limitation on Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 4.16 Limitation on Asset Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 4.17 Limitation on Other Senior Subordinated Indebtedness . . . . . . . . . . . . . 55 Section 4.18 Escrow of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 4.19 Special Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 4.20 Special Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 ARTICLE FIVE SUCCESSOR CORPORATION Section 5.01 Merger, Consolidation and Sale of Assets . . . . . . . . . . . . . . . . . . . 59 Section 5.02 Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . 61
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Page ---- ARTICLE SIX DEFAULT AND REMEDIES Section 6.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 6.02 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Section 6.03 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Section 6.04 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Section 6.05 Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Section 6.06 Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 6.07 Rights of Holders To Receive Payment . . . . . . . . . . . . . . . . . . . . 65 Section 6.08 Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 6.09 Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . 66 Section 6.10 Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 6.11 Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 ARTICLE SEVEN TRUSTEE Section 7.01 Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 7.02 Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 7.03 Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 7.04 Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 7.05 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 7.06 Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 7.07 Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Section 7.08 Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Section 7.09 Successor Trustee by Merger, Etc. . . . . . . . . . . . . . . . . . . . . . . 74 Section 7.10 Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . 74 Section 7.11 Preferential Collection of Claims Against the Company . . . . . . . . . . . . 75 ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE Section 8.01 Termination of the Company's Obligations . . . . . . . . . . . . . . . . . . 75 Section 8.02 Acknowledgment of Discharge by Trustee . . . . . . . . . . . . . . . . . . . 78 Section 8.03 Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . 78 Section 8.04 Repayment to the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Section 8.05 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
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Page ---- ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 9.01 Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . 79 Section 9.02 With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Section 9.03 Compliance with TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Section 9.04 Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . 81 Section 9.05 Notation on or Exchange of Securities . . . . . . . . . . . . . . . . . . . . 82 Section 9.06 Trustee To Sign Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . 82 ARTICLE TEN SUBORDINATION OF SECURITIES Section 10.01 Securities Subordinate to Senior Indebtedness . . . . . . . . . . . . . . 83 Section 10.02 Payment Over of Proceeds upon Dissolution, etc. . . . . . . . . . . . . . 83 Section 10.03 Suspension of Payment When Senior Indebtedness in Default . . . . . . . . 85 Section 10.04 Trustee's Relation to Senior Indebtedness . . . . . . . . . . . . . . . . 86 Section 10.05 Subrogation to Rights of Holders of Senior Indebtedness . . . . . . . . . 87 Section 10.06 Provisions Solely to Define Relative Rights . . . . . . . . . . . . . . . 88 Section 10.07 Trustee to Effectuate Subordination . . . . . . . . . . . . . . . . . . . 88 Section 10.08 No Waiver of Subordination Provisions . . . . . . . . . . . . . . . . . . 89 Section 10.09 Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Section 10.10 Reliance on Judicial Order or Certificate of Liquidating Agent . . . . . 91 Section 10.11 Rights of Trustee as a Holder of Senior Indebtedness; Preservation of Trustee's Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Section 10.12 Article Applicable to Paying Agents . . . . . . . . . . . . . . . . . . . 92 Section 10.13 No Suspension of Remedies . . . . . . . . . . . . . . . . . . . . . . . . 92 ARTICLE ELEVEN MISCELLANEOUS Section 11.01 TIA Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Section 11.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Section 11.03 Communications by Holders with Other Holders . . . . . . . . . . . . . . . 94
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Page ---- Section 11.04 Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . 94 Section 11.05 Statements Required in Certificate or Opinion . . . . . . . . . . . . . . 94 Section 11.06 Rules by Trustee, Paying Agent, Registrar . . . . . . . . . . . . . . . . 95 Section 11.07 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Section 11.08 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Section 11.09 No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . 95 Section 11.10 No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . 95 Section 11.11 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Section 11.12 Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Section 11.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
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 this Indenture. -v- 8 INDENTURE, dated as of June 17, 1997, between Capstar Radio 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 9 1/4% Senior Subordinated Notes due 2007, Series A, and 9 1/4% Senior Subordinated Notes due 2007, Series B, to be issued in exchange for the 9 1/4% Senior Subordinated Notes due 2007, 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 9 1/4% Senior Subordinated Notes due 2007 (the "Securities"): ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions. "Acceleration Notice" has the meaning provided in Section 6.02. "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Subsidiary of the Company or at the time it merges or consolidates with the Company or any of its Subsidiaries or assumed in connection with the acquisition of assets from such Person and not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Subsidiary of the Company or such acquisition, merger or consolidation. "Acquired Preferred Stock" means Preferred Stock of any Person at the time such Person becomes a Subsidiary of the Company or at the time it merges or consolidates with the 9 -2- Company or any of its Subsidiaries and not issued by such Person in connection with, or in anticipation or contemplation of, such acquisition, merger or consolidation. "Affiliate" means a Person who, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the Company. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "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 $1,000,000, (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 Federal Communications Commission (the "FCC") approval, if applicable, and other customary closing conditions, that the Company in good faith believes will be 10 -3- 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. "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. "Capstar Broadcasting" means Capstar Broadcasting Corporation, a Delaware corporation. "Capstar Partners" means Capstar Broadcasting Partners Inc., a Delaware corporation and sole stockholder of the Company. 11 -4- "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc.; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from Standard & Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $200,000,000; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above; and (vi) investments in money market funds that invest substantially all their assets in securities of the types described in clauses (i) through (v) above. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group") (whether or not otherwise in compliance with the provisions of the Indenture), other than to Hicks Muse, any of its affiliates (excluding Chancellor), officers and directors or R. Steven Hicks (the "Permitted Holders"); or (ii) a majority of the board of directors of the Company shall consist of Persons who are not Continuing Directors; or (iii) the acquisition by any Person or Group (other than the Permitted Holders) of the power, directly or indirectly, to vote or direct the voting of securities having more than 50% of the ordinary voting power for the election of directors of the Company. 12 -5- "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 arrangements 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. "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 sun (without duplication) of (i) Consolidated Net Income and (ii) to the extent Consolidated Net Income has been reduced thereby, (A) all income taxes of such Person and its Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary or nonrecurring gains or losses), (B) Consolidated Interest Expense and (C) Consolidated Non-Cash Charges, all as determined on a consolidated basis for such Person and its Subsidiaries in conformity with GAAP. "Consolidated Interest Expense" means, with respect to any Person for any period, without duplication, the sum of (i) the interest expense of such Person and its Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (a) any amortization of debt discount, (b) the net cost under Interest Swap Obligations (including any amortization of discounts), (c) the 13 -6- interest portion of any deferred payment obligation, (d) all commissions, discounts and other fees and charges owned with respect to letters of credit, bankers' acceptance financing or similar facilities, and (d) 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 $1,000,000 limitation set forth in the definition thereof) or abandonments or reserves relating thereto and the related tax effects, (b) items classified as extraordinary or nonrecurring gains and losses, and the related tax effects according to GAAP, (c) the net income (or loss) of any Person acquired in a pooling of interests transactions accrued prior to the date it becomes a Subsidiary of such first referred to Person or is merged or consolidated with it or any of its Subsidiaries, (d) the net income of any Subsidiary to the extent that the declaration of dividends or similar distributions by that Subsidiary of that income is restricted by contract, operation of law or otherwise, (e) the net income of any Person, other than a Subsidiary, except to the extent of the lesser of (x) dividends or distributions paid to such first referred to Person or its Subsidiary by such Person and (y) the net income of such Person (but in no event less than zero), and the net loss of such Person shall be included only to the extent of the aggregate Investment of the first referred to Person or a consolidated Subsidiary of such Person and (f) any non-cash expenses attributable to grants or exercises of employee stock options. "Consolidated Non-Cash Charges" means, with respect to any Person for any period, the aggregate depreciation, amortization and other non-cash expenses of such Person and its Subsidiaries (excluding any such charges constituting an extraordinary or nonrecurring item) reducing Consolidated Net Income of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "Continuing Director" means, as of the date of determination, any Person who (i) was a member of the Board of Directors of the Company on the Issue Date, (ii) was nominated for election or elected to the board of directors of the 14 -7- Company with the affirmative vote of a majority of the Continuing Directors who were members of such board of directors at the time of such nomination or election or (iii) is a representative of a Permitted Holder. "Credit Facility" means the credit agreement dated February 20, 1997 among the Company, Capstar Partners, Bankers Trust Company, as agent, and the lenders parties thereto from time to time, as the same may be amended, supplemented or otherwise modified from time to time, and any renewal, extension, refunding, restructuring, replacement or refinancing thereof (whether with the original agent and lenders or another agent or agents or other lenders and whether provided under the original Credit Facility or any other credit agreement). "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in currency values. "Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, the Event of Default. "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. "Designated Senior Indebtedness" means any Senior Indebtedness (a) which at the time of determination exceeds $10 million in aggregate principal amount (or accreted value in the case of Indebtedness issued at a discount) outstanding or available under a committed facility, (b) which is specifically designed in the instrument evidencing such Senior Indebtedness as "Designed Senior Indebtedness" by such Person and (c) as to which the Trustee has been given written notice of such designation. "Discharged" has the meaning provided in Section 8.01. "Discount Notes" means the 12-3/4% Senior Discount Notes due 2009 of Capstar Partners. 15 -8- "Disqualified Capital Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures (excluding any maturity as the result of an optional redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable as 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. "Escrow Account" has the meaning provided in Section 4.18. "Escrow Agent" shall mean Bankers Trust Company. "Escrow Agreement" means that certain Notes Escrow Agreement dated as of June 17, 1997 among Bankers Trust Company, as escrow agent, U.S. Trust Company of Texas, N.A., and the Company. "Escrow Funds" has the meaning provided in Section 4.18. "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. "Existing Indenture" means the indenture governing the Existing Notes dated as of April 21, 1995 by and among the Company, as Issuer, the Subsidiaries of the Company named therein, as Guarantors, and IBJ Schroder Bank & Trust Company, as Trustee, as in effect on the Issue Date. "Existing Notes" means the Company's 13-1/4% Senior Subordinated Notes due 2003. "Final Special Offer Notice Date" has the meaning provided in Section 4.19. "Financial Monitoring and Oversight Agreements" means, collectively, (i) the Monitoring and Oversight Agreement between Capstar Partners and Hicks, Muse & Co. Partners, L.P. ("HM Partners") as in effect on the Issue Date, and (ii) the 16 -9- Financial Advisory Agreement between Capstar Partners and HM Partners, 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. "GulfStar" means GulfStar Communications, Inc. "GulfStar Merger" refers to Capstar Broadcasting's acquisition of GulfStar. "GulfStar Transaction" means the Hicks Muse GulfStar Equity Investment, the GulfStar Merger, the contribution by Capstar Broadcasting of the surviving entity in the GulfStar Merger through Capstar Partners to the Company and the contribution through Capstar Partners to the Company of $48.0 million in cash by Capstar Broadcasting. "Hicks Muse" means Hicks, Muse, Tate & Furst Incorporated, a Delaware corporation. "Hicks Muse GulfStar Equity Investment" means the purchase by affiliates of Hicks Muse of certain shares of Capital Stock, par value $.01 per share, of Capstar Broadcasting for $75.0 million in cash at or prior to consummation of the GulfStar Merger. "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 17 -10- the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (vi) for Indebtedness of others guaranteed by such Person, (vii) for Interest Swap Obligations, Commodity Agreements and Currency Agreements and (viii) for Indebtedness of any other Person of the type referred to in clauses (i) through (vii) which is secured by any Lien on any property or asset of such first referred to Person, the amount of such Indebtedness being deemed to be the lesser of the value of such property or asset or the amount of the Indebtedness so secured. The amount of Indebtedness of any Person at any date shall be the outstanding principal amount of all unconditional obligations described above, as such amount would be reflected on a balance sheet prepared in accordance with GAAP, and the maximum liability of 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 $2,000,000, in which case the fair market value shall be determined conclusively in good faith by the Board of Directors of the Company at the time such Investment is made. 18 -11- "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 (subject to the terms described in the next paragraph) plus the aggregate liquidation preference of all outstanding Preferred Stock of the Company's Subsidiaries (except Preferred Stock issued to the Company or a Wholly Owned Subsidiary of the Company) on such date to (ii) the Consolidated EBITDA of the Company for the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of determination. For purposes of this definition, (i) the amount of Indebtedness which is issued at a discount shall be deemed to be the accreted value of such Indebtedness at the end of the Four Quarter Period, whether or not such amount is the amount then reflected on a balance sheet prepared in accordance with GAAP, and (ii) the aggregate outstanding principal amount of Indebtedness of the Company and its Subsidiaries and the aggregate liquidation preference of all outstanding Preferred Stock of the Company's Subsidiaries for which such calculation is made shall be determined on a pro forma basis as if the Indebtedness and Preferred Stock giving rise to the need to perform such calculation had been incurred and issued and the proceeds therefrom had been applied, and all other transactions in respect of which such Indebtedness is being incurred or Preferred Stock is being issued had 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 of repayment of Indebtedness pursuant to working capital facilities, at any time subsequent to the beginning of the Four Quarter Period and on or prior to the date of determination, as if such incurrence or issuance (and the application of the proceeds thereof), or the repayment, as the case may be, occurred on the first day of 19 -12- the Four Quarter Period, (ii) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Subsidiaries (including any Person that becomes a Subsidiary as a result of such Asset Acquisition) incurring, assuming or otherwise becoming liable for Indebtedness or such Person's Subsidiaries issuing Preferred Stock) at any time on or subsequent to the first day of the Four Quarter Period and on or prior to the date of determination, as if such Asset Sale or Asset Acquisition (including the incurrence, assumption or liability for any such Indebtedness and the issuance of such Preferred Stock and also including any Consolidated EBITDA associated with such Asset Acquisition) occurred on the first day of the Four Quarter Period and (iii) cost savings resulting from employee terminations, facilities consolidations and closings, standardization of employee benefits and compensation practices, consolidation of property, casualty and other insurance coverage and policies, standardization of sales representation commissions and other contract rates, and reductions in taxes that income taxes (collectively, "Cost Savings Measures"), which cost savings the Company reasonably believes in good faith would have been achieved during the Four Quarter Period as a result of such Asset Acquisitions (regardless of whether such cost savings could then be reflected in pro forma financial statements under GAAP, Regulation S-X promulgated by the Commission or any other regulation or policy of the Commission), provided that both (A) such cost savings and Cost Savings Measures were identified and such cost savings were quantified in an officer's certificate delivered to the Trustee at the time of the consummation of the Asset Acquisition and such officer's certificate states that such officer believes in good faith that actions will be commenced or initiated within 90 days of such Asset Acquisition to effect such Cost Savings Measures and (B) with respect to each Asset Acquisition completed prior to the 90th day preceding such date of determination, actions were commenced or initiated by the Company within 90 days of such Asset Acquisition to effect the Cost Savings Measures identified in such officer's certificate (regardless, however, of whether the corresponding cost savings have been achieved). Furthermore, in calculating "Consolidated Interest Expense" for purposes of the calculation of "Consolidated EBITDA," (i) interest on Indebtedness determined on a fluctuating basis as of the date of determination (including Indebtedness actually incurred on the date of the transaction giving rise to the need to calculate the Leverage Ratio) and which will continue to be so determined thereafter shall be deemed to have accrued at fixed rate per 20 -13- annum equal to the rate of interest on such Indebtedness as in effect on the date of determination and (ii) notwithstanding (i) above, interest determined on a fluctuating basis, to the extent such interest is covered by Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "Major Asset Sale" means an Asset Sale or series of related Asset Sales involving assets with a fair market value in excess of $25,000,000. "Maturity Date" means July 1, 2007. "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. 21 -14- "Net Proceeds Offer" has the meaning provided in Section 4.15. "Non-Payment Event of Default" means any event (other than a Payment Default) the occurrence of which entitles one or more Persons to accelerate the maturity of any Designated Senior Indebtedness. "Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing, or otherwise relating to, any Indebtedness. "Offering Memorandum" means that certain Offering Memorandum for the Company's 9 1/4% Senior Subordinated Notes. "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 11.04 and 11.05, 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. "Payment Default" means any default, whether or not any requirement for the giving of notice, the lapse of time or both, or any other condition to such default becoming an event of default has occurred, in the payment of principal of (or 22 -15- premium, if any) or interest on or any other amount payable in connection with Designated Senior Indebtedness. "Pending Acquisitions" means the twenty acquisitions described in the Offering Memorandum as Pending Acquisitions. "Permitted Holders" shall have the meaning set forth in the definition of "Change of Control." "Permitted Indebtedness" means, without duplication, (i) Indebtedness outstanding on the Issue Date; (ii) Indebtedness of the Company or a Subsidiary incurred pursuant to the Credit Facility in an aggregate principal amount at any time outstanding not to exceed the sum of $150 million; (iii) Indebtedness evidenced by or arising under the Notes 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 $20,000,000 in principal amount outstanding at any time (which amount may, but need not, be incurred under the Credit Facility); (vi) Refinancing Indebtedness; (vii) Indebtedness owed by the Company to any Wholly Owned Subsidiary of the Company or by any Subsidiary of the Company to the Company or any Wholly Owned Subsidiary of the Company; (viii) guarantees by Subsidiaries of any Indebtedness permitted to be incurred pursuant to the Indenture; (ix) Indebtedness in respect of performance bonds, bankers' acceptances and surety or appeal bonds provided by the Company or any of its Subsidiaries to their customers in the ordinary course of their business; (x) Indebtedness arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Subsidiaries pursuant to such agreements, in each case incurred in connection with the disposition of any business assets or Subsidiaries of the Company (other than guarantees of Indebtedness or other obligations incurred by any Person acquiring all or any portion of such business assets or Subsidiaries of the Company for the purpose of financing such acquisition) in a principal amount not to exceed the gross proceeds actually received by the Company or any of its Subsidiaries in connection with such disposition; provided, however, that the principal amount of any Indebtedness incurred pursuant to this clause (x), when taken together with all Indebtedness incurred pursuant to this clause (x) and then outstanding, shall not exceed $15,000,000; and 23 -16- (xi) Indebtedness represented by Capitalized Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property used in a related business or incurred to refinance any such purchase price or cost of construction or improvement, in each case incurred no later than 365 days after the date of such acquisition or the date of completion of such construction or improvement; provided, however, that the principal amount of any Indebtedness incurred pursuant to this clause (xi) shall not exceed $6,000,000 at any time outstanding. "Permitted Investments" means (i) Investments by the Company or any Subsidiary of the Company to acquire the stock or assets of any Person (or Acquired Indebtedness or Acquired Preferred Stock acquired in connection with a transaction in which such Person becomes a Subsidiary of the Company) engaged in the broadcast business or businesses reasonably related thereto; provided that if any such Investment or series of related Investments involves an Investment by the Company in excess of $5,000,000, the Company is able, at the 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 creditors, wholesales or customers received pursuant to any plan of reorganization or similar arrangement, (vi) loans or advances to employees of the Company or any Subsidiary thereof for purposes of purchasing the Capital Stock of the Company, Capstar Partners, Capstar Broadcasting or any corporation that, directly or indirectly, owns all of the Common Stock of Capstar Broadcasting and other loans and advances to employees made in the ordinary course of business consistent with past practices of the Company or such Subsidiary, and (vii) additional Investments in an aggregate amount not to exceed $2,000,000 at any time outstanding. "Permitted Junior Securities" means equity securities or subordinated securities of an issuer as reorganized or 24 -17- readjusted or securities of the Company or any other company, trust, corporation or partnership provided for by a plan of reorganization or readjustment that, in the case of any such subordinated securities, are junior or the payment of which is otherwise subordinate, at least to the extent provided in this Indenture, to the payment and satisfaction in full in cash of all Senior Indebtedness of the Company at the time outstanding, and to the payment of all securities issued in exchange therefor, to the holders of the Senior Indebtedness at the time outstanding. "Person" means an individual, partnership, corporation, limited liability company, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "Preferred Stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "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. "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. "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 businesses or businesses reasonably related thereto, and specifically includes assets acquired through Asset Acquisitions. "Public Equity Offering" means an underwritten public offering of Capital Stock (other than Disqualified Capital Stock) of the Company, Capstar Partners, Capstar Broadcasting or any corporation that, directly or indirectly, owns all of the Common Stock of Capstar Broadcasting, pursuant to an 25 -18- effective registration statement filed with the Commission in accordance with the Securities Act; provided, however that, in the case of a Public Equity Offering by Capstar Partners, Capstar Broadcasting or any such other corporation, Capstar Partners, Capstar Broadcasting or such other corporation contributes to the capital of the Company net cash proceeds in an amount sufficient to redeem the Notes called for redemption in accordance with the terms thereof. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "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 of Indebtedness of the Company or any of its Subsidiaries incurred in accordance with Section 4.12 hereof (other than pursuant to clause (iii) or (iv) of the definition of Permitted Indebtedness) that does not (i) result in an increase in the aggregate principal amount of Indebtedness (such principal amount to include, for purposes of this definition, any premiums, penalties or accrued interest paid with the proceeds of the Refinancing Indebtedness) of such Person or (ii) create Indebtedness with (A) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being refinanced or (B) a final maturity earlier than the final maturity of the Indebtedness being refinanced. "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 Indebtedness; provided that if, and for so long as, any Senior Indebtedness lacks such a representative, then the Representative for such Senior Indebtedness shall at all times constitute the holders of a majority in outstanding principal amount of such Senior Indebtedness. "Restricted Payment" means (i) the declaration or payment of any dividend or the making of any other distribution 26 -19- (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. "Securities" means the Company's 9 1/4% Senior Subordinated Notes due 2007, 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 Indebtedness" means the principal of and premium, if any, and interest on, and any and all other fees, expenses reimbursement obligations and other amounts due pursuant to the terms of all agreements, documents and instruments providing for, creating, securing or evidencing or otherwise entered into in connection with (a) all Indebtedness of the Company owed to lenders under the Credit Facility, (b) all obligations of the Company with respect to any Interest Swap Obligations, (c) all obligations of the Company to reimburse any bank or other person in respect of amounts paid under letters of credit, acceptances or other similar instruments, (d) all other Indebtedness of the Company which does not provide that it is to rank pari passu with or subordinate to the Securities and (e) all deferrals, renewals, extensions and refundings of, and amendments, modifications and supplements to, any of the Senior Indebtedness described above. 27 -20- Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness will not include (i) Indebtedness of the Company to any of its Subsidiaries, (ii) Indebtedness represented by the Securities, (iii) any Indebtedness which by the express terms of the agreement or instrument creating, evidencing or governing the same is junior or subordinate in right of payment to any item of Senior Indebtedness, (iv) any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business, (v) Indebtedness incurred in violation of this Indenture and (vi) as long as any Existing Notes are outstanding, Indebtedness of the Company that is not fully and adequately secured except as may be required by bankruptcy or other laws affecting the rights of creditors generally. "Shortfall Amount" has the meaning provided in Section 4.19. "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. "Special Offer" has the meaning provided in Section 4.19. "Special Offer Notice Date" has the meaning provided in Section 4.19. "Special Offer Purchase Date" has the meaning provided in Section 4.19. "Special Redemption" has the meaning provided in Section 4.20. "Subsidiary," with respect to any Person, means (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. Except as specifically provided otherwise in the Indenture, all references to the Company and its consolidated subsidiaries or to financial 28 -21- information prepared on a consolidated basis in accordance with GAAP shall be deemed to include the Company and its Subsidiaries as to which financial statements are prepared on a consolidate basis in accordance with GAAP and to financial information prepared on such a consolidated basis. Notwithstanding anything in this Indenture to the contrary, an Unrestricted Subsidiary shall not be deemed to be a Subsidiary for purposes of this Indenture. "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. "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. "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. "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 minimus assets resulting from the initial capitalization of each 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 29 -22- 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. "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: "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. 30 -23- All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by rule of the Commission and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03. Rules of Construction. Unless the context otherwise requires: (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, 31 -24- 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. 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 of up to $200,000,000 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 of Securities outstanding at any time may not exceed $200,000,000 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. 32 -25- 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. 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 33 -26- 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 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 34 -27- 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. If the principal amount 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 35 -28- 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 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 of such Securities so repurchased or otherwise acquired. SECTION 2.010. 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 2.011. 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 36 -29- all Securities surrendered for 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 2.012. 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 2.013. 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 2.014. 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. 37 -30- SECTION 2.015. 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. 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 38 -31- 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. 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: 39 -32- (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 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: 40 -33- (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 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 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 41 -34- 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 (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 42 -35- 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 43 -36- 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. (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. 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 of the Securities to be redeemed and whether 44 -37- it wants the Trustee to give notice of redemption to the Holders (at the Company's expense). Such notice 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, except in the case of a Special Redemption in respect of which notice of optional redemption shall be given at least three Business Days prior to the date of redemption. 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 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 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; 45 -38- (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; (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 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 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 of Securities to be redeemed and the aggregate principal amount 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 46 -39- 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. 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 to the unredeemed portion of the Security surrendered. ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Securities. The Company will punctually pay the principal, premium, if any, and interest to become due in respect of the Securities according to the terms of the Securities and this Indenture; provided, however, that, on the Issue Date, the Company's obligations on the Securities will consist of (1) the obligation to pay interest on the aggregate principal amount of the Securities and to pay $8,538,000 aggregate principal amount of the Securities, plus 1% of the aggregate principal amount of the Securities in the event of a Special Redemption or a Change of Control Offer, as otherwise set forth herein, (2) the obligation to make a Special Offer in accordance with this Indenture, and (3) the obligation to instruct the Escrow Agent to release the Escrow Funds to the Trustee to pay the holders of the Securities. At the time of the release of the Escrow Funds to the Company upon the consummation of a Pending Acquisition, an aggregate principal amount of the Securities equal to the amount of Escrow Funds so released automatically will convert into an obligation of the Company to pay principal, premium (if any) and interest with respect thereto. The Company will have 47 -40- no obligation to make payment on the Securities except as described above until the Escrow Funds are no longer held in the Escrow Account for the benefit of the holders of the Securities and the Trustee, and the holders of the Securities and the Trustee may look only to the Escrow Funds for payment of additional amounts until such time. 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: (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: 48 -41- (A) (x) 100% of the aggregate Consolidated EBITDA of the Company (or, in the event such Consolidated EBITDA shall be a deficit, minus 100% of such deficit) accrued subsequent to the Issue Date to the most recent date for which financial information is available to the Company, taken as one accounting period, less (y) 1.4 times Consolidated Interest Expense for the same period, plus (B) 100% of the aggregate net proceeds, including the fair market value of property other than cash as determined by the board of directors of the Company in good faith, received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale on or subsequent to the Issue Date of Qualified Capital Stock of the Company (excluding (i) any net proceeds from issuances and sales financed directly or indirectly using funds borrowed from the Company or any Subsidiary of the Company, until and to the extent such borrowing is repaid, but including the proceeds from the issuance and sale of any securities convertible into or exchangeable for Qualified Capital Stock to the extent such securities are so converted or exchanged and including any additional proceeds received by the Company upon such conversion or exchange and (ii) any net proceeds received from issuances and sales that are used to consummate a transaction described in clauses (2) and (3) of paragraph (B) below), plus (C) without duplication of any amount included in clause (iii)(B) above, 100% of the aggregate net proceeds, including the fair market value of property other than cash (valued as provided in clause (iii)(B) above), received by the Company as a capital contribution on or after the Issue Date, plus (D) the amount equal to the net reduction in Investments (other than Permitted Investments) made by the Company or any of its Subsidiaries in any Person resulting from (i) repurchases or redemptions of such Investments by such Person, proceeds realized upon the sale of such Investment to an unaffiliated purchaser and repayments of loans or advances or other transfers of assets by such Person to the Company or any Subsidiary of the Company or (ii) the redesignation of Unrestricted Subsidiaries as 49 -42- 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) $5,000,000. 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 50 -43- in cash no earlier than, in each case, the Disqualified Capital Stock being purchased, redeemed or otherwise acquired or retired; (3) the acquisition of Indebtedness of the Company that is subordinate or junior in right of payment to the 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 of the Company, Capstar Partners, Capstar Broadcasting or any corporation that, directly or indirectly, owns all of the Common Stock of Capstar Broadcasting from employees of the Company or any such other corporation in an aggregate amount not to exceed $5,000,000; (5) payments to enable the Company or any such other corporation to redeem or repurchase stock purchase or similar rights in an aggregate amount not to exceed $500,000; 51 -44- (6) payments, not to exceed $100,000 in the aggregate, to enable the Company or any such other corporation to make cash payments to holders of its Capital Stock in lieu of the issuance of fractional shares of its Capital Stock; (7) payments by the Company to enable Capstar Partners to make payments pursuant to the Financial Monitoring and Oversight Agreements; (8) payments made pursuant to any merger, consolidation or sale of assets effected in accordance with Section 5.01; provided, however, that no such payment may be made pursuant to this clause (8) unless, after giving effect to such transaction (and the incurrence of any Indebtedness in connection therewith and the use of the proceeds thereof), the Company would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with 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 (9) the payments of dividends on the Company's Common Stock after an initial public offering of Common Stock of the Company, Capstar Partners, Capstar Broadcasting or any corporation that, directly or indirectly, owns all of the Common Stock of Capstar Broadcasting in an annual amount not to exceed 6.0% of the gross proceeds (before deducting underwriting discounts and commissions and other fees and expenses of the offering) received by the Company (through a capital contribution or otherwise) from shares of Common Stock sold for the account of the Company or any such other corporation (and not for the account of any stockholder) in such initial public offering; provided, however, that in the case of clauses (3), (4), (5), (6), (8) and (9), no Event of Default shall have occurred or be continuing at the time of such payment or as a result thereof. In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date, amounts expended pursuant to clauses (1), (4), (5), (6), (8) and (9) shall be included in such calculation. SECTION 4.04. Corporate Existence. Except as otherwise permitted by Article Five, the Company shall do or cause to be done all things reasonably 52 -45- 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. 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 53 -46- 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 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. 54 -47- (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 55 -48- all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein 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 $2,000,000 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 $10,000,000 or more, the board of directors of the Company has received an opinion from a nationally recognized investment banking firm that such Affiliate Transaction is fair, from a financial point of view, to the Company or such Subsidiary. The foregoing restrictions will not apply to (1) reasonable and customary directors' fees, indemnification and similar arrangements and payments thereunder, (2) any employment, noncompetition or confidentiality agreement with any officer of the Company, (3) reasonable and customary investment banking, financial advisory, commercial banking and similar fees and expenses paid to BT Securities Corporation and its Affiliates, (4) any Restricted Payment permitted to be made pursuant to the covenant described under 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 any acquisitions or dispositions by the Company and its Subsidiaries which acquisitions 56 -49- and dispositions are disclosed in the Offering Memorandum, including fees to Hicks Muse, and (8) the issuance of Capital Stock of the Company (other than Disqualified Capital Stock). 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 (except Preferred Stock issued to the Company or a Wholly Owned Subsidiary of the Company); provided, however, that the Company and its Subsidiaries may incur Indebtedness and the Company's Subsidiaries may issue shares of Preferred Stock if, in either case, the Company's Leverage Ratio at the time of incurrence of such Indebtedness or the issuance of such Preferred Stock, as the case may be, after giving pro forma effect to such incurrence or issuance as of such date and to the use of proceeds therefrom is less than 7.0 to 1. SECTION 4.013. 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 or Acquired Preferred Stock, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, (5) agreements existing on the Issue Date (including the Credit Facility and the Existing Indenture) as such 57 -50- 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), (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 or charter provision evidencing Indebtedness or Preferred Stock permitted under this Indenture; provided, however, that the provisions relating to such encumbrance or restriction contained in such agreement or charter provision are not less favorable to the Company in any material respect as determined in good faith by the board of directors of the Company 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) Upon the occurrence of a Change of Control, each holder will have the right to require that the Company purchase all or a portion of such holder's Securities pursuant to the offer described in paragraph (b) below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof, plus, without duplication, all accrued and unpaid interest, if any, to the Change of Control Payment Date. 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 58 -51- 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. Such notice shall state, among other things: (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 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 to the paying agent and registrar for the Security 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, 59 -52- 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 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 to the extent applicable in connection with the purchase of the Securities pursuant to a Change of Control Offer. (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. 60 -53- 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 $5,000,000, by the board of directors of the Company, as evidenced by a board resolution), (ii) at least 75% of the consideration received by the Company or such Subsidiary, as the case may be, from such Asset Sale is in cash or Cash Equivalents (other than in the case where the Company is exchanging all or substantially all the assets of one or more broadcast businesses operated by the Company (including by way of the transfer of capital stock) for all or substantially all the assets (including by way of the transfer of capital stock) constituting one or more broadcast businesses operated by another Person, in which event the foregoing requirement with respect to the receipt of cash or Cash Equivalents shall not apply) and is received at the time of such disposition and (iii) upon the consummation of an Asset Sale, the Company applies, or causes such Subsidiary to apply, such Net Cash Proceeds within 180 days of receipt thereof, either (A) to repay any Senior Indebtedness of the Company or any Indebtedness of a Subsidiary of the Company (and, to the extent such Senior Indebtedness relates to principal under a revolving credit or similar facility, to obtain a corresponding reduction in the commitments thereunder), (B) to reinvest, or to be contractually committed to reinvest pursuant to a binding agreement, in Productive Assets and, in the latter case, to have so reinvested within 360 days of the date of receipt of such Net Cash Proceeds or (C) to purchase Securities tendered to the Company for purchase at a price equal to 100% of the principal amount thereof plus accrued interest thereon, if any, to the date of purchase pursuant to an offer to purchase made by the Company as set forth below (a "Net Proceeds Offer"); provided, however, that the Company may defer making a Net Proceeds Offer until the aggregate Net Cash Proceeds from Asset Sales not otherwise applied in accordance with this Section 4.15 equal or exceed $5,000,000. In addition, to the extent that any Asset Sale also constitutes an asset sale under the Existing Indenture, a Net Proceeds Offer is only required to be made out of the proceeds which remain after the application of the proceeds in accordance with the terms of the Existing Indenture. 61 -54- (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 subsection (a)(iii)(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 tendered). To the extent that the aggregate principal amount 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 4.016. 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 $2,000,000, 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 $10,000,000, the Company has received a written opinion from an 62 -55- independent investment banking firm of nationally recognized standing that such Asset Swap is fair to the Company or such Subsidiary, as the case may be, from a financial point of view. SECTION 4.017. Limitation on Other Senior Subordinated Indebtedness. The Company will not, directly or indirectly, incur, contingently or otherwise, any Indebtedness (other than the Securities) that is both (i) subordinate in right of payment to any Senior Indebtedness and (ii) senior in right of payment to the Securities. For purposes of this Section 4.17, Indebtedness is deemed to be senior in right of payment to the Securities if it is not explicitly subordinate in right of payment to Senior Indebtedness at least to the same extent as the Securities are subordinate to Senior Indebtedness. SECTION 4.18. Escrow of Proceeds. (a) On the Issue Date, $191,462,000 of the proceeds of the offering of the Securities is being deposited into an account (the "Escrow Account") with the Escrow Agent. The amount deposited in the Escrow Account shall be invested and released in accordance with the express provisions of the Escrow Agreement. Notwithstanding anything herein or therein to the contrary, the Escrow Funds shall not be released if a default or event of default exists or would result from the release of such Escrow Funds under this Indenture, the Existing Indenture, the Credit Facility or any other Indebtedness of the Company or its Subsidiaries with an aggregate principal amount outstanding of $10,000,000 or more. At or prior to each release of Escrow Funds, the Company shall deliver to the Trustee an Officers Certificate certifying that all conditions to the release of such funds have been satisfied. (b) The Company and the Trustee (on its own behalf and on behalf of the Holders) hereby acknowledge and agree that, until the Escrow Funds are released by the Escrow Agent in accordance with the Escrow Agreement, the Escrow Funds shall be the property and assets of the Holders and not the Company and that the distribution, and rights to possession, of the Escrow Funds shall in all respects be governed by and subject to the terms and conditions of the Escrow Agreement and this Indenture. In order to secure the full and punctual payment and performance of the Company's obligation to offer to purchase Securities in the event a Special Offer is required to be made in accordance with Section 4.19, the Company hereby grants 63 -56- to the Trustee, for its benefit and for the benefit of the Holders, a first priority and continuing security interest in and to all of the right, title and interest (if and to the extent that, notwithstanding the first sentence of this paragraph (b), any such right, title or interest is determined by a court of law or otherwise to exist) of the Company in, to and under all cash and Cash Equivalents from time to time on deposit in the Escrow Account and credited thereto, whether now owned or existing or hereafter acquired or arising (such amounts, collectively, the "Escrow Funds"). (c) On the date on which no Escrow Funds remain in the Escrow Account in accordance with the terms of the Escrow Agreement, the security interest granted to the Trustee and the Holders described in paragraph (b) above shall automatically terminate. (d) On the Special Offer Purchase Date, the Escrow Agent shall release the Escrow Funds to the Trustee to be applied in accordance with Section 4.19 and the security interest in the Escrow Funds granted to the Trustee and the Holders shall, unless a Special Redemption is required to be made in accordance with Section 4.20, terminate on and as of such Special Offer Purchase Date. (e) On the Special Redemption Date, the Escrow Agent shall release the Escrow Funds to the Trustee to be applied in accordance with Section 4.20 and the security interest in the Escrow Account granted to the Trustee and the Holders shall terminate on and as of the date of redemption. (f) Any amounts remaining in the Escrow Account on the Special Offer Purchase Date after application of the Escrow Funds as specified in Section 4.19 shall, unless a special redemption is required to be made in accordance with Section 4.19, be paid by the Escrow Agent to the Company. SECTION 4.019. Special Offer. (a) If the GulfStar Transaction is not consummated prior to September 30, 1997 or the Company, at its option, determines in its reasonable judgment that the GulfStar Transaction cannot be consummated prior to September 30, 1997, or if there are any Escrow Funds remaining in the Escrow Account on March 31, 1998 (the "Final Special Offer Notice Date"), then, on September 30, 1997, such date of determination or the Final Special Offer Notice Date, as applicable (as the case may be, 64 -57- the "Special Offer Notice Date"), the Company will make an offer to purchase (the "Special Offer") (i) in the event of a Special Offer on September 30, 1997 or such date of determination, all of the outstanding aggregate principal amount of the Securities, and (ii) in the event of a Special Offer on the Final Special Offer Notice Date (A) if the amount of Escrow Funds then remaining in the Escrow Account is more than $125,000,000, all of the outstanding aggregate principal amount of Securities, or (B) if the amount of Escrow Funds then remaining in the Escrow Account is $125,000,000 or less, such aggregate principal amount of Securities as equals the amount of Escrow Funds then remaining in the Escrow Account on the Final Special Offer Notice Date (as the case may be, the "Special Offer Amount") for a purchase price of 100% of the principal amount of the Securities, plus accrued and unpaid interest to the date of purchase (the "Special Offer Purchase Date"). (b) On the Special Offer Notice Date, the Company shall mail to each Holder of Securities at such Holder's registered address a notice stating: (i) that the GulfStar Transaction has not been consummated prior to September 30, 1997, or cannot be consummated prior to September 30, 1997, or that Escrow Funds remain in the Escrow Account on the Final Special Offer Notice Date, as the case may be, and that the Company is offering to purchase the specified aggregate principal amount of Securities at a purchase price in cash equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest to the purchase date of the Securities to be purchased pursuant to the Special Offer (the "Special Offer Purchase Date"), which shall be a Business Day, specified in such notice, that is not earlier than 30 days nor later than 60 days from the date such notice is mailed, (ii) the amount of accrued and unpaid interest on the Securities as of the Special Offer Purchase Date, (iii) that any Security not tendered will continue to accrue interest, (iv) that, unless the purchase price for the Securities is not paid pursuant to the Special Offer on the Special Offer Purchase Date, any Securities accepted for payment pursuant to the Special Offer shall cease to accrue interest on and after the Special Offer Purchase Date, (v) the procedures to be followed by a Holder of Securities in order to accept a Special Offer or to withdraw such acceptance, and (vi) such other information as may be required by this Indenture and applicable laws and regulations. (c) On the Special Offer Purchase Date, the Company will (i) accept for payment the aggregate principal amount of Securities offered to be purchased in the Special Offer or such 65 -58- lesser amount as is tendered pursuant to the Special Offer and (ii) deliver or cause to be delivered to the Trustee all Securities tendered pursuant to the Special Offer and accepted for payment. If the Escrow Funds are insufficient to pay the Special Offer Purchase Price on the Special Offer Purchase Date, then the Company shall deposit with the Trustee on or prior to the Special Offer Purchase Date an amount in cash equal to the difference (the "Shortfall Amount"). The Escrow Funds shall be delivered by the Escrow Agent to the Trustee and, along with any Shortfall Amount, will be applied by the Trustee to consummate the Special Offer. If less than all Securities tendered pursuant to the Special Offer are accepted for payment by the Company for any reason consistent with this Indenture, selection of the Securities to be purchased by the Company shall be in compliance with the requirements of the principal national securities exchange, if any, on which the Securities are listed or, if the Securities are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that Securities accepted for payment in part shall only be purchased in integral multiples of $1,000. The Paying Agent shall promptly mail to each Holder of Securities or portions thereof accepted for payment an amount equal to the purchase price for such Securities including any accrued and unpaid interest thereon, and the Trustee shall promptly authenticate and mail to such Holder of Securities accepted for payment in part a new Security equal in principal amount to any unpurchased portion of the Securities, and any Security not accepted for payment in whole or in part for any reason consistent with this Indenture shall be promptly returned to the Holder of such Security. On and after the Special Offer Purchase Date, interest will cease to accrue on the Securities or portions thereof accepted for payment, unless the Company defaults in the payment of the purchase price therefor. The Company will announce the results of the Special Offer to Holders of the Securities on or as soon as practicable after the Special Offer Purchase Date. (d) The Company will comply with the applicable tender offer rules, including the requirements of Rule 14e-1 under the Exchange Act, and all other applicable securities laws and regulations in connection with any Special Offer. SECTION 4.20. Special Redemption. (a) Except as set forth in Section 4.20(b), if there are Escrow Funds remaining in the Escrow Account after the 66 -59- consummation of the Special Offer, such remaining Escrow Funds shall be released to the Company. (b) If the Company shall determine that the release of the remaining Escrow Funds following the consummation of the Special Offer would constitute an incurrence of Indebtedness that would result in a default or an event of default under this Indenture, the Existing Indenture, the Credit Facility or any other agreement governing Indebtedness of the Company or its Subsidiaries, then the Company shall redeem such aggregate principal amount of Securities that is equal to the remaining Escrow Funds on the date of such redemption (the "Special Redemption") at a redemption price equal to 101% of the principal amount of such Securities, plus accrued and unpaid interest to the date of the Special Redemption (the "Special Redemption Price") and direct the Escrow Agent to release the Escrow Funds to the Trustee to pay the Special Redemption Price to the Holders of the Securities. The Company shall deposit with the Trustee on or prior to the date of the Special Redemption the difference, if any, between the Special Redemption Price and the amount of Escrow Funds remaining in the Escrow Account on such date. Notice of Special Redemption will be mailed not less than three Business Days prior to the date of the Special Redemption. ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. Merger, Consolidation and Sale of Assets. (a) The Company may 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 67 -60- 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; (2) such surviving Person shall 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; (3) 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 such 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; (4) immediately after giving effect to such transactions no Default or Event of Default shall have occurred and be continuing; and (5) 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 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, will 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. 68 -61- 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 fails to pay interest (including any Additional Interest) on the Securities when the same becomes due and payable and the Default continues for a period of 30 days; (2) the Company fails to pay the principal amount of any Securities when such principal becomes due and payable, at maturity, upon redemption or otherwise; or (3) the Company defaults in the observance or performance of any other covenant or agreement contained in the Securities or this Indenture, which Default continues for a period of 30 days after the Company receives written notice thereof specifying such Default from the Trustee or holders of at least 25% in aggregate principal amount of outstanding Securities; (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 of any such Indebtedness, if the aggregate principal amount of such Indebtedness, together 69 -62- with the aggregate principal amount of any other such Indebtedness in default for failure to pay principal at the final stated maturity (giving effect to any extensions thereof) or which has been accelerated, aggregates $10,000,000 or more at any time, in each case after a 10-day period during which such default shall not have been cured or such acceleration rescinded; (5) one or more judgments in an aggregate amount in excess of $10,000,000 (which are not covered by insurance as to which the insurer has not disclaimed coverage) shall have been rendered against the Company or any of its Significant Subsidiaries and such judgment or judgments remain undischarged or unstayed for a period of 60 days after such judgment or judgments become final and non-appealable; and (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. 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 70 -63- the request of Holders of 25% in principal amount of the outstanding Securities shall, or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding may, declare the principal of all the Securities, together with accrued and unpaid interest and premium, if any, to be due and payable by notice in writing to the Company and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the Credit Facility, shall become due and payable upon the first to occur of an acceleration under the Credit Facility or five Business Days after receipt by the Company and the Representative under the Credit Facility of such Acceleration Notice (unless all Events of Default specified in such Acceleration Notice have been cured or waived). If an Event of Default specified in Section 6.01(6) or (7) with respect to the Company occurs and is continuing with respect to the Company, then such 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 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 principal amount of 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 principal, which has become due otherwise than by such declaration of acceleration, has been paid, (iv) the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances and (v) in the event of the cure or waiver of a Default or Event of Default of the type described in 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. 71 -64- 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. 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 principal amount 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 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: 72 -65- (1) the Holder gives to the Trustee notice of a continuing Event of Default; (2) Holders of at least 25% in principal amount 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; (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 73 -66- 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 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; 74 -67- Third: to Holders for amounts due and unpaid on the Securities for 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 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 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: 75 -68- (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. (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. 76 -69- (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. (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 77 -70- 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. 78 -71- 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 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 Securityholders. 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 Commission 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 79 -72- 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 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 or any agent, employee, officer, stockholder or director of the Trustee, for which it may seek indemnity. The Company shall defend the claim and the Trustee and its agents, officers, employees, stockholders and directors shall cooperate in the defense. The Trustee and its agents, officers, employees, stockholders and directors 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. 80 -73- 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 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; (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 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 of the outstanding Securities may petition any 81 -74- 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. 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. 82 -75- 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 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 principal amounts in respect thereof in accordance with their terms, will be sufficient, in the opinion of a nationally recognized firm of independent public 83 -76- accountants expressed in a written certification thereof delivered to the Trustee, to pay all amounts of principal of and interest on the Securities on the dates such installments of interest 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 subparagraphs (1) through (5) above, (a) the Company shall be deemed to have completed legal defeasance if the Company 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 84 -77- 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. 85 -78- "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. 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 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 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. 86 -79- 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 of any Securities because of the 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, the Escrow Agreement 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; 87 -80- 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 of the outstanding Securities may amend or supplement this Indenture, the Escrow Agreement 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 of the 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; (3) reduce the principal 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 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, 4.15 or 4.19, amend, 88 -81- modify or change the obligation of the Company to consummate a Change of Control Offer, a Net Proceeds Offer or a special 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. 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 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 89 -82- 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. 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. 90 -83- ARTICLE TEN SUBORDINATION OF SECURITIES SECTION 10.01. Securities Subordinate to Senior Indebtedness. The Company covenants and agrees, and each Holder of Securities, by its acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article 10, the Indebtedness represented by the Securities and the payment of the principal of, premium, if any, and interest on the Securities are hereby expressly made subordinate and subject in right of payment as provided in this Article 10 to the prior payment in full in cash or Cash Equivalents or, as acceptable to the holders of Senior Indebtedness, in any other manner, of all Senior Indebtedness. This Article 10 shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become holders of or continue to hold Senior Indebtedness; and such provisions are made for the benefit of the holders of Senior Indebtedness; and such holders are made obligees hereunder and they or each of them may enforce such provisions. SECTION 10.02. Payment Over of Proceeds upon Dissolution, etc. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Company or to its creditors, as such, or to its assets, whether voluntary or involuntary or (b) any liquidation, dissolution or other winding-up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshalling of assets or liabilities of the Company, then and in any such event: (1) the holders of Senior Indebtedness shall be entitled to receive payment in full in cash or Cash Equivalents or, as acceptable to the holders of Senior Indebtedness, in any other manner, of all amounts due on or in respect of all Senior Indebtedness, or provision shall be made for such payment, before the Holders of the Securities are entitled to receive any payment or distribution of any kind or character (other than a payment or distribution in the form of Permitted Junior Securities) on 91 -84- account of principal of, premium, if any, or interest on the Securities; and (2) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (excluding Permitted Junior Securities), by set-off or otherwise, to which the Holders or the Trustee would be entitled but for the provisions of this Article 10 shall be paid by the liquidating trustee or agent or other Person making such payment or distribution, whether a trustee in bankruptcy, a receiver of liquidating trustee or otherwise, directly to the holders of Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, ratably according to the aggregate amounts remaining unpaid on account of the Senior Indebtedness held or represented by each, to the extent necessary to make payment in full in cash, Cash Equivalents or, as acceptable to the holders of Senior Indebtedness, in any other manner, of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness; and (3) in the event that, notwithstanding the foregoing provisions of this Section 10.02, the Trustee or the Holder of any Security shall have received any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, including, without limitation, by way of set-off or otherwise, in respect of principal of, premium, if any, and interest on the Securities before all Senior Indebtedness is paid in full or payment thereof provided for, then and in such event such payment or distribution (excluding Permitted Junior Securities) shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for an application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full in cash, Cash Equivalents or, as acceptable to the holders of Senior Indebtedness, any other manner, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. 92 -85- The consolidation of the Company with, or the merger of the Company with or into, another Person or the liquidation or dissolution of the Company following the conveyance, transfer or lease of its properties and assets substantially as an entirety to another Person upon the terms and conditions set forth in Article 5 hereof shall not be deemed a dissolution, winding-up, liquidation, reorganization, assignment for the benefit of creditors or marshaling of assets and liabilities of the Company for the purposes of this Article if the Person formed by such consolidation or the surviving entity of such merger or the Person which acquires by conveyance, transfer or lease such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance, transfer or lease, comply with the conditions set forth in Article 5 hereof. SECTION 10.03. Suspension of Payment When Senior Indebtedness in Default. (a) Unless Section 10.02 hereof shall be applicable, after the occurrence of a Payment Default no payment or distribution of any assets of the Company of any kind or character (excluding Permitted Junior Securities) shall be made by or on behalf of the Company, including, without limitation, by way of set-off or otherwise, for or on account of principal of, premium, if any, or interest on the Securities or on account of the purchase, redemption, defeasance or other acquisition of Securities unless and until such Payment Default shall have been cured or waived in writing or shall have ceased to exist or the Senior Indebtedness as to which such Payment Default relates shall have been discharged or paid in full in cash or Cash Equivalents, after which the Company shall resume making any and all required payments in respect of the Securities, including any missed payments. (b) Unless Section 10.02 hereof shall be applicable, upon the occurrence of a Non-Payment Event of Default on Designated Senior Indebtedness and upon receipt by the Trustee and the Company from any holder of Designated Senior Indebtedness (the "Representative") of written notice of such occurrence, no payment or distribution of any assets of the Company of any kind or character (excluding Permitted Junior Securities) shall be made by the Company on account of any principal of, premium, if any, or interest on the Securities or on account of the purchase, redemption, defeasance or other acquisition of Securities for a period ("Payment Blockage Period") commencing on the date of receipt by the Trustee of such notice, unless and until 93 -86- the earliest to occur of the following events: (w) more than 179 days shall have elapsed since the date of receipt of such written notice by the Trustee, (x) such Non-Payment Event of Default shall have been cured or waived in writing or shall have ceased to exist, (y) such Designated Senior Indebtedness shall have been discharged or paid in full in cash or Cash Equivalents or (z) such Payment Blockage Period shall have been terminated by written notice to the Company or the Trustee from the Representative initiating such Payment Blockage Period, or the holders of at least a majority in principal amount of such issue of Designated Senior Indebtedness, after which, in the case of clause (w), (x), (y) or (z), the Company shall resume making any and all required payments in respect of the Securities, including any missed payments. Notwithstanding any other provisions of this Indenture, no Non-Payment Event of Default which existed or was continuing on the date of the commencement of any Payment Blockage Period shall be, or be made, the basis for the commencement of a second Payment Blockage Period unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days. In no event shall a Payment Blockage Period extend beyond 179 days from the date of the receipt by the Trustee of the notice referred to in this Section 10.03(b) (the "Initial Blockage Period"). Any number of additional Payment Blockage Periods may be commenced during the Initial Blockage Period; provided, however, that no such additional Payment Blockage Period shall extend beyond the Initial Blockage Period. After the expiration of the Initial Blockage Period, no Payment Blockage Period may be commenced under this Section 10.03(b) until at least 180 consecutive days have elapsed from the last day of the Initial Blockage Period. (c) In the event that, notwithstanding the foregoing, the Trustee or the Holder of any Security shall have received any payment prohibited by the foregoing provisions of this Section 10.03, then and in such event such payment shall be paid over and delivered forthwith to the Representative initiating the Payment Blockage Period, in trust for distribution to the holders of Senior Indebtedness or, if no amounts are then due in respect of Senior Indebtedness, promptly returned to the Company, or otherwise as a court of competent jurisdiction shall direct. SECTION 10.04. Trustee's Relation to Senior Indebtedness. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only the 94 -87- covenants and obligations of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations of the Trustee with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary or other duty to the holders of Senior Indebtedness, and the Trustee shall not be liable to any holder of Senior Indebtedness if it shall mistakenly pay over or deliver to Holders, the Company or any other Person moneys or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article 10 or otherwise. SECTION 10.05. Subrogation to Rights of Holders of Senior Indebtedness. Upon the payment in full of all Senior Indebtedness, the Holders of the Securities shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of, premium, if any and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article 10, and no payments over pursuant to the provisions of this Article 10 to the holders of Senior Indebtedness by Holders of the Securities or the Trustee shall, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article 10 shall have been applied, pursuant to the provisions of this Article 10, to the payment of all amounts payable under the Senior Indebtedness of the Company, then and in such case the Holders shall be entitled to receive from the holders of such Senior Indebtedness at the time outstanding any payments or distributions received by such holders of such Senior Indebtedness in excess of the amount sufficient to pay all amounts payable under or in respect of such Senior Indebtedness in full in cash or Cash Equivalents. 95 -88- SECTION 10.06. Provisions Solely to Define Relative Rights. The provisions of this Article 10 are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of, premium, if any, and interest on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon a Default or an Event of Default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Indebtedness (1) in any case, proceeding, dissolution, liquidation or other winding-up, assignment for the benefit of creditors or other marshaling of assets and liabilities of the Company referred to in Section 10.02 hereof, to receive, pursuant to and in accordance with such Section, cash, property and securities otherwise payable or deliverable to the Trustee or such Holder, or (2) under the conditions specified in Section 10.03, to prevent any payment prohibited by such Section or enforce their rights pursuant to Section 10.03(c) hereof. The failure to make a payment on account of principal of, premium, if any, or interest on the Securities by reason of any provision of this Article 10 shall not be construed as preventing the occurrence of a Default or an Event of Default hereunder. SECTION 10.07. Trustee to Effectuate Subordination. Each Holder of a Security by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Company whether in bankruptcy, 96 -89- insolvency, receivership proceedings, or otherwise, the timely filing of a claim for the unpaid balance of the indebtedness of the Company owing to such Holder in the form required in such proceedings and the causing of such claim to be approved. If the Trustee does not file such a claim prior to 30 days before the expiration of the time to file such a claim, the holders of Senior Indebtedness, or any Representative, may file such a claim on behalf of Holders of the Securities. SECTION 10.08. No Waiver of Subordination Provisions. (a) No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. (b) Without limiting the generality of subsection (a) of this Section 10.08, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article 10 or the obligations hereunder of the Holders of the Securities to the holders of Senior Indebtedness, do any one or more of the following: (1) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (2) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (3) release any Person liable in any manner for the collection or payment of Senior Indebtedness; and (4) exercise or refrain from exercising any rights against the Company and any other Person; provided, however, that in no event shall any such actions limit the right of the Holders of the Securities to take any action to accelerate the maturity of the Securities pursuant to Article 6 hereof or to pursue any rights or remedies hereunder or under applicable laws if the taking of such action does not otherwise violate the terms of this Indenture. 97 -90- SECTION 10.09. Notice to Trustee. (a) The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee at its Corporate Trust Office in respect of the Securities. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until the Trustee shall have received written notice thereof from the Company or a holder of Senior Indebtedness or from any trustee, fiduciary or agent therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of this Section 10.09, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 10.09 at least five Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose under this Indenture (including, without limitation, the payment of the principal of, premium, if any, or interest on any Security), then, anything herein contained to the contrary notwithstanding but without limiting the rights and remedies of the holders of Senior Indebtedness or any trustee, fiduciary or agent therefor, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within five Business Days prior to date of such application; nor shall the Trustee be charged with knowledge of the curing of any such default or the elimination of the act or condition preventing any such payment unless and until the Trustee shall have received an Officers' Certificate to such effect. (b) Subject to the provisions of Section 7.01 hereof, the Trustee shall be entitled to rely on the delivery to it of a written notice to the Trustee and the Company by a Person representing itself to be a holder of Senior Indebtedness (or a trustee, fiduciary, agent or other representative therefor) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee, fiduciary, agent or other representative therefor); provided, however, that failure to give such notice to the Company shall not affect in any way the ability of the Trustee to rely on such notice. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any 98 -91- Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article 10, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article 10, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 10.10. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee, subject to the provisions of Section 7.01 hereof, and the Holders shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10; provided that the foregoing shall apply only if such court has been fully apprised of the provisions of this Article 10. SECTION 10.11. Rights of Trustee as a Holder of Senior Indebtedness; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article 10 with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article 10 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. 99 -92- SECTION 10.12. Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article 10 shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article 10 in addition to or in place of the Trustee. SECTION 10.13. No Suspension of Remedies. Nothing contained in this Article 10 shall limit the right of the Trustee or the Holders of Securities to take any action to accelerate the maturity of the Securities pursuant to Article 6 or to pursue any rights or remedies hereunder or under applicable law, subject to the rights, if any, under this Article 10 of the holders, from time to time, of Senior Indebtedness. ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. 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 11.02. 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: 100 -93- if to the Company: Capstar Radio 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. 101 -94- SECTION 11.03. 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 11.04. 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 11.05. 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 102 -95- 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. SECTION 11.06. 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 11.07. 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 11.08. 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 11.09. 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 11.10. 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 103 -96- and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Securities. SECTION 11.11. 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 11.12. 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 11.13. 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. 104 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 RADIO BROADCASTING PARTNERS, INC. By: ------------------------------ Name: Title: U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee By: ------------------------------ Name: Title: 105 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 TWO 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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enior Subordinated Note due 2007, Series A No. $ CAPSTAR RADIO 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 July 1, 2007. Interest Payment Dates: January 1 and July 1 Record Dates: December 15 and June 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 RADIO BROADCASTING PARTNERS, INC. By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: A-2 107 Trustee's Certificate of Authentication This is one of the 9 1/4% Senior Subordinated Notes due 2007, Series A referred to in the within-mentioned Indenture. Dated: U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee By: -------------------------- Authorized Signatory A-3 108 (REVERSE OF SECURITY) 9 1/4% Senior Subordinated Note due 2007, Series A 1. Principal and Interest. CAPSTAR RADIO BROADCASTING PARTNERS, INC., a Delaware corporation (the "Company"), promises to pay the principal of this Security and any interest on the principal amount of this Security at the rate per annum shown above subject to the following paragraph. The Company will pay interest semi-annually in arrears on each January 1 and July 1 (each an "Interest Payment Date") and at stated maturity, commencing January 1, 1998. Interest will be computed on the basis of a 360-day year of twelve 30-day months. On the Issue Date, the Company's obligations on the Securities will consist of (1) the obligation to pay interest on the aggregate principal amount of the Securities and to pay $8,538,000 aggregate principal amount of the Securities, plus 1% of the aggregate principal amount of the Securities in the Event of a Special Redemption or a Change of Control Offer, (2) the obligation to make a Special Offer in accordance with the Indenture, and (3) the obligation to instruct the Escrow Agent to release the Escrow Funds to the Trustee to pay the holders of the Securities and the obligation to pay 1% of the aggregate principal amount of Securities being redeemed in the event of a Special Redemption. At the time of the release of the Escrow Funds to the Company upon the consummation of a Pending Acquisition, an aggregate principal amount of the Securities equal to the amount of Escrow Funds so released automatically will convert into an obligation of the Company to pay principal, premium (if any) and interest with respect thereto. The Company will have no obligation to make payment on the Securities except as described above until the Escrow Funds are no longer held in the Escrow Account for the benefit of the holders of the Securities and the Trustee, and the holders of the Securities and the Trustee may look only to the Escrow Funds for payment of additional amounts until such time. The Company shall pay interest on overdue principal and on overdue installments of interest from time to time on demand at the rate borne by the Securities and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful. 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 A-4 109 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 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 June 17, 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 9 1/4% Senior Subordinated Notes due 2007 (the "Securities"), limited (except as otherwise provided in the Indenture) in aggregate principal amount to $200,000,000, 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. 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. 5. Redemption. (a) The Securities may be redeemed (subject to contractual and other restrictions with respect thereto and to the legal availability of funds therefor) at any time on or after July 1, 2002, in whole or in part, at the Company's option, at the redemption prices (expressed as percentages of the principal amount thereof) set forth below, plus accrued and unpaid interest, if any, to the redemption date if redeemed during the 12-month period beginning July 1 of each of the years set forth below: A-5 110
YEAR PERCENTAGE - ---- ---------- 2002 ....................................................... 104.625% 2003 ....................................................... 103.083% 2004 ....................................................... 101.542% 2005 and thereafter ........................................ 100.000%
(b) In addition, prior to July 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings or Major Asset Sales to redeem up to 25% of the aggregate principal amount of the Securities originally issued at a redemption price equal to 109.250% of the aggregate principal amount thereof at the redemption date of the Securities so redeemed plus accrued interest, if any, thereon to the date of redemption; provided, however, that after any such redemption, at least 75% in aggregate principal amount of Securities originally issued remains 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 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 July 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 principal amount 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 principal amount of such Security and (ii) the excess of (A) the present value at such time of (1) the redemption price of such Security at July 1, 2002 (such redemption price being described under Section 5(a) hereof) plus (2) all required interest payments due on such Security through July 1, 2002 computed using a discount rate equal to the Treasury Rate plus 100 basis points over (B) the principal amount of such Security. "Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a A-6 111 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 July 1, 2002; provided, however, that if the period from the Change of Control Redemption Date to July 1, 2002 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given except that if the period from the Change of Control Redemption Date to July 1, 2002 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. (d) Under certain circumstances, the Company is required to make a Special Redemption of Securities. In such case, the Company shall redeem Securities at a redemption price equal to 101% of the principal amount of such Securities, plus accrued and unpaid interest to the date of the Special Redemption (the "Special Redemption Price") and direct the Escrow Agent to release the Escrow Funds to the Trustee to pay, together with other amounts deposited with the Trustee, the Special Redemption Price to the holders of the Securities being redeemed. 6. Subordination. The Indebtedness evidenced by the Securities is, to the extent and in the manner provided in the Indenture, subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness as defined in the Indenture, and this Security is issued subject to such provisions. 7. 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, except in the case of a Special Redemption, in respect of which notice of redemption shall be given at least three Business Days prior to the date of redemption. Securities in denominations larger than $1,000 may be redeemed in part. 8. 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 or a portion of the then outstanding A-7 112 Securities pursuant to a Change of Control Offer at a purchase price equal to 101% of the principal amount thereof, plus, without duplication, all accrued and unpaid interest, if any, to the Change of Control Payment Date. 9. Limitation on Disposition of Assets. Section 4.15 of the Indenture provides that after certain Asset Sales (as defined in the Indenture), and subject to further limitations contained therein, the Company will make an offer to purchase certain amounts of the Securities in accordance with the procedures set forth in the Indenture. 10. 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. 11. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. 12. 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. 13. 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). 14. 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 of the Securities then outstanding, and any existing Default or Event of A-8 113 Default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in aggregate principal amount 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. 15. 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 Preferred 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. 16. 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. 17. 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 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 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. 18. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, A-9 114 may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries, Unrestricted Subsidiaries or their respective Affiliates as if it were not the Trustee. 19. 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. 20. Authentication. This Security shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on this Security. 21. 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. 22. 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). 23. 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. 24. 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 9 1/4% Senior Subordinated Notes due 2007, Series B, which have been registered under the Securities Act, in like principal amount 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 A-10 115 conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 25. Escrow of Proceeds; Special Offer; Special Redemption. On the Issue Date, the Company will deposit into escrow for the benefit of the Holders $191,462,000 of the proceeds of the offering of the Securities. The Escrow Funds will be released on the terms and conditions set forth in the Escrow Agreement. If the GulfStar Transaction has not been consummated prior to September 30, 1997 or the Company determines that the GulfStar Transaction cannot be consummated prior to September 30, 1997 or any Escrow Funds remain in the Escrow Account on March 31, 1998, the Company will be required to offer to purchase the Securities. Under certain circumstances, the Company shall make a Special Redemption of the Securities at a redemption price of 101% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption. 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 RADIO BROADCASTING PARTNERS, INC., 600 Congress Avenue, Suite 1400, Austin, Texas 78701. A-11 116 [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: ---------------------------- A-12 117 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 [ ] Section 4.19 [ ] If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.14, Section 4.15 or Section 4.19 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) A-13 118 EXHIBIT B [FORM OF SERIES B SECURITY] CAPSTAR RADIO BROADCASTING PARTNERS, INC. 9 1/4% Senior Subordinated Note due 2007, Series B No. $ CAPSTAR RADIO 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 July 1, 2007. Interest Payment Dates: January 1 and July 1 Record Dates: December 15 and June 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 RADIO BROADCASTING PARTNERS, INC. By: -------------------------------------- Name: Title: By: -------------------------------------- Name: Title: B-1 119 Trustee's Certificate of Authentication This is one of the 9 1/4% Senior Subordinated Notes due 2007, Series B referred to in the within-mentioned Indenture. Dated: U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee By: -------------------------- Authorized Signatory B-2 120 (REVERSE OF SECURITY) 9 1/4% Senior Subordinated Note due 2007, Series A 1. Principal and Interest. CAPSTAR RADIO BROADCASTING PARTNERS, INC., a Delaware corporation (the "Company"), promises to pay the principal of this Security and any interest on the principal amount of this Security at the rate per annum shown above subject to the following paragraph. The Company will pay interest semi-annually in arrears on each January 1 and July 1 (each an "Interest Payment Date") and at stated maturity, commencing January 1, 1998. Interest will be computed on the basis of a 360-day year of twelve 30-day months. On the Issue Date, the Company's obligations on the Securities will consist of (1) the obligation to pay interest on the aggregate principal amount of the Securities and to pay $8,538,000 aggregate principal amount of the Securities, plus 1% of the aggregate principal amount of the Securities in the Event of a Special Redemption or a Change of Control Offer, (2) the obligation to make a Special Offer in accordance with the Indenture, and (3) the obligation to instruct the Escrow Agent to release the Escrow Funds to the Trustee to pay the holders of the Securities and the obligation to pay 1% of the aggregate principal amount of Securities being redeemed in the event of Special Redemption. At the time of the release of the Escrow Funds to the Company upon the consummation of a Pending Acquisition, an aggregate principal amount of the Securities equal to the amount of Escrow Funds so released automatically will convert into an obligation of the Company to pay principal, premium (if any) and interest with respect thereto. The Company will have no obligation to make payment on the Securities except as described above until the Escrow Funds are no longer held in the Escrow Account for the benefit of the holders of the Securities and the Trustee, and the holders of the Securities and the Trustee may look only to the Escrow Funds for payment of additional amounts until such time. The Company shall pay interest on overdue principal and on overdue installments of interest from time to time on demand at the rate borne by the Securities and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful. 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 B-3 121 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 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 June 17, 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 9 1/4% Senior Subordinated Notes due 2007 (the "Securities"), limited (except as otherwise provided in the Indenture) in aggregate principal amount to $200,000,000, 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. 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. 5. Optional Redemption. (a) The Securities may be redeemed (subject to contractual and other restrictions with respect thereto and to the legal availability of funds therefor) at any time on or after July 1, 2002, in whole or in part, at the Company's option, at the redemption prices (expressed as percentages of the principal amount thereof) set forth below, plus accrued and unpaid interest, if any, to the redemption date if redeemed during the 12- month period beginning July 1 of each of the years set forth below: B-4 122
YEAR PERCENTAGE - ---- ---------- 2002 . . . . . . . . . . . . . . . . . . . . . . . .. . . 104.625% 2003 . . . . . . . . . . . . . . . . . . . . . . . .. . . 103.083% 2004 . . . . . . . . . . . . . . . . . . . . . . . .. . . 101.542% 2005 and thereafter . . . . . . . . . . . . . . . . .. . . 100.000%
(b) In addition, prior to July 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings or Major Asset Sales to redeem up to 25% of the aggregate principal amount of the Securities originally issued at a redemption price equal to 109.250% of the aggregate principal amount thereof at the redemption date of the Securities so redeemed plus accrued interest, if any, thereon to the date of redemption; provided, however, that after any such redemption, at least 75% in aggregate principal amount of Securities originally issued remains 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 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 July 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 principal amount 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 principal amount of such Security and (ii) the excess of (A) the present value at such time of (1) the redemption price of such Security at July 1, 2002 (such redemption price being described under Section 5(a)) plus (2) all required interest payments due on such Security through July 1, 2002 computed using a discount rate equal to the Treasury Rate plus 100 basis points over (B) the principal amount of such Security. "Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a B-5 123 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 July 1, 2002; provided, however, that if the period from the Change of Control Redemption Date to July 1, 2002 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given except that if the period from the Change of Control Redemption Date to July 1, 2002 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. (d) Under certain circumstances, the Company is required to make a Special Redemption of Securities. In such case, the Company shall redeem such Securities at a redemption price equal to 101% of the principal amount of such Securities, plus accrued and unpaid interest to the date of the Special Redemption (the "Special Redemption Price") and direct the Escrow Agent to release the Escrow Funds to the Trustee to pay, together with other amounts deposited with the Trustee, the Special Redemption Price to the holders of the Securities being redeemed. 6. Subordination. The Indebtedness evidenced by the Securities is, to the extent and in the manner provided in the Indenture, subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness as defined in the Indenture, and this Security is issued subject to such provisions. 7. 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, except in the case of a Special Redemption, in respect of which notice of redemption shall be given at least three Business Days prior to the date of redemption. Securities in denominations larger than $1,000 may be redeemed in part. 8. 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 or a portion of the then outstanding B-6 124 Securities pursuant to a Change of Control Offer at a purchase price equal to 101% of the principal amount thereof, plus, without duplication, all accrued and unpaid interest, if any, to the Change of Control Payment Date. 9. Limitation on Disposition of Assets. Section 4.15 of the Indenture provides that after certain Asset Sales (as defined in the Indenture), and subject to further limitations contained therein, the Company will make an offer to purchase certain amounts of the Securities in accordance with the procedures set forth in the Indenture. 10. 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. 11. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. 12. 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. 13. 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). 14. 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 of the Securities then outstanding, and any existing Default or Event of B-7 125 Default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in aggregate principal amount 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. 15. 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 Preferred 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. 16. 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. 17. 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 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 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. 18. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, B-8 126 may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries, Unrestricted Subsidiaries or their respective Affiliates as if it were not the Trustee. 19. 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. 20. Authentication. This Security shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on this Security. 21. 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. 22. 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). 23. 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. 24. Escrow of Proceeds; Special Offer; Special Redemption. On the Issue Date, the Company will deposit into escrow for the benefit of the Holders $191,462,000 of the proceeds of the offering of the Securities. The Escrow Funds will be released on the terms and conditions set forth in the Escrow Agreement. If the GulfStar Transaction has not been consummated prior to September 30, 1997 or the Company determines that the GulfStar Transaction cannot be consummated prior to September 30, 1997 or any Escrow Funds remain in the Escrow Account on March 31, 1998, the Company will be required to offer to purchase the Securities. Under certain circumstances, the Company shall make a Special Redemption of the Securities B-9 127 at a redemption price of 101% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption. 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 RADIO BROADCASTING PARTNERS, INC., 600 Congress Avenue, Suite 1400, Austin, Texas 78701. B-10 128 [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: ---------------------------------------------------------- B-11 129 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 [ ] Section 4.19 [ ] If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.14, Section 4.15 or Section 4.19 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) B-12 130 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. C-1 131 EXHIBIT D CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF SECURITIES Re: 9 1/4% Senior Subordinated Notes due 2007, Series A and 9 1/4% Senior Subordinated Notes due 2007, Series B (the "Securities"), of Capstar Radio Broadcasting Partners, Inc. This Certificate relates to $_______ principal amount 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. D-1 132 / / 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. / / 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. D-2 133 EXHIBIT E Form of Certificate To Be Delivered in Connection with Transfers to Institutional Accredited Investors Capstar Radio 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 of 9 1/4% Senior Subordinated Notes due 2007 (the "Notes") of Capstar Radio 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 two 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 Restriction Termination Date") only (a) to the E-1 134 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: ------------------------- E-2 EX-4.5 5 INDENTURE (12% SUBORDINATED EXCHANGE DEBENTURES) 1 EXHIBIT 4.5 ================================================================================ INDENTURE Dated as of June 17, 1997 Between CAPSTAR BROADCASTING PARTNERS, INC., as Issuer, and U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee -------------------- 12% Subordinated Exchange Debentures due 2009 ================================================================================ 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; 11.02 (c) . . . . . . . . . . . . . . . . . . . . . . N.A. 311(a) . . . . . . . . . . . . . . . . . . . . . . 7.11 (b) . . . . . . . . . . . . . . . . . . . . . . 7.11 (c) . . . . . . . . . . . . . . . . . . . . . . N.A. 312(a) . . . . . . . . . . . . . . . . . . . . . . 2.05 (b) . . . . . . . . . . . . . . . . . . . . . . 11.03 (c) . . . . . . . . . . . . . . . . . . . . . . 11.03 313(a) . . . . . . . . . . . . . . . . . . . . . . 7.06 (b)(1) . . . . . . . . . . . . . . . . . . . . N.A. (b)(2) . . . . . . . . . . . . . . . . . . . . 7.06 (c) . . . . . . . . . . . . . . . . . . . . . . 7.06; 11.02 (d) . . . . . . . . . . . . . . . . . . . . . . 7.06 314(a) . . . . . . . . . . . . . . . . . . . . . . 4.07; 4.09; 11.02 (b) . . . . . . . . . . . . . . . . . . . . . . N.A. (c)(1) . . . . . . . . . . . . . . . . . . . . 11.04 (c)(2) . . . . . . . . . . . . . . . . . . . . 11.04 (c)(3) . . . . . . . . . . . . . . . . . . . . N.A. (d) . . . . . . . . . . . . . . . . . . . . . . N.A. (e) . . . . . . . . . . . . . . . . . . . . . . 11.05 (f) . . . . . . . . . . . . . . . . . . . . . . N.A 315(a) . . . . . . . . . . . . . . . . . . . . . . 7.01(b) (b) . . . . . . . . . . . . . . . . . . . . . . 7.05; 11.02 (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. (b) . . . . . . . . . . . . . . . . . . . . . . 6.07 317(a)(1) . . . . . . . . . . . . . . . . . . . . 6.08 (a)(2) . . . . . . . . . . . . . . . . . . . . 6.09 (b) . . . . . . . . . . . . . . . . . . . . . . 2.04 318(a) . . . . . . . . . . . . . . . . . . . . . . 11.01 (c) . . . . . . . . . . . . . . . . . . . . . . 11.01
- --------------- N.A. means Not Applicable NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. -ii- 3 TABLE OF CONTENTS
Page ---- ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.02 Incorporation by Reference of TIA . . . . . . . . . . . . . 21 Section 1.03 Rules of Construction . . . . . . . . . . . . . . . . . . . 21 ARTICLE TWO THE SECURITIES Section 2.01 Form and Dating . . . . . . . . . . . . . . . . . . . . . . 22 Section 2.02 Execution and Authentication . . . . . . . . . . . . . . . . 22 Section 2.03 Registrar and Paying Agent . . . . . . . . . . . . . . . . . 23 Section 2.04 Paying Agent To Hold Assets in Trust . . . . . . . . . . . . 24 Section 2.05 Securityholder Lists . . . . . . . . . . . . . . . . . . . . 24 Section 2.06 Transfer and Exchange . . . . . . . . . . . . . . . . . . . 25 Section 2.07 Replacement Securities . . . . . . . . . . . . . . . . . . . 25 Section 2.08 Outstanding Securities . . . . . . . . . . . . . . . . . . . 26 Section 2.09 Treasury Securities . . . . . . . . . . . . . . . . . . . . 26 Section 2.10 Temporary Securities . . . . . . . . . . . . . . . . . . . . 27 Section 2.11 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 2.12 Defaulted Interest . . . . . . . . . . . . . . . . . . . . . 27 Section 2.13 CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . 28 Section 2.14 Deposit of Moneys . . . . . . . . . . . . . . . . . . . . . 28 ARTICLE THREE REDEMPTION Section 3.01 Notices to Trustee . . . . . . . . . . . . . . . . . . . . . 28 Section 3.02 Selection of Securities To Be Redeemed . . . . . . . . . . . 29 Section 3.03 Notice of Redemption . . . . . . . . . . . . . . . . . . . . 29 Section 3.04 Effect of Notice of Redemption . . . . . . . . . . . . . . . 30 Section 3.05 Deposit of Redemption Price . . . . . . . . . . . . . . . . 30 Section 3.06 Securities Redeemed in Part . . . . . . . . . . . . . . . . 31
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Page ---- ARTICLE FOUR COVENANTS Section 4.01 Payment of Securities . . . . . . . . . . . . . . . . . . . 31 Section 4.02 Maintenance of Office or Agency . . . . . . . . . . . . . . 31 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 . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 4.10 Waiver of Stay, Extension or Usury Laws . . . . . . . . . . 39 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 . . . . . . . . . . . . 41 Section 4.14 Change of Control . . . . . . . . . . . . . . . . . . . . . 42 Section 4.15 Limitation on Asset Sales . . . . . . . . . . . . . . . . . 44 Section 4.16 Limitation on Asset Swaps . . . . . . . . . . . . . . . . . 46 ARTICLE FIVE SUCCESSOR CORPORATION Section 5.01 Merger, Consolidation and Sale of Assets . . . . . . . . . . 46 Section 5.02 Successor Corporation Substituted . . . . . . . . . . . . . 48 ARTICLE SIX DEFAULT AND REMEDIES Section 6.01 Events of Default . . . . . . . . . . . . . . . . . . . . . 48 Section 6.02 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 6.03 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . 51 Section 6.04 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . 51 Section 6.05 Control by Majority . . . . . . . . . . . . . . . . . . . . 51 Section 6.06 Limitation on Suits . . . . . . . . . . . . . . . . . . . . 52
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Page ---- Section 6.07 Rights of Holders To Receive Payment . . . . . . . . . . . 52 Section 6.08 Collection Suit by Trustee . . . . . . . . . . . . . . . . . 52 Section 6.09 Trustee May File Proofs of Claim . . . . . . . . . . . . . . 53 Section 6.10 Priorities . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 6.11 Undertaking for Costs . . . . . . . . . . . . . . . . . . . 54 ARTICLE SEVEN TRUSTEE Section 7.01 Duties of Trustee . . . . . . . . . . . . . . . . . . . . . 54 Section 7.02 Rights of Trustee . . . . . . . . . . . . . . . . . . . . . 56 Section 7.03 Individual Rights of Trustee . . . . . . . . . . . . . . . . 57 Section 7.04 Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . 57 Section 7.05 Notice of Default . . . . . . . . . . . . . . . . . . . . . 58 Section 7.06 Reports by Trustee to Holders . . . . . . . . . . . . . . . 58 Section 7.07 Compensation and Indemnity . . . . . . . . . . . . . . . . . 59 Section 7.08 Replacement of Trustee . . . . . . . . . . . . . . . . . . . 60 Section 7.09 Successor Trustee by Merger, Etc. . . . . . . . . . . . . . 61 Section 7.10 Eligibility; Disqualification . . . . . . . . . . . . . . . 61 Section 7.11 Preferential Collection of Claims Against the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 62 ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE Section 8.01 Termination of the Company's Obligations . . . . . . . . . . 62 Section 8.02 Acknowledgment of Discharge by Trustee . . . . . . . . . . . 65 Section 8.03 Application of Trust Money . . . . . . . . . . . . . . . . . 65 Section 8.04 Repayment to the Company . . . . . . . . . . . . . . . . . . 65 Section 8.05 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . 66 ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 9.01 Without Consent of Holders . . . . . . . . . . . . . . . . . 66 Section 9.02 With Consent of Holders . . . . . . . . . . . . . . . . . . 67 Section 9.03 Compliance with TIA . . . . . . . . . . . . . . . . . . . . 68 Section 9.04 Revocation and Effect of Consents . . . . . . . . . . . . . 68 Section 9.05 Notation on or Exchange of Securities . . . . . . . . . . . 69 Section 9.06 Trustee To Sign Amendments, Etc. . . . . . . . . . . . . . . 69
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Page ---- ARTICLE TEN SUBORDINATION OF SECURITIES Section 10.01 Securities Subordinate to Senior Debt . . . . . . . . . . . 70 Section 10.02 Payment Over of Proceeds upon Dissolution, etc. . . . . . . 70 Section 10.03 Suspension of Payment When Senior Debt in Default . . . . . 72 Section 10.04 Trustee's Relation to Senior Debt . . . . . . . . . . . . . 73 Section 10.05 Subrogation to Rights of Holders of Senior Debt . . . . . . 74 Section 10.06 Provisions Solely to Define Relative Rights . . . . . . . . 75 Section 10.07 Trustee to Effectuate Subordination . . . . . . . . . . . . 75 Section 10.08 No Waiver of Subordination Provisions . . . . . . . . . . . 76 Section 10.09 Notice to Trustee . . . . . . . . . . . . . . . . . . . . . 77 Section 10.10 Reliance on Judicial Order or Certificate of Liquidating Agent . . . . . . . . . . . . . . . . . . . . . 78 Section 10.11 Rights of Trustee as a Holder of Senior Debt; Preservation of Trustee's Rights . . . . . . . . . . . . . . 78 Section 10.12 Article Applicable to Paying Agents . . . . . . . . . . . . 79 Section 10.13 No Suspension of Remedies . . . . . . . . . . . . . . . . . 79 ARTICLE ELEVEN MISCELLANEOUS Section 11.01 TIA Controls . . . . . . . . . . . . . . . . . . . . . . . . 79 Section 11.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Section 11.03 Communications by Holders with Other Holders . . . . . . . . 80 Section 11.04 Certificate and Opinion as to Conditions Precedent . . . . . 81 Section 11.05 Statements Required in Certificate or Opinion . . . . . . . 81 Section 11.06 Rules by Trustee, Paying Agent, Registrar . . . . . . . . . 82 Section 11.07 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . 82 Section 11.08 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 82 Section 11.09 No Adverse Interpretation of Other Agreements . . . . . . . 82 Section 11.10 No Recourse Against Others . . . . . . . . . . . . . . . . . 82 Section 11.11 Successors . . . . . . . . . . . . . . . . . . . . . . . . . 83 Section 11.12 Duplicate Originals . . . . . . . . . . . . . . . . . . . . 83 Section 11.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . 83
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Page ---- Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 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. -vii- 8 INDENTURE, dated as of June 17, 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"). 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% Subordinated Exchange Debentures 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 Discount Note and (ii) the portion of the excess of the principal amount at maturity of each Discount Note 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 Discount Notes through the date of determination, provided, that the Accreted Value of the Discount Notes shall be 100% from February 1, 2002 to maturity of the Discount Notes. "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Subsidiary of the Company or at the time it merges or consolidates with the Company or any of its Subsidiaries or assumed in connection with the acquisition of assets from such Person and not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Subsidiary of the Company or such acquisition, merger or consolidation. "Acquired Preferred Stock" means Preferred Stock of any Person at the time such Person becomes a Subsidiary of the Company or at the time it merges or consolidates with the Company or any of its Subsidiaries and not issued by such Person 9 -2- in connection with, or in anticipation or contemplation of, such acquisition, merger or consolidation. "Affiliate" means a Person who, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the Company. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "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 $1,000,000, (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 (the "FCC") approval, if applicable, and other customary closing conditions, that the Company in good faith believes will be satisfied, for a substantially concurrent purchase and 10 -3- 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. "Bankruptcy Law" means Title 11, United States Code or any similar federal, state or foreign law for the relief of debtors. "Blockage Period" shall have the meaning provided in Section 10.02. "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. "Capstar Broadcasting" means Capstar Broadcasting Corporation, a Delaware corporation. 11 -4- "Capstar Radio" means Capstar Radio Broadcasting Partners, Inc., a Delaware corporation. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc.; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from Standard & Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $200,000,000; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above; and (vi) investments in money market funds that invest substantially all their assets in securities of the types described in clauses (i) through (v) above. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group") (whether or not otherwise in compliance with the provisions of this Indenture), other than to Hicks Muse, any of its affiliates (excluding Chancellor), officers and directors or R. Steven Hicks (the "Permitted Holders"); or (ii) a majority of the board of directors of the Company shall consist of Persons who are not Continuing Directors; or (iii) the acquisition by any Person or Group (other than the Permitted Holders) of the power, directly or indirectly, to vote or direct the voting of securities 12 -5- 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 arrangements 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. "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 nonrecurring gains or losses), (B) Consolidated Interest Expense and (C) Consolidated Non-Cash Charges, all as determined on a consolidated basis for such Person and its Subsidiaries in conformity with GAAP. "Consolidated Interest Expense" means, with respect to any Person for any period, without duplication, the sum of (i) the interest expense of such Person and its Subsidiaries for such period as determined on a consolidated basis in 13 -6- 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 owned 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 $1,000,000 limitation set forth in the definition thereof) or abandonments or reserves relating thereto and the related tax effects, (b) items classified as extraordinary or nonrecurring gains and losses, and the related tax effects according to GAAP, (c) the net income (or loss) of any Person acquired in a pooling of interests transactions accrued prior to the date it becomes a Subsidiary of such first referred to Person or is merged or consolidated with it or any of its Subsidiaries, (d) the net income of any Subsidiary to the extent that the declaration of dividends or similar distributions by that Subsidiary of that income is restricted by contract, operation of law or otherwise, (e) the net income of any Person, other than a Subsidiary, except to the extent of the lesser of (x) dividends or distributions paid to such first referred to Person or its Subsidiary by such Person and (y) the net income of such Person (but in no event less than zero), and the net loss of such Person shall be included only to the extent of the aggregate Investment of the first referred to Person or a consolidated Subsidiary of such Person and (f) any non-cash expenses attributable to grants or exercises of employee stock options. "Consolidated Non-Cash Charges" means, with respect to any Person for any period, the aggregate depreciation, amortization and other non-cash expenses of such Person and its Subsidiaries (excluding any such charges constituting an extraordinary or nonrecurring item) reducing Consolidated Net Income of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. 14 -7- "Continuing Director" means, as of the date of determination, any Person who (i) was a member of the Board of Directors of the Company on the Issue Date, (ii) was nominated for election or elected to the board of directors of the Company with the affirmative vote of a majority of the Continuing Directors who were members of such board of directors at the time of such nomination or election or (iii) is a representative of a Permitted Holder. "Credit Facility" means the credit agreement dated February 20, 1997 among the Company, Capstar Radio, Bankers Trust Company, as agent, and the lenders parties thereto from time to time, as the same may be amended, supplemented or otherwise modified from time to time, and any renewal, extension, refunding, restructuring, replacement or refinancing thereof (whether with the original agent and lenders or another agent or agents or other lenders and whether provided under the original Credit Facility or any other credit agreement). "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in currency values. "Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default. "Default Notice" shall have the meaning provided in Section 10.02. "Designated Senior Debt" means (i) Indebtedness under or in respect of the Credit Facility and (ii) any other Indebtedness constituting Senior Debt that, at the time of determination, has an aggregate principal amount of at least $10,000,000 and is specifically designated in the instrument evidencing such Senior Debt as "Designated Senior Debt" by the Company. "Discharged" has the meaning provided in Section 8.01. "Discount Notes" means the 12-3/4% Senior Discount Notes due 2009 of the Company. "Discount Notes Indenture" means that certain indenture dated as of February 20, 1997, which governs the terms of the Company's Discount Notes. 15 -8- "Disqualified Capital Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures (excluding any maturity as the result of an optional redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable as 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. Exchange Date" means that date of initial issuance of the Securities. "Exchangeable Preferred Stock" means the 12% Senior Exchangeable Preferred Stock, par value $.01 per share, of the Company or shares of Preferred Stock issued in exchange therefor. "Existing Indenture" means the indenture governing the Existing Notes dated as of April 21, 1995 by and among the Capstar Radio, as Issuer, the Subsidiaries of Capstar Radio named therein, as Guarantors, and IBJ Schroder Bank & Trust Company, as Trustee, as in effect on the Issue Date. "Existing Notes" means Capstar Radio's 13-1/4% Senior Subordinated Notes due 2003. "Financial Monitoring and Oversight Agreements" means, collectively, (i) the Monitoring and Oversight Agreement between the Company and Hicks, Muse & Co. Partners, L.P. ("HM Partners") as in effect on the Issue Date, and (ii) the Financial Advisory Agreement between the Company and HM Partners, as in effect on the Issue Date. "Funds" shall have the meaning provided in Section 8.01. 16 -9- "GAAP" means generally accepted accounting principles as in effect in the United States of America as of the Issue Date. "Hicks Muse" means Hicks, Muse, Tate & Furst Incorporated, a Texas 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) 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 of 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. 17 -10- "Investment" means (i) any transfer or delivery of cash, stock or other property of value in exchange for Indebtedness, stock or other security or ownership interest in any Person by way of loan, advance, capital contribution, guarantee or otherwise and (ii) an investment deemed to have been made by the Company at the time any entity which was a Subsidiary of the Company ceases to be such a Subsidiary in an amount equal to the value of the loans and advances made, and any remaining ownership interest in, such entity immediately following such entity ceasing to be a Subsidiary of the Company. The amount of any non-cash Investment shall be the fair market value of such Investment, as determined conclusively in good faith by management of the Company unless the fair market value of such Investment exceeds $2,000,000, in which case the fair market value shall be determined conclusively in good faith by the Board of Directors of the Company at the time such Investment is made. "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 (subject to the terms described in the next paragraph) plus the aggregate liquidation preference of all outstanding Preferred Stock of the Company's Subsidiaries (except Preferred Stock issued to the Company or a Wholly Owned Subsidiary of the Company) on such date less the Accreted Value of the Discount Notes on such date to (ii) the Consolidated EBITDA of the Company for the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of determination. For purposes of this definition, (i) the amount of Indebtedness which is issued at a discount shall be deemed to be the accreted value of such Indebtedness at the end of the Four Quarter Period, whether or not such amount is the amount then reflected on a balance sheet prepared in accordance with GAAP, and (ii) the aggregate outstanding principal amount of Indebtedness of the Company and its Subsidiaries and the aggregate liquidation preference of all outstanding Preferred Stock of the Company's Subsidiaries for which such calculation is made shall be determined on a pro forma basis as if the 18 -11- 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 of repayment of Indebtedness pursuant to working capital facilities, at any time subsequent to the beginning of the Four Quarter Period and on or prior to the date of determination, as if such incurrence or issuance (and the application of the proceeds thereof), or the repayment, as the case may be, occurred on the first day of the Four Quarter Period, (ii) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Subsidiaries (including any Person that becomes a Subsidiary as a result of such Asset Acquisition) incurring, assuming or otherwise becoming liable for Indebtedness or such Person's Subsidiaries issuing Preferred Stock) at any time on or subsequent to the first day of the Four Quarter Period and on or prior to the date of determination, as if such Asset Sale or Asset Acquisition (including the incurrence, assumption or liability for any such Indebtedness and the issuance of such Preferred Stock and also including any Consolidated EBITDA associated with such Asset Acquisition) occurred on the first day of the Four Quarter Period and (iii) cost savings resulting from employee terminations, facilities consolidations and closings, standardization of employee benefits and compensation practices, consolidation of property, casualty and other insurance coverage and policies, standardization of sales representation commissions and other contract rates, and reductions in taxes other than income taxes (collectively, "Cost Savings Measures"), which cost savings the Company reasonably believes in good faith would have been achieved during the Four Quarter Period as a result of such Asset Acquisitions (regardless of whether such cost savings could then be reflected in pro forma financial statements under GAAP, Regulation S-X promulgated by the Commission or any other regulation or policy of the Commission), provided that both (A) such cost savings and Cost Savings Measures were identified 19 -12- and such cost savings were quantified in an officer's certificate delivered to the Trustee at the time of the consummation of the Asset Acquisition and such officer's certificate states that such officer believes in good faith that actions will be commenced or initiated within 90 days of such Asset Acquisition to effect such Cost Savings Measures and (B) with respect to each Asset Acquisition completed prior to the 90th day preceding such date of determination, actions were commenced or initiated by the Company within 90 days of such Asset Acquisition to effect the Cost Savings Measures identified in such officer's certificate (regardless, however, of whether the corresponding cost savings have been achieved). Furthermore, in calculating "Consolidated Interest Expense" for purposes of the calculation of "Consolidated EBITDA," (i) interest on Indebtedness determined on a fluctuating basis as of the date of determination (including Indebtedness actually incurred on the date of the transaction giving rise to the need to calculate the Leverage Ratio) and which will continue to be so determined thereafter shall be deemed to have accrued at fixed rate per annum equal to the rate of interest on such Indebtedness as in effect on the date of determination and (ii) notwithstanding (i) above, interest determined on a fluctuating basis, to the extent such interest is covered by Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "Major Asset Sale" means an Asset Sale or series of related Asset Sales involving assets with a fair market value in excess of $25,000,000. "Maturity Date" means July 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 20 -13- 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. "Net Proceeds Offer" has the meaning provided in Section 4.15. "New Capstar Radio Indenture" means that certain indenture dated as of June 17, 1997, which governs the terms of Capstar Radio's 9 1/4% Senior Subordinated Notes due 2007. "Non-Payment Event of Default" means any event (other than a Payment Default) the occurrence of which entitles one or more Persons to accelerate the maturity of any Designated Senior Debt. "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 21 -14- and either an Assistant Treasurer or an Assistant Secretary of such Person and otherwise complying with the requirements of Sections 11.04 and 11.05, 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 11.04 and 11.05, 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. "Payment Default" means any default, whether or not any requirement for the giving of notice, the lapse of time or both, or any other condition to such default becoming an event of default has occurred, in the payment of principal of (or premium, if any) or interest on or any other amount payable in connection with Designated Senior Debt. "Permitted Holders" shall have the meaning set forth in the definition of "Change of Control." "Permitted Indebtedness" means, without duplication, (i) Indebtedness outstanding on the Issue Date; (ii) Indebtedness of the Company or a Subsidiary incurred pursuant to the Credit Facility in an aggregate principal amount at any time outstanding not to exceed $150 million; (iii) Indebtedness evidenced by or arising under the Discount Notes and the Notes Indenture; (iv) Interest Swap Obligations; provided that such Interest Swap Obligations are entered into to protect the Company from fluctuations in interest rates of its Indebtedness; (v) additional Indebtedness of the Company or any of its Subsidiaries not to exceed $20,000,000 in principal amount outstanding at any time (which amount may, but need not, be incurred under the Credit Facility); (vi) Refinancing Indebtedness; (vii) Indebtedness owed by the Company to any Wholly Owned Subsidiary of the Company or by any Subsidiary of the Company to the Company or any Wholly Owned Subsidiary of the Company; (viii) guarantees by Subsidiaries of any Indebtedness permitted to be incurred pursuant to this 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 22 -15- course of their business; (x) Indebtedness arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Subsidiaries pursuant to such agreements, in each case incurred in connection with the disposition of any business assets or Subsidiaries of the Company (other than guarantees of Indebtedness or other obligations incurred by any Person acquiring all or any portion of such business assets or Subsidiaries of the Company for the purpose of financing such acquisition) in a principal amount not to exceed the gross proceeds actually received by the Company or any of its Subsidiaries in connection with such disposition; provided, however, that the principal amount of any Indebtedness incurred pursuant to this clause (x), when taken together with all Indebtedness incurred pursuant to this clause (x) and then outstanding, shall not exceed $15,000,000; and (xi) Indebtedness represented by Capitalized Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property used in a related business or incurred to refinance any such purchase price or cost of construction or improvement, in each case incurred no later than 365 days after the date of such acquisition or the date of completion of such construction or improvement; provided, however, that the principal amount of any Indebtedness incurred pursuant to this clause (xi) shall not exceed $6,000,000 at any time outstanding. "Permitted Investments" means (i) Investments by the Company or any Subsidiary of the Company to acquire the stock or assets of any Person (or Acquired Indebtedness or Acquired Preferred Stock acquired in connection with a transaction in which such Person becomes a Subsidiary of the Company) engaged in the broadcast business or businesses reasonably related thereto; provided that if any such Investment or series of related Investments involves an Investment by the Company in excess of $5,000,000, the Company is able, at the 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 23 -16- Subsidiary of the Company and Investments in the Company by any Wholly Owned Subsidiary of the Company, (iv) cash and Cash Equivalents, (v) Investments in securities of trade creditors, wholesalers or customers received pursuant to any plan of reorganization or similar arrangement, (vi) loans or advances to employees of the Company or any Subsidiary thereof for purposes of purchasing the Capital Stock of the Company, Capstar Broadcasting or any corporation that, directly or indirectly, owns all of the Common Stock of Capstar Broadcasting and other loans and advances to employees made in the ordinary course of business consistent with past practices of the Company or such Subsidiary, and (vii) additional Investments in an aggregate amount not to exceed $2,000,000 at any time outstanding. "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. "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. "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 businesses or businesses reasonably related thereto, and specifically includes assets acquired through Asset Acquisitions. "Public Equity Offering" means an underwritten public offering of Capital Stock (other than Disqualified Capital Stock) of the Company, Capstar Broadcasting or any corporation that, directly or indirectly, owns all of the Common Stock of Capstar Broadcasting, pursuant to an effective registration 24 -17- statement filed with the Commission in accordance with the Securities Act; provided, however that, in the case of a Public Equity Offering by Capstar Broadcasting or any such other corporation, Capstar Broadcasting or such other corporation contributes to the capital of the Company net cash proceeds in an amount sufficient to redeem the Securities called for redemption in accordance with the terms thereof. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "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 of Indebtedness of the Company or any of its Subsidiaries incurred in accordance with Section 4.12 hereof (other than pursuant to clause (iii) or (iv) of the definition of Permitted Indebtedness) that does not (i) result in an increase in the aggregate principal amount of Indebtedness (such principal amount to include, for purposes of this definition, any premiums, penalties or accrued interest paid with the proceeds of the Refinancing Indebtedness) of such Person or (ii) create Indebtedness with (A) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being refinanced or (B) a final maturity earlier than the final maturity of the Indebtedness being refinanced. "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 25 -18- 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). "Securities" means the Company's 12% Subordinated Exchange Debentures 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. "Secondary Securities" has the meaning specified in the form of the Security. "Senior Debt" means the principal of and premium, if any, and interest on, and any and all other fees, expenses reimbursement obligations and other amounts due pursuant to the terms of all agreements, documents and instruments providing for, creating, securing or evidencing or otherwise entered into in connection with (a) all Indebtedness of the Company owed to lenders under the Credit Facility, (b) all Indebtedness of the Company under the Discount Notes, (c) all obligations of the Company with respect to any Interest Swap Obligations, (d) all obligations of the Company to reimburse any bank or other person in respect of amounts paid under letters of credit, acceptances or other similar instruments, (e) all other Indebtedness of the Company which does not provide that it is to rank pari passu with or subordinate to the Securities and (f) all deferrals, renewals, extensions and refundings of, and amendments, modifications and supplements to, any of the Senior Debt described above. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (i) Indebtedness of 26 -19- the Company to any of its Subsidiaries, (ii) Indebtedness represented by the Securities, (iii) any Indebtedness which by the express terms of the agreement or instrument creating, evidencing or governing the same is junior or subordinate in right of payment to any item of Senior Debt, (iv) any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business, and (v) Indebtedness incurred in violation of this Indenture. "Senior Exchangeable Preferred Stock" means the Company's 12% Senior Exchangeable Preferred Stock, par value $.01 per share. "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 of the end of such fiscal year, was the owner of more than 5% of the consolidated assets of such Person. "Subsidiary," with respect to any Person, means (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. Except as specifically provided otherwise in this Indenture, all references to the Company and its consolidated subsidiaries or to financial information prepared on a consolidated basis in accordance with GAAP shall be deemed to include the Company and its Subsidiaries as to which financial statements are prepared on a consolidated basis in accordance with GAAP and to financial information prepared on such a consolidated basis. Notwithstanding anything in this Indenture to the contrary, an Unrestricted Subsidiary shall not be deemed to be a Subsidiary for purposes of this Indenture. "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. "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, 27 -20- an officer assigned to the department, division or group performing the corporate trust work of such successor. "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. "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 minimus assets resulting from the initial capitalization of each 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 (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. 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. "U.S. Government Obligations" has the meaning provided in Section 8.01. "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 28 -21- 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: (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; 29 -22- (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 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. 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. 30 -23- 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 of the liquidation preference of the outstanding shares of Exchangeable Preferred Stock at the Exchange Date 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 equal to the liquidation preference of the outstanding shares of Exchangeable Preferred Stock at the Exchange Date may not exceed such amount except as provided in Section 2.07 and in Section 1 of the form of Security. 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; provided, however, that Securities may be issued in denominations of less than $1,000 (but not less than $1.00) upon the initial exchange of the Exchangeable Preferred Stock for the Securities such that each holder of Exchangeable Preferred Stock shall receive Securities in a principal amount equal to the full liquidation preference of the Exchangeable Preferred Stock on the Issue Date (as specified to the Trustee in the Officers' Certificate delivered pursuant to this Section 2.02; provided, further, however, that Secondary Securities may be issued in denominations of less than $1,000 (but not less than $1.00). 31 -24- 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. 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 32 -25- 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 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. 33 -26- 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. If the principal amount 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 34 -27- 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 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 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 transfer, exchange, payment or cancellation. Subject to Section 2.07, the Company may not issue new Securities to replace Securities that the Company has 35 -28- 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. 36 -29- 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 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 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 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 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 37 -30- 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; (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 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 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 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 of Securities to be redeemed and the aggregate principal amount 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 38 -31- 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 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. 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 to the unredeemed portion of the Security surrendered. ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Securities. The Company shall pay the principal amount of and interest on the Securities on the dates and in the manner provided in the Securities. An installment of principal of or cash 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 39 -32- 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. (a) Neither the Company nor any of its Subsidiaries will, directly or indirectly, make any Restricted Payment if at the time of such Restricted Payment and immediately after giving effect thereto: (i) a Default or 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 40 -33- (B) 100% of the aggregate net proceeds, including the fair market value of property other than cash as determined by the board of directors of the Company in good faith, received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale on or subsequent to the Issue Date of Qualified Capital Stock of the Company (excluding (i) any net proceeds from issuances and sales financed directly or indirectly using funds borrowed from the Company or any Subsidiary of the Company, until and to the extent such borrowing is repaid, but including the proceeds from the issuance and sale of any securities convertible into or exchangeable for Qualified Capital Stock to the extent such securities are so converted or exchanged and including any additional proceeds received by the Company upon such conversion or exchange and (ii) any net proceeds received from issuances and sales that are used to consummate a transaction described in clauses (2) and (3) of paragraph (b) below), plus (C) without duplication of any amount included in clause (iii)(B) above, 100% of the aggregate net proceeds, including the fair market value of property other than cash (valued as provided in clause (iii)(B) above), received by the Company as a capital contribution on or after the Issue Date, plus (D) the amount equal to the net reduction in Investments (other than Permitted Investments) made by the Company or any of its Subsidiaries in any Person resulting from (i) repurchases or redemptions of such Investments by such Person, proceeds realized upon the sale of such Investment to an unaffiliated purchaser and repayments of loans or advances or other transfers of assets by such Person to the Company or any Subsidiary of the Company or (ii) the redesignation of Unrestricted Subsidiaries as Subsidiaries (valued in each case as provided in the definition of "Investment") not to exceed, in the case of any Subsidiary, the amount of Investments previously made by the Company or any Subsidiary in such Unrestricted Subsidiary, which amount was included in the calculation of Restricted Payments; provided, however, that no amount shall be included under this clause (D) to the extent it is already included in Consolidated EBITDA, plus 41 -34- (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) $5,000,000. (b) Notwithstanding the foregoing, these provisions will not prohibit: (1) the payment of any dividend or the making of any distribution within 60 days after the date of its declaration if such dividend or distribution would have been permitted on the date of declaration; (2) the purchase, redemption or other acquisition or retirement of any Capital Stock of the Company or any warrants, options or other rights to acquire shares of any class of such Capital Stock either (x) solely in exchange for shares of Qualified Capital Stock or other rights to acquire Qualified Capital Stock or (y) through the application of the net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock or warrants, options or other rights to acquire Qualified Capital Stock or (z) in the case of Disqualified Capital Stock, solely in exchange for, or through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of, Disqualified Capital Stock that has a redemption date no earlier than, and requires the payment of current dividends or distributions in cash no earlier than, in each case, the Disqualified Capital Stock being purchased, redeemed or otherwise acquired or retired; (3) the acquisition of Indebtedness of the Company that is subordinate or junior in right of payment to the 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 42 -35- 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 of the Company, Capstar Broadcasting or any corporation that, directly or indirectly, owns all of the Common Stock of Capstar Broadcasting from employees of the Company or any such other corporation in an aggregate amount not to exceed $5,000,000; (5) payments to enable the Company or any such other corporation to redeem or repurchase stock purchase or similar rights in an aggregate amount not to exceed $500,000; (6) payments, not to exceed $100,000 in the aggregate, to enable the Company or any such other corporation to make cash payments to holders of its Capital Stock in lieu of the issuance of fractional shares of its Capital Stock; (7) payments 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 43 -36- 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 (8) the payments of dividends on the Company's Common Stock after an initial public offering of Common Stock of the Company, Capstar Broadcasting or any corporation that, directly or indirectly, owns all of the Common Stock of Capstar Broadcasting in an annual amount not to exceed 6.0% of the gross proceeds (before deducting underwriting discounts and commissions and other fees and expenses of the offering) received by the Company (through a capital contribution or otherwise) from shares of Common Stock sold for the account of the Company or any such other corporation (and not for the account of any stockholder) in such initial public offering; provided, further, that in the case of clauses (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 44 -37- 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. 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. 45 -38- 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 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. 46 -39- 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 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 47 -40- transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with or for the benefit of any of its Affiliates (other than transactions between the Company and a Wholly Owned Subsidiary of the Company or among Wholly Owned Subsidiaries of the Company) (an "Affiliate Transaction"), other than Affiliate Transactions on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction on an arm's-length basis from a Person that is not an Affiliate; provided, however, that for a transaction or series of related transactions involving value of $2,000,000 or more, such determination will be made in good faith by a majority of 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 $10,000,000 or more, the board of directors of the Company has received an opinion from a nationally recognized investment banking firm that such Affiliate Transaction is fair, from a financial point of view, to the Company or such Subsidiary. The foregoing restrictions will not apply to (1) reasonable and customary directors' fees, indemnification and similar arrangements and payments thereunder, (2) any obligation of the Company under the 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, noncompetition or confidentiality agreement with any officer of the Company, (3) reasonable and customary investment banking, financial advisory, commercial banking and similar fees and expenses paid to BT Securities Corporation and its Affiliates, (4) any Restricted Payment permitted to be made pursuant to 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 any acquisitions or dispositions by the Company and its Subsidiaries which acquisitions and dispositions are disclosed in the Offering Memorandum, including fees to Hicks Muse, and (8) the issuance of Capital Stock of the Company (other than Disqualified Capital Stock). 48 -41- 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 (except Preferred Stock issued to the Company or a Wholly Owned Subsidiary of the Company); provided, however, that the Company and its Subsidiaries may incur Indebtedness and the Company's Subsidiaries may issue shares of Preferred Stock if, in either case, the Company's Leverage Ratio at the time of incurrence of such Indebtedness or the issuance of such Preferred Stock, as the case may be, after giving pro forma effect to such incurrence or issuance as of such date and to the use of proceeds therefrom is less than 7.0 to 1. 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 or Acquired Preferred Stock, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, (5) agreements existing on the Issue Date (including the Credit Facility, the Existing Indenture and the New Capstar Radio 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 49 -42- not result in such encumbrances or restrictions being less favorable to the Company in any material respect, as determined in good faith by the board of directors of the Company, than the provisions as in effect before giving effect to the respective amendment or modification, (6) any restriction with respect to such a Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Subsidiary pending the closing of such sale or disposition, (7) an agreement effecting a refinancing, replacement or substitution of Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clause (2), (4) or (5) above; provided, however, that the provisions relating to such encumbrance or restriction contained in any such refinancing, replacement or substitution agreement are not less favorable to the Company in any material respect as determined in good faith by the board of directors of the Company than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clause (2), (4) or (5) above, (8) any agreement or charter provision evidencing Indebtedness or Preferred Stock permitted under this Indenture; provided, however, that the provisions relating to such encumbrance or restriction contained in such agreement or charter provision are not less favorable to the Company in any material respect as determined in good faith by the board of directors of the Company 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) Upon the occurrence of a Change of Control, each holder will have the right to require that the Company purchase all or a portion of such holder's Securities pursuant to the offer described in paragraph (b) below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof, plus, without duplication, all accrued and unpaid interest, if any, to the Change of Control Payment Date. 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 to (i) repay in full all Indebtedness under the Credit Agreement (and terminate all commitments thereunder) and any other agreement relating to Indebtedness that would prohibit the Change of Control Offer or offer to repay in full all such Indebtedness (and terminate all such commitments) and repay the Indebtedness owed to (and terminate the commitments 50 -43- of) each lender that has accepted such offer or (ii) obtain the requisite consents under the Credit Facility and any other agreement governing such other Indebtedness to permit the repurchase of the Securities as provided below. The Company will first comply with the covenant in the preceding sentence before it will be required to purchase the Securities pursuant to the provisions described below; provided that the Company's failure to comply with the covenant described in the preceding sentence shall constitute an Event of Default described in Section 6.01(3) hereof. (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, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. Such notice shall state, among other things: (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 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, to the paying agent and registrar for the Securities 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; 51 -44- (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 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 to the extent applicable in connection with the purchase of the Securities pursuant to a Change of Control Offer. (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 52 -45- Change of Control Redemption in compliance with the requirements listed on the Securities in Exhibit A 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 $5,000,000, by the board of directors of the Company, as evidenced by a board resolution), (ii) at least 75% of the consideration received by the Company or such Subsidiary, as the case may be, from such Asset Sale is in cash or Cash Equivalents (other than in the case where the Company is exchanging all or substantially all the assets of one or more broadcast businesses operated by the Company (including by way of the transfer of capital stock) for all or substantially all the assets (including by way of the transfer of capital stock) constituting one or more broadcast businesses operated by another Person, in which event the foregoing requirement with respect to the receipt of cash or Cash Equivalents shall not apply) and is received at the time of such disposition and (iii) upon the consummation of an Asset Sale, the Company applies, or causes such Subsidiary to apply, such Net Cash Proceeds within 180 days of receipt thereof, either (A) to repay any Senior 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 to the Company for purchase at a price equal to 100% of the principal amount thereof plus accrued interest thereon, if any, to the date of purchase pursuant to an offer to purchase made by the Company as set forth below (a "Net Proceeds Offer"); provided, however, that the Company may defer making a Net Proceeds Offer until the aggregate Net Cash Proceeds from Asset Sales not otherwise applied in accordance with this 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 53 -46- 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 subsection (a)(iii)(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 tendered). To the extent that the aggregate principal amount 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 $2,000,000, 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 $10,000,000, the Company has received a written opinion from an independent investment banking firm of nationally recognized 54 -47- standing that 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 may 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; (2) such surviving Person shall 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; (3) 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 such 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; (4) immediately after giving effect to such transactions no Default or Event of Default shall have occurred or be continuing; and 55 -48- (5) 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 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, will 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: 56 -49- (1) the Company fails to pay interest on the Securities when the same becomes due and payable and the Default continues for a period of 30 days; (2) the Company fails to pay the principal amount of any Securities when such principal becomes due and payable, at maturity, upon redemption or otherwise; (3) the Company defaults in the observance or performance of any other covenant or agreement contained in the Securities or this Indenture, which Default continues for a period of 30 days after the Company receives written notice thereof specifying such Default from the Trustee or holders of at least 25% in aggregate principal amount of outstanding Securities; (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 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 $10,000,000 or more at any time, in each case after a 10-day period during which such default shall not have been cured or such acceleration rescinded; (5) one or more judgments in an aggregate amount in excess of $10,000,000 (which are not covered by insurance as to which the insurer has not disclaimed coverage) shall have been rendered against the Company or any of its Significant Subsidiaries and such judgments or judgments remain undischarged or unstayed for a period of 60 days after such judgment or judgments become final and non-appealable; (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 57 -50- 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. 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 of the outstanding Securities shall, or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding may, declare the principal of all the Securities, together with all accrued and unpaid interest and premium, if any, to be due and payable by notice in writing to the Company and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the Credit Facility, shall become due and payable upon the first to occur of an acceleration under the Credit Facility or five Business Days after receipt by the Company and the agent under the Credit Facility of such Acceleration Notice (unless all Events of Default specified in such Acceleration Notice have been cured or waived). If an Event of Default specified in Section 6.01(6) or (7) with respect to the Company occurs and is continuing with respect to the Company, then such 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 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 58 -51- 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 principal amount of or 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 principal, which has become due otherwise than by such declaration of acceleration, has been paid, (iv) the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances and (v) in the event of the cure or waiver of a Default or Event of Default of the type described in 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. 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 principal amount of or interest on any Security as specified in clauses (1) and (2) of Section 6.01. 59 -52- SECTION 6.05. Control by Majority. Subject to Section 2.09, the Holders of a majority in principal amount 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 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; (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. 60 -53- 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 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 61 -54- 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 suit by the Trustee, a suit by a 62 -55- Holder pursuant to Section 6.07, or a suit by a Holder or Holders of more than 10% in principal amount 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: 63 -56- (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. (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. 64 -57- (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. (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 65 -58- 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. 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 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 Securityholders. 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. 66 -59- 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 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 or any agent, employee, officer, stockholder or director of the Trustee for which it may seek indemnity. The Company shall defend the claim, and the Trustee and its agents, officers, employees, stockholders and directors shall cooperate in the 67 -60- defense. The Trustee and its agents, officers, employees, stockholders and directors 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 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; (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. 68 -61- 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 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 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. 69 -62- 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. 70 -63- 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 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 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 principal of and interest on the Securities on the dates such installments of interest 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; 71 -64- (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 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 72 -65- 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. 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 principal amounts and accrued and unpaid interest on the Securities. 73 -66- 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 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 of any Securities because of the 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: 74 -67- (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 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 of the 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; 75 -68- (3) reduce the principal 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 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. 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 76 -69- 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 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. 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 77 -70- 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. ARTICLE TEN SUBORDINATION OF SECURITIES SECTION 10.01. Securities Subordinate to Senior Debt. The Company covenants and agrees, and each Holder of Securities, by its acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article 10, the Indebtedness represented by the Securities and the payment of the principal of, premium, if any, and interest on the Securities are hereby expressly made subordinate and junior in right of payment as provided in this Article 10 to the prior payment in full in cash or Cash Equivalents or, as acceptable to the holders of Senior Debt, in any other manner, of all Obligations on Senior Debt. This Article 10 shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become holders of or continue to hold Senior Debt; and such provisions are made for the benefit of the holders of Senior Debt; and such holders are made obligees hereunder and they or each of them may enforce such provisions. 78 -71- SECTION 10.02. Payment Over of Proceeds upon Dissolution, etc. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Company or to its creditors, as such, or to its assets, whether voluntary or involuntary or (b) any liquidation, dissolution or other winding-up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshalling of assets or liabilities of the Company, then and in any such event: (1) the holders of Senior Debt shall be entitled to receive payment in full in cash or Cash Equivalents or, as acceptable to the holders of Senior Debt, in any other manner, of all amounts due on or in respect of all Senior Debt, or provision shall be made for such payment, before the Holders of the Securities are entitled to receive any payment or distribution of any kind or character on account of principal of, premium, if any, or interest on the Securities; and (2) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, by set- off or otherwise, to which the Holders or the Trustee would be entitled but for the provisions of this Article 10 shall be paid by the liquidating trustee or agent or other Person making such payment or distribution, whether a trustee in bankruptcy, a receiver of liquidating trustee or otherwise, directly to the holders of Senior Debt or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Debt may have been issued, ratably according to the aggregate amounts remaining unpaid on account of the Senior Debt held or represented by each, to the extent necessary to make payment in full in cash, Cash Equivalents or, as acceptable to the holders of Senior Debt, in any other manner, of all Senior Debt remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Debt; and (3) in the event that, notwithstanding the foregoing provisions of this Section 10.02, the Trustee or the Holder of any Security shall have received any payment or 79 -72- distribution of assets of the Company of any kind or character, whether in cash, property or securities, including, without limitation, by way of set-off or otherwise, in respect of principal of, premium, if any, and interest on the Securities before all Senior Debt is paid in full or payment thereof provided for, then and in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for an application to the payment of all Senior Debt remaining unpaid, to the extent necessary to pay all Senior Debt in full in cash, Cash Equivalents or, as acceptable to the holders of Senior Debt, any other manner, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. The consolidation of the Company with, or the merger of the Company with or into, another Person or the liquidation or dissolution of the Company following the conveyance, transfer or lease of its properties and assets substantially as an entirety to another Person upon the terms and conditions set forth in Article 5 hereof shall not be deemed a dissolution, winding-up, liquidation, reorganization, assignment for the benefit of creditors or marshalling of assets and liabilities of the Company for the purposes of this Article if the Person formed by such consolidation or the surviving entity of such merger or the Person which acquires by conveyance, transfer or lease such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance, transfer or lease, comply with the conditions set forth in such Article 5 hereof. SECTION 10.03. Suspension of Payment When Senior Debt in Default. (a) Unless Section 10.02 hereof shall be applicable, after the occurrence of a Payment Default no payment of any kind or character (except (i) in Qualified Capital Stock issued by the Company to pay interest on the Securities or issued in exchange for the Securities, (ii) in securities substantially identical to the Securities issued by the Company in payment of interest accrued thereon or (iii) in securities issued by the Company that are subordinated to the Senior Debt at least to the same extend as the Securities and having a Weighted Average Life to Maturity at least equal to the remaining Weighted Average Life to Maturity of the Securities (the issuance of such 80 -73- subordinated securities to be consented to by the holders of at least a majority of the outstanding amount of Senior Debt consisting of each class of Designated Senior Debt then outstanding, which subordinated securities will be issued in exchange for outstanding Securities or to pay interest accrued on outstanding Securities)) will be made by the Company or any other Person on behalf of the Company with respect to any obligations on the Securities or to acquire any of the Securities for cash or property or otherwise unless and until such Payment Default shall have been cured or waived in writing or shall have ceased to exist or the Senior Debt as to which such Payment Default relates shall have been discharged or paid in full in cash or Cash Equivalents, after which the Company shall resume making any and all required payments in respect of the Securities, including any missed payments. (b) Unless Section 10.02 hereof shall be applicable, upon the occurrence of a Non-Payment Event of Default on Designated Senior Debt and upon receipt by the Trustee and the Company from any holder of Designated Senior Debt (the "Representative") of written notice of (a "Default Notice") such occurrence, unless and until all such Non-Payment Events of Default have been cured or waived or have ceased to exist or the Company and the Trustee receive notice from the Representative for the respective issue of Designated Senior Debt terminating the Blockage Period (as defined below), during the 180 days after the delivery of such Default Notice (the "Blockage Period), neither the Company nor any other Person on behalf of the Company will make any payment of any kind or character (except (i) in Qualified Capital Stock issued by the Company to pay interest on the Securities or issued in exchange for the Securities, (ii) in securities substantially identical to the Securities issued by the Company in payment of interest accrued thereon or (iii) in securities issued by the Company that are subordinated to the Senior Debt at least to the same extent as the Securities and having a Weighted Average Life to Maturity at least equal to the remaining Weighted Average Life to Maturity of the Securities (the issuance of such subordinated securities to be consented to by the holders of at least a majority of the outstanding amount of Senior Debt consisting of each class of Designated Senior Debt then outstanding, which subordinated securities will be issued in exchange for outstanding Securities or to pay interest accrued on outstanding Securities)) with respect to any Obligations on the Securities or to acquire any of the Securities for cash or property or otherwise. Notwithstanding anything in this Indenture to the contrary, only one such Blockage Period may be commenced within 81 -74- any 360 consecutive days. No Non-Payment Event of Default that existed or was continuing on the date of the commencement of any Blockage Period with respect to the Designated Senior Debt initiating such Blockage Period shall be, or be made, the basis for commencement of a second Blockage Period by the Representative of such Designated Senior Debt whether or not within a period of 360 consecutive days, unless such event of default has been cured or waived for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action or any breach of any financial covenants for a period commencing after the date of commencement of such Blockage Period that, in either case, would give rise to an Event of Default pursuant to any provision under which an Event of Default previously existed or was continuing shall constitute a new Event of Default for this purpose). (c) In the event that, notwithstanding the foregoing, the Trustee or the Holder of any Security shall have received any payment prohibited by the foregoing provisions of this Section 10.03, then and in such event such payment shall be paid over and delivered forthwith to the Representative initiating the Blockage Period, in trust for distribution to the holders of Senior Debt or, if no amounts are then due in respect of Senior Debt, promptly returned to the Company, or otherwise as a court of competent jurisdiction shall direct. SECTION 10.04. Trustee's Relation to Senior Debt. With respect to the holders of Senior Debt, the Trustee undertakes to perform or to observe only the covenants and obligations of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations of the Trustee with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary or other duty to the holders of Senior Debt, and the Trustee shall not be liable to any holder of Senior Debt if it shall mistakenly pay over or deliver to Holders, the Company or any other Person moneys or assets to which any holder of Senior Debt shall be entitled by virtue of this Article 10 or otherwise. 82 -75- SECTION 10.05. Subrogation to Rights of Holders of Senior Debt. Upon the payment in full of all Senior Debt, the Holders of the Securities shall be subrogated to the rights of the holders of such Senior Debt to receive payments and distributions of cash, property and securities applicable to the Senior Debt until the principal of, premium, if any and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of Senior Debt of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article 10, and no payments over pursuant to the provisions of this Article 10 to the holders of Senior Debt by Holders of the Securities or the Trustee shall, as among the Company, its creditors other than holders of Senior Debt and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Debt. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article 10 shall have been applied, pursuant to the provisions of this Article 10, to the payment of all amounts payable under the Senior Debt of the Company, then and in such case the Holders shall be entitled to receive from the holders of such Senior Debt at the time outstanding any payments or distributions received by such holders of such Senior Debt in excess of the amount sufficient to pay all amounts payable under or in respect of such Senior Debt in full in cash or Cash Equivalents. SECTION 10.06. Provisions Solely to Define Relative Rights. The provisions of this Article 10 are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities on the one hand and the holders of Senior Debt on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Debt and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of, premium, if any, and interest on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights 83 -76- against the Company of the Holders of the Securities and creditors of the Company other than the holders of Senior Debt; or (c) prevent the Trustee or the Holder of any Security from exercising all rights and remedies otherwise permitted by applicable law upon a Default or an Event of Default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Debt (1) in any case, proceeding, dissolution, liquidation or other winding-up, assignment for the benefit of creditors or other marshalling of assets and liabilities of the Company referred to in Section 10.02 hereof, to receive, pursuant to and in accordance with such Section, cash, property and securities otherwise payable or deliverable to the Trustee or such Holder, or (2) under the conditions specified in Section 10.03, to prevent any payment prohibited by such Section or enforce their rights pursuant to Section 10.03(c) hereof. The failure to make a payment on account of principal of, premium, if any, or interest on the Securities by reason of any provision of this Article 10 shall not be construed as preventing the occurrence of a Default or an Event of Default hereunder. SECTION 10.07. Trustee to Effectuate Subordination. Each Holder of a Security by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Company whether in bankruptcy, insolvency, receivership proceedings, or otherwise, the timely filing of a claim for the unpaid balance of the indebtedness of the Company owing to such Holder in the form required in such proceedings and the causing of such claim to be approved. If the Trustee does not file such a claim prior to 30 days before the expiration of the time to file such a claim, the holders of Senior Debt, or any Representative, may file such a claim on behalf of Holders of the Securities. SECTION 10.08. No Waiver of Subordination Provisions. (a) No right of any present or future holder of any Senior Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or 84 -77- failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. (b) Without limiting the generality of subsection (a) of this Section 10.08, the holders of Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article 10 or the obligations hereunder of the Holders of the Securities to the holders of Senior Debt, do any one or more of the following: (1) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Debt or any instrument evidencing the same or any agreement under which Senior Debt is outstanding; (2) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (3) release any Person liable in any manner for the collection or payment of Senior Debt; and (4) exercise or refrain from exercising any rights against the Company and any other Person; provided, however, that in no event shall any such actions limit the right of the Holders of the Securities to take any action to accelerate the maturity of the Securities pursuant to Article 6 hereof or to pursue any rights or remedies hereunder or under applicable laws if the taking of such action does not otherwise violate the terms of this Indenture. SECTION 10.09. Notice to Trustee. (a) The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee at its Corporate Trust Office in respect of the Securities. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until the Trustee shall have received written notice thereof from the Company or a holder of Senior Debt or from any trustee, fiduciary or agent therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of this Section 10.09, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received 85 -78- the notice provided for in this Section 10.09 at least five Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose under this Indenture (including, without limitation, the payment of the principal of, premium, if any, or interest on any Security), then, anything herein contained to the contrary notwithstanding but without limiting the rights and remedies of the holders of Senior Debt or any trustee, fiduciary or agent therefor, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within five Business Days prior to the date of such application; nor shall the Trustee be charged with knowledge of the curing of any such default or the elimination of the act or condition preventing any such payment unless and until the Trustee shall have received an Officers' Certificate to such effect. (b) Subject to the provisions of Section 7.01 hereof, the Trustee shall be entitled to rely on the delivery to it of a written notice to the Trustee and the Company by a Person representing itself to be a holder of Senior Debt (or a trustee, fiduciary, agent or other representative therefor) to establish that such notice has been given by a holder of Senior Debt (or a trustee, fiduciary, agent or other representative therefor); provided, however, that failure to give such notice to the Company shall not affect in any way the ability of the Trustee to rely on such notice. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Debt to participate in any payment or distribution pursuant to this Article 10, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article 10, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 10.10. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee, subject to the provisions of Section 7.01 hereof, and the Holders shall be 86 -79- entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10; provided that the foregoing shall apply only if such court has been fully apprised of the provisions of this Article 10. SECTION 10.11. Rights of Trustee as a Holder of Senior Debt; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article 10 with respect to any Senior Debt which may at any time be held by it, to the same extent as any other holder of Senior Debt, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article 10 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. SECTION 10.12. Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article 10 shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article 10 in addition to or in place of the Trustee. SECTION 10.13. No Suspension of Remedies. Nothing contained in this Article 10 shall limit the right of the Trustee or the Holders of Securities to take any action to accelerate the maturity of the Securities pursuant to Article 6 or to pursue any rights or remedies hereunder or 87 -80- under applicable law, subject to the rights, if any, under this Article 10 of the holders, from time to time, of Senior Debt. ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. 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 11.02. 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: 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 88 -81- 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. SECTION 11.03. 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 11.04. 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 89 -82- (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 11.05. 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. SECTION 11.06. 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 11.07. 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 90 -83- Holiday, and no interest shall accrue for the intervening period. SECTION 11.08. 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 11.09. 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 11.10. 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. SECTION 11.11. 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 11.12. 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 11.13. 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. 91 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: --------------------------------- Name: Title: U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee By: --------------------------------- Name: Title: 92 EXHIBIT A CAPSTAR BROADCASTING PARTNERS, INC. 12% Subordinated Exchange Debentures due 2009 No. $ 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 July 1, 2009. Interest Payment Dates: January 1 and July 1 Record Dates: December 15 and June 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: A-1 93 Trustee's Certificate of Authentication This is one of the 12% Subordinated Exchange Debentures due 2009 referred to in the within-mentioned Indenture. Dated: U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee By: ---------------------------------- Authorized Signatory A-2 94 (REVERSE OF SECURITY) 12% Subordinated Exchange Debentures 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 January 1 and July 1 (each an "Interest Payment Date") and at stated maturity, commencing . (1) Interest will be computed on the basis of a 360-day year of twelve 30-day months. Notwithstanding anything herein to the contrary, on each Interest Payment Date through and including July 1, 2002, the entire amount of the interest payment on the Securities may be paid, at the option of the Company, in additional Securities ("Secondary Securities") (valued at 100% of the principal amount thereof). The Company may, at its option, pay cash in lieu of issuing any Secondary Security to the extent the principal amount of such Secondary Security is not an integral multiple of $1,000. The Company shall notify the Trustee of the Company's election to pay interest in Secondary Securities not less than 10 days prior to the Record Date for an Interest Payment Date. On each such Interest Payment Date, the Trustee shall authenticate Secondary Securities for original issuance to each holder of Securities on the preceding Record Date, as shown on the Security Register, in the amount required to pay such interest. For purposes of determining the principal amount of Secondary Securities to be issued in payment of interest, the Company shall be entitled to aggregate as to each holder the principal amount of all Securities and Secondary Securities held of record by such holder. The Company shall pay interest on overdue principal and on overdue installments of interest from time to time on demand at the rate borne by the Securities and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful. 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 - --------------- (1) Insert first Interest Payment Date following the Issue Date. A-3 95 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 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 June 17, 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% Subordinated Exchange Debentures due 2009 (the "Securities"), limited (except as otherwise provided in the Indenture) in aggregate principal amount equal to the liquidation preference of the outstanding shares of Exchangeable Preferred Stock on the Exchange Date, 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 may be redeemed at any time on or after July 1, 2002, in whole or in part, at the Company's option, at the redemption prices (expressed as percentages of the principal amount thereof) set forth below, plus, without duplication, in each case, accrued and unpaid interest, if any, to the redemption date if redeemed during the 12-month period beginning July 1 of each of the years set forth below: A-4 96
YEAR PERCENTAGE ---- ---------- 2002 . . . . . . . . . . . 106.000% 2003 . . . . . . . . . . . 104.800% 2004 . . . . . . . . . . . 103.600% 2005 . . . . . . . . . . . 102.400% 2006 . . . . . . . . . . . 101.200% 2007 and thereafter . . . 100.000%
(b) In addition, prior to July 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings or Major Asset Sales to redeem the Securities, in whole or in part, at a redemption price of 112.0% of the principal amount thereof plus accrued and unpaid interest, if any, thereon to the date of redemption; provided, however, that after any such redemption, the aggregate principal amount of Securities outstanding must equal at least $75,000,000. Any such redemption will be required to occur on or prior to the date that is one year after the receipt by the Company of the proceeds of each Public Equity Offering or Major Asset Sale. The Company shall effect such redemption on a pro rata basis. (c) In addition, prior to July 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 principal amount of the Securities plus the Applicable Premium together with accrued and unpaid interest to the date of redemption. 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 principal amount of such Security and (ii) the excess of (A) the present value at such time of (1) the redemption price of such Security at July 1, 2002 (such redemption price being described in Section 5(a) hereof plus (2) all required interest payments due on such Security through July 1, 2002 computed using a discount rate equal to the Treasury Rate plus 150 basis points over (B) the principal amount of such Security. A-5 97 "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 July 1, 2002; provided, however, that if the period from the Change of Control Redemption Date to July 1, 2002 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given except that if the period from the Change of Control Redemption Date to July 1, 2002 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. 6. Subordination. The Securities are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Senior Debt, whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. To the extent and in the manner provided in the Indenture, Senior Debt must be paid before any payment may be made to any Holder of this Security. Each Holder by his acceptance hereof agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on his behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Trustee his attorney-in-fact for such purposes. 7. 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. 8. 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 or a portion of the then outstanding Securities pursuant to a Change of Control Offer at a purchase price equal to 101% of the principal amount thereof, plus, without duplication, all accrued and unpaid interest, if any, to the Change of Control Payment Date. A-6 98 9. 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 aggregate principal amount thereof, plus accrued interest to the date of repurchase. 10. 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. 11. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. 12. 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. 13. 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). 14. 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 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 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, A-7 99 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. 15. 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 Preferred 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. 16. 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. 17. 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 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 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. 18. 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 otherwise deal with the Company, its Subsidiaries, Unrestricted Subsidiaries or their respective Affiliates as if it were not the Trustee. A-8 100 19. 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. 20. Authentication. This Security shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on this Security. 21. 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. 22. 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). 23. 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. 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. 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. A-9 101 [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: ------------------------- A-10 102 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) A-11 EX-4.6 6 CERTIFICATE OF DESIGNATION 1 EXHIBIT 4.6 CERTIFICATE OF DESIGNATION OF THE POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF 12% SENIOR EXCHANGEABLE PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF - -------------------------------------------------------------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware - -------------------------------------------------------------------------------- Capstar Broadcasting Partners, Inc. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that, pursuant to authority conferred upon the board of directors of the Corporation (the "Board of Directors") by its Certificate of Incorporation, as amended (hereinafter referred to as the "Certificate of Incorporation"), and pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware, said Board of Directors, by unanimous written consent dated June 10, 1997, duly approved and adopted the following resolution (the "Resolution"): RESOLVED, that, pursuant to the authority vested in the Board of Directors by its Certificate of Incorporation, the Board of Directors does hereby create, authorize and provide for the issuance of 12% Senior Exchangeable Preferred Stock, par value $.01 per share, with a stated value of $100.00 per share, consisting initially of 2,500,000 shares, having the designations, preferences, relative, participating, optional and other special rights and the qualifications, limitations and restrictions thereof that are set forth in the Certificate of Incorporation and in this Resolution as follows: (a) Designation. There is hereby created out of the authorized and unissued shares of Preferred Stock of the Corporation a class of Preferred Stock designated as the "12% Senior Exchangeable Preferred Stock". The number of shares constituting such class shall be 2,500,000, and are referred to as the "Exchangeable Preferred Stock." The liquidation preference of the Exchangeable Preferred Stock shall be $100.00 per share. (b) Rank. The Exchangeable Preferred Stock shall, with respect to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation, rank (i) senior to all classes of common stock of the Corporation and to each other 2 class of Preferred Stock of the Corporation established hereafter by the Board of Directors, the terms of which expressly provide that it ranks junior to the Exchangeable Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively referred to, together with all classes of common stock of the Corporation, as "Junior Stock"); (ii) subject to certain conditions, on a parity with each other class of Preferred Stock of the Corporation established hereafter by the Board of Directors, the terms of which expressly provide that such class or series will rank on a parity with the Exchangeable Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution (including, without limitation, Exchange Preferred Stock and collectively referred to as "Parity Stock"); and (iii) subject to certain conditions, junior to each class of Preferred Stock of the Corporation established after the date hereof by the Board of Directors, the terms of which expressly provide that such class will rank senior to the Exchangeable Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively referred to as "Senior Stock"). (c) Dividends. (i) Beginning on the Issue Date, the Holders of the outstanding shares of Exchangeable Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, distributions in the form of cash dividends on each share of Exchangeable Preferred Stock, at a rate per annum equal to 12.0% of the liquidation preference per share of the Exchangeable Preferred Stock, payable semi-annually. In the event that, after July 1, 2002, cash dividends on the Exchangeable Preferred Stock are in arrears and unpaid for three or more semi-annual dividend periods (whether or not consecutive), holders of Exchangeable Preferred Stock shall be entitled to certain voting rights as provided in paragraph (f)(iv) below. All dividends shall be cumulative, whether or not earned or declared, on a daily basis from the Issue Date and shall be payable semi-annually in arrears on each Dividend Payment Date, commencing on January 1, 1998, to holders of record on the December 15 and June 15 immediately preceding the relevant Dividend Payment Date, provided that if any dividend (including Additional Dividends, if any) payable on any Dividend Payment Date on or before July 1, 2002 is not declared or paid in full in cash on such Dividend Payment Date, the amount payable as dividends on such Dividend Payment Date that is not paid in cash on such Dividend Payment Date shall be paid in additional whole shares of Exchangeable Preferred Stock (calculated by 2 3 dividing (x) the amount of the cash dividend payable to each holder of record of the Exchangeable Preferred Stock on the basis of all shares held of record by such holder, whether evidenced by one or more certificates, by (y) $100.00, with amounts in respect of any partial shares to be paid in cash by the Corporation) on such Dividend Payment Date and shall be deemed paid in full and shall not accumulate. Each dividend shall be payable to Holders of record of the Exchangeable Preferred Stock as they appear on the stock books of the Corporation on the Dividend Record Date immediately preceding the related Dividend Payment Date. Dividends shall cease to accumulate in respect of the Exchangeable Preferred Stock on the Exchange Date or on the date of their earlier redemption unless the Corporation shall have failed to issue the appropriate aggregate principal amount of Exchange Debentures in respect of the Exchangeable Preferred Stock on such Exchange Date or shall have failed to pay the relevant redemption price on the date fixed for redemption. (ii) All dividends paid with respect to shares of the Exchangeable Preferred Stock pursuant to paragraph (c)(i) shall be paid pro rata to the Holders entitled thereto. (iii) Nothing herein contained shall in any way or under any circumstances be construed or deemed to require the Board of Directors to declare, or the Corporation to pay or set apart for payment, any dividends on shares of the Exchangeable Preferred Stock at any time. (iv) Dividends on account of arrears for any past Dividend Period and dividends in connection with any optional redemption pursuant to paragraph (e)(i) may be declared and paid at any time, without reference to any regular Dividend Payment Date, to Holders of record on such date, not more than forty-five (45) days prior to the payment thereof, as may be fixed by the Board of Directors. (v) No full dividends may be declared by the Board of Directors or paid or funds set apart for the payment of dividends by the Corporation on any Parity Stock for any period unless full cumulative dividends shall have been or contemporaneously are declared and paid (or are deemed declared and paid) in full or declared and, if payable in cash, a sum in cash sufficient for such payment is set apart for such payment on the Exchangeable Preferred Stock for all Dividend Periods terminating on or prior to the date of payment of such full dividends on such Parity Stock. If full dividends are not so paid, all dividends declared upon shares of the Exchangeable Preferred Stock and any other 3 4 Parity Stock shall be declared pro rata so that the amount of dividends declared per share on the Exchangeable Preferred Stock and such Parity Stock shall in all cases bear to each other the same ratio that accumulated and unpaid dividends per share on the Exchangeable Preferred Stock and such Parity Stock bear to each other. (vi) (A) Holders of shares of the Exchangeable Preferred Stock shall be entitled to receive the dividends provided for in paragraph (c)(i) hereof in preference to and in priority over any dividends upon any of the Junior Stock. (B) So long as any share of the Exchangeable Preferred Stock is outstanding, the Corporation shall not declare, pay or set apart for payment any dividend on any of the Junior Stock or make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of, any of the Junior Stock or any warrants, rights, calls or options exercisable for or convertible into any of the Junior Stock whether in cash, obligations or shares of the Corporation or other property (other than dividends in Junior Stock to the holders of Junior Stock), and shall not permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase or redeem any of the Junior Stock or any such warrants, rights, calls or options unless full cumulative dividends determined in accordance herewith on the Exchangeable Preferred Stock have been paid (or are deemed paid) in full or declared and, if payable in cash, a sum in cash set apart sufficient for such payment on the Exchangeable Preferred Stock for all Dividend Periods terminating on or prior to the date of such dividends or payments on such Junior Stock. (C) So long as any share of the Exchangeable Preferred Stock is outstanding, the Corporation shall not make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of, any of the Parity Stock or any warrants, rights, calls or options exercisable for or convertible into any of the Parity Stock and shall not permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase or redeem any of the Parity Stock or any such warrants, rights, calls or options unless full cumulative dividends determined in accordance herewith on the Exchangeable Preferred Stock have been paid (or are deemed paid) in full. 4 5 (vii) Dividends payable on the Exchangeable Preferred Stock for any period less than a year shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of Additional Dividends will be determined consistent with the preceding sentence and by multiplying the applicable Additional Dividends by a fraction, the numerator of which is the number of days such rate was applicable during any Interest Period and the denominator of which is 360. (viii) (A) If (1) the Corporation fails to file an Exchange Offer Registration Statement or a Shelf Registration Statement (in the circumstances described below) on or prior to 90 days after the Issue Date, (2) the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, is not declared effective within 180 days after the Issue Date (or in the case of a Shelf Registration Statement required to be filed in response to a change in law or the applicable interpretations of the staff of the Commission, if later, within 45 days after publication of the change in law or interpretation), (3) the Exchange Offer is not consummated on or prior to 225 days after the Issue Date, or (4) the Shelf Registration Statement is filed and declared effective within 180 days after the Issue Date (or in the case of a Shelf Registration Statement required to be filed in response to a change in law or the applicable interpretations of the staff of the Commission, if later, within 45 days after publication of the change in law or interpretation) but shall thereafter cease to be effective (at any time that the Corporation is obligated to maintain the effectiveness thereof) without being succeeded within 90 days by an additional Exchange Offer Registration Statement or a Shelf Registration Statement filed and declared effective, then additional dividends (the "Additional Dividends") as liquidated damages shall become payable with respect to the Exchangeable Preferred Stock as set forth in paragraphs (B), (C) and (D) below, respectively. (B) If the Exchange Offer 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 Dividends shall accumulate on the Exchangeable Preferred Stock over and above the stated dividend rate at a rate of 0.5% per annum on the liquidation preference for the first 90 days commencing on the 91st day after the Issue Date, such Additional Dividends increasing by an additional 0.5% per annum on the liquidation preference at the beginning of each subsequent 90-day period. 5 6 (C) If the Exchange Offer 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 Dividends shall accumulate on the Exchangeable Preferred Stock over and above the stated dividend rate at a rate of 0.5% per annum on the liquidation preference for the first 90 days commencing on the 181st day after the Issue Date, such Additional Dividends increasing by an additional 0.5% per annum on the liquidation preference at the beginning of each subsequent 90-day period. (D) If (1) the Corporation has not exchanged all of the shares of Exchangeable Preferred Stock validly tendered in accordance with the terms of the Exchange Offer on or prior to 225 days after the Issue Date or (2) the Exchange Offer Registration Statement ceases to be effective at any time prior to the time that the Exchange Offer is consummated or (3) 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 second anniversary of the Issue Date, unless all of the Exchangeable Preferred Stock registered thereunder has been sold thereunder or an additional Exchange Offer Registration Statement or Shelf 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 Dividends shall accumulate on the Exchangeable Preferred Stock over and above the stated dividend rate at a rate of 0.5% per annum on the liquidation preference for the first 90 days commencing on (x) the 226th day after the Issue Date with respect to the Exchangeable Preferred Stock validly tendered and not exchanged by the Corporation, in the case of (1) above, or (y) the day the Exchange Offer Registration Statement ceases to be effective or usable for its intended purpose in the case of (2) above, or (z) the 90th day following the day such Shelf Registration Statement ceases to be effective in the case of (3) above, such Additional Dividends increasing by an additional 0.5% per annum on the liquidation preference at the beginning of each subsequent 90-day period. (E) Notwithstanding paragraphs (A)-(D) of this paragraph (c), the Additional Dividends payable hereunder shall not exceed in the aggregate 1.0% per annum on the liquidation preference. In addition (1) upon the filing of the Exchange Offer Registration Statement or Shelf Registration Statement (in the case of paragraph (B) above), (2) upon the effectiveness of the Exchange Offer Registration Statement 6 7 or Shelf Registration Statement (in the case of paragraph (C) above), or (3) upon the exchange of Exchange Preferred Stock for the Exchangeable Preferred Stock tendered (in the case of paragraph (D)(1) above), or upon the effectiveness of the Exchange Offer Registration Statement that had ceased to remain effective (in the case of paragraph (D)(2) above), or upon the effectiveness of the Shelf Registration Statement that had ceased to remain effective (in the case of paragraph (D)(3) above), the dividend rate on the Exchangeable Preferred Stock shall revert to the dividend rate set forth in paragraph (c)(i) hereof and Additional Dividends on the Exchangeable Preferred Stock shall cease to accumulate or be payable. (d) Liquidation Preference. (i) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the Holders of shares of Exchangeable Preferred Stock then outstanding shall be entitled to be paid, out of the assets of the Corporation available for distribution to its stockholders, an amount in cash equal to the liquidation preference for each share outstanding, plus, without duplication, an amount in cash equal to accumulated and unpaid dividends thereon to the date fixed for liquidation, dissolution or winding up (including an amount equal to a prorated dividend for the period from the last Dividend Payment Date to the date fixed for liquidation, dissolution or winding up) before any payment shall be made or any assets distributed to the holders of any of the Junior Stock, including, without limitation, common stock of the Corporation. If, upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the assets of the Corporation are not sufficient to pay in full the liquidation payments payable to the holders of outstanding shares of the Exchangeable Preferred Stock and all other Parity Stock, then the holders of all such shares shall share equally and ratably in any such distribution of assets in proportion to the full liquidation preference to which each is entitled until such liquidation preferences are paid in full, and then in proportion to their respective amounts of accumulated but unpaid dividends. The holders of outstanding shares of Exchangeable Preferred Stock and all other Parity Stock shall not be entitled to any further participation in any distribution of assets of the Corporation after payment of the full amount of the liquidation preferences and accumulated and unpaid dividends to which such holders are entitled. 7 8 (ii) For the purposes of this paragraph (d), neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or more entities shall be deemed to be a liquidation, dissolution or winding-up of the affairs of the Corporation. (e) Redemption. (i) Optional Redemption. (A) The Corporation may, at the option of the Board of Directors, redeem at any time on or after July 1, 2002, subject to contractual and other restrictions with respect thereto and to the legal availability of funds therefor, in whole or in part, in the manner provided for in paragraph (e)(iii) hereof, any or all of the shares of the Exchangeable Preferred Stock, at the redemption prices (expressed as a percentage of the liquidation preference) set forth below, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends per share to the Redemption Date (including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Redemption Date to the Redemption Date) (the "Optional Redemption Price"), if redeemed during the 12-month period beginning July 1 of each of the years set forth below: 2002......................................106.000% 2003......................................104.800% 2004......................................103.600% 2005......................................102.400% 2006......................................101.200% 2007 and thereafter.......................100.000% (B) In addition to the foregoing paragraph (e)(i)(A), prior to July 1, 2001, the Corporation may, at its option, use the net cash proceeds of one or more Public Equity Offerings or Major Asset Sales to redeem from any source of funds legally available therefor, in the manner provided for in paragraph (e)(iii) hereof, the Exchangeable Preferred Stock, in part, at a redemption price of 112.0% of the liquidation preference thereof; provided, however, that after any such redemption, there is outstanding at least $75.0 million in aggregate liquidation preference of Exchangeable Preferred Stock. Any such redemption shall be required to occur on or prior to one year after the receipt by the Corporation of the proceeds of each Public Equity Offering or Major Asset Sale. 8 9 (C) In addition to the foregoing paragraphs (e)(i)(A), and (e)(i)(B), prior to July 1, 2002, upon the occurrence of a Change of Control, the Corporation will have the option to redeem the Exchangeable Preferred Stock in whole but not in part (a "Change of Control Redemption") at a redemption price equal to 100% of the liquidation preference thereof (the "Change of Control Redemption Price"), together with accumulated and unpaid dividends to the date of redemption plus the Applicable Premium. In order to effect a Change of Control Redemption, the Corporation must send a notice to each Holder, which notice shall govern the terms of the Change of Control Redemption, within 30 days following the date the Change of Control occurred, stating that the Corporation is effecting a Change of Control Redemption in lieu of a Change of Control Offer. (ii) Mandatory Redemption. On July 1, 2009, the Corporation shall redeem (subject to the legal availability of funds therefor) in the manner provided for in paragraph (e)(iii) hereof, all of the shares of the Exchangeable Preferred Stock then outstanding at a redemption price equal to 100% of the liquidation preference per share, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends per share to the Redemption Date (including an amount equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Redemption Date to the Redemption Date) (the "Mandatory Redemption Price"). (iii) Procedures for Redemption. (A) At least thirty (30) days and not more than sixty (60) days prior to the date fixed for any redemption of the Exchangeable Preferred Stock, the Corporation shall send written notice (the "Redemption Notice") by first class mail, postage prepaid, to each Holder of record on the record date fixed for such redemption of the Exchangeable Preferred Stock at such Holder's address as it appears on the stock books of the Corporation, provided that no failure to give such notice nor any deficiency therein shall affect the validity of the procedure for the redemption of any shares of Exchangeable Preferred Stock to be redeemed except as to the Holder or Holders to whom the Corporation has failed to give said notice or except as to the Holder or Holders whose notice was defective. The Redemption Notice shall state: (1) whether the redemption is pursuant to paragraph (e)(i)(A), (e)(i)(B),(e)(i)(D) or (e)(ii); 9 10 (2) the Optional Redemption Price, the Mandatory Redemption Price, the Change of Control Redemption Price or the Cash Proceeds Redemption Price, as the case may be; (3) whether all or less than all the outstanding shares of the Exchangeable Preferred Stock are to be redeemed and the total number of shares of the Exchangeable Preferred Stock being redeemed; (4) the date fixed for redemption; (5) that the Holder is to surrender to the Corporation, in the manner, at the place or places and at the price designated, his certificate or certificates representing the shares of Exchangeable Preferred Stock to be redeemed; and (6) that dividends on the shares of the Exchangeable Preferred Stock to be redeemed shall cease to accumulate on such Redemption Date unless the Corporation defaults in the payment of the Optional Redemption Price, the Mandatory Redemption Price, the Change of Control Redemption Price or the Cash Proceeds Redemption Price, as the case may be. (B) Each Holder of Exchangeable Preferred Stock called for redemption shall surrender the certificate or certificates representing such shares of Exchangeable Preferred Stock to the Corporation, duly endorsed (or otherwise in proper form for transfer, as determined by the Corporation), in the manner and at the place designated in the Redemption Notice, and on the Redemption Date the full Optional Redemption Price, Mandatory Redemption Price, the Change of Control Redemption Price or Cash Proceeds Redemption Price, as the case may be, for such shares shall be payable in cash to the Person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be canceled and retired. In the event that less than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (C) On and after the Redemption Date, unless the Corporation defaults in the payment in full of the applicable redemption price, dividends on the Exchangeable Preferred Stock called for redemption shall cease to accumulate, and all rights of the Holders of such shares shall terminate with respect thereto on the Redemption Date, other than the 10 11 right to receive the Optional Redemption Price, the Mandatory Redemption Price, the Change of Control Redemption Price or the Cash Proceeds Redemption Price, as the case may be, without interest; provided, however, that if a notice of redemption shall have been given as provided in paragraph (iii)(A) above and the funds necessary for redemption (including an amount in respect of all dividends that will accumulate to the Redemption Date) shall have been segregated and irrevocably set apart by the Corporation, in trust for the equal and ratable benefit of the Holders of the shares to be redeemed, then, at the close of business on the day on which such funds are segregated and set apart, the Holders of the shares to be redeemed shall cease to be stockholders of the Corporation and shall be entitled only to receive the Optional Redemption Price, the Mandatory Redemption Price, the Change of Control Redemption Price or the Cash Redemption Price, as the case may be, without interest. (D) In the event of a redemption pursuant to paragraph (e)(i)(A) or (e)(i)(B) hereof of only a portion of the then outstanding shares of the Exchangeable Preferred Stock, the Corporation shall effect such redemption on a pro rata basis according to the number of shares held by each Holder of the Exchangeable Preferred Stock, except that the Corporation may redeem such shares held by Holders of fewer than 100 shares (or shares held by Holders who would hold less than 100 shares as a result of such redemption), as may be determined by the Corporation. (f) Voting Rights. (i) The Holders of Exchangeable Preferred Stock, except as otherwise required under Delaware law or as set forth in paragraphs (ii), (iii) and (iv) below, shall not be entitled or permitted to vote on any matter required or permitted to be voted upon by the stockholders of the Corporation. (ii) (A) So long as any shares of the Exchangeable Preferred Stock are outstanding, the Corporation shall not authorize any class of Senior Stock without the affirmative vote or consent of Holders of at least a majority of the outstanding shares of Exchangeable Preferred Stock, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting. 11 12 (B) So long as any shares of the Exchangeable Preferred Stock are outstanding, the Corporation shall not authorize any class of Parity Stock without the affirmative vote or consent of Holders of at least a majority of the then outstanding shares of Exchangeable Preferred Stock, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting; provided, however, that no such vote or consent shall be necessary in connection with the authorization of the Exchange Preferred Stock with an aggregate number of authorized shares not to exceed the aggregate authorized number of shares of Exchangeable Preferred Stock. (C) So long as any shares of the Exchangeable Preferred Stock are outstanding, the Corporation shall not amend this Certificate of Designation so as to affect the specified rights, preferences, privileges or voting rights of the Exchangeable Preferred Stock or to authorize the issuance of any additional shares of Exchangeable Preferred Stock without the affirmative vote or consent of Holders of at least a majority of the issued and outstanding shares of Exchangeable Preferred Stock, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting. (D) The Exchangeable Preferred Stock and the Exchange Preferred Stock shall vote on all matters as a single class. (E) Prior to the exchange of Exchangeable Preferred Stock for Exchange Debentures, the Corporation shall not amend or modify the Indenture for the Exchange Debentures in the form as executed on the Issue Date (the "Indenture") (except as expressly provided therein in respect of amendments without the consent of Holders of Exchange Debentures) without the affirmative vote or consent of Holders of at least a majority of the shares of Exchangeable Preferred Stock then outstanding, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting. (F) Except as set forth in paragraphs (f)(ii)(A), (f)(ii)(B) and (f)(ii)(C) above, (x) the creation, authorization or issuance of any shares of any Junior Stock, Parity Stock or Senior Stock, including the designation of a series thereof within the existing class of Exchangeable Preferred Stock, or (y) the increase or decrease in the amount of 12 13 authorized Capital Stock of any class, including any Preferred Stock, shall not require the consent of Holders of Exchangeable Preferred Stock and shall not be deemed to affect adversely the rights, preferences, privileges or voting rights of shares of Exchangeable Preferred Stock. (iii) Without the affirmative vote or consent of Holders of a majority of the issued and outstanding shares of Exchangeable Preferred Stock and any Parity Stock, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting, the Corporation shall not, in a single transaction or a series of related transactions, consolidate with or merge 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: (A) either (1) the Corporation is the surviving or continuing Person or (2) the Person (if other than the Corporation) formed by such consolidation or into which the Corporation is merged or the Person that acquires by conveyance, transfer or lease the properties and assets of the Corporation substantially as an entirety or in the case of a plan of liquidation, the Person to which assets of the Corporation 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; (B) the Exchangeable Preferred Stock shall be converted into or exchanged for and shall become shares of such successor, transferee or resulting Person, having in respect of such successor, transferee or resulting Person the same powers, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions thereon, that the Exchangeable Preferred Stock had immediately prior to such transaction; (C) 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 Corporation (in the case of clause (1) of the foregoing clause (A)) or such Person (in the case of clause (2) of the foregoing clause (A)) shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) under paragraph (l)(i) hereof; (D) immediately after giving effect to such transactions, no Voting Rights Triggering Event shall have occurred or be continuing; and (E) the Corporation has delivered to the transfer agent for the Exchangeable Preferred Stock prior to the consummation of the proposed transaction an Officers' Certificate and an Opinion of Counsel, each 13 14 stating that such consolidation, merger or transfer complies with the terms hereof and that all conditions precedent herein relating to such transaction have been satisfied. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or a series of related transactions) of all or substantially all of the properties and assets of one or more Subsidiaries of the Corporation, the Capital Stock of which constitutes all or substantially all of the properties or assets of the Corporation, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Corporation. Notwithstanding the foregoing clauses (B) and (C), (1) any Subsidiary of the Corporation may consolidate with, merge into or transfer all or part of its properties and assets to the Corporation and (2) the Corporation may merge with a corporate Affiliate thereof incorporated solely for the purpose of reincorporating the Corporation in another jurisdiction in the United States to realize tax or other benefits. (iv) (A) If (1) after July 1, 2002, cash dividends on the Exchangeable Preferred Stock are in arrears and unpaid for three or more Dividend Periods (whether or not consecutive) (a "Dividend Default"); (2) the Corporation fails to redeem all of the then outstanding shares of Exchangeable Preferred Stock on July 1, 2009 or otherwise fails to discharge any redemption obligation with respect to the Exchangeable Preferred Stock; (3) the Corporation fails to make a Change of Control Offer (whether pursuant to the terms of paragraph (h)(v) or otherwise) following a Change of Control if such Change of Control Offer is required by paragraph (h) hereof or fails to purchase shares of Exchangeable Preferred Stock from Holders who elect to have such shares purchased pursuant to the Change of Control Offer (unless, in either case, the Corporation has decided to effect a Change of Control Redemption in lieu of such Change of Control Offer pursuant to the terms of paragraph (e)(i)(D)); (4) the Corporation fails to make a Special Offer in accordance with the terms of paragraph (m) hereof or fails to comply with the provisions of paragraph (h)(v); (5) the Corporation breaches or violates any of the provisions set forth in any of paragraphs (l)(i), (l)(ii) or (l)(iii) hereof and the breach or violation continues for a period of 30 days or more after the Corporation receives notice thereof specifying the default from the Holders of at least 25% of the shares of Exchangeable Preferred Stock then outstanding; or (6) the Corporation fails to pay at the final stated maturity (giving effect to any extensions 14 15 thereof) the principal amount of any Indebtedness of the Corporation or any Subsidiary of the Corporation, or the final stated maturity of any such Indebtedness is accelerated, 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 that has been accelerated, aggregates $10,000,000 or more at any one time, in each case, after a 10-day period during which such default shall not have been cured or such acceleration rescinded, then in the case of any of clauses (1)-(6) the number of directors constituting the Board of Directors shall be adjusted by the number, if any, necessary to permit the Holders of Exchangeable Preferred Stock, voting separately and as one class (together with the holders of any Parity Stock having similar voting rights), to elect the lesser of two directors or 25% of the number of members constituting the Board of Directors. Each such event described in clauses (1), (2), (3), (4), (5) and (6) is a "Voting Rights Triggering Event." Holders of a majority of the issued and outstanding shares of Exchangeable Preferred Stock, voting separately and as one class (together with the holders of any Parity Stock having similar voting rights), shall have the exclusive right to elect the lesser of two directors or 25% of the number of members constituting the Board of Directors at a meeting therefor called upon occurrence of such Voting Rights Triggering Event, and at every subsequent meeting at which the terms of office of the directors so elected by the Holders of the Exchangeable Preferred Stock expire (other than as described in (f)(iv)(B) below). The voting rights provided herein shall be the exclusive remedy at law or in equity of the holders of the Exchangeable Preferred Stock for any Voting Rights Triggering Event. (B) The right of the Holders of Exchangeable Preferred Stock voting separately and as one class (together with the holders of any Parity Stock then having similar rights) to elect members of the Board of Directors as set forth in subparagraph (f)(iv)(A) above shall continue until such time as (x) in the event such right arises due to a Dividend Default, all accumulated dividends that are in arrears on the Exchangeable Preferred Stock are paid in full in cash; and (y) in all other cases, the failure, breach or default giving rise to such Voting Rights Triggering Event is remedied or waived by the holders of at least a majority of the shares of Exchangeable Preferred Stock then outstanding and entitled to vote thereon, at which time (1) the special right of the Holders of Exchangeable Preferred Stock so to 15 16 vote as a class for the election of directors and (2) the term of office of the directors elected by the Holders of the Exchangeable Preferred Stock shall each terminate and the directors elected by the holders of common stock shall constitute the entire Board of Directors. At any time after voting power to elect directors shall have become vested and be continuing in the Holders of Exchangeable Preferred Stock pursuant to paragraph (f)(iv) hereof, or if vacancies shall exist in the offices of directors elected by the Holders of Exchangeable Preferred Stock, a proper officer of the Corporation may, and upon the written request of the Holders of record of at least twenty-five percent (25%) of the shares of Exchangeable Preferred Stock then outstanding addressed to the secretary of the Corporation shall, call a special meeting of the Holders of Exchangeable Preferred Stock, for the purpose of electing the directors which such Holders are entitled to elect. If such meeting shall not be called by a proper officer of the Corporation within twenty (20) days after personal service of said written request upon the secretary of the Corporation, or within twenty (20) days after mailing the same within the United States by certified mail, addressed to the secretary of the Corporation at its principal executive offices, then the Holders of record of at least twenty-five percent (25%) of the outstanding shares of Exchangeable Preferred Stock may designate in writing one of their number to call such meeting at the expense of the Corporation, and such meeting may be called by the Person so designated upon the notice required for the annual meetings of stockholders of the Corporation and shall be held at the place for holding the annual meetings of stockholders. Any Holder of Exchangeable Preferred Stock so designated shall have, and the Corporation shall provide, access to the lists of stockholders to be called pursuant to the provisions hereof. (C) At any meeting held for the purpose of electing directors at which the Holders of Exchangeable Preferred Stock (and any Parity Stock having similar voting rights) shall have the right, voting together as a separate class, to elect directors as aforesaid, the presence in person or by proxy of the Holders of at least a majority of the outstanding shares of Exchangeable Preferred Stock (and any Parity Stock having similar voting rights) shall be required to constitute a quorum of such Exchangeable Preferred Stock. (D) Any vacancy occurring in the office of a director elected by the Holders of Exchangeable Preferred Stock (and any Parity Stock having similar voting rights) may be filled by the remaining directors elected by the Holders of 16 17 Exchangeable Preferred Stock and holders of such Parity Stock unless and until such vacancy shall be filled by the Holders of Senior Exchangeable Preferred Stock and holders of such Parity Stock. (v) In any case in which the Holders of Exchangeable Preferred Stock shall be entitled to vote pursuant to this paragraph (f) or pursuant to Delaware law, each Holder of Exchangeable Preferred Stock entitled to vote with respect to such matter shall be entitled to one vote for each share of Exchangeable Preferred Stock held. (g) Exchange. (i) Requirements. The outstanding shares of Exchangeable Preferred Stock are exchangeable in whole but not in part, at the option of the Corporation and subject to the terms and conditions of the Credit Facility and the Notes Indenture at any time on any Dividend Payment Date for the Corporation's 12.0% Subordinated Exchange Debentures due 2009 (the "Exchange Debentures") to be substantially in the form of Exhibit A to the form of Indenture, a copy of which is on file with the secretary of the Corporation, provided that any such exchange may only be made if on or prior to the date of such exchange (i) the Corporation has paid (or is deemed to have paid) all accumulated dividends on the Exchangeable Preferred Stock (including the dividends payable on the date of exchange) and there shall be no contractual impediment to such exchange; (ii) there shall be funds legally available sufficient therefor; and (iii) immediately after giving effect to such exchange, no default or event of default (each as defined in the Indenture) would exist under the Indenture and no default or event of default would exist under the Credit Facility. The exchange rate shall be $1.00 principal amount of Exchange Debentures for each $1.00 of liquidation preference of Exchangeable Preferred Stock, including, to the extent necessary, Exchange Debentures in principal amounts less than $1,000, provided that the Corporation shall have the right, at its option, to pay cash in an amount equal to the principal amount of that portion of any Exchange Debenture that is not an integral multiple of $1,000 instead of delivering an Exchange Debenture in a denomination of less than $1,000. (ii) Procedure for Exchange. (A) At least thirty (30) days and not more than sixty (60) days prior to the date fixed for exchange, the Corporation shall send written notice (the "Exchange Notice") by first-class mail, postage prepaid, to each Holder of record on the record date fixed 17 18 for such exchange of the Exchangeable Preferred Stock at such Holder's address as the same appears on the stock books of the Corporation, provided that no failure to give such notice nor any deficiency therein shall affect the validity of the procedure for the exchange of any shares of Exchangeable Preferred Stock to be exchanged except as to the Holder or Holders to whom the Corporation has failed to give said notice or except as to the Holder or Holders whose notice was defective. The Exchange Notice shall state: (1) the date fixed for exchange; (2) that the Holder is to surrender to the Corporation, in the manner and at the place or places designated, his certificate or certificates representing the shares of Exchangeable Preferred Stock to be exchanged; (3) that dividends on the shares of Exchangeable Preferred Stock to be exchanged shall cease to accrue on such Exchange Date whether or not certificates for shares of Exchangeable Preferred Stock are surrendered for exchange on such Exchange Date unless the corporation shall default in the delivery of Exchange Debentures; and (4) that interest on the Exchange Debentures shall accrue from the Exchange Date whether or not certificates for shares of Exchangeable Preferred Stock are surrendered for exchange on such Exchange Date. (B) On or before the Exchange Date, each Holder of Exchangeable Preferred Stock shall surrender the certificate or certificates representing such shares of Exchangeable Preferred Stock, in the manner and at the place designated in the Exchange Notice. The Corporation shall cause the Exchange Debentures to be executed on the Exchange Date and, upon surrender in accordance with the Exchange Notice of the certificates for any shares of Exchangeable Preferred Stock so exchanged, duly endorsed (or otherwise in proper form for transfer, as determined by the Corporation), such shares shall be exchanged by the Corporation into Exchange Debentures. The Corporation shall pay interest on the Exchange Debentures at the rate and on the dates specified therein from the Exchange Date. (C) If notice has been mailed as aforesaid, and if before the Exchange Date specified in such notice (1) the Indenture shall have been duly executed and delivered by the 18 19 Corporation and the trustee thereunder and (2) all Exchange Debentures necessary for such exchange shall have been duly executed by the Corporation and delivered to the trustee under the Indenture with irrevocable instructions to authenticate the Exchange Debentures necessary for such exchange, then the rights of the Holders of Exchangeable Preferred Stock so exchanged as stockholders of the Corporation shall cease (except the right to receive Exchange Debentures, an amount in cash, to the extent applicable, equal to the amount of accrued and unpaid dividends to the Exchange Date and, if the Corporation so elects, cash in lieu of any Exchange Debenture that is in a principal amount that is not an integral multiple of $1,000), and the Person or Persons entitled to receive the Exchange Debentures issuable upon exchange shall be treated for all purposes as the registered holder or holders of such Exchange Debentures as of the Exchange Date. (iii) No Exchange in Certain Cases. Notwithstanding the foregoing provisions of this paragraph (g), the Corporation shall not be entitled to exchange the Exchangeable Preferred Stock for Exchange Debentures if such exchange, or any term or provision of the Indenture or the Exchange Debentures, or the performance of the Corporation's obligations under the Indenture or the Exchange Debentures, shall materially violate or conflict with any applicable law or agreement or instrument then binding on the Corporation or if, at the time of such exchange, the Corporation is insolvent or if it would be rendered insolvent by such exchange. (h) Change of Control. (i) In the event of a Change of Control (the date of such occurrence being the "Change of Control Date"), the Corporation shall notify the Holders of the Exchangeable Preferred Stock in writing of such occurrence and shall make an offer to purchase (the "Change of Control Offer") all then outstanding shares of Exchangeable Preferred Stock at a purchase price equal to 101% of the liquidation preference thereof, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends per share to the Change of Control Payment Date (including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Change of Control Payment Date to the Change of Control Payment Date). (ii) Within 30 days following the Change of Control Date, the Corporation shall send, by first class mail, postage 19 20 prepaid, a notice to each Holder of Exchangeable Preferred Stock at such Holder's address as it appears on the stock books of the Corporation, 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 Exchangeable Preferred Stock pursuant to the Change of Control Offer. Such notice shall state: (A) that a Change of Control has occurred, that the Change of Control Offer is being made pursuant to this paragraph (h) and that all Exchangeable Preferred Stock validly tendered and not withdrawn will be accepted for payment; (B) the purchase price (including the amount of accrued dividends, if any) and the purchase date (which shall be no earlier than 30 days nor later than 45 days from the date such notice is mailed, other than as may be required by law) (the "Change of Control Payment Date"); (C) that any shares of Exchangeable Preferred Stock not tendered will continue to accrue dividends; (D) that, unless the Corporation defaults in making payment therefor, any share of Exchangeable Preferred Stock accepted for payment pursuant to the Change of Control Offer shall cease to accrue dividends after the Change of Control Payment Date; (E) that Holders electing to have any shares of Exchangeable Preferred Stock purchased pursuant to a Change of Control Offer will be required to surrender the certificate or certificates representing such shares, properly endorsed for transfer, together with such customary documents as the Corporation and the transfer agent may reasonably require, in the manner and at the place specified in the notice prior to the close of business on the Business Day prior to the Change of Control Payment Date; (F) that Holders will be entitled to withdraw their election if the Corporation 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 number of shares of Exchangeable Preferred Stock the Holder delivered for purchase and a statement that such 20 21 Holder is withdrawing his election to have such shares of Exchangeable Preferred Stock purchased; (G) that Holders whose shares of Exchangeable Preferred Stock are purchased only in part will be issued a new certificate representing the unpurchased shares of Exchangeable Preferred Stock; and (H) the circumstances and relevant facts regarding such Change of Control. (iii) The Corporation will comply with any securities laws and regulations, to the extent such laws and regulations are applicable to the repurchase of the Exchangeable Preferred Stock in connection with a Change of Control Offer. (iv) On the Change of Control Payment Date the Corporation shall (A) accept for payment the shares of Exchangeable Preferred Stock validly tendered pursuant to the Change of Control Offer, (B) pay to the Holders of shares so accepted the purchase price therefor in cash and (C) cancel and retire each surrendered certificate. Unless the Corporation defaults in the payment for the shares of Exchangeable Preferred Stock tendered pursuant to the Change of Control Offer, dividends will cease to accrue with respect to the shares of Exchangeable Preferred Stock tendered and all rights of Holders of such tendered shares will terminate, except for the right to receive payment therefor, on the Change of Control Payment Date. (v) If the purchase of the Exchangeable Preferred Stock would violate or constitute a default under the Credit Facility, the Notes Indenture or other Indebtedness of the Corporation, then, notwithstanding anything to the contrary contained above, prior to complying with the foregoing provisions, but in any event within 30 days following the Change of Control Date, the Corporation shall, to the extent needed to permit such purchase of Exchangeable Preferred Stock, either (A) repay in full all such Indebtedness and terminate all commitments outstanding thereunder or (B) obtain the requisite consents, if any, under the Credit Facility, the Notes Indenture, or other Indebtedness required to permit the repurchase of Exchangeable Preferred Stock required by this paragraph (h). Until the requirements of the immediately preceding sentence are satisfied, the Corporation shall not make, and shall not be obligated to make, any Change of Control Offer. 21 22 (vi) Paragraphs (i)-(v) of this paragraph (h) notwithstanding, the Corporation shall not be required to make a Change of Control Offer if, instead, the Corporation elects to effect a Change of Control Redemption pursuant to the provisions of and in compliance with paragraph (e)(i)(D) hereof. (i) Conversion or Exchange. The Holders of shares of Exchangeable Preferred Stock shall not have any rights hereunder to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of Capital Stock of the Corporation. (j) Reissuance of Exchangeable Preferred Stock. Shares of Exchangeable Preferred Stock that have been issued and reacquired in any manner, including shares purchased or redeemed or exchanged, shall (upon compliance with any applicable provisions of the laws of Delaware) have the status of authorized but unissued shares of Preferred Stock undesignated as to series and may be redesignated and reissued as part of any series of Preferred Stock, provided that any issuance or reissuance of such shares as Exchangeable Preferred Stock must be in compliance with the terms hereof. (k) Business Day. If any payment, redemption or exchange shall be required by the terms hereof to be made on a day that is not a Business Day, such payment, redemption or exchange shall be made on the immediately succeeding Business Day. (l) Certain Additional Provisions. (i) Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock of Subsidiaries. The Corporation shall not, and shall 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 Corporation's Subsidiaries will not issue any Preferred Stock (except Preferred Stock issued to the Corporation or a Wholly Owned Subsidiary of the Corporation); provided, however, that the Corporation and its Subsidiaries may incur Indebtedness and the Corporation's Subsidiaries may issue shares of Preferred Stock if, in either case, the Corporation'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. 22 23 (ii) Limitation on Restricted Payments. (A) Neither the Corporation nor any of its Subsidiaries shall, directly or indirectly, make any Restricted Payment if at the time of such Restricted Payment and immediately after giving effect thereto: (1) any Voting Rights Triggering Event shall have occurred and be continuing at the time of or after giving effect to such Restricted Payment; or (2) the Corporation is not able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with paragraph (l)(i) hereof; or (3) 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 in good faith) exceeds the sum of (I) (x) 100% of the aggregate Consolidated EBITDA of the Corporation (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 Corporation, taken as one accounting period, less (y) 1.4 times Consolidated Interest Expense for the same period, plus (II) 100% of the aggregate net proceeds, including the fair market value of property other than cash as determined by the Board of Directors in good faith, received by the Corporation from any Person (other than a Subsidiary of the Corporation) from the issuance and sale on or subsequent to the Issue Date of Qualified Capital Stock of the Corporation (excluding (i) any net proceeds from issuances and sales financed directly or indirectly using funds borrowed from the Corporation or any Subsidiary of the Corporation, 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 Corporation upon such conversion or exchange and (ii) any net proceeds received from issuances and sales that are used to consummate a transaction described in clause (2) of paragraph (ii)(B) below), plus (iii) without duplication of any amount included in clause (3)(II) above, 100% of the aggregate net proceeds, including the fair market value of property other than cash 23 24 (valued as provided in clause (3)(II) above), received by the Corporation as a capital contribution on or after the Issue Date, plus (iv) the amount equal to the net reduction in Investments (other than Permitted Investments) made by the Corporation or any of its Subsidiaries in any Person resulting from (i) repurchases or redemptions of such Investments by such Person, proceeds realized upon the sale of such Investment to an unaffiliated purchaser and repayments of loans or advances or other transfers of assets by such Person to the Corporation or any Subsidiary of the Corporation 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 Corporation or any Subsidiary of the Corporation 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 (iv) to the extent it is already included in Consolidated EBITDA, plus (v) 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 Corporation in accordance with paragraph (f)(iii) subsequent to the Issue Date; provided, however, that concurrently with or immediately following such merger the Corporation uses an amount equal to such net cash proceeds to redeem or repurchase the Corporation's Capital Stock, plus (vi) $5,000,000. (B) Notwithstanding the foregoing, these provisions will not prohibit: (1) the payment of any dividend or the making of any distribution within 60 days after the date of its declaration if such dividend or distribution would have been permitted on the date of declaration; (2) the purchase, redemption or other acquisition or retirement of any Capital Stock of the Corporation 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 Corporation) 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 24 25 application of the net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Corporation) of, Disqualified Capital Stock that has a redemption date no earlier than, and requires the payment of current dividends or distributions in cash no earlier than, in each case, the Disqualified Capital Stock being purchased, redeemed or otherwise acquired or retired; (3) payments by the Corporation to repurchase Capital Stock or other securities of the Corporation, Capstar Broadcasting or any corporation that, directly or indirectly, owns all of the common stock of Capstar Broadcasting from employees of the Corporation or any such other corporation in an aggregate amount not to exceed $5,000,000; (4) payments to enable the Corporation or any such other corporation to redeem or repurchase stock purchase or similar rights in an aggregate amount not to exceed $500,000; (5) payments, not to exceed $100,000 in the aggregate, to enable the Corporation to make cash payments to holders of its Capital Stock in lieu of the issuance of fractional shares of its Capital Stock; (6) payments made pursuant to any merger, consolidation or sale of assets effected in accordance with paragraph (f)(iii) hereof; provided, however, that no such payment may be made pursuant to this clause (6) unless, after giving effect to such transaction (and the incurrence of any Indebtedness in connection therewith and the use of the proceeds thereof), the Corporation would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with paragraph (1)(i) hereof such that after incurring that $1.00 of additional Indebtedness, the Leverage Ratio would be less than 6.0 to 1; and (7) the payments of dividends on the Corporation's common stock after an initial public offering of common stock of the Corporation, Capstar Broadcasting or any corporation that, directly or indirectly, owns all of the common stock of Capstar Broadcasting in an annual amount not to exceed 6.0% of the gross proceeds (before deducting underwriting discounts and commissions and other fees and expenses of the offering) received by the Corporation (through a capital contribution or otherwise) from shares of common stock sold for the account of the Corporation or any such other corporation (and not for the account of any stockholder) in such initial public offering; provided, however, that in the case of clauses (3), (4), (5), (6) and (7), no Voting Rights Triggering Event 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), (3), (4), (5), (6) and (7) shall be included in such calculation. 25 26 (iii) Reports. So long as any shares of Exchangeable Preferred Stock are outstanding, the Corporation will provide to the holders of Exchangeable Preferred Stock and file with the Commission copies of the annual reports and of the information, documents and other reports that the Corporation would have been required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act regardless of whether the Corporation is then obligated to file such reports. (m) Escrow of Proceeds; Special Offer. (i) General. On the Issue Date, the Corporation's obligations on the Exchangeable Preferred Stock shall consist of (1) the obligation to pay dividends on the Exchangeable Preferred Stock and to pay $5,250,000 of the liquidation preference of the Exchangeable Preferred Stock, plus one percent of the liquidation preference of the Exchangeable Preferred Stock in the event of a Change of Control Offer, as otherwise set forth herein, and (2) the obligation to make a Special Offer. The Corporation shall have no obligation to make payment on the Exchangeable Preferred Stock except as described above until the Escrow Funds are no longer held in the Escrow Account for the benefit of the Holders, and the Holders of the Exchangeable Preferred Stock may look only to the Escrow Funds for payment of additional amounts until such time. (ii) Escrow of Proceeds. (A) On the Issue Date, $94,750,000 of the proceeds of the offering of the Exchangeable Preferred Stock is being deposited into an account (the "Escrow Account") with the Escrow Agent. The amount deposited in the Escrow Account shall be invested and released in accordance with the express provisions of the Escrow Agreement. Notwithstanding anything herein or therein to the contrary, the Escrow Funds shall not be released if a default or event of default exists or would result from the release of such Escrow Funds under the Indenture, the Credit Facility or any other Indebtedness of the Corporation or its Subsidiaries with an aggregate principal amount outstanding of $10,000,000 or more. Prior to the release of Escrow Funds, the Corporation shall deliver to the Escrow Agent an Officers' Certificate certifying that all conditions to the release of such funds have been satisfied. (B) The Corporation and the Escrow Agent (on its own behalf and on behalf of the Holders) hereby acknowledge and agree that, until the Escrow Funds are released by the Escrow Agent in accordance with the Escrow Agreement, the Escrow Funds shall be the property and assets of the Holders and not the Corporation and that the distribution, and rights to possession, of the 26 27 Escrow Funds shall in all respects be governed by and subject to the terms and conditions of the Escrow Agreement and this Certificate of Designation. In order to secure the full and punctual payment and performance of the Corporation's obligation to offer to purchase Exchangeable Preferred Stock in the event a Special Offer is required to be made in accordance with paragraph (iii) of this paragraph (m), the Corporation hereby grants to the Holders a first priority and continuing security interest in and to all of the right, title and interest (if and to the extent that, notwithstanding the first sentence of this paragraph (B), any such right, title or interest is determined by a court of law or otherwise to exist) of the Corporation in, to and under all cash and Cash Equivalents from time to time on deposit in the Escrow Account and credited thereto, whether now owned or existing or hereafter acquired or arising (such amounts collectively, the "Escrow Funds"). (C) On the date on which no Escrow Funds remain in the Escrow Account in accordance with the terms of the Escrow Agreement, the security interest granted to the Holders described in paragraph (B) above shall automatically terminate. (D) On the Special Offer Purchase Date, the Escrow Agent shall release the Escrow Funds to the Corporation to be applied in accordance with this paragraph (m) and the security interest in the Escrow Funds granted to the Holders shall terminate on and as of such Special Offer Purchase Date. (E) Any amounts remaining in the Escrow Account on the Special Offer Purchase Date after application of the Escrow Funds as specified in paragraph (m)(iii) hereof shall be paid by the Escrow Agent to the Corporation. (iii) Special Offer. (A) If (i) the Gulfstar Transaction is not consummated prior to September 30, 1997 or (ii) the Corporation, at its option, determines in its reasonable judgment that the Gulfstar Transaction cannot be consummated prior to September 30, 1997, then, on September 30, 1997 or such date of determination (the "Special Offer Notice Date"), the Corporation will make an offer to purchase (the "Special Offer") all of the outstanding shares of Exchangeable Preferred Stock for a purchase price of 100% of the liquidation preference thereof, plus, without duplication, accumulated and unpaid dividends to the date of purchase (the "Special Offer Purchase Date"). (B) On the Special Offer Notice Date, the Corporation shall mail to each Holder of shares of Exchangeable Preferred Stock at such Holder's registered address a notice stating: (i) that the Gulfstar Transaction has not been consummated prior 27 28 to September 30, 1997, or cannot be consummated prior to September 30, 1997, as the case may be, and that the Corporation is offering to purchase all of the outstanding shares of Exchangeable Preferred Stock at a purchase price in cash equal to 100% of the liquidation preference thereof, plus, without duplication, accumulated and unpaid dividends to the Special Offer Purchase Date, which shall be a Business Day, specified in such notice, that is not earlier than 30 days nor later than 60 days from the date such notice is mailed, (ii) the amount of accumulated and unpaid dividends on the Exchangeable Preferred Stock as of the Special Offer Purchase Date, (iii) that any share not tendered will continue to accumulate dividends, (iv) that, unless the purchase price for the shares is not paid pursuant to the Special Offer on the Special Offer Purchase Date, any shares accepted for payment pursuant to the Special Offer shall cease to accumulate dividends on and after the Special Offer Purchase Date, (v) the procedures to be followed by a Holder of Exchangeable Preferred Stock in order to accept a Special Offer or to withdraw such acceptance, and (vi) such other information as may be required by this Certificate of Designation and applicable laws and regulations. a. On the Special Offer Purchase Date, the Corporation shall (i) accept for payment all of the shares of Exchangeable Preferred Stock or such lesser amount as is tendered pursuant to the Special Offer and (ii) deliver or cause to be delivered to the Transfer Agent for cancellation all shares tendered pursuant to the Special Offer and accepted for payment. If the Escrow Funds are insufficient to pay the Special Offer Purchase Price on the Special Offer Purchase Date, then the Corporation shall deposit with the Escrow Agent on or prior to the Special Offer Purchase Date an amount in cash equal to the difference (the "Shortfall Amount"). The Escrow Funds shall, along with any Shortfall Amount, be applied to consummate the Special Offer. The Escrow Agent shall promptly deliver to the paying agent to mail to each Holder of Exchangeable Preferred Stock accepted for payment an amount equal to the purchase price for such shares including any accumulated and unpaid dividends thereon. On and after the Special Offer Purchase Date, dividends will cease to accumulate on the Exchangeable Preferred Stock, unless the purchase price therefor is not paid. The Corporation shall announce the results of the Special Offer to Holders of the Exchangeable Preferred Stock on or as soon as practicable after the Special Offer Purchase Date. b. The Corporation shall comply with the applicable tender offer rules, including the requirements of Rule 14e-1 under the Exchange Act, and all other applicable securities laws and regulations in connection with any Special Offer. 28 29 (n) Definitions. As used in this Certificate of Designation, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires: "Accreted Value" means, as of any date of determination, the sum of (i) the initial offering price of each Note and (ii) the portion of the excess of the principal amount at maturity of each Note 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 Notes through the date of determination; provided, that the Accreted Value of the Notes shall be 100% from February 1, 2002 to maturity of the Notes. "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Subsidiary of the Corporation or at the time it merges or consolidates with the Corporation or any of its Subsidiaries or assumed in connection with the acquisition of assets from such Person and not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Subsidiary of the Corporation or such acquisition, merger or consolidation. "Acquired Preferred Stock" means Preferred Stock of any Person at the time such Person becomes a Subsidiary of the Corporation or at the time it merges or consolidates with the Corporation or any of its Subsidiaries and not issued by such Person in connection with, or in anticipation or contemplation of, such acquisition, merger or consolidation. "Additional Dividends" shall have the meaning ascribed to it in paragraph (c) hereof. "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 Corporation. 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. "Applicable Premium" means, with respect to a share of the Exchangeable Preferred Stock at any Change of Control Redemption Date, the greater of (i) 1.0% of the liquidation 29 30 preference of such share and (ii) the excess of (A) the present value at such time of (1) the redemption price of such share at July 1, 2002 (such redemption price being described under paragraph (e)(i)(A) hereof) plus (2) all required dividend payments due on such share through July 1, 2002, computed using a discount rate equal to the Treasury Rate plus 150 basis points over (B) the liquidation preference of such share. "Asset Acquisition" means (i) an Investment by the Corporation or any Subsidiary of the Corporation in any other Person pursuant to which such Person shall become a Subsidiary of the Corporation or shall be consolidated or merged with the Corporation or any Subsidiary of the Corporation or (ii) the acquisition by the Corporation or any Subsidiary of the Corporation 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 Corporation or any of its Subsidiaries (excluding any Sale and Leaseback Transaction or any pledge of assets or stock by the Corporation or any of its Subsidiaries) to any Person other than the Corporation or a Wholly Owned Subsidiary of the Corporation of (i) any Capital Stock of any Subsidiary of the Corporation or (ii) any other property or assets of the Corporation or any Subsidiary of the Corporation other than in the ordinary course of business. "Asset Swap" means the execution of a definitive agreement, subject only to FCC approval, if applicable, and other customary closing conditions, that the Corporation in good faith believes will be satisfied, for a substantially concurrent purchase and sale, or exchange, of Productive Assets between the Corporation or any of its Subsidiaries and another Person or group of affiliated Person; 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. "Board of Directors" shall have the meaning ascribed to it in the first paragraph of this Resolution. "Business Day" means any day except a Saturday, a Sunday, or any day on which banking institutions in New York, New York are required or authorized by law or other governmental action to be closed. 30 31 "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. "Capstar Broadcasting" means Capstar Broadcasting Corporation, a Delaware corporation. "Capstar Radio" means Capstar Radio Broadcasting Partners, Inc., a Delaware corporation and a wholly owned subsidiary of the Corporation. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc.; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from Standard & Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $200,000,000; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications 31 32 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 Corporation 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 hereof), other than to Hicks Muse, any of its affiliates (excluding Chancellor Broadcasting Corporation), officers and directors or R. Steven Hicks (the "Permitted Holders"); or (ii) a majority of the Board of Directors 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 Corporation. "Change of Control Date" shall have the meaning ascribed to it in paragraph (h) hereof. "Change of Control Payment Date" shall have the meaning ascribed to it in paragraph (h) hereof. "Change of Control Offer" shall have the meaning ascribed to it in paragraph (h) hereof. "Change of Control Redemption" shall have the meaning ascribed to it in paragraph (e)(i)(C) hereof. "Change of Control Redemption Price" shall have the meaning ascribed to in paragraph (e)(i)(C) hereof. "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 Corporation or any of its Subsidiaries designed to protect the Corporation or any of its Subsidiaries against fluctuations in the price of commodities actually used in the ordinary course of business of the Corporation and its Subsidiaries. 32 33 "Consolidated EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent Consolidated Net Income has been reduced thereby, (a) all income taxes of such Person and its Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary or nonrecurring gains or losses), (b) Consolidated Interest Expense and (c) Consolidated Non-Cash Charges, all as determined on a consolidated basis for such Person and its Subsidiaries in conformity with GAAP. "Consolidated Interest Expense" means, with respect to any Person for any period, without duplication, the sum of (i) the interest expense of such Person and its Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (a) any amortization of debt discount, (b) the net cost under Interest Swap Obligations (including any amortization of discounts), (c) the interest portion of any deferred payment obligation, (d) all commissions, discounts and other fees and charges owed with respect to letters of credit, bankers' acceptance financing or similar facilities and (e) all accrued interest and (ii) the interest component of Capitalized Lease Obligations paid or accrued by such Person and its Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "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, (i) gains and losses from Asset Sales or abandonments or reserves relating thereto and the related tax effects, (ii) items classified as extraordinary or nonrecurring gains and losses, and the related tax effects according to GAAP, (iii) 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, (iv) 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, (v) the net income of any Person, other than a Subsidiary, except to the extent of the lesser of (a) dividends or distributions paid to such first referred to Person or its Subsidiary by such Person and (b) the net income of such Person (but in no event less than zero), and 33 34 the net loss of such Person shall be included only to the extent of the aggregate Investment of the first referred to Person or a consolidated Subsidiary of such Person and (vi) 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 Corporation on the Issue Date, (ii) was nominated for election or elected to the Board of Directors with the affirmative vote of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election or (iii) is a representative of a Permitted Holder. "Credit Facility" means the credit agreement dated February 20, 1997 among the Corporation, Capstar Radio, Bankers Trust Company, as agent, and the lenders parties thereto from time to time, as the same may be amended, supplemented or otherwise modified from time to time, and any renewal, extension, refunding, restructuring, replacement or refinancing thereof (whether with the original agent and lenders or another agent or agents or other lenders and whether provided under the original Credit Facility or any other credit agreement). "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Corporation or any of its Subsidiaries against fluctuations in currency values. "Discount Notes Indenture" means the indenture dated as of February 20, 1997 between the Corporation and U.S. Trust Company of Texas, N.A., under which the Corporation's 12 3/4% Senior Discount Notes due 2009 were issued as in effect on the Issue Date. "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 34 35 upon the happening of any event, matures (excluding any maturity as the result of an optional redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof (except, in each case, upon the occurrence of a Change of Control), in whole or in part, on or prior to the mandatory Redemption Date of the Exchangeable Preferred Stock. "Dividend Payment Date" means January 1 and July 1 of each year. "Dividend Period" means the Initial Dividend Period and, thereafter, each Semi-Annual Dividend Period. "Dividend Record Date" means January 1 and July 1 of each year. "Escrow Account" shall have the meaning ascribed to it in paragraph (m)(ii)(A). "Escrow Agent" shall mean Bankers Trust Company. "Escrow Agreement" means that certain preferred stock escrow agreement dated as of June 17, 1997 among Bankers Trust Company, as escrow agent, and the Corporation. "Escrow Funds" shall have the meaning ascribed to it in paragraph (m)(ii)(B). "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Exchange Date" means a date on which shares of Exchangeable Preferred Stock are exchanged by the Corporation for Exchange Debentures. "Exchange Debentures" shall have the meaning ascribed to it in paragraph (g) hereof. "Exchange Notice" shall have the meaning ascribed to it in paragraph (g) hereof. "Exchange Offer" means a registered offer to exchange any and all shares of the Exchangeable Preferred Stock for a like number of shares (with a liquidation preference equal to that of the surrendered shares) of another series of the Corporation's exchangeable preferred stock that has terms 35 36 identical in all material respects to the Exchangeable Preferred Stock except that (i) the Exchange Preferred Stock shall have been registered pursuant to an effective registration statement under the Securities Act and the certificates therefor shall contain no restrictive legends thereon and (ii) the certificate of designation governing such Exchange Preferred Stock does not need to contain provisions with respect to Additional Dividends, including, without limitation, those contained in paragraph (c)(viii) hereof. "Exchange Offer Registration Statement" means the registration statement filed by the Corporation with the Commission with respect to an Exchange Offer. "Exchange Preferred Stock" means the series of the Corporation's exchangeable preferred stock publicly offered in exchange for the Exchangeable Preferred Stock. "Exchangeable Preferred Stock" shall have the meaning ascribed to it in paragraph (a) hereof. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System, or any successor thereto. "Financial Monitoring and Oversight Agreements" means, collectively, the Monitoring and Oversight Agreement between the Corporation and Hicks, Muse & Co. Partners, L.P., as in effect on the Issue Date, and the Financial Advisory Agreement between the Corporation and Hicks Muse & Co. Partners L.P., as in effect on the Issue Date. "GAAP" means generally accepted accounting principles as in effect in the United States of America as of the Issue Date. "GulfStar Merger" refers to Capstar Broadcasting's acquisition of GulfStar. "GulfStar Transaction" means the Hicks Muse GulfStar Equity Investment, the GulfStar Merger, the contribution by Capstar Broadcasting of the surviving entity in the GulfStar Merger (throught the Corporation) to Capstar Radio and the contribution (through the Corporation) to Capstar Radio of $48.0 million in cash by Capstar Broadcasting. "Hicks Muse" means Hicks, Muse, Tate & Furst Incorporated, a Texas corporation. 36 37 "Hicks Muse GulfStar Equity Investment" means the purchase by an affiliate of Hicks Muse of certain shares of Capital Stock of Capstar Broadcasting for $75.0 million in cash at or about the time of the consummation of the GulfStar Merger. "Holder" means a holder of shares of Exchangeable Preferred Stock as reflected in the stock books of the Corporation. "Indebtedness" means with respect to any Person, without duplication, any liability of such Person (i) for borrowed money, (ii) evidenced by bonds, debentures, notes or other similar instruments, (iii) constituting Capitalized Lease Obligations, (iv) incurred or assumed as the deferred purchase price of property, or pursuant to conditional sale obligations and title retention agreements (but excluding trade accounts payable arising in the ordinary course of business), (v) for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (vi) for Indebtedness of others guaranteed by such Person, (vii) for Interest Swap Obligations, Commodity Agreements and Currency Agreements and (viii) for Indebtedness of any other Person of the type referred to in clauses (i) through (vii) which is secured by any Lien on any property or asset of such first referred to Person, the amount of such Indebtedness being deemed to be the lesser of the value of such property or asset or the amount of the Indebtedness so secured. The amount of Indebtedness of any Person at any date shall be the outstanding principal amount of all unconditional obligations described above, as such amount would be reflected on a balance sheet prepared in accordance with GAAP, and the maximum liability at such date of such Person for any contingent obligations described above. "Indenture" shall have the meaning ascribed to it in paragraph (f)(ii)(E). "Initial Dividend Period" means the dividend period commencing on the Issue Date and ending on January 1, 1998. "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 37 38 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 Corporation at the time any entity which was a Subsidiary of the Corporation 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 Corporation. 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 Corporation unless the fair market value of such Investment exceeds $2,000,000, in which case the fair market value shall be determined conclusively in good faith by the Board of Directors at the time such Investment is made. "Issue Date" means the date of original issuance of the Exchangeable Preferred Stock. "Junior Stock" shall have the meaning ascribed to it in paragraph (b) hereof. "Leverage Ratio" shall mean the ratio of (i) the aggregate outstanding amount of Indebtedness of the Corporation and its Subsidiaries as of the date of calculation on a consolidated basis in accordance with GAAP (subject to the terms described in the next paragraph) plus the aggregate liquidation preference of all outstanding Preferred Stock of the Corporation's Subsidiaries (except Preferred Stock issued to the Corporation or a Wholly Owned Subsidiary of the Corporation) on such date less the Accreted Value of the Notes on such date to (ii) the Consolidated EBITDA of the Corporation for the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of determination. For purposes of this definition, (i) the amount of Indebtedness that is issued at a discount shall be deemed to be the accreted value of such Indebtedness at the end of the Four Quarter Period, whether or not such amount is the amount then reflected on a balance sheet prepared in accordance with GAAP, and (ii) the aggregate outstanding principal amount of Indebtedness of the Corporation and its Subsidiaries and the aggregate liquidation preference of all outstanding Preferred Stock of the Corporation'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 38 39 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 or issuance (and the application of the proceeds thereof), or the repayment, as the case may be, occurred on the first day of the Four Quarter Period, (ii) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Subsidiaries (including any Person that becomes a Subsidiary as a result of such Asset Acquisition) incurring, assuming or otherwise becoming liable for Indebtedness or such Person's Subsidiaries issuing Preferred Stock) at any time on or subsequent to the first day of the Four Quarter Period and on or prior to the date of determination, as if such Asset Sale or Asset Acquisition (including the incurrence, assumption or liability for any such Indebtedness and the issuance of such Preferred Stock and also including any Consolidated EBITDA associated with such Asset Acquisition) occurred on the first day of the Four Quarter Period and (iii) cost savings resulting from employee terminations, facilities consolidations and closings, standardization of employee benefits and compensation practices, consolidation of property, casualty and other insurance coverage and policies, standardization of sales representation commissions and other contract rates, and reductions in taxes other than income taxes (collectively, "Cost Savings Measures"), which cost savings the Corporation 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 Officers' Certificate delivered to the Trustee at the time of the consummation of 39 40 the Asset Acquisition and such Officers' Certificate delivered to the Trustee at the time of the consummation of the Asset Acquisition and such Officers' 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 Corporation within 90 days of such Asset Acquisition to effect the Cost Savings Measures identified in such officer's certificate (regardless, however, of whether the corresponding cost savings have been achieved). Furthermore, in calculating "Consolidated Interest Expense" for purposes of the calculation of "Consolidated EBITDA" (i) interest on Indebtedness determined on a fluctuating basis as of the date of determination (including Indebtedness actually incurred on the date of the transaction giving rise to the need to calculate the Leverage Ratio) and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness as in effect on the date of determination and (ii) notwithstanding (i) above, interest determined on a fluctuating basis, to the extent such interest is covered by Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "Major Asset Sale" means an Asset Sale or series of related Asset Sales involving assets with a fair market value in excess of $25,000,000. "Mandatory Redemption Price" shall have the meaning ascribed to it in paragraph (e) hereof. "Notes" means the Corporation's $277,000,000 aggregate principal amount at maturity 12 3/4% Senior Discount Notes due 2009. "Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the 40 41 documentation governing, or otherwise relating to, any Indebtedness. "Officers' Certificate" means a certificate signed by two officers or by an officer and either an Assistant Treasurer or an Assistant Secretary of the Corporation which certificate shall include a statement that, in the opinion of such signers all conditions precedent to be performed by the Corporation prior to the taking of any proposed action have been taken. In addition, such certificate shall include (i) a statement that the signatories have read the relevant covenant or condition, (ii) a brief statement of the nature and scope of such examination or investigation upon which the statements are based, (iii) a statement that, in the opinion of such signatories, they have made such examination or investigation as is reasonably necessary to express an informed opinion and (iv) a statement as to whether or not, in the opinion of the signatories, such relevant conditions or covenants have been complied with. "Opinion of Counsel" means an opinion of counsel that, in such counsel's opinion, all conditions precedent to be performed by the Corporation prior to the taking of any proposed action have been taken. Such opinion shall also include the statements called for in the second sentence under "Officers' Certificate". "Optional Redemption Price" shall have the meaning ascribed to it in paragraph (e)(i) hereof. "Parity Stock" shall have the meaning ascribed to it in paragraph (b) hereof. "Permitted Holders" shall have the meaning set forth in the definition of "Change of Control." "Permitted Indebtedness" means, without duplication, (i) Indebtedness outstanding on the Issue Date; (ii) Indebtedness of the Corporation or a Subsidiary incurred pursuant to the Credit Facility in an aggregate principal amount at any time outstanding not to exceed $150,000,000, (iii) Indebtedness evidenced by or arising under the Notes and the Notes Indenture; (iv) Interest Swap Obligations; provided that such Interest Swap Obligations are entered into to protect the Corporation from fluctuations in interest rates of its Indebtedness; (v) additional Indebtedness of the Corporation or any of its Subsidiaries not to exceed $20,000,000 in principal amount outstanding at any time (which amount may, but need not, be incurred under 41 42 the Credit Facility); (vi) Refinancing Indebtedness; (vii) Indebtedness owed by the Corporation to any Wholly Owned Subsidiary of the Corporation or by any Subsidiary of the Corporation to the Corporation or any Wholly Owned Subsidiary of the Corporation; (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 Corporation 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 Corporation 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 Corporation (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 Corporation for the purpose of financing such acquisition) in a principal amount not to exceed the gross proceeds actually received by the Corporation or any of its Subsidiaries in connection with such disposition; provided, however, that the principal amount of any Indebtedness incurred pursuant to this clause (x), when taken together with all Indebtedness incurred pursuant to this clause (x) and then outstanding, shall not exceed $15,000,000; and (xi) Indebtedness represented by Capitalized Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property used in a related business or incurred to refinance any such purchase price or cost of construction or improvement, in each case incurred no later than 365 days after the date of such acquisition or the date of completion of such construction or improvement; provided, however, that the principal amount of any Indebtedness incurred pursuant to this clause (x) shall not exceed $6,000,000 at any time outstanding. "Permitted Investments" means (i) Investments by the Corporation or any Subsidiary of the Corporation to acquire the stock or assets of any Person (or Acquired Indebtedness or Acquired Preferred Stock acquired in connection with a transaction in which such Person becomes a Subsidiary of the Corporation) engaged in the broadcast business or businesses reasonably related thereto; provided that if any such Investment or series of related Investments involves an 42 43 Investment by the Corporation in excess of $5,000,000, the Corporation 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 paragraph (l)(i) hereof, (ii) Investments received by the Corporation or its Subsidiaries as consideration for a sale of assets, (iii) Investments by the Corporation or any Wholly Owned Subsidiary of the Corporation in any Wholly Owned Subsidiary of the Corporation (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 Corporation and Investments in the Corporation by any Wholly Owned Subsidiary of the Corporation, (iv) cash and Cash Equivalents, (v) Investments in securities of trade creditors, wholesalers or customers received pursuant to any plan of reorganization or similar arrangement, (vi) loans or advances to employees of the Corporation or any Subsidiary thereof for purposes of purchasing the Capital Stock of the Corporation, Capstar Broadcasting or any corporation that, directly or indirectly, owns all of the common stock of Capstar Broadcasting and other loans and advances to employees made in the ordinary course of business consistent with past practices of the Corporation or such Subsidiary, and (vii) additional Investments in an aggregate amount not to exceed $2,000,000 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. "Productive Assets" means assets of a kind used or usable by the Corporation and its Subsidiaries in broadcast businesses 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 hereto, a calculation in accordance with Article II of Regulation S-X under the Securities Act. 43 44 "Public Equity Offering" means an underwritten public offering of Capital Stock (other than Disqualified Capital Stock) of the Corporation, Capstar Broadcasting or any corporation that, directly or indirectly, owns all of the common stock of Capstar Broadcasting, pursuant to an effective registration statement filed with the Commission in accordance with the Securities Act; provided, however, that, in the case of a Public Equity Offering by Capstar Broadcasting or any such other corporation, Capstar Broadcasting or such corporation contributes to the capital of the Corporation net cash proceeds in an amount sufficient to redeem the Exchangeable Preferred Stock called for redemption in accordance with the terms hereof. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "Redemption Date", with respect to any shares of Exchangeable Preferred Stock, means the date on which such shares of Exchangeable Preferred Stock are redeemed by the Corporation. "Redemption Notice" shall have the meaning ascribed to it in paragraph (e) hereof. "Refinancing Indebtedness" means any refinancing by the Corporation of Indebtedness of the Corporation or any of its Subsidiaries incurred in accordance with paragraph (l)(i) hereof (other than pursuant to clause (iii) or (iv) of the definition of Permitted Indebtedness) that does not (i) result in an increase in the aggregate principal amount of Indebtedness (such principal amount to include, for purposes of this definition, any premiums, penalties or accrued interest paid with the proceeds of the Refinancing Indebtedness) of such Person or (ii) create Indebtedness with (a) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being refinanced or (b) a final maturity earlier than the final maturity of the Indebtedness being refinanced. "Registration Rights Agreement" means the Registration Rights Agreement dated June 17, 1997 among the Corporation, BT Securities Corporation and Credit Suisse First Boston Corporation. "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) on shares of Junior Stock, (ii) any purchase, 44 45 redemption, retirement or other acquisition for value of any Junior Stock, or any warrants, rights or options to acquire shares of Junior Stock, other than through the exchange of such Junior Stock or any warrants, rights or options to acquire shares of any class of such Junior Stock for Qualified Capital Stock or warrants, rights or options to acquire Qualified Capital Stock or (iii) the making of any Investment (other than a Permitted Investment). "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Corporation or a Subsidiary of any property, whether owned by the Corporation or any Subsidiary at the Issue Date or later acquired, which has been or is to be sold or transferred by the Corporation or such Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such property. "Securities Act" means the Securities Act of 1933 and the rules and regulations promulgated thereunder. "Semi-Annual Dividend Period" shall mean the semi-annual period commencing on each January 1 and July 1 and ending on the next succeeding Dividend Payment Date, respectively. "Senior Stock" shall have the meaning ascribed to it in paragraph (b) hereof. "Shelf Registration Statement" means a registration statement filed by the Corporation with the Commission for an offering to be made on a continuous basis pursuant to rule 415 promulgated under the Securities Act covering all of the Exchangeable Preferred Stock. "Shortfall Amount" shall have the meaning ascribed to it in paragraph (m)(iii)(B). "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. "Special Offer" shall have the meaning ascribed to it in paragraph (m)(iii)(A). 45 46 "Special Offer Notice Date" shall have the meaning ascribed to it in paragraph (m)(iii)(A). "Special Offer Purchase Date" shall have the meaning ascribed to it in paragraph (m)(iii)(A). "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 contained herein to the contrary, all references to the Corporation and its consolidated Subsidiaries or to financial information prepared on a consolidated basis in accordance with GAAP shall be deemed to include the Corporation 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. "Transfer Agent" shall mean Harris Trust and Savings Bank. "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 July 1, 2002; provided, however, that if the period from the Change of Control Redemption Date to July 1, 2002 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given except that if the period from the Change of Control Redemption Date to July 1, 2002 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. 46 47 "Trustee" means U.S. Trust Corporation of Texas, N.A., as trustee under the Discount Notes Indenture. "Unrestricted Subsidiary" means a Subsidiary of the Corporation created after the Issue Date and so designated by a resolution adopted by the Board of Directors, provided that (a) neither the Corporation 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 Corporation could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with paragraph (1)(i) hereof and (y) no Voting Rights Triggering Event shall have occurred or be continuing. Any designation pursuant to this definition by the Board of Directors shall be evidenced to the Trustee by the filing with the Trustee of a certified copy of the resolution of the Corporation's Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. "Voting Rights Triggering Event" shall have the meaning ascribed to it in paragraph (f)(iv) hereof. "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. 47 48 IN WITNESS WHEREOF, said Capstar Broadcasting Partners, Inc. has caused this Certificate to be signed by Kathy Archer, its Vice President, this 17th day of June, 1997. CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ KATHY ARCHER ----------------------------------- Name: Kathy Archer Title: Vice President 48 EX-5.1 7 OPINION OF VINSON & ELKINS LLP 1 EXHIBIT 5.1 Vinson & Elkins ATTORNEYS AT LAW VINSON & ELKINS L.L.P. 3700 TRAMMELL CROW CENTER 2001 ROSS AVENUE DALLAS, TEXAS 75201-2975 TELEPHONE (214) 220-7700 July 8, 1997 Capstar Broadcasting Partners, Inc. 600 Congress Avenue, Suite 1400 Austin, Texas 78701 Ladies and Gentlemen: We have acted as counsel for Capstar Broadcasting Partners, Inc., a Delaware corporation (the "Company"), in connection with the registration of $277 million aggregate principal amount at maturity of 12 3/4% Senior Discount Notes due 2009 (the "Notes") under the Securities Act of 1933 (the "Securities Act") on a Registration Statement on Form S-4, as amended to the date hereof (the "Registration Statement"). In reaching the opinion set forth in this letter, we have reviewed originals or copies of the Registration Statement, an executed counterpart of the Indenture dated as of February 20, 1997, between the Company and U.S. Trust Company of Texas, N.A., as trustee (the "Indenture"), and such other agreements, certificates of public officials, certificates of officers of the Company, certificates of other persons, records, documents and matters of law as we deemed relevant. Based on and subject to the foregoing and subject further to the assumptions, exceptions and qualifications hereinafter stated, we express the opinion that, subject to compliance with applicable federal and state securities laws (as to which we express no opinion), the New Notes (as defined in the Registration Statement), when executed, authenticated, issued and delivered in accordance with the terms of the Indenture and when delivered in exchange for the Old Notes (as defined in the Registration Statement), will constitute legally binding obligations of the Company. The opinion expressed above is subject to the following assumptions, exceptions and qualifications: 2 Capstar Broadcasting Partners, Inc. July 8, 1997 Page 2 (a) We have assumed that (i) all information contained in all documents reviewed by us is true and correct, (ii) all signatures on all documents reviewed by us are genuine, (iii) all documents submitted to us as originals are true and complete, (iv) all documents submitted to us as copies are true and complete copies of the originals thereof, (v) each natural person signing any document reviewed by us had the legal capacity to do so, (vi) each natural person signing in a representative capacity any document reviewed by us had authority to sign in such capacity, and (vii) the laws of any jurisdiction other than Texas that govern any of the documents reviewed by us (other than the Company's certificate of incorporation and bylaws) do not modify the terms that appear in any such document. (b) The opinion expressed in this letter is limited to the laws of the State of Texas, the General Corporation Law of the State of Delaware, and the federal laws of the United States of America. You should be aware that we are not admitted to the practice of law in the State of Delaware. (c) We note that the Indenture provides that it is governed by the laws of the State of New York. While we express no opinion with respect to the laws of the State of New York, we have assumed that the internal laws of the State of New York are the same as the internal laws of the State of Texas. We have made no investigation to confirm whether such assumption is correct. (d) The opinion expressed above is subject to laws relating to bankruptcy, insolvency, fraudulent conveyance or transfer, reorganization, moratorium and other laws of general applicability relating to or affecting creditors' rights and to general equitable principles. This opinion may be filed as an exhibit to the Registration Statement. Consent is also given to the reference to this firm under the caption "Legal Matters" in the Prospectus included in the Registration Statement as having passed on certain legal matters in connection with the New Notes. In giving this consent we do not admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Securities and Exchange Commission promulgated thereunder. This opinion speaks as of the date hereof, and we disclaim any duty to advise you regarding any changes subsequent to the date hereof in, or to otherwise communicate with you with respect to, the matters addressed herein. Very truly yours, /s/ VINSON & ELKINS L.L.P. EX-10.6.2 8 FINANCIAL ADVISORY AGREEMENT 1 EXHIBIT 10.6.2 FINANCIAL ADVISORY AGREEMENT THIS FINANCIAL ADVISORY AGREEMENT (this "Agreement") is made and entered into as of July 1, 1997, between Capstar Broadcasting Corporation (the "Company"), a Delaware corporation, and Hicks, Muse & Co. Partners, L.P., a Texas limited partnership (together with its successors, "HMCo."). WHEREAS, the Company has requested that HMCo. render financial advisory, investment banking, and other similar services to the Company 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 any of its respective subsidiaries, excluding Capstar Broadcasting Partners, Inc. ("Capstar") and Capstar's direct or indirect 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 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. 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 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 advisory, investment banking, and other similar services in connection with any such Add-on Transactions 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. As compensation for HMCo.'s financial advisory, investment banking, and other similar services rendered in connection with any Add-on Transaction pursuant to Section I 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) 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. in connection, the performance by it of the services contemplated by Section 1 hereof. 2 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 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 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 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 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 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 2 3 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. 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. 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 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. 3 4 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: ------------------------------------------- Name: ----------------------------------------- Title: ---------------------------------------- CAPSTAR BROADCASTING CORPORATION By: ------------------------------------------- Name: ----------------------------------------- Title: ---------------------------------------- EX-10.7.2 9 MONITORING AND OVERSIGHT AGREEMENT 1 EXHIBIT 10.7.2 MONITORING AND OVERSIGHT AGREEMENT THIS MONITORING AND OVERSIGHT AGREEMENT (the "Agreement") is made and entered into effective as of July 1, 1997, between Capstar Broadcasting Corporation, 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 irrevocably agrees 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. Notwithstanding the calculation of the Monitoring Fee under the preceding sentence, the Monitoring Fee shall be reduced by the amount previously paid by Capstar Broadcasting Partners, Inc., a Delaware corporation ("Capstar"), pursuant to Section 3 of that certain Monitoring and Oversight Agreement, dated October 16, 1996, between Capstar and HMCo. 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 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, 2 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 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 -2- 3 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. 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. -3- 4 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: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- CAPSTAR BROADCASTING CORPORATION By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- -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 Capstar Broadcasting Corporation 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 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-10.8 10 FORM OF INDEMNIFICATION AGREEMENT 1 EXHIBIT 10.8 INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered into effective as of this 1st day of July, 1997, by and between Capstar Broadcasting Corporation, a Delaware corporation (including any successors thereto, the "Company"), and [See Schedule I attached hereto] ("Indemnitee"). RECITALS: A. Competent and experienced persons are reluctant to serve or to continue to serve corporations as directors, officers, or in other capacities unless they are provided with adequate protection through insurance or indemnification (or both) against claims and actions against them arising out of their service to and activities on behalf of those corporations. B. The current uncertainties relating to the availability of adequate insurance for directors and officers have increased the difficulty for corporations to attract and retain competent and experienced persons. C. The Board of Directors of the Company (the "Board") has determined that the continuation of present trends in litigation will make it more difficult to attract and retain competent and experienced persons, that this situation is detrimental to the best interests of the Company's stockholders, and that the Company should act to assure its directors and officers that there will be increased certainty of adequate protection in the future. D. It is reasonable, prudent, and necessary for the Company to obligate itself contractually to indemnify its directors and officers to the fullest extent permitted by applicable law in order to induce them to serve or continue to serve the Company. E. Indemnitee is willing to serve and continue to serve the Company on the condition that he be indemnified to the fullest extent permitted by law. F. Concurrently with the execution of this Agreement, Indemnitee is agreeing to serve or to continue to serve as a director or officer of the Company. AGREEMENTS: NOW, THEREFORE, in consideration of the foregoing premises, Indemnitee's agreement to serve or continue to serve as a director or officer of the Company, and the covenants contained in this Agreement, the Company and Indemnitee hereby covenant and agree as follows: (a) Certain Definitions. For purposes of this Agreement: 2 (b) Affiliate: shall mean any Person that directly, or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the Person specified. (c) Change of Control: shall mean the occurrence of any of the following events: (i) The acquisition after the date of this Agreement by any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (x) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this paragraph (i), the following acquisitions shall not constitute a Change of Control: any acquisition directly from the Company or any Subsidiary thereof; any acquisition by the Company or any Subsidiary thereof; any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary of the Company; any acquisition by any one or more members of the HMC Group; or any acquisition by any entity or its security holders pursuant to a transaction which complies with clauses (A), (B), and (C) of paragraph (iii) below; (ii) Individuals who, as of the date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date of this Agreement (x) who is a member of the HMC Group or (y) whose election or appointment by the Board or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board, shall in either case be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or an acquisition of assets of another corporation (a "Business Combination"), in each case, other than to or with one or more members of the HMC Group or unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Corporation Voting Securities, as the case may be, -2- 3 (B) no Person (excluding any employee benefit plan (or related trust) of the Company or the corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership of the Company existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (d) Claim: shall mean any threatened, pending, or completed action, suit, or proceeding (including, without limitation, securities laws actions, suits, and proceedings and also any cross claim or counterclaim in any action, suit, or proceeding), whether civil, criminal, arbitral, administrative, or investigative in nature, or any inquiry or investigation (including discovery), whether conducted by the Company or any other Person, that Indemnitee in good faith believes might lead to the institution of any action, suit, or proceeding. (e) Expenses: shall mean all costs, expenses (including attorneys' and expert witnesses' fees), and obligations paid or incurred in connection with investigating, defending (including affirmative defenses and counterclaims), being a witness in, or participating in (including on appeal), or preparing to defend, be a witness in, or participate in, any Claim relating to any Indemnifiable Event. (f) 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). (g) Indemnifiable Event: shall mean any actual or alleged act, omission, statement, misstatement, event, or occurrence related to the fact that Indemnitee is or was a director, officer, agent, or fiduciary of the Company, or is or was serving at the request of the Company as a director, officer, trustee, agent, or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust, or other enterprise, or by reason of any actual or alleged thing done or not done by Indemnitee in any such capacity. For purposes of this Agreement, the Company agrees that Indemnitee's service on behalf of or with respect to any Subsidiary or employee benefits plan of the Company or any Subsidiary of the Company shall be deemed to be at the request of the Company. (h) Indemnifiable Liabilities: shall mean all Expenses and all other liabilities, damages (including, without limitation, punitive, exemplary, and the multiplied portion of any damages), judgments, payments, fines, penalties, amounts paid in settlement, and awards paid or incurred that arise out of, or in any way relate to, any Indemnifiable Event. -3- 4 (i) Potential Change of Control: shall be deemed to have occurred if the Company enters into an agreement, the consummation of which would result in the occurrence of a Change of Control, any Person (including the Company) publicly announces an intention to take or to consider taking actions that, if consummated, would constitute a Change of Control, or (iii) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred. (j) Reviewing Party: shall mean a member or members of the Board who are not parties to the particular Claim for which Indemnitee is seeking indemnification or if a Change of Control has occurred or if there is a Potential Change of Control and Indemnitee so requests, or if the members of the Board so elect, or if all of the members of the Board are parties to such Claim, Special Counsel. (k) Special Counsel: shall mean special, independent legal counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld), and who has not otherwise performed material services for the Company or for Indemnitee within the last three years (other than as Special Counsel under this Agreement or similar agreements). (l) Subsidiary: shall mean, with respect to any Person, any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by that Person. 1. Indemnification and Expense Advancement. (a) The Company shall indemnify Indemnitee and hold Indemnitee harmless to the fullest extent permitted by law, as soon as practicable but in any event no later than 30 days after written demand is presented to the Company, from and against any and all Indemnifiable Liabilities. Notwithstanding the foregoing, the obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which Special Counsel is involved) that Indemnitee is not permitted to be indemnified under applicable law. Nothing contained in this Agreement shall require any determination under this Section 2(a) to be made by the Reviewing Party prior to the disposition or conclusion of the Claim against the Indemnitee. (b) If so requested by Indemnitee, the Company shall advance to Indemnitee all reasonable Expenses incurred by Indemnitee to the fullest extent permitted by law (or, if applicable, reimburse Indemnitee for any and all reasonable Expenses incurred by Indemnitee and previously paid by Indemnitee) within ten business days after such request (an "Expense Advance") and delivery by Indemnitee of an undertaking to repay Expense Advances if and to the extent such undertaking is required by applicable law prior to the Company's payment of Expense Advances. The Company shall be obligated from time to time at the request of Indemnitee to make or pay an Expense Advance in advance of the final disposition or conclusion of any Claim. In connection with any request for an Expense Advance, if requested by the Company, Indemnitee or Indemnitee's counsel shall submit an affidavit stating that the Expenses to which the Expense Advances relate are reasonable. Any dispute as to the reasonableness of any Expense shall not delay an Expense Advance by the Company. If, when, and to the extent that the Reviewing Party determines that Indemnitee -4- 5 would not be permitted to be indemnified with respect to a Claim under applicable law or the amount of the Expense Advance was not reasonable, the Company shall be entitled to be reimbursed by Indemnitee and Indemnitee hereby agrees to reimburse the Company without interest (which agreement shall be an unsecured obligation of Indemnitee) for (x) all related Expense Advances theretofore made or paid by the Company in the event that it is determined that indemnification would not be permitted or (y) the excessive portion of any Expense Advances in the event that it is determined that such Expenses Advances were unreasonable, in either case, if and to the extent such reimbursement is required by applicable law; provided, however, that if Indemnitee has commenced legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee could be indemnified under applicable law, or that the Expense Advances were reasonable, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law or that the Expense Advances were unreasonable shall not be binding, and the Company shall be obligated to continue to make Expense Advances, until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed), which determination shall be conclusive and binding. If there has been a Potential Change of Control or a Change of Control, the Reviewing Party shall be advised by or shall be Special Counsel, if Indemnitee so requests. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively is not permitted to be indemnified in whole or part under applicable law or that any Expense Advances were unreasonable, Indemnitee shall have the right to commence litigation in any court in the states of Texas or Delaware having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee. (c) Nothing in this Agreement, however, shall require the Company to indemnify Indemnitee with respect to any Claim initiated by Indemnitee, other than a Claim solely seeking enforcement of the Company's indemnification obligations to Indemnitee or a Claim authorized by the Board. 2. Change of Control. The Company agrees that, if there is a Potential Change in Control or a Change of Control and if Indemnitee requests in writing that Special Counsel be the Reviewing Party, then Special Counsel shall be the Reviewing Party. In such a case, the Company agrees not to request or seek reimbursement from Indemnitee of any indemnification payment or Expense Advances unless Special Counsel has rendered its written opinion to the Company and Indemnitee (i) that the Company was not or is not permitted under applicable law to pay Indemnitee and to allow Indemnitee to retain such indemnification payment or Expense Advances or (ii) that such Expense Advances were unreasonable. However, if Indemnitee has commenced legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee could be indemnified under applicable law or that the Expense Advances were reasonable, any determination made by Special Counsel that Indemnitee would not be permitted to be indemnified under applicable law or that the Expense Advances were unreasonable shall not be binding, and Indemnitee shall not be required to reimburse the Company for any Expense Advance, and the Company shall be obligated to continue to make Expense Advances, until a final judicial determination is made with respect thereto (as to which all rights of appeal therefore have been exhausted or lapsed), which -5- 6 determination shall be conclusive and binding. The Company agrees to pay the reasonable fees of Special Counsel and to indemnify Special Counsel against any and all expenses (including attorneys' fees), claims, liabilities, and damages arising out of or relating to this Agreement or Special Counsel's engagement pursuant hereto. 3. Establishment of Trust. In the event of a Potential Change of Control or a Change of Control, the Company shall, upon written request by Indemnitee, create a trust for the benefit of Indemnitee (the "Trust") and from time to time upon written request of Indemnitee shall fund the Trust in an amount equal to all Indemnifiable Liabilities reasonably anticipated at the time to be incurred in connection with any Claim. The amount to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by the Reviewing Party. The terms of the Trust shall provide that, upon a Change of Control, the Trust shall not be revoked or the principal thereof invaded, without the written consent of Indemnitee, the trustee of the Trust shall advance, within ten business days of a request by Indemnitee, any and all reasonable Expenses to Indemnitee (and Indemnitee hereby agrees to reimburse the Trust under the circumstances in which Indemnitee would be required to reimburse the Company for Expense Advances under this Agreement), any required determination concerning the reasonableness of the Expenses to be made by the Reviewing Party, the Trust shall continue to be funded by the Company in accordance with the funding obligation set forth above, the trustee of the Trust shall promptly pay to Indemnitee all amounts for which Indemnitee shall be entitled to indemnification pursuant to this Agreement, and all unexpended funds in the Trust shall revert to the Company upon a final determination by the Reviewing Party or a court of competent jurisdiction, as the case may be, that Indemnitee has been fully indemnified under the terms of this Agreement. The trustee of the Trust shall be chosen by Indemnitee, and shall be an institution that is not affiliated with Indemnitee. Nothing in this Section 4 shall relieve the Company of any of its obligations under this Agreement. 4. Indemnification for Additional Expenses. The Company shall indemnify Indemnitee against any and all costs and expenses (including attorneys' and expert witnesses' fees) and, if requested by Indemnitee, shall (within two business days of that request) advance those costs and expenses to Indemnitee, that are incurred by Indemnitee if Indemnitee, whether by formal proceedings or through demand and negotiation without formal proceedings: seeks to enforce Indemnitee's rights under this Agreement; seeks to enforce Indemnitee's rights to expense advancement or indemnification under any other agreement or provision of the Company's Certificate of Incorporation, as amended (the "Certificate of Incorporation"), or Bylaws (the "Bylaws") now or hereafter in effect relating to Claims for Indemnifiable Events; or seeks recovery under any directors' and officers' liability insurance policies maintained by the Company, in each case regardless of whether Indemnitee ultimately prevails; provided that a court of competent jurisdiction has not found Indemnitee's claim for indemnification or expense advancements under the foregoing clause (a), (b) or (c) to be frivolous, presented for an improper purpose, without evidentiary support, or otherwise sanctionable under Federal Rule of Civil Procedure No. 11 or an analogous rule or law, and provided further, that if a court makes such a finding, Indemnitee shall reimburse the Company for all amounts previously advanced to Indemnitee pursuant to this Section 5. Subject to the provisos contained in the preceding sentence, to the fullest extent permitted by law, the Company waives any and all rights that it may have to recover its costs and expenses from Indemnitee. -6- 7 5. Partial Indemnity. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some, but not all, of Indemnitee's Indemnifiable Liabilities, the Company shall indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. 6. Contribution. (a) Contribution Payment. To the extent the indemnification provided for under any provision of this Agreement is determined (in the manner hereinabove provided) not to be permitted under applicable law, the Company, in lieu of indemnifying Indemnitee, shall, to the extent permitted by law, contribute to the amount of any and all Indemnifiable Liabilities incurred or paid by Indemnitee for which such indemnification is not permitted. The amount the Company contributes shall be in such proportion as is appropriate to reflect the relative fault of Indemnitee, on the one hand, and of the Company and any and all other parties (including officers and directors of the Company other than Indemnitee) who may be at fault (collectively, including the Company, the "Third Parties"), on the other hand. (b) Relative Fault. The relative fault of the Third Parties and the Indemnitee shall be determined by reference to the relative fault of Indemnitee as determined by the court or other governmental agency or to the extent such court or other governmental agency does not apportion relative fault, by the Reviewing Party (which shall include Special Counsel) after giving effect to, among other things, the relative intent, knowledge, access to information, and opportunity to prevent or correct the relevant events, of each party, and other relevant equitable considerations. The Company and Indemnitee agree that it would not be just and equitable if contribution were determined by pro rata allocation or by any other method of allocation that does take account of the equitable considerations referred to in this Section 7(b). 7. Burden of Proof. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified under any provision of this Agreement or to receive contribution pursuant to Section 7 of this Agreement, to the extent permitted by law the burden of proof shall be on the Company to establish that Indemnitee is not so entitled. 8. No Presumption. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval), or conviction, or upon a plea of nolo contendere, or its equivalent, or an entry of an order of probation prior to judgment shall not create a presumption (other than any presumption arising as a matter of law that the parties may not contractually agree to disregard) that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. 9. Non-exclusivity. The rights of Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Bylaws or Certificate of Incorporation or the Delaware General Corporation Law or otherwise. To the extent that a change in the Delaware General Corporation Law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Bylaws or Certificate of Incorporation and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by that change. Indemnitee's rights under this Agreement shall not -7- 8 be diminished by any amendment to the Certificate of Incorporation or Bylaws, or of any other agreement or instrument to which Indemnitee is not a party, and shall not diminish any other rights that Indemnitee now or in the future has against the Company. 10. Liability Insurance. Except as otherwise agreed to by the Company and Indemnitee in a written agreement, to the extent the Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by that policy or those policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director or officer. 11. Period of Limitations. No action, lawsuit, or proceeding may be brought against Indemnitee or Indemnitee's spouse, heirs, executors, or personal or legal representatives, nor may any cause of action be asserted in any such action, lawsuit, or proceeding, by or on behalf of the Company, after the expiration of two years after the statute of limitations commences with respect to Indemnitee's act or omission that gave rise to the action, lawsuit, proceeding, or cause of action; provided, however, that, if any shorter period of limitations is otherwise applicable to any such action, lawsuit, proceeding, or cause of action, the shorter period shall govern. 12. Amendments. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any provision of this Agreement shall be effective unless in a writing signed by the party granting the waiver. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall that waiver constitute a continuing waiver. 13. Other Sources. Indemnitee shall not be required to exercise any rights that Indemnitee may have against any other Person (for example, under an insurance policy) before Indemnitee enforces his rights under this Agreement. However, to the extent the Company actually indemnifies Indemnitee or advances him Expenses, the Company shall be subrogated to the rights of Indemnitee and shall be entitled to enforce any such rights which Indemnitee may have against third parties. Indemnitee shall assist the Company in enforcing those rights if it pays his costs and expenses of doing so. If Indemnitee is actually indemnified or advanced Expenses by any third party, then, for so long as Indemnitee is not required to disgorge the amounts so received, to that extent the Company shall be relieved of its obligation to indemnify Indemnitee or advance Indemnitee Expenses. 14. Binding Effect. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor by merger or consolidation), spouses, heirs, and personal and legal representatives. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as an officer or director of the Company or another enterprise at the Company's request. 15. Severability. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term hereof, that provision shall be fully severable; this Agreement shall be construed and enforced as if that illegal, invalid, or unenforceable provision had never comprised a part hereof; and the remaining provisions shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable -8- 9 provision or by its severance from this Agreement. Furthermore, in lieu of that illegal, invalid, or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to the illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable. 16. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in that state without giving effect to the principles of conflicts of laws. 17. Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 18. Notices. Whenever this Agreement requires or permits notice to be given by one party to the other, such notice must be in writing to be effective and shall be deemed delivered and received by the party to whom it is sent upon actual receipt (by any means) of such notice. Receipt of a notice by the Secretary of the Company shall be deemed receipt of such notice by the Company. 19. Complete Agreement. This Agreement constitutes the complete understanding and agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings between the parties with respect to the subject matter hereof, other than any indemnification rights that Indemnitee may enjoy under the Certificate of Incorporation, the Bylaws, or the Delaware General Corporation Law. 20. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but in making proof hereof it shall not be necessary to produce or account for more than one such counterpart. [Remainder of page intentionally left blank] -9- 10 EXECUTED as of the date first written above. CAPSTAR BROADCASTING CORPORATION By: /S/ William S. Banowsky, Jr. ------------------------------------- William S. Banowsky, Jr. Executive Vice President and General Counsel INDEMNITEE: ---------------------------------------------- [See Schedule I attached hereto] -10- 11 SCHEDULE I Thomas O. Hicks Lawrence D. Stuart Eric C. Neuman R. Gerald Turner Paul D. Stone R. Steven Hicks Kathy Archer William S. Banowsky, Jr. Warren Taylor Kim Borron Michelle McDonald Kevin Mischnick -11- EX-10.10 11 EMPLOYMENT AGMT - 7/1/97 - PAUL D. STONE 1 EXHIBIT 10.10 EXECUTIVE EMPLOYMENT AGREEMENT THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of the 1st day of July, 1997 by and between Capstar Broadcasting Corporation, a Delaware corporation (together with its successors and assigns permitted hereunder, the "Company"), Paul D. Stone (the "Executive") and, for certain limited purposes set forth in Section 11(l), Capstar Broadcasting Partners, Inc., a Delaware corporation ("Capstar"); WHEREAS, effective as of June 20, 1997, the holders of common stock of Capstar effected an exchange (the "Exchange") of all outstanding shares of common stock of Capstar for shares of common stock of the Company, subsequent to which Capstar became a majority-owned subsidiary of the Company; WHEREAS, prior to the date hereof, the Executive has served as Chief Financial Officer and Executive Vice President of Capstar pursuant to the terms of the Employment Agreement dated as of January 1, 1997 (the "Prior Agreement"), by and between the Executive and Capstar, and the Executive has acquired special and unique knowledge, abilities and expertise with respect to the business of Capstar and the Company; and WHEREAS, the parties hereto deem it desirable and in the best interest of the Company and its stockholders for Capstar and the Executive to terminate the Prior Agreement effective as of the date of this Agreement and for the Company 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 as of the date of this Agreement 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 Chief Financial Officer and Executive Vice President 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 to such positions, and shall have such other powers and duties (including holding officer positions with the Company 2 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 Chief Financial Officer and Executive Vice President 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 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 $200,000. 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 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"). 2 3 (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 $850, 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. (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, the Company may, from time to time, grant Executive stock options (the "Executive Options") exercisable for shares of capital stock of the Company 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. Any such Executive Options will be granted under the Company's 1997 Stock Option Plan or a successor plan of the Company (the "Stock Option Plan"). (x) Relocation Expenses. During the term of the Executive's employment, the Executive shall be repaid, on a monthly basis, the reasonable expenses incurred by the Executive in (1) commuting from Dallas to Austin until the earlier of (A) December 31, 1997, or (B) the date on which the Executive relocates his family to Austin, and (2) relocating his family from Dallas to Austin. (xi) Country Club. During the term of the Executive's employment, the Company shall pay (1) the initiation fee (up to $15,000) for the Executive to join a country club in the Austin, Texas area, and (2) the Executive's regular monthly dues at such club. 3 4 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 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: 4 5 (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); (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. 5 6 (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. 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 6 7 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 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 7 8 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 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 8 9 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 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. 9 10 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 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: Paul D. Stone ------------------- Capstar Broadcasting Corporation 600 Congress Avenue, Suite 1400 Austin, Texas 78701 If to the Company: Capstar Broadcasting Corporation ----------------- c/o Hicks, Muse, Tate & Furst Incorporated 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 10 11 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 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. 11 12 (k) Sections 6 and 9 of this Agreement shall survive the termination of this Agreement. (l) Capstar and the Executive acknowledge that the Prior Agreement is terminated effective as of the date of this Agreement, that no default exists thereunder on the part of either Capstar or the Executive as to their respective obligations under the Prior Agreement and that all rights, duties and obligations under the Prior Agreement of either Capstar or the Executive are hereby extinguished. 12 13 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/ Paul D. Stone ---------------------------------------------- Paul D. Stone CAPSTAR BROADCASTING CORPORATION /s/ R. Steven Hicks ---------------------------------------------- By: R. Steven Hicks Title: President and Chief Executive Officer For the limited purposes set forth in Section 11(l): CAPSTAR BROADCASTING PARTNERS, INC. /s/ R. Steven Hicks ---------------------------------------------- By: R. Steven Hicks Title: President and Chief Executive Officer EX-10.11 12 EMPLOYMENT AGREEMENT - WILLIAM S. BANOWSKY, JR. 1 EXHIBIT 10.11 EXECUTIVE EMPLOYMENT AGREEMENT THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of the 1st day of July, 1997 by and between Capstar Broadcasting Corporation, a Delaware corporation (together with its successors and assigns permitted hereunder, the "Company"), William S. Banowsky, Jr. (the "Executive") and, for certain limited purposes set forth in Section 11(l), Capstar Broadcasting Partners, Inc. ("Capstar"). WHEREAS, effective as of June 20, 1997, the holders of common stock of Capstar effected an exchange (the "Exchange") of all outstanding shares of common stock of Capstar for shares of common stock of the Company, subsequent to which Capstar became a majority-owned subsidiary of the Company; WHEREAS, prior to the date hereof, the Executive has served as General Counsel and Executive Vice President of Capstar pursuant to the terms of the Employment Agreement dated as of January 1, 1997 (the "Prior Agreement"), by and between the Executive and Capstar, and the Executive has acquired special and unique knowledge, abilities and expertise with respect to the business of Capstar and the Company; and WHEREAS, the parties hereto deem it desirable and in the best interest of the Company and its stockholders for Capstar and the Executive to terminate the Prior Agreement effective as of the date of this Agreement and for the Company 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 as of the date of this Agreement 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 General Counsel and Executive Vice President 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 to such positions, and shall have such other powers and duties (including holding officer positions with the Company and 2 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 General Counsel and Executive Vice President 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 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 $200,000. 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 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"). 2 3 (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 $850, 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. (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, the Company may, from time to time, grant Executive stock options (the "Executive Options") exercisable for shares of capital stock of the Company 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. Any such Executive Options will be granted under the Company's 1997 Stock Option Plan or a successor plan of the Company (the "Stock Option Plan"). (x) Relocation Expenses. During the term of the Executive's employment, the Executive shall be repaid, on a monthly basis, the reasonable expenses incurred by the Executive in (1) commuting from Dallas to Austin until the earlier of (A) December 31, 1997, or (B) the date on which the Executive relocates his family to Austin, and (2) relocating his family from Dallas to Austin. (xi) Country Club. During the term of the Executive's employment, the Company shall pay (1) the initiation fee (up to $15,000) for the Executive to join a country club in the Austin, Texas area, and (2) the Executive's regular monthly dues at such club. 3 4 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 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: 4 5 (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); (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. 5 6 (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. 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 6 7 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 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. 7 8 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 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 8 9 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 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. 9 10 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 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: William S. Banowsky, Jr. Capstar Broadcasting Corporation 600 Congress Avenue, Suite 1400 Austin, Texas 78701 If to the Company: Capstar Broadcasting Corporation c/o Hicks, Muse, Tate & Furst Incorporated 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 10 11 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 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. 11 12 (k) Sections 6 and 9 of this Agreement shall survive the termination of this Agreement. (l) Capstar and the Executive acknowledge that the Prior Agreement is terminated effective as of the date of this Agreement, that no default exists thereunder on the part of either Capstar or the Executive as to their respective obligations under the Prior Agreement and that all rights, duties and obligations under the Prior Agreement of either Capstar or the Executive are hereby extinguished. 12 13 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/ William S. Banowsky, Jr. ------------------------------------------- William S. Banowsky, Jr. CAPSTAR BROADCASTING CORPORATION /s/ R. Steven Hicks ------------------------------------------- By: R. Steven Hicks Title: President and Chief Executive Officer For the limited purposes set forth in Section 11(l): CAPSTAR BROADCASTING PARTNERS, INC. /s/ R. Steven Hicks ------------------------------------------- By: R. Steven Hicks Title: President and Chief Executive Officer EX-10.17 13 1997 STOCK OPTION PLAN OF THE COMPANY 1 EXHIBIT 10.17 CAPSTAR BROADCASTING CORPORATION 1997 STOCK OPTION PLAN 1. Purpose. Capstar Broadcasting Corporation, a Delaware corporation (herein, together with its successors, referred to as the "Company"), by means of this 1997 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. 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 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 2 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 Class A 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. 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 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 3 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 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; 4 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 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 5 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 of 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 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 6 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: 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 7 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 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 8 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 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. 9 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 1997 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. 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 10 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 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 11 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 1997 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. 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 12 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 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. 13 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. 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. 14 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-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 15 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 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. 16 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. ai. "Options" shall have the meaning set forth in Section 1 hereof. aii. "Person" shall have the meaning set forth in Section 4 hereof, aiii. "Plan" shall have the meaning set forth in Section 1 hereof. aiv. "Purchasable Shares" shall have the meaning set forth in Section 9 hereof. av. "Purchase Option" shall have the meaning set forth in Section 9 hereof. avi. "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. 17 avii. "Related Entities" shall have the meaning set forth in Section 1 hereof. aviii. "Reorganization" shall have the meaning set forth in Section 10 hereof. aix. "Right of First Refusal" shall have the meaning set forth in Section 11.b. hereof. ax. "Rule 16b-3" shall mean Rule 16b-3 as amended, or other applicable rules, under Section 16(b) of the Exchange Act. axi. "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". axii. "Sale Notice" shall have the meaning set forth in Section 11.b hereof. axiii. "Securities Act" shall mean the Securities Act of 1933, as amended. axiiii. "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. axiv. "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 18 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 June 19, 1997, the date on which it was approved by the Board of Directors of the Company and the stockholders of the Company. EX-10.18.1 14 FORM OF INCENTIVE STOCK OPTION AGREEMENT 1 EXHIBIT 10.18.1 THE SHARES ISSUABLE PURSUANT TO THIS AGREEMENT ARE SUBJECT TO AN OPTION TO REPURCHASE AND A RIGHT OF FIRST REFUSAL PROVIDED UNDER THE PROVISIONS OF THE COMPANY'S 1997 STOCK OPTION PLAN AND THIS AGREEMENT ENTERED INTO PURSUANT THERETO. A COPY OF SUCH PLAN IS AVAILABLE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES. CAPSTAR BROADCASTING CORPORATION 1997 STOCK OPTION PLAN INCENTIVE STOCK OPTION AGREEMENT June 20, 1997 Address Re: Grant of Stock Option Dear [SEE SCHEDULE I ATTACHED HERETO]: The Board of Directors of Capstar Broadcasting Corporation (the "Company") has adopted the Company's 1997 Stock Option Plan (the "Plan") for certain individuals, directors and key employees of the Company and its Related Entities. A copy of the Plan is being furnished to you concurrently with the execution of this Option Agreement and shall be deemed a part of this Option Agreement as if fully set forth herein. Unless the context otherwise requires, all terms defined in the Plan shall have the same meaning when used herein. 1. The Grant. Subject to the conditions set forth below, the Company hereby grants to you, effective as of [SEE SCHEDULE I ATTACHED HERETO] (the "Grant Date"), as a matter of separate inducement and not in lieu of any salary or other compensation for your services, the right and option to purchase (the "Option"), in accordance with the terms and conditions set forth herein and in the Plan, an aggregate of [SEE SCHEDULE I ATTACHED HERETO] shares of Common Stock of the Company (the "Option Shares"), at the Exercise Price (as hereinafter defined). As used herein, the term "Exercise Price" shall mean a price equal to [SEE SCHEDULE I ATTACHED HERETO] per share, subject to the adjustments and limitations set forth herein and in the Plan. The Option granted hereunder is intended to constitute an Incentive Option within the meaning of the Plan; however, you should consult with your tax advisor concerning the proper reporting of any federal or state tax liability that may arise as a result of the grant or exercise of the Option. 2. Exercise. (a) For purposes of this Option Agreement, the Option Shares shall be deemed "Nonvested Shares" unless and until they have become "Vested Shares." Except as otherwise 2 provided in Section 3, the Option Shares shall become "Vested Shares" with respect to 20% of the Option Shares, on the first anniversary of the Grant Date, and 1/60th of the Option Shares shall vest on the last day of each calendar month thereafter, so that all of the Option Shares shall be vested 60 months after the Grant Date, provided that vesting shall cease upon your ceasing to be an employee of the Company or a Related Entity as expressly provided in Section 3 hereof. (b) Subject to the relevant provisions and limitations contained herein and in the Plan, you may exercise the Option to purchase all or a portion of the applicable number of Vested Shares at any time prior to the termination of the Option pursuant to this Option Agreement. In no event shall you be entitled to exercise the Option for any Nonvested Shares or for a fraction of a Vested Share. (c) The unexercised portion of the Option, if any, will automatically, and without notice, terminate and become null and void upon the expiration of six (6) years from the Grant Date; provided, however, if on the Grant Date you own stock of the Company, or any Related Entity, possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Related Entity, such Option shall become null and void upon the expiration of five (5) years from the Grant Date. (d) Any exercise by you of the Option shall be in writing addressed to the Secretary of the Company at its principal place of business (a copy of the form of exercise to be used will be available upon written request to the Secretary), and shall be accompanied by a certified or bank check payable to the order of the Company in the full amount of the Exercise Price of the shares so purchased, or in such other manner as described in the Plan and approved by the Committee. The terms and provisions of the employment agreement, if any, between you and the Company or any Related Entity (the "Employment Agreement") that relate to or affect the Option are incorporated herein by reference. Notwithstanding the foregoing provisions of this Section 2, in the event of any conflict or inconsistency between the terms and conditions of this Section 2 and the terms and conditions of the Employment Agreement, the terms and conditions of the Employment Agreement shall be controlling. 3. Termination of Employment. Upon the termination of your employment with the Company or any Related Entity, you may, until the earlier of (x) 30 days from the date of such termination or (y) the expiration of the Option in accordance with its terms, exercise the Option with respect to all or any part of the Vested Shares which you were entitled to purchase immediately prior to such termination and, thereafter, the Option shall, to the extent not previously exercised, automatically terminate and become null and void, provided that: (a) in the case of termination of your employment with the Company or any Related Entity due to death, your estate (or any Person who acquired the right to exercise such Option by bequest or inheritance or otherwise by reason of your death) may, until the earlier of (x) the 181st day after the date of death or (y) the expiration of the Option in accordance with its terms, 2 3 exercise the Option with respect to all or any part of the Vested Shares which you were entitled to purchase immediately prior to the time of your death; (b) in the case of termination of your employment with the Company or any Related Entity due to Disability, you or your legal representative may, until the earlier of (x) the 181st day after the date your employment was terminated or (y) the expiration of the Option in accordance with its terms, exercise the Option with respect to all or any part of the Vested Shares which you were entitled to purchase immediately prior to the time of such termination; (c) in the case of termination of your employment with the Company or any Related Entity (i) for Good Cause (as determined by the Committee in its sole judgment in accordance with the Plan and this Agreement), then you shall immediately forfeit your rights under the Option except as to those Option Shares already purchased. Notwithstanding the foregoing provisions of this Section 3, in the event of any conflict or inconsistency between the terms and conditions of this Section 3 and the terms and conditions of the Employment Agreement, the terms and conditions of the Employment Agreement shall be controlling. 4. Transferability. Except as provided in Section 7 hereof, the Option and any rights or interests therein are not assignable or transferable by you except by will or the laws of descent and distribution, and during your lifetime, the Option shall be exercisable only by you or, in the event that a legal representative has been appointed in connection with your Disability, such legal representative. Any Option Shares received upon exercise of this Option are subject to the Company's Right of First Refusal (as defined in the Plan). To assure the enforceability of the Company's rights under this Section 4 in regard to the Right of First Refusal, each certificate or instrument representing Common Stock or an Option held by you shall bear a conspicuous legend in substantially the following form: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL PROVIDED UNDER THE PROVISIONS OF THE COMPANY'S 1997 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. 5. Registration. The Company shall not in any event be obligated to file any registration statement under the Securities Act or any applicable state securities laws to permit exercise of the Option or to issue any Common Stock in violation of the Securities Act or any applicable state securities laws. You (or in the event of your death or, in the event a legal representative has been appointed in connection with 3 4 your Disability, the Person exercising the Option) shall, as a condition to your right to exercise the 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 the Option Shares pursuant to such exercise is not required to be registered under the Securities Act or any applicable state securities laws. Certificates for Option Shares, when issued, shall have substantially the following legend, or statements of other applicable restrictions, endorsed thereon, and may not be immediately transferable: 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 LAWS. The foregoing legend may not be required for Option Shares issued pursuant to an effective registration statement under the Securities Act and in accordance with applicable state securities laws. 6. Withholding Taxes. By acceptance hereof, you hereby (i) agree to reimburse the Company or any Related Entity by which you are employed for any federal, state or local taxes required by any government to be withheld or otherwise deducted by such corporation in respect of your exercise of all or a portion of the Option, (ii) authorize the Company or any Related Entity by which you are employed to withhold from any cash compensation paid to you or on your behalf, an amount sufficient to discharge any federal, state and local taxes imposed on the Company, or the Related Entity by which you are employed, and which otherwise has not been reimbursed by you, in respect of your exercise of all or a portion of the Option, and (iii) agree that the Company may, in its discretion, hold the stock certificate to which you are 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. 7. Purchase Option. (a) If (i) your employment 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, you (or your executor or the administrator of your estate or the Person who acquired the right to exercise the 4 5 Option by bequest or inheritance in the event of your death, or your legal representative in the event of your 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 Option Shares and/or the Option held by the Grantor (such Option Shares and Option collectively being referred to as 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 (1) year from the date of the termination of your 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 Option Shares, the Fait Market Value per share times the number of shares being purchased, and in the case of the 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 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 (10) 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 7, each certificate or instrument representing Option Shares subject to this Option Agreement shall bear a conspicuous legend in substantially the following form: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN OPTION TO REPURCHASE PROVIDED UNDER THE PROVISIONS OF THE COMPANY'S 1997 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. (e) The Company's rights under this Section 7 shall terminate upon the consummation of a Qualifying Public Offering (as defined in the Plan). 5 6 8. Consent to Approved Sale. If the Board and the holders of a majority of the Common Stock then outstanding approve the Sale of the Company to an independent third party (the "Approved Sale"), you shall consent to and raise no objections against the Approved Sale, and if the Approved Sale is structured as a sale of capital stock, you shall agree to sell all of your Option Shares and rights to acquire Option Shares on the terms and conditions approved by the Board of Directors and the holders of a majority of the Common Stock then outstanding. You shall take all necessary and desirable actions in connection with the consummation of the Approved Sale. For purposes of this Section 8, an "independent third party" is any person who does not own in excess of 5% of the Common Stock on a fully-diluted basis, who is not controlling, controlled by or under common control with any such 5% owner of the Common Stock and who is not the spouse, ancestor, descendant (by birth or adoption) or descendent of a grandparent of any such 5% owner of the Common Stock. If the Company or the holders of the Company's securities enter into any negotiation or transaction for which Rule 506 (or any similar rule then in effect) promulgated pursuant to the Securities Act may be available with respect to such negotiation or transaction (including a merger, consolidation or other reorganization), you shall, at the request of the Company, appoint a purchaser representative (as such term is defined in Rule 501 promulgated pursuant to the Securities Act) reasonably acceptable to the Company. If you appoint the purchaser representative designated by the Company, the Company will pay the fees of such purchaser representative, but if you decline to appoint the purchaser representative designated by the Company you shall appoint another purchaser representative (reasonably acceptable to the Company), and you shall be responsible for the fees of the purchaser representative so appointed. 9. Adjustments. 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 Option Shares 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 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 the Option not to be an "incentive stock option" for purposes of Section 422 of the Code. 10. Miscellaneous. (a) This Option 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. (b) This Option Agreement is not a contract of employment and the terms of your employment shall not be affected by, or construed to be affected by, this Option Agreement, except 6 7 to the extent specifically provided herein. Nothing herein shall impose, or be construed as imposing, any obligation (i) on the part of the Company or any Related Entity to continue your employment, or (ii) on your part to remain in the employ of the Company or any Related Entity. (c) This Option Agreement may be amended as provided in Section 19 of the Plan. [Remainder of page intentionally left blank] 7 8 Please indicate your acceptance of all the terms and conditions of the Option and the Plan by signing and returning a copy of this Option Agreement. Very truly yours, CAPSTAR BROADCASTING CORPORATION By: -------------------------- Name: ------------------------ Title: ----------------------- ACCEPTED: - -------------------------------- Signature of Optionee [SEE SCHEDULE I ATTACHED HERETO] - -------------------------------- Name of Optionee (Please Print) Date: June 20, 1997 8 9
SCHEDULE I ---------- Name Grant Date Option Shares Exercise Price/Share ----- ---------- ------------- -------------------- James T. Shea* 11/26/96 300,000 $1.00 Jay Sterin* 10/16/96 294,700 1.00 Charles Di Toro* 10/16/96 205,800 1.00 Judy Jennings* 11/26/96 113,820 1.00 Patia Gaugh* Various 75,000 Various Sharon Chambers* Various 100,000 Various Scott Bacherman* 11/26/96 243,600 1.00 Rich Lewis* 11/26/96 205,800 1.00 Marc Berman* 11/26/96 190,960 1.00 R. Steven Hicks 02/20/97 454,545 1.10 William S. Banowsky, Jr. 02/20/97 454,545 1.10 Paul D. Stone 02/20/97 454,545 1.10 Kathy Archer 02/20/97 10,000 1.10 Brian Check* 11/18/96 54,820 1.00 Rich Dickerson* 11/18/96 54,880 1.00 Lisa Dollinger 02/20/97 10,000 1.10 Robin Faller* 11/18/96 31,300 1.00 Dan Dougherty* 11/18/96 31,300 1.00 Sandy Fry 02/20/97 10,000 1.10 Bill Hess* 11/18/96 41,300 1.00 Doug Hillard* 11/18/96 68,600 1.00 Kaci Kearns* 11/18/96 34,250 1.00 Jill LaPierre* 02/03/97 27,400 1.00 Gail Laubach* 11/18/96 41,300 1.00 Greg Martin* 11/18/96 57,450 1.00 Suzanne Martinelli* 11/18/96 68,600 1.00 Kabir Master* 11/18/96 27,400 1.00 Peter Mutino* 11/18/96 27,400 1.00 Lorna Potter* 11/18/96 57,450 1.00
9 10
Name Grant Date Option Shares Exercise Price/Share ---- ---------- ------------- -------------------- Faith Ringelheim* 11/18/96 27,400 $1.00 Chris Taylor* 11/18/96 68,600 1.00 Warren Taylor 02/20/97 20,000 1.10 Michael Waite* 11/18/96 34,250 1.00 Dave Widmer* 11/18/96 57,450 1.00 Bill McMartin 02/20/97 50,000 1.10 Larry Anderson 02/20/97 50,000 1.10 Mike Mangan 02/20/97 50,000 1.10 Charlie Hillebrand 02/20/97 40,000 1.10 Mark Bass 02/20/97 30,000 1.10 Glenn Powers 02/20/97 30,000 1.10 Pete Longley 02/20/97 10,000 1.10 Kenn Maas 02/20/97 10,000 1.10 Hilda Bebo 02/20/97 5,000 1.10 John Soller 02/20/97 5,000 1.10 James Pagano* 11/18/96 41,300 1.00
*Such Option Agreements provide that the option shares shall vest in three equal, consecutive installments, commencing on the first anniversary of the grant date. 10 EX-10.18.2 15 FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT 1 EXHIBIT 10.18.2 THE SHARES ISSUABLE PURSUANT TO THIS AGREEMENT ARE SUBJECT TO AN OPTION TO REPURCHASE AND A RIGHT OF FIRST REFUSAL PROVIDED UNDER THE PROVISIONS OF THE COMPANY'S 1996 STOCK OPTION PLAN AND THIS AGREEMENT IS ENTERED INTO PURSUANT THERETO. A COPY OF SUCH PLAN IS AVAILABLE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES. CAPSTAR BROADCASTING PARTNERS, INC. 1996 STOCK OPTION PLAN NON-QUALIFIED STOCK OPTION AGREEMENT FOR KEY EMPLOYEES February 20, 1997 Re: Grant of Stock Option Dear [See Schedule I attached hereto] The Board of Directors Capstar Broadcasting Partners, Inc. (the "Company") has adopted the Company's 1996 Stock Option Plan (the "Plan") for certain individuals, directors and key employees of the Company and its Related Entities. A copy of the Plan is being furnished to you concurrently with the execution of this Option Agreement and shall be deemed a part of this Option Agreement as if fully set forth herein. Unless the context otherwise requires, all terms defined in the Plan shall have the same meaning when used herein. 1. The Grant. Subject to the conditions set forth below, the Company hereby grants to you, effective as of [See Schedule I attached hereto] ("Grant Date"), as a matter of separate inducement and not in lieu of any salary or other compensation for your services, the right and option to purchase (the "Option"), in accordance with the terms and conditions set forth herein and in the Plan, an aggregate of [See Schedule I attached hereto] shares of Common Stock of the Company (the "Option Shares"), at the Exercise Price (as hereinafter defined). As used herein, the term "Exercise Price" shall mean a price equal to [See Schedule I attached hereto] per share, subject to the adjustments and limitations set forth herein and in the Plan. The Option granted hereunder is intended to constitute a Non-Qualified Option within the meaning of the Plan; however, you should consult with your tax advisor concerning the proper reporting of any federal or state tax liability that may arise as a result of the grant or exercise of the Option. 2. Exercise. (a) For purposes of this Option Agreement, the Option Shares shall be deemed "Nonvested Shares" unless and until they have become "Vested Shares." Except as otherwise provided in Section 3, the Option Shares shall become "Vested Shares" with respect to 20% of the Option Shares, on the first anniversary of the Grant Date, and 1/60th of the Option Shares shall vest on the last day of each calendar month thereafter, so that all of the Option Shares shall be vested 60 months after the Grant Date, provided that 2 vesting shall cease upon your ceasing to be an employee of the Company or a Related Entity as expressly provided in Section 3 hereof. (b) Subject to the relevant provisions and limitations contained herein and in the Plan, you may exercise the Option to purchase all or a portion of the applicable number of Vested Shares at any time prior to the termination of the Option pursuant to this Option Agreement. In no event shall you be entitled to exercise the Option for any Nonvested Shares or for a fraction of a Vested Share. (c) The unexercised portion of the Option, if any, will automatically, and without notice, terminate and become null and void upon the expiration of six (6) years from the Grant Date. (d) Any exercise by you of the Option shall be in writing addressed to the Secretary of the Company at its principal place of business (a copy of the form of exercise to be used will be available upon written request to the Secretary), and shall be accompanied by a certified or bank check payable to the order of the Company in the full amount of the Exercise Price of the shares so purchased, or in such other manner as described in the Plan and approved by the Committee. The terms and provisions of the employment agreement, if any, between you and the Company or any Related Entity (the "Employment Agreement") that relate to or affect the Option are incorporated herein by reference. Notwithstanding the foregoing provisions of this Section 2, in the event of any conflict or inconsistency between the terms and conditions of this Section 2 and the terms and conditions of the Employment Agreement, the terms and conditions of the Employment Agreement shall be controlling. 3. Termination of Employment. Upon the termination of your employment with the Company or any Related Entity, you may, until the earlier of (x) 30 days from the date of such termination or (y) the expiration of the Option in accordance with its terms, exercise the Option with respect to all or any part of the Vested Shares which you were entitled to purchase immediately prior to such termination and, thereafter, the Option shall, to the extent not previously exercised, automatically terminate and become null and void, provided that: (a) in the case of termination of your employment with the Company or any Related Entity due to death, your estate (or any Person who acquired the right to exercise such Option by bequest or inheritance or otherwise by reason of your death) may, until the earlier of (x) the 181st day after the date of death or (y) the expiration of the Option in accordance with its terms, exercise the Option with respect to all or any part of the Vested Shares which you were entitled to purchase immediately prior to the time of your death; (b) in the case of termination of your employment with the Company or any Related Entity due to Disability, you or your legal representative may, until the earlier of (x) the 181st day after the date your employment was terminated or (y) the expiration of the Option in accordance with its terms, exercise the Option with respect to all or any part of the Vested Shares which you were entitled to purchase immediately prior to the time of such termination; (c) in the case of termination of your employment with the Company or any Related Entity for Good Cause (as determined by the Committee in its sole judgment in accordance with the Plan and this Agreement), then you shall immediately forfeit your rights under the Option except as to those Option Shares already purchased. -2- 3 Notwithstanding the foregoing provisions of this Section 3, in the event of any conflict or inconsistency between the terms and conditions of this Section 3 and the terms and conditions of the Employment Agreement, the terms and conditions of the Employment Agreement shall be controlling. 4. Transferability. Except as provided in Section 7 hereof, the Option and any rights or interests therein are not assignable or transferable by you except by will or the laws of descent and distribution, and during your lifetime, the Option shall be exercisable only by you or, in the event that a legal representative has been appointed in connection with your Disability, such legal representative. Any Option Shares received upon exercise of this Option are subject to the Company's Right of First Refusal (as defined in the Plan). To assure the enforceability of the Company's rights under this Section 4 in regard to the Right of First Refusal, each certificate or instrument representing Common Stock or an Option held by you shall bear a conspicuous legend in substantially the following form: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL 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. 5. Registration. The Company shall not in any event be obligated to file any registration statement under the Securities Act or any applicable state securities laws to permit exercise of the option or to issue any Common Stock in violation of the Securities Act or any applicable state securities laws. You (or in the event of your death or, in the event a legal representative has been appointed in connection with your Disability, the Person exercising the Option) shall, as a condition to your right to exercise the 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 the Option Shares pursuant to such exercise is not required to be registered under the Securities Act or any applicable state securities laws. Certificates for Option Shares, when issued, shall have substantially the following legend, or statements of other applicable restrictions, endorsed thereon, and may not be immediately transferable: 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 LAWS. The foregoing legend may not be required for Option Shares issued pursuant to an effective, registration statement under the Securities Act and in accordance with applicable state securities laws. -3- 4 6. Withholding Taxes. By acceptance hereof, you hereby (i) agree to reimburse the Company or any Related Entity by which you are employed for any federal, state or local taxes required by any government to be withheld or otherwise deducted by such corporation in respect of your exercise of all or a portion of the Option, (ii) authorize the Company or any Related Entity by which you are employed to withhold from any cash compensation paid to you or on your behalf, an amount sufficient to discharge any federal, state and local taxes imposed on the Company, or the Related Entity by which you are employed, and which otherwise has not been reimbursed by you, in respect of your exercise of all or a portion of the Option, and (iii) agree that the Company may, in its discretion, hold the stock certificate to which you are 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. 7. Purchase Option. (a) If (i) your employment 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, you (or your executor or the administrator of your estate or the Person who acquired the right to exercise the Option by bequest or inheritance in the event of your death, or your legal representative in the event of your 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 Option Shares and/or the Option held by the Grantor (such Option Shares and Option collectively being referred to as 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 (1) year from the date of the termination of your 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 Option Shares, the Fair Market Value per share times the number of shares being purchased, and in the case of the 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 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 (10) 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 7, each certificate or instrument representing Option Shares subject to this Option Agreement shall bear a conspicuous legend in substantially the following form: -4- 5 THE SHARES REPRESENTED BY THIS CERTIFICATE 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. (e) The Company's rights under this Section 7 shall terminate upon the consummation of a Qualifying Public Offering 8. Consent to Approved Sale. If the Board and the holders of a majority of the Common Stock then outstanding approve the Sale of the Company to an independent third party (the "Approved Sale"), you shall consent to and raise no objections against the Approved Sale, and if the Approved Sale is structured as a sale of capital stock, you shall agree to sell all of your Option Shares and rights to acquire Option Shares on the terms and conditions approved by the Board of Directors and the holders of a majority of the Common Stock then outstanding. You shall take all necessary and desirable actions in connection with the consummation of the Approved Sale. For purposes of this Section 8, an "independent third party" is any person who does not own in excess of 5% of the Common Stock on a fully-diluted basis, who is not controlling, controlled by or under common control with any such 5% owner of the Common Stock and who is not the spouse, ancestor, descendant (by birth or adoption) or descendent of a grandparent of any such 5% owner of the Common Stock. If the Company or the holders of the Company's securities enter into any negotiation or transaction for which Rule 506 (or any similar rule then in effect) promulgated pursuant to the Securities Act may be available with respect to such negotiation or transaction (including a merger, consolidation or other reorganization), you shall, at the request of the Company, appoint a purchaser representative (as such term is defined in Rule 501 promulgated pursuant to the Securities Act) reasonably acceptable to the Company. If you appoint the purchaser representative designated by the Company, the Company will pay the fees of such purchaser representative, but if you decline to appoint the purchaser representative designated by the Company you shall appoint another purchaser representative (reasonably acceptable to the Company), and you shall be responsible for the fees of the purchaser representative so appointed. 9. Adjustments. 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 Option Shares 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. -5- 6 10. Miscellaneous. (a) This Option 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. (b) This Option Agreement is not a contract of employment and the terms of your employment shall not be affected by, or construed to be affected by, this Option Agreement, except to the extent specifically provided herein. Nothing herein shall impose, or be construed as imposing, any obligation (i) on the part of the Company or any Related Entity to continue your employment, or (ii) on your part to remain in the employ of the Company or any Related Entity. (c) This Option Agreement may be amended as provided in Section 19 of the Plan. [Remainder of page intentionally left blank] -6- 7 Please indicate your acceptance of all the terms and conditions of the Option and the Plan by signing and returning a copy of this Option Agreement. Very truly yours, CAPSTAR BROADCASTING PARTNERS, INC. By: ----------------------------------- Paul D. Stone Chief Financial Officer and Executive Vice President ACCEPTED: - -------------------------------- Signature of Optionee [See Schedule I attached hereto] - -------------------------------- Name of Optionee (Please Print) Date: February 20, 1997 8 SCHEDULE I
NAME GRANT DATE EXERCISE PRICE/SHARE OPTION SHARES ---- ---------- -------------------- ------------- Frank D. Osborn 02/20/97 $1.10 1,500,000 James T. Shea 11/26/96 1.00 420,880 R. Steven Hicks 02/20/97 1.10 395,455 William S. Banowsky, Jr. 02/20/97 1.10 395,455 Paul D. Stone 02/20/97 1.10 395,455
EX-10.19 16 1997 STOCK PURCHASE PLAN OF THE COMPANY 1 EXHIBIT 10.19 CAPSTAR BROADCASTING CORPORATION 1997 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 Corporation 1997 Stock Purchase Plan the (the "Plan") is to afford certain Key Employees (as hereinafter defined) of Capstar Broadcasting Corporation, 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 Class A Common Stock, par value $.0l 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. "Key Employee" has the meaning set forth in Section 4.1 hereto. 2 "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 3,000,000 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 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. 2 3 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. 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 by any 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. 3 4 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 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. 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 4 5 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. 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 5 6 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. 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. 6 7 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 June 19, 1997, the date on which it was approved by the Board of Directors. 7 8 EXHIBIT A FORM OF STOCKHOLDERS AGREEMENT [See Exhibit 10.21] 9 EXHIBIT B FORM OF NOTICE OF STOCK PURCHASE RIGHT GRANT 10 CONFIDENTIAL Interoffice CAPSTAR BROADCASTING CORPORATION Memorandum NOTICE OF STOCK PURCHASE RIGHT GRANT TO: ---------------------------- FROM: William S. Banowsky, Jr. Executive Vice President DATE: ---------------------------- At the direction of the Committee (the "Committee") of the Board of Directors of Capstar Broadcasting Corporation (the "Company") which administers the Capstar Broadcasting Corporation 1997 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 $.0l per share (the "Common Stock"), of the Company at the price of $1.00 per share (for a total purchase price of $________) or to exchange _______ shares (the "Exchanged Shares") of common stock of Capstar Broadcasting Partners, Inc., par value $.0l per share, for __________ shares of Common Stock. 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 1997 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 the Exercise Agreement and the Stockholders Agreement and the purchase price payable in cash by a cashier's or bank certified check, by delivering a stock certificate or certificates representing Exchanged Shares, 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: 11 Capstar Broadcasting Corporation 600 Congress Avenue Suite 1270 Austin, Texas 78701 Attention: William S. Banowsky, Jr. 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 delivery of a certificate or certificates representing the Exchanged Shares, if applicable; D. 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 E. 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) 404-6840. Enclosures 2 12 EXHIBIT C FORM OF EXERCISE AGREEMENT 13 Name: --------------------------------------- No. of Acquired Shares: --------------------- Total Amount Due (Purchase Price or Exchanged Shares): ------- EXERCISE AGREEMENT Capstar Broadcasting Corporation 600 Congress Avenue Suite 1270 Austin, Texas 78701 Attention: William S. Banowsky, Jr. Ladies and Gentlemen: The undersigned understands that Capstar Broadcasting Corporation, 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 1997 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, $.0l par value per share (the "Common Stock"), at an exercise price of $1.00 per share of Common Stock, or at an exchange rate of one share of common stock of Capstar Broadcasting Partners, Inc., par value $.0l per share (the "Partners Shares"), per share of Common Stock. 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 or exchangeable for such number of Partners Shares (the "Exchanged Shares"), as set forth above. 2. Payment. Either (a) a cashier's or bank certified check made payable to "Capstar Broadcasting Corporation" accompanies this Agreement in payment of the Purchase Price, net of any amount due and owing by the Company to the undersigned, or (b) or a certificate or certificates representing the Exchanged Shares accompanies this Agreement in consideration for the Acquired Shares. 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 Acquired Shares to the undersigned at the address set forth below the undersigned's signature hereto. 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: 14 (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. (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 2 15 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. (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. 3 16 (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. Stockholder Consent. The undersigned hereby acknowledges receipt of the CBC 1997 Stock Option Plan and the CBC 1997 Stock Purchase Plan (collectively, the "Plans"), attached hereto as Annexes A and B, respectively, and, effective upon the issuance of the Acquired Shares, hereby consents as a stockholder to the adoption of the Plans. 8. 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. 9. 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. 10. Counterparts. This Agreement may be executed and delivered (including by facsimile transmission) in multiple counterparts, and by the different parties hereto in separate counterparts, 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. 4 17 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 CORPORATION By: ----------------------------------- William S. Banowsky, Jr. Executive Vice President 18 ANNEX A CBC 1997 STOCK OPTION PLAN [See Exhibit 10.17] 19 ANNEX B CBC 1997 STOCK PURCHASE PLAN (THIS DOCUMENT) EX-10.20.4 17 3RD AMENDMENT TO AFFILIATE STOCKHOLDERS AGREEMENT 1 EXHIBIT 10.20.4 THIRD AMENDMENT TO STOCKHOLDERS AGREEMENT This THIRD AMENDMENT TO STOCKHOLDERS AGREEMENT (this "Third Amendment") amends that certain Stockholders Agreement, as amended, dated as of October 16, 1996 (the "Stockholders Agreement"), between 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") and is entered into effective June 20, 1997, by and among the Company, HMTF, certain securityholders listed on the signature pages hereto, and Capstar Broadcasting Corporation, a Delaware corporation ("Capstar Broadcasting"). A copy of the Stockholders Agreement is attached hereto as Exhibit A. RECITALS: WHEREAS, the stockholders of the Company have effected an exchange of all of the outstanding shares of the Company for all of the outstanding shares of Capstar Broadcasting; WHEREAS, as a result of such exchange, the Company is a wholly-owned subsidiary of Capstar Broadcasting; WHEREAS, the parties to the Stockholders Agreement desire to amend the Stockholders Agreement as provided herein pursuant to Section 10.7.2 of the Stockholders Agreement; WHEREAS, among other things, the parties to the Stockholders Agreement desire to replace the Company with Capstar as a party to the Stockholders Agreement for all purposes; 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. From and after the date hereof, the Company shall not be a party to the Stockholders Agreement. All references in the Stockholders Agreement to the Company shall hereby be deemed, from and after the date hereof, to refer to Capstar Broadcasting for all purposes. 2. Capstar Broadcasting hereby assumes and agrees to perform and discharge all of the Company's duties and obligations under the Stockholders Agreement that are to be performed from and after the date hereof. 3. "Common Stock" Definition. The definition of "Common Stock" set forth in Section 1.1 of the Stockholders Agreement is hereby amended and restated to read in its entirety as follows: "Common Stock" means (a) shares of Class A Common Stock, $0.01 par value per share, of the Company, (b) shares of Class B Common Stock, $0.01 par value per 2 share, of the Company, (c) shares of Class C Common Stock, $0.01 par value per share, of the Company, and (d) any capital stock into which any such shares of common stock thereafter may be changed. 4. "Excluded Registration" Definition. The definition of "Excluded Registration" in Section 1.1 of the Stockholders Agreement is hereby amended and restated to read in its entirety as follows: "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, (iii) securities registered to effect the acquisition of or combination with another Person and (iv) securities registered pursuant to any registration rights agreement to be entered into with the securityholders of Patterson Broadcasting, Inc., a Delaware corporation ("Patterson"), upon consummation of the Company's acquisition of Patterson. 5. Except as herein specifically amended or supplemented, the Stockholders Agreement shall continue in full force and effect in accordance with its terms. 6. This Third Amendment may be executed and delivered (including by facsimile transmission) in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. [Remainder of page intentionally left blank] 2 3 IN WITNESS WHEREOF, the parties have caused this Third Amendment to be duly executed, all as of the date first written above. CAPSTAR BROADCASTING PARTNERS, INC. By: /S/ Paul D. Stone ----------------------------------- Name: Paul D. Stone ----------------------------------- Title: Executive Vice President ---------------------------------- HICKS, MUSE, TATE & FURST INCORPORATED By: /S/ Eric C. Neuman ----------------------------------- Name: Eric C. Neuman ----------------------------------- Title: Senior Vice President ----------------------------------- CAPSTAR BROADCASTING PARTNERS, L.P. By: HM3/Capstar Partners, L.P., its General Partner By: HM3/Capstar, Inc. its General Partner By: /S/ Eric C. Neuman -------------------------- Name: Eric Neuman ------------------------- Title: Senior Vice President ------------------------ /S/ R. Steven Hicks R. Steven Hicks ---------------------------------------- /S/ Jason Mabry Jason Mabry ---------------------------------------- /S/ Kristen Lea Hicks ---------------------------------------- Kristen Lea Hicks 4 /S/ Shelly Mabry Ellard ---------------------------------------- Shelly Mabry Ellard /S/ Larry Taylor ---------------------------------------- Larry Taylor as Custodian for Robert S. Hicks, Jr. under the Texas Uniform Gifts to Minors Act /S/ Larry Taylor ---------------------------------------- Larry Taylor as Custodian for Brandon Vaughan Hicks under the Texas Uniform Gifts to Minors Act CAPSTAR BT PARTNERS, L.P. By: HM3/GP Partners, L.P., its General Partner By: Hicks, Muse GP Partners III, L.P., its General Partner By: Hicks, Muse Fund III Incorporated, its General Partner By: /S/ Eric C. Neuman --------------------------- Name: Eric C. Neuman ------------------------- Title: Senior Vice President ------------------------ 5 CAPSTAR BOSTON PARTNERS, L.L.C. By: HM3/GP Partners, L.P., its Manager By: Hicks, Muse GP Partners III, L.P., its General Partner By: Hicks, Muse Fund III Incorporated, its General Partner By: /S/ Eric C. Neuman ---------------------------- Name: Eric C. Neuman -------------------------- Title: Senior Vice President ------------------------- CAPSTAR BROADCASTING CORPORATION By: /S/ Paul D. Stone ------------------------------ Name: Paul D. Stone ------------------------------ Title: Executive Vice President ------------------------------ 6 EXHIBIT A (STOCKHOLDERS AGREEMENT) EX-10.21.3 18 2ND AMENDMENT TO MANAGEMENT STOCKHOLDERS AGREEMENT 1 EXHIBIT 10.21.3 SECOND AMENDMENT TO STOCKHOLDERS AGREEMENT THIS SECOND AMENDMENT TO STOCKHOLDERS AGREEMENT (this "Second Amendment") to the Stockholders Agreement, as amended, dated as of November 26, 1996, (the "Stockholders Agreement") 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"), is entered into effective June 20, 1997, by and among the Company, HMTF, the Holders, the parties identified on Annex A as being New Holders (herein so called), and Capstar Broadcasting Corporation, a Delaware corporation ("Capstar Broadcasting"). A copy of the Stockholders Agreement is attached hereto as Exhibit A. RECITALS: WHEREAS, Frank D. Osborn, a Holder, desires to make a gift of a total of 133,000 shares of Class A Common Stock (allocated as set forth on Annex A), $0.01 par value per share (the "Shares"), of Capstar Broadcasting to the New Holders; WHEREAS, the stockholders of the Company have effected an exchange of all shares of the Company for all shares of Capstar Broadcasting; WHEREAS, as a result of such exchange, the Company is a wholly-owned subsidiary of Capstar Broadcasting; WHEREAS, the parties to the Stockholders Agreement desire to amend the Stockholders Agreement as provided herein pursuant to Section 8.7.2 of the Stockholders Agreement; WHEREAS, among other things, the parties to the Stockholders Agreement desire to replace the Company with Capstar Broadcasting as a party to the Stockholders Agreement for all purposes; 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. From and after the date hereof, the Company shall not be a party to the Stockholders Agreement. All references in the Stockholders Agreement to the Company shall hereby be deemed, from and after the date hereof, to refer to Capstar Broadcasting for all purposes. 2 2. Capstar Broadcasting hereby assumes and agrees to perform and discharge all of the Company's duties and obligations under the Stockholders Agreement that are to be performed from and after the date hereof. 3. "Common Stock" Definition. The definition of "Common Stock" set forth in Section 1.1 of the Stockholders Agreement is hereby amended and restated to read in its entirety as follows: "Common Stock" means (a) shares of the Class A Common Stock, $0.01 par value per share, of the Company, (b) shares of the Class B Common Stock, $0.01 par value per share, of the Company, (c) shares of the Class C Common Stock, $0.01 par value per share, of the Company, and (d) any capital stock into which such shares of common stock thereafter may be changed. 4. "Excluded Registration" Definition. The definition of "Excluded Registration" in Section 1.1 of the Stockholders Agreement is hereby amended and restated to read in its entirety as follows: "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, (iii) securities registered to effect the acquisition of or combination with another Person, and (iv) securities registered pursuant to any registration rights agreement to be entered into with the securityholders of Patterson Broadcasting, Inc., a Delaware corporation ("Patterson"), upon consummation of the Company's acquisition of Patterson. 5. 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 and shall be added as a "Holder" under the Stockholders Agreement except for purposes of Section 6.1 of the Stockholders Agreement. 6. Grantor Status. Each New Holder hereby agrees and is deemed to be a "Grantor" for all purposes under Section 6.1 of the Stockholders Agreement if, and at such time as, (i) Frank D. Osborn is no longer a director, officer or employee of the Capstar Broadcasting or any Subsidiary of Capstar Broadcasting, or (ii) a Change of Control occurs. 7. Voting Rights. Except as otherwise provided in Article 2 of the Stockholders Agreement, 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 2 3 person or by proxy, at any validly called meeting of the stockholders of Capstar Broadcasting in order for such Shares to be counted as a part of the quorum of the stockholders of Capstar Broadcasting, and (b) to be voted in any manner as Frank D. Osborn so designates so long as Frank D. Osborn owns any voting securities of Capstar Broadcasting or is serving as an officer of Capstar Broadcasting. 8. 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. 9. Except as herein specifically amended or supplemented, the Stockholders Agreement continue in full force and effect in accordance with its terms. 10. This Second Amendment may be executed and delivered (including by facsimile transmission) in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. [Remainder of page intentionally left blank] 3 4 IN WITNESS WHEREOF, the parties hereto have duly executed this Second Amendment effective as of the date first written above. CAPSTAR BROADCASTING PARTNERS, INC. By: /S/ Paul D. Stone -------------------------------- Name: Paul D. Stone -------------------------------- Title: Executive Vice President -------------------------------- CAPSTAR BROADCASTING CORPORATION By: /S/ Paul D. Stone -------------------------------- Name: Paul D. Stone -------------------------------- Title: Executive Vice President -------------------------------- HICKS, MUSE, TATE & FURST INCORPORATED By: /S/ Eric C. Neuman -------------------------------- Name: Eric C. Neuman -------------------------------- Title: Senior Vice President -------------------------------- HOLDERS: /S/ James T. Shea --------------------------------------- James T. Shea /S/ Charles DiToro --------------------------------------- Charles DiToro /S/ Judy Jennings --------------------------------------- Judy Jennings /S/ Patia Gaugh --------------------------------------- Patia Gaugh 5 /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 /S/ Frank D. Osborn --------------------------------------- Frank D. Osborn /S/ William S. Banowsky, Jr. --------------------------------------- William S. Banowsky, Jr. /S/ Claude C. Turner --------------------------------------- Claude C. Turner /S/ David J. Benjamin, III --------------------------------------- David J. Benjamin, III NEW HOLDERS: /S/ Josephine N. Osborn --------------------------------------- Josephine N. Osborn as custodian for Elizabeth A. Osborn under the Uniform Gifts to Minors Act Address: 174 Hemlock Hill Road ------------------------------ New Canaan, CT 06840 ------------------------------ ------------------------------ 6 /S/ Josephine N. Osborn --------------------------------------- Josephine N. Osborn as custodian for Allison W. Osborn under the Uniform Gifts to Minors Act Address: 174 Hemlock Hill Road ------------------------------ New Canaan, CT 06840 ------------------------------ ------------------------------ /S/ Josephine N. Osborn --------------------------------------- Josephine N. Osborn as custodian for Katherine N. Osborn under the Uniform Gifts to Minors Act Address: 174 Hemlock Hill Road ------------------------------ New Canaan, CT 06840 ------------------------------ ------------------------------ /S/ Josephine N. Osborn --------------------------------------- Josephine N. Osborn as custodian for Frank W. Osborn under the Uniform Gifts to Minors Act Address: 174 Hemlock Hill Road ------------------------------ New Canaan, CT 06840 ------------------------------ ------------------------------ /S/ Josephine N. Osborn --------------------------------------- Josephine N. Osborn as custodian for Caroline L. Osborn under the Uniform Gifts to Minors Act Address: 174 Hemlock Hill Road ------------------------------ New Canaan, CT 06840 ------------------------------ ------------------------------ HOLDERS: /S/ Mary K. Quass --------------------------------------- Mary K. Quass 7 ANNEX A
NEW HOLDERS SHARES ----------- ------ Josephine N. Osborn as custodian for Elizabeth A. Osborn under the Uniform 26,600 Gifts to Minors Act Josephine N. Osborn as custodian for Allison W. Osborn under the Uniform 26,600 Gifts to Minors Act Josephine N. Osborn as custodian for Katherine N. Osborn under the Uniform 26,600 Gifts to Minors Act Josephine N. Osborn as custodian for Frank W. Osborn under the Uniform 26,600 Gifts to Minors Act Josephine N. Osborn as custodian for Caroline L. Osborn under the Uniform 26,600 Gifts to Minors Act
8 EXHIBIT A Stockholders Agreement EX-10.25.2 19 FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.25.2 FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT This FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (this "First Amendment") amends that certain Registration Rights Agreement, dated as of February 20, 1997 (the "Registration Rights Agreement"), between Capstar Broadcasting Partners, Inc., a Delaware corporation (the "Company"), and Frank D. Osborn and is entered into effective July 1, 1997, by and among the Company, Frank D. Osborn, and Capstar Broadcasting Corporation, a Delaware corporation ("Capstar Broadcasting"). A copy of the Registration Rights Agreement is attached hereto as Exhibit A. RECITALS: WHEREAS, the stockholders of the Company have effected an exchange of all of the outstanding shares of the Company for all of the outstanding shares of Capstar Broadcasting; WHEREAS, as a result of such exchange, the Company is a wholly-owned subsidiary of Capstar Broadcasting; WHEREAS, the parties to the Registration Rights Agreement desire to amend the Registration Rights Agreement as provided herein pursuant to Section 4.7.2 of the Registration Rights Agreement; WHEREAS, among other things, the parties to the Registration Rights Agreement desire to replace the Company with Capstar Broadcasting as a party to the Registration Rights Agreement for all purposes; and WHEREAS, any capitalized term used herein, and not otherwise defined herein, shall have the meaning set forth in the Registration Rights Agreement. AGREEMENTS: NOW, THEREFORE, in consideration of the foregoing and the agreements herein contained, the parties hereto covenant and agree as follows: 1. From and after the date hereof, the Company shall not be a party to the Registration Rights Agreement. All references in the Registration Rights Agreement to the Company shall hereby be deemed, from and after the date hereof, to refer to Capstar Broadcasting for all purposes. 2. Capstar Broadcasting hereby assumes and agrees to perform and discharge all of the Company's duties and obligations under the Registration Rights Agreement that are to be performed from and after the date hereof. 2 3. "Common Stock" Definition. The definition of "Common Stock" set forth in Section 1.1 of the Registration Rights Agreement is hereby amended and restated to read in its entirety as follows: "Common Stock" means (a) shares of Class A Common Stock, $0.01 par value per share, of the Company, (b) shares of Class B Common Stock, $0.01 par value per share, of the Company, (c) shares of Class C Common Stock, $0.01 par value per share, of the Company, and (d) any capital stock into which any such shares of common stock thereafter may be changed. 4. Except as herein specifically amended or supplemented, the Registration Rights Agreement shall continue in full force and effect in accordance with its terms. 5. This First Amendment may be executed and delivered (including by facsimile transmission) in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. [Remainder of page intentionally left blank] -2- 3 IN WITNESS WHEREOF, the parties have caused this First Amendment to be duly executed, all as of the date first written above. CAPSTAR BROADCASTING PARTNERS, INC. By:/s/ William S. Banowsky, Jr. ----------------------------- William S. Banowsky, Jr. Executive Vice President /s/ Frank D. Osborn ----------------------------- Frank D. Osborn CAPSTAR BROADCASTING CORPORATION By:/s/ William S. Banowsky, Jr. ----------------------------- William S. Banowsky, Jr. Executive Vice President -3- 4 EXHIBIT A (REGISTRATION RIGHTS AGREEMENT) [See Exhibit 10.25.1] -4- EX-10.28 20 STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.28 STOCK PURCHASE AGREEMENT BY AND AMONG CAPSTAR ACQUISITION COMPANY, INC., QUASS BROADCASTING COMPANY AND THE SELLING STOCKHOLDERS NAMED HEREIN DATED AS OF JUNE 5, 1997 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINED TERMS 1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II PURCHASE AND SALE OF SHARES 2.1. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . 11 2.2. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . 11 2.3. Delivery of Notices . . . . . . . . . . . . . . . . . . . . 11 2.4. Payments at Closing . . . . . . . . . . . . . . . . . . . . 11 2.5. Post-Closing Purchase Price Adjustment; Post-Closing Payment 12 2.6. Earnest Money . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1. Representations and Warranties Regarding the Company. . . . 13 3.2. Representations and Warranties of Selling Stockholders . . . 24 3.3. Representations and Warranties of Buyer . . . . . . . . . . 25 ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS 4.1. Covenants of the Company and the Selling Stockholders . . . 27 4.2. Negative Trade Balance . . . . . . . . . . . . . . . . . . . 29 4.3. Environmental Site Assessments . . . . . . . . . . . . . . . 29 4.4. Broadcast Transmission Interruption . . . . . . . . . . . . 29 ARTICLE V ADDITIONAL AGREEMENTS OF THE COMPANYAND THE SELLING STOCKHOLDERS 5.1. No Solicitation of Transactions . . . . . . . . . . . . . . 29 5.2. Access and Information . . . . . . . . . . . . . . . . . . . 30 5.3. Assistance . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.4. Compliance With Station Licenses . . . . . . . . . . . . . . 31
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PAGE ---- 5.5. Notification of Certain Matters . . . . . . . . . . . . . . 32 5.6. Third Party Consents . . . . . . . . . . . . . . . . . . . . 32 5.7. Resignations of Directors and Officers . . . . . . . . . . . 32 5.8. Mary K. Quass Employment Agreement . . . . . . . . . . . . . 32 ARTICLE VI COVENANTS OF BUYER 6.1. Notification of Certain Matters . . . . . . . . . . . . . . 33 6.2. Employee Matters . . . . . . . . . . . . . . . . . . . . . . 33 6.3. Certain Legal Qualifications . . . . . . . . . . . . . . . . 33 6.4. Future Acquisitions . . . . . . . . . . . . . . . . . . . . 33 ARTICLE VIIMUTUAL COVENANTS 7.1. Application for FCC Consents . . . . . . . . . . . . . . . . 34 7.2. Control of Stations . . . . . . . . . . . . . . . . . . . . 34 7.3. Other Governmental Consents . . . . . . . . . . . . . . . . 34 7.4. Brokers or Finders . . . . . . . . . . . . . . . . . . . . . 34 7.5. Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . 35 7.6. Additional Agreements . . . . . . . . . . . . . . . . . . . 36 ARTICLE VIII CONDITIONS PRECEDENT 8.1. Conditions to Each Party's Obligation . . . . . . . . . . . 36 8.2. Conditions to Obligation of Buyer . . . . . . . . . . . . . 37 8.3. Conditions to Obligations of the Selling Stockholders . . . 37 ARTICLE IX CLOSING 9.1. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 38 9.2. Actions to Occur at Closing . . . . . . . . . . . . . . . . 39 ARTICLE X TERMINATION, AMENDMENT AND WAIVER 10.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . 41 10.2. Effect of Termination . . . . . . . . . . . . . . . . . . . 42
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PAGE ---- ARTICLE XI INDEMNIFICATION 11.1. Indemnification of Buyer . . . . . . . . . . . . . . . . . . 44 11.2. Indemnification of Selling Stockholders . . . . . . . . . . 44 11.3. Defense of Third-Party Claims . . . . . . . . . . . . . . . 44 11.4. Direct Claims . . . . . . . . . . . . . . . . . . . . . . . 45 11.5. Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 11.6. Limitations . . . . . . . . . . . . . . . . . . . . . . . . 45 11.7. Instructions to Escrow Agent . . . . . . . . . . . . . . . . 47 11.8. No Waiver Relating to Claims for Fraud . . . . . . . . . . . 47 ARTICLE XII GENERAL PROVISIONS 12.1. Survival of Representations, Warranties, and Covenants . . . 48 12.2. Further Actions . . . . . . . . . . . . . . . . . . . . . . 48 12.3. Amendment and Modification . . . . . . . . . . . . . . . . . 48 12.4. Waiver of Compliance . . . . . . . . . . . . . . . . . . . . 48 12.5. Specific Performance . . . . . . . . . . . . . . . . . . . . 48 12.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . 49 12.7. Expenses and Obligations . . . . . . . . . . . . . . . . . . 49 12.8. Parties in Interest . . . . . . . . . . . . . . . . . . . . 49 12.9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 49 12.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 51 12.11. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 51 12.12. Governing Law . . . . . . . . . . . . . . . . . . . . . . . 51 12.13. Public Announcements . . . . . . . . . . . . . . . . . . . . 52 12.14. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 52 12.15. Director and Officer Liability . . . . . . . . . . . . . . . 52 12.16. No Reversionary Interest . . . . . . . . . . . . . . . . . . 52 12.17. Relationship of Selling Stockholders . . . . . . . . . . . . 52 12.18. Appointment of Stockholders' Representative . . . . . . . . 53 12.19. Consulting Agreement . . . . . . . . . . . . . . . . . . . . 55
(iii) 5 EXHIBITS: Exhibit A -- Form of Deposit Escrow Agreement Exhibit B -- Form of Employment Agreement Exhibit C -- Form of Indemnification Escrow Agreement Exhibit D -- Form of Release Exhibit E -- Form of Legal Opinions Exhibit F -- Form of Legal Opinion of Vinson & Elkins L.L.P. Exhibit G -- Form of Consulting Agreement SCHEDULES: Schedule 2.1 -- Shares Owned Schedule 2.4(a) -- Allocation of Purchase Price Schedule 3.1(a) -- Qualification to do Business and Good Standing Schedule 3.1(c) -- List of Stockholders and Ownership Schedule 3.1(f) -- Unrecorded Liabilities and Conduct of Business Schedule 3.1(g) -- Licenses and Permits Schedule 3.1(h) -- Litigation Schedule 3.1(i) -- Insurance Schedule 3.1(j) -- Real Estate Schedule 3.1(k) -- Leased Real Property Schedule 3.1(l) -- Personal Property Schedule 3.1(p) -- Certain Agreements Schedule 3.1(q) -- Employee Benefit Plans Schedule 3.1(r) -- Patents, Trademarks; Etc. Schedule 3.1(s) -- Affiliate Relationships Schedule 3.1(u) -- Trade Deals Schedule 3.2(a) -- Certain Liens Schedule 6.2 -- Employee Matters (iv) 6 STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into as of June 6, 1997, by and among Quass Broadcasting Company, an Iowa corporation (the "Company"), each of the persons identified on Annex A (the "Selling Stockholders"), and Capstar Acquisition Company, Inc., a Delaware corporation ("Buyer"). R E C I T A L S A. The Selling Stockholders collectively own all of the issued and outstanding shares of the common stock, par value $.01 per share ("Common Stock"), of the Company, which shares constitute all of the authorized, issued, and outstanding capital stock of the Company. B. Buyer desires to purchase from the Selling Stockholders, and the Selling Stockholders desire to sell to Buyer, all of the shares of Common Stock held by the Selling Stockholders (the "Shares") in consideration of the Purchase Price (hereinafter defined), upon the terms and subject to the conditions set forth herein. A G R E E M E N T S NOW, THEREFORE, in consideration of the respective representations, warranties, agreements, and conditions hereinafter set forth, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINED TERMS 1.1. DEFINED TERMS. The following terms shall have the following meanings in this Agreement: "Accounts Receivable" means the rights of the Company to cash payment for the sale of advertising time by the Stations and other amounts that would be classified as an account receivable on the asset side of a balance sheet of the Company prepared in accordance with GAAP. "Adjustment Amount" has the meaning set forth in Section 2.5(c). "Affiliate" means, with respect to any person, any other person controlling, controlled by or under common control with such person. For purposes of this definition and this Agreement, 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. "Applicable Laws" means all laws, statutes, rules, regulations, ordinances, judgments, orders, decrees, injunctions, and writs of any Governmental Entity having jurisdiction over the Company or the business, operations or assets of the Company, as they may be in effect on or prior to the Closing. 1 7 "Applications" has the meaning set forth in Section 7.1. "Balance Sheet" has the meaning set forth in Section 3.1(f). "Balance Sheet Date" has the meaning set forth in Section 3.1(f). "Banking Event" has the meaning set forth in Section 9.1. "business day" means any other day than (i) a Saturday or Sunday or (ii) a day on which commercial banks in New York, New York or Dallas, Texas are authorized or required to be closed. "Buyer" has the meaning set forth in the first paragraph of this Agreement, and it includes its permitted successors and assigns. "Buyer Indemnified Costs" means (a) any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) that any of the Buyer Indemnified Parties incurs and that arise out of (i) any breach or default by the Company or any Selling Stockholder of any of the representations or warranties under this Agreement or any agreement or document executed in connection herewith; (ii) the business or operations of the Company or any of the Stations prior to the Closing Date, including any and all liabilities arising under the Licenses or the Contracts, but only to the extent that such damages, losses, claims, liabilities, demands, charges, suits, penalties, costs and expenses relate to events or circumstances occurring prior to the Closing Date; and (iii) any breach or default by the Selling Stockholders or the Company of any covenant or agreement under this Agreement or any other Transaction Document; and (b) any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs, and expenses, including reasonable legal fees and expenses, incident to any of the foregoing. In determining the amount of any of the items described in the preceding clauses (a) or (b), such amount shall be reduced by (A) the net amount the Buyer Indemnified Parties recover (after deducting all attorney's fees, expenses and other out-of-pocket costs of recovery) from any insurer or other party liable for such item; and (B) the amount of any tax benefits actually realized by the Buyer Indemnified Parties as a result of any such item. "Buyer Indemnified Parties" means Buyer and each officer, director, employee, consultant, stockholder, and Affiliate of Buyer. "Capped Buyer Indemnified Costs" means all Buyer Indemnified Costs other than (a) damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) that any of the Buyer Indemnified Parties incurs and that arise out of any breach or default by the Company or any Selling Stockholder of any of the representations and warranties contained in Section 3.1(o) or Section 3.2(a), and (b) any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs, and expenses, including reasonable legal fees and expenses, incident to the foregoing. 2 8 "Capped Indemnified Costs" means the Capped Buyer Indemnified Costs or the Selling Stockholders Indemnified Costs, as the case may be. "CERCLA" has the meaning set forth in the definition of Environmental Laws contained in this Section 1.1. "Closing" means the consummation of the transactions contemplated by this Agreement in accordance with the provisions of Article IX. "Closing Balance Sheet" has the meaning set forth in Section 2.5(a). "Closing Date" means the date of the Closing specified in Article IX. "Code" shall mean the United States Internal Revenue Code of 1986, as amended. All references to the Code, U.S. Treasury regulations or other governmental pronouncements shall be deemed to include references to any applicable successor regulations or amending pronouncement. "Common Stock" has the meaning set forth in the first recital of this Agreement. "Communications Act" means the Communication Act of 1934, as amended, and all material rules, regulations and written policies of the FCC thereunder. "Company Negative Trade Balance" means the difference, if negative, between the value of time owed under barter agreements to which any of the Stations is a party or by which any of them is bound, and the value of the goods and services to be received under such agreements, but excluding any such values to the extent that they are included in Current Assets, Current Liabilities or Funded Debt. "Company Reports" has the meaning set forth in Section 3.1(f). "Conflict Event" has the meaning set forth in Section 9.1. "Consents" means all governmental consents and approvals, including the FCC Consents, and all consents and approvals of third parties, in each case that are necessary in order to transfer the Common Stock, or the control of the Company and its properties and assets, to Buyer and otherwise to consummate the transactions contemplated hereby. "Contracts" means all agreements, contracts, or other binding commitments or arrangements, written or oral (including any amendments and other modifications thereto), to which the Company is a party or is otherwise bound. "Cure Period" has the meaning set forth in Section 10.1(b). "Current Assets" means assets of the Company which, in accordance with GAAP,. are current assets, after deducting adequate reserves in accordance with GAAP (which, in the case 3 9 of Accounts Receivable, shall include a reserve for doubtful accounts equal to 2% of the aggregate amount of the Accounts Receivable). "Current Liabilities" means liabilities of the Company which, in accordance with GAAP, are current liabilities. "Debt", without duplication, means (a) all indebtedness of the Company, whether or not represented by bonds, debentures, notes or other securities, for the repayment of money borrowed, (b) all deferred indebtedness of the Company for the payment of the purchase price of property or assets purchased, (c) all obligations of the Company to pay rent or other payment amounts under a lease of real or personal property which is required to be classified as a capital lease or a liability on the face of a balance sheet prepared in accordance with GAAP, (d) any reimbursement obligation of the Company with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of the Company, (e) any net payment obligation of the Company under any interest rate swap agreement, forward rate agreement, interest rate cap or collar agreement or other financial agreement or arrangement entered into for the purpose of limiting or managing interest rate risks, (f) all indebtedness secured by any Lien existing on property owned by the Company, whether or not indebtedness secured thereby shall have been assumed, (g) all guaranties, endorsements, assumptions and other contingent obligations of the Company in respect of, or to purchase or to otherwise acquire, indebtedness of others, and (h) all other obligations of the Company which, in accordance with GAAP, would be included in determining total liabilities as shown on the liabilities side of a balance sheet as of the date of determination. "Deposit Escrow Agreement" means the Deposit Escrow Agreement among the Company, the Selling Stockholders and Media Venture Partners, Ltd., a copy of which is attached hereto as Exhibit A. "Deposit Letter of Credit" means that certain original, irrevocable letter of credit in favor of the Selling Stockholders and the Escrow Agent issued by Bankers Trust Company or another lender for the sum of $750,000 and held in accordance with the provisions of the Deposit Escrow Agreement. "Employee Benefit Plans" means any "employee benefit plan" within the meaning of Section 3(3) of ERISA and any bonus, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, vacation, severance, disability, death benefit, hospitalization or insurance plan providing benefits to any present or former employee or contractor of the Company or any member of the ERISA Group maintained by any such entity or as to which any such entity has any liability or obligation. "Employee Pension Benefit Plan" has the meaning set forth in Section 3(2) of ERISA. "Employment Agreement" means the Employment Agreement between Central Star Communications, Inc. and Mary K. Quass substantially in the form attached hereto as Exhibit B. "Environmental Costs or Liabilities" has the meaning set forth in Section 3.1(o)(iv). 4 10 "Environmental Laws" means all Applicable Laws and rules of common law pertaining to the environment, natural resources, and public or employee health and safety including the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. Section 9601 et seq.) ("CERCLA"), the Emergency Planning and Community Right to Know Act and the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Hazardous and Solid Waste Amendments Act of 1984, the Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, the Safe Drinking Water Act, the Occupational Safety and Health Act of 1970, the Oil Pollution Act of 1990, the Hazardous Materials Transportation Act, and any similar or analogous statutes, regulations and decisional law of any Governmental Authority, as each of the foregoing may be amended and in effect on or prior to the Closing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Group" has the meaning set forth in Section 3.1(q). "ESA" means Phase I or Phase II environmental site assessments. "Escrow Agent" means Citibank, N.A. and includes its successors and assigns. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Existing ESAs" means the Phase I Environmental Assessment of KHAK Radio Tower Property, U.S. Highway 30 East and Ivanhoe Road, Cedar Rapids, Iowa, dated September 1992, prepared by Green Environmental Services, Inc. of Cedar Rapids, Iowa and the Phase I Environmental Site Assessment for 3000 North Center Point Road, Cedar Rapids, Iowa, dated January 1995, prepared by Shive-Hattery Engineers and Architects, Inc. of Iowa City, Iowa. "FCC" means the Federal Communications Commission. "FCC Consents" means actions by the FCC granting its initial consent to the transfer of the control of the FCC Licenses for each of the Stations to Buyer as contemplated by this Agreement. "FCC Licenses" means all of the licenses, permits, and other authorizations issued by the FCC to the Company and applications of the Company, if any, to the FCC relating to or used in the business or operations of each of the Stations, including those listed on Schedule 3.1(l) and any additions thereto between the date hereof and the Closing Date. "Final Order" means written action or order issued by the FCC setting forth the FCC Consents and (a) which has not been reversed, stayed, enjoined, set aside, annulled, or suspended and (b) with respect to which (i) no requests have been filed for administrative or judicial review, reconsideration, appeal, or stay, and the time for filing any such requests and for the FCC to set aside the action on its own motion has expired or (ii) in the event of review, reconsideration, or appeal, such review, reconsideration, or appeal has been denied and the time for further review, reconsideration, or appeal has expired. 5 11 "Financial Statements"has the meaning set forth in Section 3.1(f). "Former Selling Stockholder" has the meaning as set forth in Section 12.18. "Funded Debt" means (a) all Debt of the Company maturing by its terms more than one year after, or which is renewable or extendible at the option of the Company for a period ending one year or more after, the date as of which Funded Debt is being determined, and shall include Debt of such maturity created, assumed or guaranteed by the Company either directly or indirectly, including obligations of such maturity secured by a lien upon property of the Company, and (b) all interest, unamortized discount, charges, fees, expenses, penalties, premiums, or other amounts, including prepayment penalties, which have become due on the foregoing items. "Funded Debt Payoff Notice" has the meaning set forth in Section 2.3(a). "GAAP" means generally accepted accounting principles in the United States. "Governmental Entity" means any governmental department, commission, board, bureau, agency, court or other instrumentality of the United States or any state, county, parish or municipality, jurisdiction, or other political subdivision thereof. "Hazardous Substances" has the meaning set forth in Section 3.1(n). "Holdback Amount" has the meaning set forth in Section 11.5. "Indemnification Escrow Agreement" means the Indemnification Escrow Agreement among Selling Stockholders (or the Stockholders' Representative on behalf of the Selling Stockholders), Buyer, and Escrow Agent substantially in the form attached hereto as Exhibit C. "Indemnified Costs" means the Buyer Indemnified Costs or the Selling Stockholders Indemnified Costs, as the case may be. "Indemnified Parties" means the Buyer Indemnified Parties or the Selling Stockholders Indemnified Parties, as the case may be. "Indemnifying Party" means any person who is obligated to provide indemnification hereunder. "Intellectual Property" means all Trademarks, Know-how, copyrights, copyright registrations and applications for registration, Patents and all other intellectual property rights whether registered or not, licenses to or owned by the Company, including the call letters of each of the Stations and the goodwill related to the foregoing. "Know-how" means all plans, ideas, concepts and data, research records, all promotional literature, customer and supplier lists and similar data and information and all other confidential or proprietary technical and business information. 6 12 "Knowledge" means, with respect to a specified party hereto, the actual knowledge of such party. "Leased Real Property" means all of the Company leasehold interests, easements, licenses, rights to access and rights-of-way which are used or held for use in the business and operations of the Company, including those interests which are identified and described in Schedule 3.1(k), as modified by any addition or permitted deletion thereto between the date hereof and the Closing Date. "Licenses" means the FCC Licenses and all Permits issued by any Governmental Entity to the Company, including those listed on Schedule 3.1(l), with any additions thereto between the date hereof and the Closing Date. "Liens" has the meaning set forth in Section 3.1(m). "Material Adverse Effect" means a material adverse effect on the business, operations, properties, condition (financial or otherwise), results of operations, assets, liabilities, or prospects of the Company, in each case taken as a whole. "Minimum Loss" has the meaning as set forth in Section 11.6(a). "Multiemployer Plan" has the meaning set forth in Section 3(37) or Section 4001(a)(3) of ERISA. "Outstanding Transaction Costs" means all fees, expenses and other costs, including any brokerage or finders fees, payable by the Company after the Closing Date in connection with the transactions contemplated by this Agreement and the other Transaction Documents, other than any such items that are included as a liability on the Closing Balance Sheet. "Owned Real Property" means those parcels of real property owned in fee and used or held for use by the Company as described in Schedule 3.1(j), and all buildings, structures, improvements, and fixtures thereon, together with all rights of way, easements, privileges, and appurtenances pertaining or belonging thereto, including any right, title, and interest of the Company in and to any street or other property adjoining any portion of such property. "Patents" means all patent and patent applications (including all reissues, divisions, continuations, continuations-in-part, renewals, and extensions of the foregoing) owned by the Company. "Pension Plans" has the meaning set forth in Schedule 3.1(q). "Permits" has the meaning set forth in Section 3.1(n). "Permitted Encumbrances" means (a) statutory Liens for current Taxes not yet due and payable, (b) mechanics', carriers', workers', repairers', and other similar liens imposed by law arising or incurred in the ordinary course of business for obligations not yet due, (c) in the case of 7 13 leases of vehicles, rolling stock, and other personal property, encumbrances, which do not, individually or in the aggregate, materially impair the operation of the business at the facility at which such leased equipment or other personal property is located, (d) other liens, charges or encumbrances incidental to the operation of the Company or the ownership of the Company's assets which were not incurred in connection with the borrowing of money or the advance of credit and which do not materially detract from the value of the assets encumbered thereby or materially interfere with the use thereof or the operation of such asset or the Stations, and (e) Liens on leases of real property arising from the provisions of such leases, including, in relation to leased real property, any agreements and/or conditions imposed on the issuance of land use permits, zoning, business licenses, use permits, or other entitlements of various types issued by any Governmental Entity, necessary or beneficial to the continued use and occupancy of the Company assets or the continuation of the operation of any Station. "Permitted Liens" has the meaning set forth in Section 3.1(m). "person" means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization, or other entity. "Personal Property" means all of the machinery, equipment (including the transmitter and studio equipment), computer programs, computer software, tools, motor vehicles, furniture, furnishings, leasehold improvements, office equipment, inventories, supplies, plant, spare parts, and other tangible or intangible personal property which are owned or leased by the Company and which are used or held for use in its business or operations, including the personal property which is listed on Schedule 3.1(k) hereto, together with any additions thereto between the date hereof and the Closing Date less any dispositions made in accordance with Section 4.1. "Proportionate Share" means (a) with respect to Mary K. Quass, 65%, and (b) with respect to the Carlton O. Tronvold Trust and the Carlton O. Tronvold Charitable Remainder Trust, 35%. "Purchase Price" means the consideration payable by Buyer to the Selling Stockholders as provided in Section 2.2 hereof. "Real Property" means the Leased Real Property and the Owned Real Property. "Referee" has the meaning set forth in Section 2.5(b). "Release" means the Release of Claims between Buyer and the Selling Stockholders substantially in the form of Exhibit D. "Released Claims" has the meaning set forth in Section 10.2(b). "Released Parties" has the meaning set forth in Section 10.2(b). "Schedules" means the Schedules attached hereto. 8 14 "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Selling Stockholders" has the meaning set forth in the first paragraph of this Agreement. "Selling Stockholders Indemnified Costs" means (a) any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) that any of the Selling Stockholders Indemnified Parties incurs and that arise out of (i) any breach or default by Buyer of any of the representations, or warranties under this Agreement or any agreement or document executed in connection herewith; (ii) the business or operation of the Company on and after the Closing Date, including any and all liabilities arising under the Licenses or the Contracts, but only to the extent that such damages, losses, claims, liabilities, demands, charges, suits, penalties and expenses relate to events or circumstances occurring after the Closing Date; and (iii) any breach or default by Buyer of any covenant or agreement under this Agreement or any other Transaction Document; (b) the items indemnified against pursuant to Section 5.3; and (c) any and all actions, suits, proceedings claims, demands, assessments, judgments, costs, and expenses, including reasonable legal fees and expenses, incident to any of the foregoing. In determining the amount of any of the items described in the preceding clauses (a) or (b), such amount shall be reduced by (A) the net amount the Selling Stockholders Indemnified Parties recover (after deducting all attorney's fees, expenses and other out- of-pocket costs of recovery) from any insurer or other party liable for such item; and (B) the amount of any tax benefits actually realized by the Selling Stockholders Indemnified Parties as a result of any such item. "Selling Stockholders Indemnified Parties" means each of the Selling Stockholders and each officer, director, employee, consultant, stockholder, and Affiliate of the Company. "Shares" has the meaning set forth in the second recital of this Agreement. "Station Event" has the meaning set forth in Section 9.1. "Station Licenses" has the meaning set forth in Section 3.1(f). "Station Management" has the meaning set forth in Section 4.1(b). "Stockholders' Representative" means Mary K. Quass or her successor in that capacity appointed pursuant to Section 12.18. "Successor Selling Stockholders" has the meaning set forth in Section 12.18. "Taxes" means taxes, charges, fees, imposts, levies, interest, penalties, additions to tax or other assessments or fees of any kind, including, but not limited to, income, corporate, capital, excise, property, sales, use, turnover, value added and franchise taxes, deductions, withholdings and customs duties, imposed by any Governmental Entity and any payments with respect thereto required under any tax-sharing agreement. 9 15 "Tax Returns" means any return, report, information return or other document (including any related or supporting information) filed or required to be filed with any Governmental Entity in connection with the determination, assessment, collection or administration of any Taxes or the administration of any laws, regulations or administrative requirements relating to any Taxes. "Trade Deals" means the exchanges by a Station of its advertising time for goods or services, other than in connection with the licensing of programs and programming material. "Trademarks" means (a) trademarks, service marks, trade names, trade dress, labels, logos, and all other names and slogans associated with any products or embodying the goodwill of the business of any Station, whether or not registered, and any applications or registrations therefor and (b) any associated goodwill incident thereto owned by the Company. "Trading Event" has the meaning set forth in Section 9.1. "Transaction Documents" has the meaning set forth in Section 3.1(d). "Voting Debt" has the meaning set forth in Section 3.1(c). "Working Capital Deficit" means the amount by which the sum of Current Liabilities (as shown on the Closing Balance Sheet) exceed Current Assets (as shown on the Closing Balance Sheet). ARTICLE II PURCHASE AND SALE OF SHARES 2.1. PURCHASE AND SALE. Upon the terms and subject to the conditions of this Agreement, at the Closing (hereinafter defined), each Selling Stockholder shall sell to Buyer, and Buyer shall purchase from such Selling Stockholder, the Shares set forth opposite such Selling Stockholders' name on Schedule 2.1, free and clear of all Liens. 2.2. PURCHASE PRICE. (a) Subject to Section 2.2(b), the aggregate purchase price payable by Buyer to the Selling Stockholders in consideration for the sale of the Shares (the "Purchase Price") shall be $14,980,000. (b) The Purchase Price shall be subject to adjustment after the Closing as set forth in Section 2.5. 2.3. DELIVERY OF NOTICES. (a) Funded Debt Payoff Notice. No later than the date that is three business days prior to the date scheduled for the Closing, the Company shall deliver to Buyer a written notice (the "Funded Debt Payoff Notice") setting forth (i) the payments necessary to be made in order for the Funded Debt to be repaid in full and retired as of the Closing Date, (ii) the name of the persons to whom such payments are to be made, and (iii) wiring instructions for the recipients of such 10 16 payments. At the Closing, an amount of the Purchase Price equal to the Funded Debt shall be applied to the payment and retirement in full of the Funded Debt identified in such notice. (b) Wiring Instructions. Contemporaneously with the delivery of the Funded Debt Payoff Notice, the Company or the Selling Stockholders shall deliver to Buyer a notice setting forth wiring instructions for the Purchase Price to be paid to the Selling Stockholders on the Closing Date. 2.4. PAYMENTS AT CLOSING. At the Closing, subject to the satisfaction of the other terms and conditions of this Agreement, Buyer shall: (a) pay or cause to be paid to the Selling Stockholders cash, via wire transfer of immediately available funds, in an amount equal to the Purchase Price, minus the sum of the amount of the Funded Debt and the Holdback Amount, which amount shall be allocated among the Selling Stockholders as provided on Schedule 2.4(a);. (b) wire transfer an amount equal to the amount of the Funded Debt in accordance with the Funded Debt Notice; and (c) deposit or cause to be deposited the Holdback Amount with the Escrow Agent. Buyer is directed by each Selling Stockholder to deposit the amount of the Holdback Amount set forth opposite such Selling Stockholder's name in Column A of Schedule 2.4(a) with the Escrow Agent at the Closing and Buyer shall make such deposit as directed. 2.5. POST-CLOSING PURCHASE PRICE ADJUSTMENT; POST-CLOSING PAYMENT. (a) No later than 60 days after the Closing Date, the Selling Stockholders shall cause to be prepared and delivered to Buyer (i) a balance sheet for the Company as of 11:59 p.m. on the date immediately prior to the Closing Date (but giving effect to the Funded Debt payment pursuant to Section 2.3(a)) (the "Closing Balance Sheet"),(ii) a calculation of the Working Capital Deficit of the Company as determined from the Closing Balance Sheet and (iii) calculations of the Company Negative Trade Balance and Outstanding Transaction Costs as determined, to the extent practicable, from the Closing Balance Sheet. The Closing Balance Sheet shall be prepared in accordance with GAAP, and shall fairly present the financial position of the Company as of 11:59 p.m. on the date immediately prior to the Closing Date, subject to normal recurring year- end adjustments (but giving effect to the Funded Debt payment pursuant to Section 2.3(a)). The Closing Balance Sheet and such calculations shall be prepared in consultation with Buyer and McGladrey & Pullen, L.L.P., accountants for the Selling Stockholders, (and, if requested by Buyer, McGladrey & Pullen, L.L.P. shall consult with Coopers & Lybrand, accountants for the Buyer), but need not be audited unless Buyer requests that the Closing Balance Sheet be audited in a notice delivered to the Selling Stockholders no later than 30 days after the Closing Date. If Buyer requests an audit, the Closing Balance Sheet shall be audited by either McGladrey & Pullen, L.L.P. or Coopers & Lybrand, whichever firm is specified in Buyer's notice, and the Closing Balance Sheet delivered to Buyer shall be accompanied by the auditors report thereon. The Company shall bear the cost of the audit which cost shall not constitute an Outstanding Transaction Cost hereunder. (b) If Buyer disputes the accuracy of the Closing Balance Sheet, or the calculation of the Working Capital Deficit, the Outstanding Transaction Costs or the Company Negative Trade 11 17 Balance, Buyer shall promptly inform the Selling Stockholders of the disputed amount of the Closing Balance Sheet or such calculation and the basis for Buyer's dispute in reasonable detail. If the Selling Stockholders do not agree to modify the Closing Balance Sheet or the calculation of the Working Capital Deficit, the Outstanding Transaction Costs or the Company Negative Trade Balance, as applicable, in accordance with Buyer's position regarding such disputed amount of the Closing Balance Sheet or the calculation of the Working Capital Deficit, the Outstanding Transaction Costs or the Company Negative Trade Balance, as applicable, Buyer and the Selling Stockholders shall submit such dispute to an independent "big six" accounting firm selected jointly by Coopers & Lybrand and McGladrey & Pullen, L.L.P. (the "Referee") for arbitration. The parties shall use all reasonable efforts to achieve a decision by such Referee as soon as practicable, and in any event no later than 30 days from the date such dispute is submitted. The decision of the Referee shall be final, conclusive and binding on the parties. (c) If the Closing Balance Sheet or the calculation of the Outstanding Transaction Costs and the Company Negative Trade Balance reflects the existence of a Working Capital Deficit or an amount of Outstanding Transaction Costs or Company Negative Trade Balance, then the Purchase Price shall be decreased by the amount of the sum of (i) the Working Capital Deficit, (ii) the Outstanding Transaction Costs, and (iii) the amount by which the Company Negative Trade Balance exceeds $25,000 (the "Adjustment Amount"). The Selling Stockholders shall promptly (and, in any event, within five business days following the acceptance of, or resolution of any disputes in regard to, the Closing Balance Sheet or such calculations) refund to Buyer the amount of the Adjusted Amount via wire transfer of immediately available funds. Each Selling Stockholder shall pay its Proportionate Share of the Adjustment Amount. If a Selling Stockholder fails to pay its Proportionate Share of the Adjustment Amount, then, in addition to whatever other remedies it may have, Buyer shall be entitled to recover the amount of the unpaid Adjustment Amount from the Holdback Amount, without regard to the Minimum Loss limitation described in Section 11.6(a). (d) If less than 98% of the Accounts Receivable included in the Closing Balance Sheet are collected on or before the 120th day after the Closing Date, then Buyer shall deliver to the Selling Stockholders a notice setting forth the difference between the amount collected and 98% of the Accounts Receivables included in the Closing Balance Sheet. Each Selling Stockholder shall pay its Proportionate Share of such difference to Buyer within five business days of Buyer's notice. If a Selling Stockholder fails to pay such Proportionate Share, then, in addition to what other remedies it may have, Buyer shall be entitled to recover the amount of such Proportionate Share from the Holdback Amount, without regard to any Minimum Loss limitation. Upon payment of the foregoing amounts Buyer shall assign any such uncollected Accounts Receivable promptly to the Selling Stockholders or their designee. If greater than 98% of the Accounts Receivable included in the Closing Balance Sheet are collected on or before the 120th day after the Closing Date, then Buyer shall, on or before the 150th day after the Closing Date, remit to each Selling Stockholder its Proportionate Share of the amount collected in excess of 98% of the Accounts Receivable included in the Closing Balance Sheet. 2.6. EARNEST MONEY. (a) Concurrently with the execution of this Agreement, Buyer shall deposit the Deposit Letter of Credit with Media Venture Partners, Ltd. to be held in escrow in accordance with the Deposit Escrow Agreement. 12 18 (b) Subject to satisfaction of the conditions to the obligations set forth in Article VIII, at the Closing, the Selling Stockholders shall instruct Media Venture Partners, Ltd. to release and return the Deposit Letter of Credit to Buyer for cancellation. (c) If this Agreement is terminated as provided in Section 10.1, Buyer and the Selling Stockholders shall instruct Media Venture Partners, Ltd. to release the Deposit Letter of Credit to Buyer or to the Selling Stockholders, all as provided in Section 10.2. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1. REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY. The Company, and each Selling Stockholder, jointly and severally (but subject to the provisions of Sections 11.6 and 12.17(b)), represent and warrant to Buyer as follows (with the understanding that Buyer is relying on such representations and warranties in entering into and performing this Agreement). (a) Organization, Good Standing, Etc. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Iowa, has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted and is duly qualified and in good standing to do business in each state listed on Schedule 3.1(a), which states represent every jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary. The Company has delivered to Buyer true and complete copies of its Articles of Incorporation and Bylaws, as in effect at the date of this Agreement. The Company is not in violation of any provisions of its Articles of Incorporation or Bylaws. (b) Subsidiaries of the Company. The Company does not own, directly or indirectly, any equity interest in, any other corporation, partnership, or other person or have the right, pursuant to a contract or otherwise, to acquire any capital stock, equity interest or other similar investment in any corporation, partnership, or other person. (c) Capital Structure. The authorized capital stock of the Company consists of 80,000 shares of Common Stock, and 20,000 shares of preferred stock, par value $7.50 per share ("Preferred Stock"), none of which is designated. There are 17,000 shares of Common Stock issued and outstanding and 3,000 shares of Common Stock are held by the Company in its treasury. No shares of Preferred Stock are issued and outstanding. No shares of capital stock of the Company are reserved for issuance for any other purpose. All the issued and outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable and have not been issued in violation of any preemptive or similar rights. As of the date hereof, there are no bonds, debentures, notes or other indebtedness issued or outstanding having the right to vote ("Voting Debt") on any matters on which holders of Common Stock may vote. There are no options, warrants, calls, rights, commitments, or agreements of any character to which the Company is a party or by which it is bound obligating the Company to issue, deliver, or sell, or cause to be, delivered or sold, additional shares of capital stock or any Voting Debt of the Company, or obligating the 13 19 Company to grant, extend, or enter into any such option, warrant, call, right, commitment, or agreement. There are no outstanding contractual obligations of the Company to repurchase, redeem, or otherwise acquire any shares of Common Stock or other capital stock of the Company. Schedule 3.1(c) identifies as of the date of this Agreement the record and beneficial owner, if different, of the issued and outstanding shares of Common Stock. (d) Authority. The Company has all requisite corporate power and authority to enter into this Agreement, the Deposit Escrow Agreement, and each other agreement, document, and instrument required to be executed by the Company in accordance herewith (collectively, the "Transaction Documents") and to consummate the transactions contemplated hereby or thereby. The execution and delivery of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby or thereby have been duly authorized by all necessary action on the part of the Company. The Transaction Documents have been, or upon execution and delivery will be, duly executed and delivered and constitute the valid and binding obligations of the Company enforceable against it in accordance with their respective terms, subject, as to enforceability, to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (e) No Conflict; Required Filings and Consents. The execution and delivery of the Transaction Documents by the Company do not and the performance by the Company of the transactions contemplated hereby or thereby will not, subject to obtaining the consents, approvals, authorizations, and permits and making the filings described in this Section 3.1(e) or listed on Schedule 3.1(e) or Schedule 3.1(p), (i) violate, conflict with, or result in any breach of any provision of the Company's Articles of Incorporation and Bylaws, (ii) violate, conflict with, or result in a violation or breach of, or constitute a default (with or without due notice or lapse of time or both) under, or permit the termination of, or result in the acceleration of, or entitle any party to accelerate (whether as a result of a change of control of the Company or otherwise) any obligation, or result in the loss of any benefit, or give any person the right to require any security to be repurchased, or give rise to the creation of any Lien upon any of the assets of the Company under any of the terms, conditions, or provisions of any loan or credit agreement, note, bond, mortgage, indenture, or deed of trust, or any license, lease, agreement, or other instrument or obligation to which the Company is a party or by which it or any of the assets of the Company may be bound or subjected, or (iii) violate any order, writ, judgment, injunction, decree, statute, law, rule, or regulation, of any Governmental Entity applicable to the Company or by which or to which any of such assets is bound or subject. No Consent of any Governmental Entity is required by or with respect to the Company in connection with the execution and delivery of any Transaction Documents by the Company or the consummation of the transactions contemplated hereby or thereby, except for (A) the FCC Consents (as contemplated by Section 7.1 hereof) and (B) applicable requirements, if any, of the Securities Act and the Exchange Act and state securities or blue sky laws. (f) Reports; Financial Statements; Absence of Certain Changes or Events. (i) The Company has timely filed all forms, reports, statements, and other documents required to be filed with the FCC. The Company has filed all forms, reports, statements, and other documents required to be filed with any and all other Governmental 14 20 Entities. All such forms, reports, statements and other documents required to be filed with the FCC or any other Governmental Entity are referred to herein, collectively, as the "Company Reports"). The Company Reports were prepared in all material respects in accordance with the requirements of applicable law. (ii) The Company has delivered to Buyer copies of (A) the audited balance sheets of the Company as of December 31, 1995 and December 31, 1996, together with the audited statements of income and cash flows of the Company for the periods then ended, and the notes thereto, accompanied by the reports thereon of McGladrey & Pullen, L.L.P., independent public accountants, and (B) the unaudited balance sheet of the Company as of April 30, 1997, together with the related unaudited statements of income for the four-month period then ended (such audited and unaudited financial statements collectively being referred to as the "Financial Statements"). The Financial Statements, including the notes thereto, were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby (except to the extent disclosed therein or required by changes in GAAP) and present accurately the information purported to be presented therein as of such dates and for the periods then ended, provided that such unaudited financial statements need not reflect recurring year- end adjustments. (iii) Except as disclosed in Schedule 3.1(f), there is no liability or obligation of any kind, whether accrued, absolute, fixed, contingent, or otherwise, of the Company that is not reflected or reserved against in the balance sheet of the Company as of April 30, 1997 (the "Balance Sheet"), other than (A) liabilities incurred in the ordinary course of business in a manner consistent with past practice since April 30, 1997 (the "Balance Sheet Date"), or (B) any such liability or obligation which would not be required to be presented in financial statements or the notes thereto prepared in conformity with GAAP applied, in a manner consistent with past practice, in the preparation of the Financial Statements. (iv) Except as disclosed in Schedule 3.1(f), since the Balance Sheet Date, the Company has conducted its business only in the ordinary course consistent with past practice and nothing has occurred that would have been prohibited by Section 4.1(g), 4.1(i), 4.1(k) or 4.1(p) if the terms of such section had been in effect as of and after the Balance Sheet Date. Additionally, since the Balance Sheet Date, there has not occurred, and the Company has not incurred or suffered, any event or circumstance that materially impairs the physical assets of any of the Stations. (g) Compliance with Applicable Laws: FCC Matters. (i) The business of the Company has been conducted in compliance in all material respects with each Applicable Law. No investigation or review by any Governmental Entity with respect to the Company is pending or, to the Knowledge of the Company and the Selling Stockholders, threatened. Without limiting the generality of the foregoing, the Company has complied with the Communications Act, all obligations with respect to equal employment opportunity under Applicable Law, and all material rules and regulations of the Federal Aviation Administration applicable to each of the towers used or 15 21 held for use by a Station. In addition, the Company has duly and timely filed, or caused to be so filed, with the FCC and other appropriate Governmental Entities all reports, statements, documents, registrations, filings, or submissions with respect to the operation of each Station and the ownership thereof, including, applications for renewal of authority required by Applicable Law to be filed. All such FCC filings complied in all material respects with Applicable Laws when made, and no deficiencies have been asserted with respect to any such filings. The material required by 47 C.F.R. Section 73.3526 to be kept in the public inspection files of each Station is complete in all material respects. (ii) Schedule 3.1(g) is a true and complete list of (A) all of the FCC Licenses, including the expiration dates thereof, as of the date of this Agreement, other than immaterial auxiliary licenses, and (B) all other material licenses, permits, or authorizations issued to the Company by any other Governmental Entities and held by it as of the date of this Agreement. Such FCC Licenses, licenses, permits, and authorizations, and all pending applications for modification, extension, or renewal thereof or for new licenses, permits, permissions, or authorizations, are collectively referred to herein as the "Station Licenses." Schedule 3.1(g) accurately lists the legally authorized holder(s) of the Station Licenses. The Station Licenses constitute all the licenses, permits and authorizations required for the operation of each of the Stations and the business of the Company, and each of the Station Licenses is in full force and effect. Each of the Stations has been operated in all material respects in accordance with the terms of its Station Licenses and the Company is otherwise in compliance with, and has conducted its business so as to comply with, the terms of such Station Licenses. There are no proceedings pending or, to the Knowledge of the Company and the Selling Stockholders, threatened with respect to the Company's ownership or operation of any Station which reasonably may be expected to result in the revocation, material adverse modification, non-renewal, or suspension of any of the Station Licenses, the denial of any pending applications for any Station Licenses, the issuance against the Company of any cease and desist order, or the imposition of any administrative actions, including the proposed assessment of any fines or penalties, by the FCC or any other Governmental Entity with respect to any Station Licenses, or which reasonably may be expected to adversely affect any Station's ability to operate as currently operated or Buyer's or the Company's ability to obtain control of any Station Licenses or to operate any Station. To the Knowledge of the Company and the Selling Stockholders, no other broadcast station or radio communications facility is causing interference to any Station's transmissions beyond that which is allowed by FCC rules and regulations and no Station is causing interference to any other broadcast station or radio communications facilities' transmissions beyond that which is allowed by the FCC rules and regulations. To the Knowledge of the Company and the Selling Stockholders, there is no reason to believe that the FCC will not renew any of the Station Licenses issued by the FCC in the ordinary course of business. To the Knowledge of the Company and the Selling Stockholders, there are no facts relating to the Selling Stockholders or the Company under the Communications Act that reasonably may be expected to disqualify the Selling Stockholders from transferring control of any of the Station Licenses pursuant to the terms of this Agreement or that would prevent the consummation by the Company or any of the Selling Stockholders of the transactions contemplated by this Agreement. 16 22 (h) Absence of Litigation. Except as set forth on Schedule 3.1(h), there is no claim, action, suit, inquiry, judicial, or administrative proceeding, grievance, or arbitration pending or, to the Knowledge of the Company and the Selling Stockholders, threatened against the Company or any of the assets of the Company by or before any arbitrator or Governmental Entity, nor are there any investigations relating to the Company or any of such assets pending or, to the Knowledge of the Company and the Selling Stockholders, threatened by or before any arbitrator or Governmental Entity. Except as set forth in Schedule 3.1(h), there is no judgment, decree, injunction, order, determination, award, finding, or letter of deficiency of any Governmental Entity or arbitrator, or settlement agreement, outstanding against the Company or any of the assets of the Company. There is no action, suit, inquiry, judicial, or administrative proceeding pending or, to the Knowledge of the Company and the Selling Stockholders, threatened against the Selling Stockholders or the Company relating to the transactions contemplated by this Agreement. (i) Insurance. Schedule 3.1(i) sets forth an accurate summary of all title, fire, general liability, malpractice liability, theft, and other forms of insurance and all fidelity bonds held by or applicable to the Company. Except as set forth on Schedule 3.1(i), the title insurance and the policies of general liability, malpractice liability, fire, theft, and other insurance maintained with respect to the operations, assets, or business of the Company provide adequate coverage against loss. No event has occurred, including the failure by the Company to give any notice or information or the delivery of any inaccurate or erroneous notice or information, which limits or impairs the rights of the Company under any such insurance policies in such a manner as could have a Material Adverse Effect. Excluding insurance policies that have expired and been replaced in the ordinary course of business, no insurance policy has been canceled within the last two years prior to the date hereof. (j) Owned Real Property. Schedule 3.1(j) sets forth the address and use of all the Owned Real Property. The Company has good and marketable, fee simple, absolute title in and to the Owned Real Property, free and clear of all liens other than Permitted Liens. The Company has sufficient title to such easements, rights of way and other rights appurtenant to each of the Owned Real Properties as are necessary to permit ingress and egress to and from the Owned Real Property to a public way, and the improvements on the Owned Real Property have access to such utilities as are necessary to allow the business of the Company operated thereon to be operated in the ordinary course. There is no pending condemnation or similar proceeding affecting the Owned Real Property or any portion thereof, and to the Knowledge of the Company and the Selling Stockholders, no such action is threatened. Except as set forth on Schedule 3.1(j), the improvements located on the Owned Real Property are in sufficiently good condition (except for ordinary wear and tear) to allow the business of the Company to be operated in the ordinary course and there has been no damage to such improvements that affects the conduct of such business in any material respect that has not been repaired or remedied. Except as set forth on Schedule 3.1(j), there are no lessees or tenants at will in possession of any portion of any of the Owned Real Property other than the Company, whether as lessees, tenants at will, trespassers or otherwise. Except as set forth on Schedule 3.1(j), no zoning, building or other federal, state or municipal law, ordinance, regulation or restriction is violated in any material respect by the continued maintenance, operation or use of the Owned Real Property or any tract or portion thereof or interest therein in its present manner. The current use of the Owned Real Property and all parts thereof does not violate any restrictive covenants of record affecting any of the Owned Real Property. All necessary Licenses by any Governmental Entity with respect to the 17 23 Owned Real Property have been obtained, have been validly issued and are in full force and effect. The Company's fee simple interest in the Owned Real Property is insured under valid and subsisting owner's title insurance policies issued by reputable and financially capable insurers and such policies are not subject to any exceptions other than standard printed exceptions and Permitted Liens. (k) Leased Real Property. Schedule 3.1(k) sets forth the address and use of all the leasehold interests relating to the Company or its business and operations as now conducted. Each lease described in Schedule 3.1(k) is a valid and binding obligation of the Company and is in full force and effect without amendment other than as described in Schedule 3.1(k). Except as otherwise disclosed on Schedule 3.1(k), the Company is not, and to the Knowledge of the Company and the Selling Stockholders, no other party is, in default under any lease described in Schedule 3.1(k). Subject to obtaining the Consents disclosed in Schedule 3.1(k), the Company has the full legal power and authority to assign its rights under the leases listed in Schedule 3.1(k) to Buyer. All leasehold interests listed in Schedule 3.1(k) (including the improvements thereon) are available for immediate use in the conduct of the business and operations of each of the Stations as currently conducted. (l) Personal Property. Schedule 3.1(l) contains a description of the items of Personal Property (having a replacement cost of not less than $10,000 for each item) which comprise all Personal Property used or held for use in connection with the business and operations of the Company or which permit the operation of each Station as now conducted. Except as set forth on Schedule 3.1(l), the Company has good title to, or a valid leasehold or license interest in, all Personal Property and none of the Personal Property is subject to any Lien or other encumbrances, except for Permitted Liens. The Company is not, and to the Knowledge of the Company and the Selling Stockholders, no other party is, in default under any of the leases, licenses and other Contracts relating to the Personal Property. Except as otherwise disclosed in Schedule 3.1(l), the Personal Property (i) is in good operating condition and repair (ordinary wear and tear excepted), (ii) is available for immediate use in the business and operation of each of the Stations as currently conducted and (iii) permits each of the Stations to operate in accordance with the terms of their respective FCC Licenses, and the rules and regulations of the FCC, and with all other applicable federal, state and local statutes, ordinances, rules and regulations. (m) Liens and Encumbrances. All of the assets of the Company, including leases, are free and clear of all liens, pledges, claims, security interests, restrictions, mortgages, tenancies, and other possessory interests, conditional sale or other title retention agreements, assessments, easements, rights of way, covenants, restrictions, rights of first refusal, defects in title, encroachments, and other burdens, options or encumbrances of any kind (collectively, "Liens") except (i) Permitted Encumbrances and (ii) Liens set forth on Schedule 3.1(l) (the Liens referred to in clauses (i) and (ii) being "Permitted Liens"). At the Closing, all of the assets of the Company shall be free and clear of all Liens other than Permitted Encumbrances. (n) Environmental Matters. Except as expressly disclosed in the Existing ESAs: (i) The real property and facilities owned, operated, and leased by the Company and the operations of the Company thereon comply and have at all times complied in all material respects with all Environmental Laws; 18 24 (ii) No judicial proceedings are pending or, to the Knowledge of the Company and the Selling Stockholders, threatened against the Company alleging the violation of any Environmental Laws, and there are no administrative proceedings pending or, to the Knowledge of the Company and the Selling Stockholders, threatened against the Company, alleging the violation of any Environmental Laws and no written notice from any Governmental Entity or any private or public person has been received by the Company claiming any violation of any Environmental Laws in connection with any real property or facility owned, operated or leased by the Company, or requiring any remediation, clean-up, modification, repairs, work, construction, alterations, or installations on or in connection with any real property or facility owned, operated or leased by the Company that are necessary to comply with any Environmental Laws and that have not been complied with or otherwise resolved to the satisfaction of the party giving notice; (iii) All permits, registrations, licenses, authorizations, and the like ("Permits") required to be obtained or filed by the Company under any Environmental Laws in connection with the Company's operations, including those activities relating to the generation, use, storage, treatment, disposal, release, or remediation of Hazardous Substances (as such term is defined in Section 3.1(n)(iv) hereof), have been duly obtained or filed, and the Company is and has at all times been in full compliance in all material respects with the terms and conditions of all such Permits; (iv) All Hazardous Substances used or generated by the Company or any of its predecessors on, in, or under any of the owned, operated, or leased real property or facilities are and have at all times been generated, stored, used, treated, disposed of, and released by such persons or on their behalf in such manner as not to result in any material Environmental Costs or Liabilities. "Hazardous Substances" means (A) any hazardous materials, hazardous wastes, hazardous substances, toxic wastes, and toxic substances as those or similar terms are defined under any Environmental Laws; (B) any asbestos or any material which contains any hydrated mineral silicate, including chrysolite, amosite, crocidolite, tremolite, anthophylite and/or actinolite, whether friable or non-friable; (C) PCBs, or PCB-containing materials, or fluids; (D) radon; (E) any other hazardous, radioactive, toxic or noxious substance, material, pollutant, contaminant, constituent, or solid, liquid or gaseous waste; (F) any petroleum, petroleum hydrocarbons, petroleum products, crude oil and any fractions or derivatives thereof, any oil or gas exploration or production waste, and any natural gas, synthetic gas and any mixtures thereof; (G) any substance that, whether by its nature or its use, is subject to regulation under any Environmental Laws or with respect to which any Environmental Laws or Governmental Entity requires environmental investigation, monitoring or remediation; and (H) any underground storage tanks, dikes, or impoundments as defined under any Environmental Laws. "Environmental Costs or Liabilities" means any losses, liabilities, obligations, damages, fines, penalties, judgments, settlements, actions, claims, costs and expenses (including, without limitation, reasonable fees, disbursements and expenses of legal counsel, experts, engineers and consultants, and the costs of investigation or feasibility studies and performance of remedial or removal actions and cleanup activities) in connection with (1) any Environmental Laws, (2) order of, or contract of the Company with, any 19 25 Governmental Entity or any private or public persons or (3) any exposure of any person or property to Hazardous Substances; (v) There are not now, nor have there been in the past, on, in or under any property or facilities when owned, leased, or operated by the Company or when owned, leased, or operated by any of its predecessors, any Hazardous Substances that are in a condition or location that violates any Environmental Law or that reasonably could be expected to require remediation under any Environmental Laws or give rise to a claim for damages or compensation by any affected person or to any Environmental Costs or Liabilities; and (vi) The Company has not received, and to the Knowledge of the Company and the Selling Stockholder, does not expect to receive, any notification from any source advising the Company that: (A) it is a potentially responsible party under CERCLA or any other Environmental Laws; (B) any real property or facility currently or previously owned, operated, or leased by it is identified or proposed for listing as a federal National Priorities List ("NPL") (or state-equivalent) site or a Comprehensive Environmental Response, Compensation and Liability Information System ("CERCLIS") list (or state-equivalent) site; and (C) any facility to which it has ever transported or otherwise arranged for the disposal of Hazardous Substances is identified or proposed for listing as an NPL (or state- equivalent) site or CERCLIS (or state-equivalent) site. (o) Taxes. The Company has filed, or caused to be filed, all Tax Returns, and all such Tax Returns which have been filed are accurate and complete. The Company has paid (or there has been paid on its behalf), or has set up an adequate reserve for the payment of, all taxes required to be paid, withheld, or deducted, or for which the Company is liable, in respect of the periods covered by such Tax Returns, and with respect to each tax, from the end of the period covered by the most recently filed Tax Return to the date hereof, and the Balance Sheet reflects an adequate reserve for all taxes payable, or required to be withheld and remitted, by the Company, or for which the Company is liable, accrued through the Balance Sheet Date. No deficiencies for any taxes have been proposed, asserted, or assessed against the Company and are pending, and no requests for waivers of the time to assess any such taxes are pending. The federal income Tax Returns of the Company have not been examined by the Internal Revenue Service. The Company (i) has not filed a consent under section 341(f) of the Code, (ii) has not made, or is not obligated or may become obligated to make, any payments that will not be deductible by reason of section 280G of the Code, or (iii) has not been a member of an affiliated group of corporations which has filed a consolidated federal income tax return nor otherwise has any liability for the taxes of any person under Treas. Reg. Section 1.1502-6, any similar provision of state, local, or foreign law, or by reason of its status as a transferee, successor, indemnitor or otherwise. (p) Certain Agreements. (i) Schedule 3.1(p) hereto lists each (A) employment or consulting Contract which is not terminable without liability or penalty on 30 days or less notice, (B) Contract under which any party thereto remains obligated to provide goods or services having a value, or to make payments aggregating, in excess of $50,000 per year, and 20 26 (C) other Contract that is material to the Company, the operation of the Stations or to the Company's business, in any such case to which the Company is a party or the Company or its assets are bound. Each such Contract described in Schedule 3.1(p) or required to be so described is a valid and binding obligation of the Company and is in full force and effect without amendment. The Company and, to the Knowledge of the Company and the Selling Stockholders, each other party to such Contracts, has performed in all material respects the obligations required to be performed by it under such Contracts and is not (with or without lapse of time or the giving of notice, or both) in breach or default thereunder. Schedule 3.1(p) identifies, as to each such Contract listed thereon, whether the consent of the other party thereto is required in order for such Contract to continue in full force and effect upon the consummation of the transactions contemplated hereby or whether such Contract can be canceled by the other party without liability to such other party due to the consummation of the transactions contemplated hereby. A complete copy of each written Contract and a description of each oral Contract set forth in Schedule 3.1(p) has been provided to Buyer prior to the date of this Agreement. (ii) The Company is not a party to any oral or written agreement, plan or arrangement, other than as required by the Consolidated Omnibus Reconciliation Act of 1985, with any employee or other station or broadcast personnel (whether an employee, consultant or an independent contractor) of the Company (A) the benefits of which are contingent, or the terms of which are materially altered, upon, or result from, the occurrence of a transaction involving the Company of the nature of any of the transactions contemplated by this Agreement, (B) providing severance benefits longer than forty-five days or other benefits after the termination of employment or other contractual relationship regardless of the reason for such termination and regardless of whether such termination is before or after a change of control, (C) under which any person may receive payments subject to the tax imposed by Section 4999 of the Code or (D) any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. (q) ERISA Compliance; Labor. (i) Neither the Company nor any member of the controlled group of corporations as defined in Section 414(b) of the Code (the "ERISA Group"), nor any officer of the Company or any member of the ERISA Group or any of the Employee Benefit Plans of the Company or any member of the ERISA Group which are subject to ERISA, or any trusts created thereunder, or any trustee or administrator thereof, has engaged in a "prohibited transaction," as such term is described in Section 4975 of the Code or Section 406 of the Employee Retirement Security Act of 1974 as amended ("ERISA"), which has subjected or which could subject the Company or any member of the ERISA Group, any officer of the Company or any of such plans or any trust to any material tax or penalty on prohibited transactions imposed under the Code or ERISA. None of the employee pension benefit plans, as defined in Section 3(3) of ERISA, currently maintained by the Company or any member of the ERISA Group or maintained during the last three years by the Company or any member of the ERISA Group is subject to Title IV of ERISA. Neither the Company or 21 27 any member of the ERISA Group has contributed or been obligated to contribute to any "multi-employer plan" as such term is defined in Section 3(37) or Section 4001(a)(3) of ERISA. Except as set forth on Schedule 3.1(q), there are no employee benefit plans as defined in Section 3(3) of ERISA that are currently maintained by the Company or any member of the ERISA Group or that have been maintained by the Company or a member of the ERISA Group during the last three years (the "Employee Benefit Plans"). (ii) True, correct, and complete copies of each of the Employee Benefit Plans, and related trusts, if applicable, have been furnished to Buyer, along with the most recent report filed on Form 5500 and summary plan description with respect to each Employee Benefit Plan required to file Form 5500. All reports and disclosures relating to the Employee Benefit Plans required to be filed with or furnished to governmental agencies or plan participants or beneficiaries have been furnished in accordance with Applicable Law in a timely manner. Each Employee Benefit Plan has been maintained in all material respects in compliance with ERISA and the Code, and each Employee Benefit Plan intended to be qualified under Section 401 of the Code has received a current favorable determination letter from the Internal Revenue Service regarding the qualified status, including the tax qualified status of the Employee Benefit Plan as it pertains to the Tax Reform Act of 1986. There are no actions, suits, or claims pending (other than routine claims for benefits) or, to the Knowledge of the Company and the Selling Stockholders, threatened against, or with respect to any of the Employee Benefit Plans. All contributions required to be made to the Employee Benefit Plans pursuant to their terms have been timely made. To the Knowledge of the Company and the Selling Stockholders, there is no matter pending with respect to any of the Employee Benefit Plans before the Internal Revenue Service, Department of Labor or the Pension Benefit Guaranty Corporation. Except as required by Applicable Law, none of the Employee Benefit Plans provides medical insurance coverage following retirement. Each Employee Benefit Plan which is an "employee welfare benefit plan," as defined in Section 3(1) of ERISA, may be unilaterally amended or terminated in its entirety without liability except as to benefits accrued prior to such amendment or termination. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not require the Company or a member of the ERISA Group to make a larger contribution, or pay greater benefits under, any Employee Benefit Plan or employment agreement. (iii) The Company is not a party to any collective bargaining agreement. The Company has not agreed to recognize any union or other collective bargaining representative, nor has any union or other collective bargaining representative been certified as the exclusive bargaining representative of any of its employees. Except as set forth on Schedule 3.1(q), the Company (A) is, and has always been since January 1, 1995, in substantial compliance with all Applicable Laws regarding labor, employment and employment practices, including, but not limited to, Applicable Laws relating to terms and conditions of employment, equal employment opportunity, employee benefits, affirmative action, wages and hours, plant closing and mass layoff, occupational safety and health, immigration, and workers' compensation, (B) is not engaged, nor has it since January 1, 1995, engaged, in any unfair labor practices, and has no, and has not had since January 1, 1995, any, unfair labor practice charges or complaints before the National Labor Relations 22 28 Board pending or, to the Knowledge of the Company and the Selling Stockholders threatened against it, (C) has no, and has not had since January 1, 1995, any grievances, arbitrations, or other proceedings arising or asserted to arise under any collective bargaining agreement, pending or, to the Knowledge of the Company and the Selling Stockholders threatened, against it and (D) has no, and has not had since January 1, 1995, any, charges, complaints, or proceedings before the Equal Employment Opportunity Commission, Department of Labor or any other Governmental Entity responsible for regulating employment practices, pending, or, to the Company's and the Selling Stockholders' Knowledge, threatened against it. There is no labor strike, slowdown, work stoppage or lockout pending or, to the Knowledge of the Company and the Selling Stockholders, threatened against or affecting the Company, and the Company has not experienced any labor strike, slowdown, work stoppage or lockout since January 1, 1995. To the Knowledge of the Company and the Selling Stockholders, no union organizational campaign or representation petition is currently pending or threatened with respect to any of the employees of the Company. (r) Patents, Trademarks, Etc. Schedule 3.1(r) is a true and complete list of all of the Intellectual Property. Except as set forth on Schedule 3.1(r), the Company owns or has the unencumbered right to use pursuant to a valid, binding, and enforceable license agreement or other contract or arrangement all such Intellectual Property. To the Knowledge of the Company and the Selling Stockholders, the Company is not infringing any such Intellectual Property, and neither the Company nor either of the Selling Stockholders is aware of any infringement by others of any of the Intellectual Property owned by the Company. (s) Affiliate Relationships. Except as set forth in Schedule 3.1(s), there are no contracts or other arrangements involving the Company in which any member, manager, officer, director, or Affiliate of the Company has a financial interest, including indebtedness to the Company. (t) No Dispositions. Since the Balance Sheet Date, there has not occurred any sale, lease, transfer, assignment, abandonment or other disposition of any of the assets of the Company other than any disposition of (i) obsolete property, (ii) property in connection with the acquisition of replacement property of equal value, or (iii) assets having, in the aggregate, a value of less than $10,000 disposed of in the ordinary course of business and consistent with past practices. (u) Trade Deals. Schedule 3.1(u) contains a list of all of the Trade Deals in effect as of March 31, 1997 and correctly sets forth the balance, in dollar value, of either (i) the Company's obligations to the other party under such Trade Deals (denoted by a minus on Schedule 2.5(b)) or (ii) the amount due the Company under such Trade Deals (reflected as a positive on Schedule 2.5(b)). (v) Disclosure. No representation or warranty by the Company or any Selling Stockholder contained in this Agreement or in any certificate furnished pursuant to this Agreement contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact necessary, in light of the circumstances under which it was or will be made, in order to make the statements herein or therein not misleading. 23 29 3.2. REPRESENTATIONS AND WARRANTIES OF SELLING STOCKHOLDERS. Each Selling Stockholder, severally as to it or her and not jointly, represents and warrants to Buyer (with the understanding that Buyer is relying on such representations and warranties in entering into and performing this Agreement), as follows: (a) Owners of Shares. As of the date hereof, such Selling Stockholder is the holder of record and owns beneficially that number of shares of Common Stock and, as of the Closing Date, will be the holder of record and will own beneficially that number of shares of Common Stock, set forth opposite her or its name on Schedule I hereto, free and clear of all Liens, other than those Liens listed on Schedule 3.2(a) which shall be released on the Closing Date. At the Closing, such Selling Stockholder will transfer to Buyer good and valid title to the Shares owned by such Selling Stockholder free and clear of all Liens. (b) Authority. Such Selling Stockholder has full legal capacity to execute and deliver this Agreement and the other Transaction Documents to which such Selling Stockholder is a party to perform the obligations of such Selling Stockholder hereunder and thereunder. This Agreement and such Transaction Documents have been, or upon execution and delivery will be, duly and validly executed and delivered by such Selling Stockholder and constitute a valid and binding obligation of such Selling Stockholder, enforceable against such Selling Stockholder in accordance with their respective terms, subject, as to enforceability, to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (c) No Conflict; Required Filings and Consents. The execution and delivery of the Transaction Documents by such Selling Stockholder do not and the performance by such Selling Stockholder of the transactions contemplated hereby or thereby will not, subject to obtaining the consents, approvals, authorizations, and permits and making the filings described in this Section 3.2(c) and assuming the release of the Liens described in Schedule 3.2(a) on the Closing Date, (i) violate, conflict with, or result in a violation or breach of, or constitute a default (with or without due notice or lapse of time or both) under, or permit the termination of, or result in the acceleration of, or entitle any party to accelerate any obligation, or give rise to the creation of any Lien upon the Shares, under any of the terms, conditions, or provisions of any agreement, or other instrument or obligation to which such Selling Stockholder is a party or by which it may be bound, or (ii) violate any order, writ, judgment, injunction, decree, statute, law, rule, or regulation, of any Governmental Entity applicable to such Selling Stockholder or by which she or it is bound or subject. No Consent of any Governmental Entity is required by or with respect to such Selling Stockholder in connection with the execution and delivery of any Transaction Documents by such Selling Stockholder or the consummation of the transactions contemplated hereby or thereby, except for (A) the FCC Consents (as contemplated by Section 7.1 hereof) and (B) applicable requirements, if any, of the Securities Act and the Exchange Act and state securities or blue sky laws. 3.3. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to the Selling Stockholders as follows (with the understanding that the Selling Stockholders are relying on such representations and warranties in entering into and performing this Agreement): 24 30 (a) Organization Standing and Power. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware 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) Authority. Buyer has all requisite corporate power and authority to enter into the Transaction Documents to which it will be a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of such Transaction Documents by Buyer and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Buyer. The Transaction Documents to which Buyer will be a party have been executed and delivered, or upon execution and delivery will be executed and delivered and, upon execution and delivery, will constitute the valid and binding obligation of Buyer, enforceable against it in accordance with their respective terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (c) No Conflict; Required Filings and Consents. The execution and delivery of the Transaction Documents to which Buyer will be a party do not and the performance by Buyer of the transactions contemplated hereby or thereby will not, subject to obtaining the consents, approvals, authorizations, and permits and making the filings described in this Section 3.3(c), (i) violate, conflict with, or result in any breach of any provisions of Buyer's Certificate of Incorporation and Bylaws, (ii) violate, conflict with, or result in a violation or breach of, or constitute a default (with or without due notice or lapse of time or both) under any of the terms, conditions, or provisions of any loan or credit agreement, note, bond, mortgage, indenture, or deed of trust, or any license, lease, agreement, or other instrument or obligation to which Buyer is a party and the effect of which would be to prohibit or substantially delay the consummation by the Buyer of the transactions contemplated by this Agreement, or (iii) violate any order, writ, judgment, injunction, decree, statute, law, rule or regulation, of any Governmental Entity applicable to Buyer. No Consent of any Governmental Entity is required by or with respect to Buyer in connection with the execution and delivery of any Transaction Documents by Buyer or the consummation by it of the transactions contemplated hereby or thereby, except for (A) the FCC Consents (as contemplated by Section 7.1), and (B) applicable requirements, if any, of the Securities Act and the Exchange Act and the rules and regulations thereunder and state securities or blue sky laws. (d) Litigation. There is no action, suit, inquiry, judicial or administrative proceeding pending or, to the Knowledge of Buyer, threatened against it or any of its Affiliates relating to the transactions contemplated by this Agreement. (e) FCC Matters. There are no proceedings, complaints, notices of forfeiture claims, investigations pending or, to the knowledge of the Buyer, threatened against Buyer or any of its Affiliates or any facts relating to Buyer or any of its Affiliates under the Communications Act that reasonably may be expected to disqualify it from obtaining control of the Station Licenses or that would prevent it from consummating the transactions contemplated by this Agreement. Buyer is able to certify on an FCC Form 314 that it is financially qualified. 25 31 (f) Investment Intent. Buyer is acquiring the Shares for purposes of investment and not with a view to the distribution thereof. (g) Disclosure. No representation or warranty made by Buyer contained in this Agreement or in any certificate furnished by Buyer pursuant to this Agreement contains or will contain an untrue statement of material fact, or omits or will omit to state a material fact necessary, in the light of the circumstances under which it was or will be made, in order to make the statements herein or therein not misleading. ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS 4.1. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDERS. Except as contemplated by this Agreement or to the extent that Buyer shall otherwise consent in writing, from the date of this Agreement until the Closing, the Company and the Selling Stockholders, jointly and severally, covenant and agree that the Company shall not: (a) conduct its business in any manner except in the ordinary course consistent with past practice; or (b) fail to use its commercially reasonable efforts to preserve intact the Company's present business organization and to keep available the services of its present officers, station managerial personnel (including the General Manager, Station Manager, General Sales Manager, Local Sales Manager, Programming Director, and Business Manager, or persons performing comparable duties, of each Station (collectively, the "Station Management")) and over-the-air employees or independent contractors and preserve its relationships with customers, suppliers and others having business dealings with it; or (c) fail to use commercially reasonable efforts to maintain the assets of the Company in their current condition, except for ordinary wear and tear and damage by casualty governed by Section 7.7; or (d) fail to use all commercially reasonable efforts to maintain the present format of the Stations and with programming consistent with past practices; or (e) merge or consolidate with or into any other legal entity, dissolve, or liquidate; or (f) except as required by the terms and provisions of written contracts between the Company and an employee thereof as in existence on April 1, 1997, adopt or amend any Employee Benefit Plan or collective bargaining agreement; or (g) acquire (including, without limitation, by merger, consolidation, or the acquisition of any equity interest or assets) or sell (whether by merger, consolidation, or the sale of an equity interest or assets), lease, or dispose of any assets of the Company except in the ordinary 26 32 course of business and consistent with past practice or, even if in the ordinary course of business and consistent with past practices (other than sales of surplus or obsolete equipment), whether in one or more transactions, in no event involving an asset or assets having an aggregate fair market value in excess of $25,000; or (h) mortgage, pledge, or subject to any material Lien, other than Permitted Encumbrances, any of the assets of the Company; or (i) except as required by GAAP, applicable law, or circumstances which did not exist as of the Balance Sheet Date, change any of the material accounting principles or practices used by it; or (j) change in any material respect its existing practices and procedures with respect to the collection of accounts receivable of the Stations and, except with respect to good faith attempts consistent with past practice to obtain payment of a past due receivable, or except in accordance with existing practices, a contested receivable, offer to discount the amount of any outstanding receivable or extend any other incentive (whether to the account debtor or any employee or third party responsible for the collection of receivables) to accelerate the collection thereof; or (k) pay, discharge, or satisfy any material claims, liabilities, or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than in the ordinary course of business consistent with past practice or as provided in Section 2.3(a), or fail to pay or otherwise satisfy (except if being contested in good faith) any material accounts payable, claims, liabilities, or obligations on a basis, and within the time, consistent with past practice; or (l) change any Station's advertising rates or policies, procedures or methods in connection with the sale of advertising time in a manner expected to accelerate the receipt of cash payments or fail to incur annual advertising and promotional department expenses in cash and trade other than as budgeted for 1997 (as such budget previously has been delivered to Buyer); or (m) split, combine, divide, distribute, or reclassify any shares of its capital stock, declare, pay, or set aside for payment any dividend or other distribution in respect of its capital stock, or directly or indirectly, redeem, purchase, or otherwise acquire any shares of its capital stock or other securities; provided, however, that immediately prior to the Closing and after consultation with Buyer, the Company may pay a cash dividend to the Selling Stockholders out of the Current Assets resulting from the operation of the Company in the ordinary course; or (n) issue, sell, pledge, dispose of, encumber, or deliver (whether through the issuance or granting of any options, warrants, commitments, subscriptions, rights to purchase or otherwise) any stock of any class or any securities convertible into or exercisable or exchangeable for shares of stock of any class (other than the issuance of certificates in replacement of lost certificates); or (o) change or amend its charter documents or bylaws; or 27 33 (p) incur or assume any long-term debt (including obligations in respect of capital leases and for interest), assume, guarantee, endorse, or otherwise become liable or responsible (whether directly, contingently, or otherwise) for the obligations of any other person (other than endorsements of checks in the ordinary course) or make any loans, advances, or capital contributions to, or investments in, any person (other than advances to employees in the ordinary course of business); or (q) make any settlement of or compromise any tax liability, change any tax election or tax method of accounting or make any new tax election or adopt any new tax method of accounting; or (r) enter into, or enter into negotiations or discussions with any person other than Buyer with respect to any local marketing agreement, time brokerage agreement, joint sales agreement, or any other similar agreement; or (s) agree to or make any commitment, orally or in writing, to take any actions prohibited by this Agreement. With respect to a consent requested by the Company under this Section 4.1, Buyer agrees that a failure to respond to such request within three business days of receipt thereof shall be deemed a consent to such request. 4.2. NEGATIVE TRADE BALANCE. The Company shall use commercially reasonable efforts to ensure that the Company Negative Trade Balance of the Stations, taken as a whole, does not exceed $25,000 in the aggregate at the Closing Date. 4.3. ENVIRONMENTAL SITE ASSESSMENTS. If Buyer or its lenders or other financing sources require Phase I or Phase II ESAs, the Company and the Selling Stockholders covenant and agree that, upon written notice from Buyer to the Company identifying the locations at which such ESAs are required, the Company and the Selling Stockholders shall permit a nationally recognized and duly qualified environmental consultant reasonably acceptable to Buyer and the Company to prepare an ESA at each identified transmission site owned, operated, or leased by the Company and at such other identified real properties and facilities owned, operated, or leased by the Company. The ESAs which are to be conducted for the benefit of Buyer shall be performed in a manner that at a minimum satisfies the requirements of ASTM Practice E 1527-94. The cost of any Phase I or Phase II ESA shall be borne by Buyer. 4.4. BROADCAST TRANSMISSION INTERRUPTION. If before the Closing the regular broadcast transmission of any of the Stations in the normal and usual manner is interrupted for a period of two (2) consecutive hours or more, excluding normal and routine maintenance, Seller shall give prompt written notice thereof to Buyer. 28 34 ARTICLE V ADDITIONAL AGREEMENTS OF THE COMPANY AND THE SELLING STOCKHOLDERS 5.1. NO SOLICITATION OF TRANSACTIONS. Neither the Company nor the Selling Stockholders shall, directly or indirectly, through any officer, director, stockholder, employee, agent, financial advisor, banker or other representative, or otherwise, solicit, initiate, or encourage the submission of any proposal or offer from any person relating to any acquisition or purchase of all or any material portion of the assets of the Company or any equity interest in the Company or any merger, consolidation, share exchange, business combination, or other similar transaction with the Company or participate in any negotiations regarding, or furnish to any other person any information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate, or encourage, any effort or attempt by any other person to do or seek any of the foregoing. The Company shall immediately communicate to Buyer the material terms of any such proposal (and the identity of the party making such proposal) which it may receive and, if such proposal is in writing, the Company shall promptly deliver a copy of such proposal to Buyer. The Company agrees not to release any third party from, or waive any provision of, any confidentiality or standstill agreement to which the Company is a party. The Company immediately shall cease and cause to be terminated all existing discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. 5.2. ACCESS AND INFORMATION. (a) Until the Closing, the Company shall afford to Buyer and its representatives (including accountants and counsel) full access, during normal business hours, upon reasonable notice and in such manner as will not unreasonably interfere with the conduct of the business of the Company, to all properties, books, records, and Tax Returns of the Company and all other information with respect to its business, together with the opportunity to make copies (at Buyer's expense) of such books, records, and other documents and to discuss the business of the Company with such officers, directors, station managerial personnel (including the Station Management of each Station), accountants, consultants, and counsel for the Company as Buyer deems reasonably necessary or appropriate for the purposes of familiarizing itself with the Company and the Stations, including the right to visit the Stations. In furtherance of the foregoing, the Company shall authorize and instruct its independent public accountants to meet with Buyer and its representatives, including Buyer's independent public accountants, to discuss the business and accounts of the Company and to make available (with the opportunity to make copies at Buyer's expense) to Buyer and its representatives, including its independent public accountants, all the work papers of its accountants related to their audit of the consolidated financial statements and Tax Returns of the Company. (b) Within 30 days after the end of each calendar month, the Company shall deliver to Buyer, for each of the Stations, and for the Company as a whole, monthly operating statements (in a form consistent with the monthly operating statements previously supplied to Buyer) prepared in the ordinary course of business for internal purposes. In addition, within 45 days after the end of each calendar quarter, the Company shall deliver to Buyer, for each of the Stations, quarterly statements prepared in the ordinary course for internal purposes containing a detailed listing of all trade and barter agreements of each Station showing the status of all such agreements 29 35 as of the end of the quarter. The Company shall deliver to Buyer the rating books and such other ratings information subscribed to by the Company including, without limitation, Arbitrends, Accuratings or any other written information reflective of the quantitative or qualitative nature of the audiences of the Stations for each of the Stations upon receipt of the same by any officer or director of the Company. The Company shall instruct the Station Management of each Station to provide such information and reports to Buyer's corporate officers promptly upon receipt by such Station Management. In addition, the Company will promptly provide Buyer with copies of each Station's weekly sales pacing reports. (c) Without duplication of Section 5.2(b), at such time as the Company provides the same to its lenders or stockholders, the Company shall provide Buyer with copies of the financial statements and other information delivered by the Company to such lenders or stockholders. 5.3. ASSISTANCE. If Buyer requests, the Company will cooperate, and will cause its accountants to cooperate, in all reasonable respects with any financing efforts of Buyer or its Affiliates (including providing assistance in the preparation of one or more registration statements or other offering documents relating to debt and/or equity financing) and any other filings that may be made by Buyer or its Affiliates with the Securities and Exchange Commission, all at the sole expense of Buyer. The Company (a) shall furnish to its independent accountants (or, if requested by Buyer to Buyer's independent public accountants), such customary management representation letters as its accountants may require of the Company as a condition to its execution of any required accountants' consents necessary in connection with the delivery of any "comfort" letters requested by financing sources of Buyer or its Affiliates and (b) shall furnish to Buyer all financial statements (audited and unaudited) and other information in the possession of the Company or its representatives or agents as Buyer shall reasonably determine is necessary or appropriate in connection with such financing. Buyer will indemnify and hold harmless the Company and its, officers, directors, and controlling persons against any and all claims, losses, liabilities, damages, demands, charges, suits, penalties, costs, or expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing any litigation or proceeding) that may arise out of or with respect to the financing efforts by Buyer or its Affiliates, including any registration statement, prospectus, offering documents, and other filings related thereto; provided, however, that subject to the limitations and provisions of this Agreement, nothing in this Section 5.3 shall prevent Buyer from asserting any claim for breach of representation or warranty under this Agreement. 5.4. COMPLIANCE WITH STATION LICENSES. The Company and the Selling Stockholders shall cause the Stations to be operated in accordance with the Station Licenses and all applicable rules and regulations of the FCC and in compliance with all other applicable laws, regulations, rules, and orders. The Company and the Selling Stockholders shall use all commercially reasonable efforts not to cause or permit any of the Station Licenses to expire or be surrendered, adversely modified, or terminated. The Company shall file or cause to be filed with the FCC all applications (including license renewals) or other documents required to be filed in connection with the operation of the Stations. Should the FCC institute any proceedings for the suspension, revocation or adverse modification of any of the Station Licenses or any forfeiture proceedings, the Company and the Selling Stockholders will use all commercially reasonable efforts to promptly contest such proceedings and to seek to have such proceedings terminated in a manner that is favorable to the Stations. The Company will use all commercially reasonable efforts to maintain the FCC 30 36 construction permits (if any) listed in Schedule 3.1(g) in effect until the applicable construction projects are timely completed and to diligently prosecute all pending FCC applications listed in Schedule 3.1(g). If the Company (or its FCC counsel) receives an administrative or other order or notification relating to any violation or claimed violation of the rules and regulations of the FCC, or of any other Governmental Entity, that could affect the Company's or any Selling Stockholders' ability to consummate the transactions contemplated hereby, the Company shall promptly notify Buyer in writing and use its commercially reasonable efforts to take such steps as may be necessary to remove any such impediment to the transactions contemplated by this Agreement. 5.5. NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt written notice to Buyer of (a) the occurrence, or failure to occur, of any event of which it becomes aware that has caused or that would be likely to cause any representation or warranty of the Company or any Selling Stockholder contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date hereof to the Closing Date, (b) the failure of the Company or any Selling Stockholder, or any officer, director, employee, or agent of the Company, to comply with or satisfy in any material respect any covenant, condition, or agreement to be complied with or satisfied by it hereunder, (c) the occurrence of a Station Event (as defined in Section 9.1), and (d) the occurrence of any threat made to the Company by any officer of the Company or any General Manager, Station Manager, General Sales Manager or Programming Director of a Station to resign or otherwise terminate their employment or independent contractor relationship with the Company. No such notification shall affect the representations or warranties of the parties or the conditions to their respective obligations hereunder. 5.6. THIRD PARTY CONSENTS. After the date hereof and prior to the Closing, the Company shall use its commercially reasonable efforts to obtain the written consent from any party to an agreement or instrument identified in Schedule 3.1(p) or any other Contract which is required to permit the consummation of the transactions contemplated hereby. 5.7. RESIGNATIONS OF DIRECTORS AND OFFICERS. The Company and the Selling Stockholders shall cause all directors and officers of the Company to deliver their written resignations to Buyer, which resignations shall be effective at the Closing (assuming Buyer elects one or more duly qualified directors to replace such resigning directors at the Closing) and shall be in form and substance satisfactory to Buyer. Each such resignation shall state that the Company is not in any way indebted or obligated to the resigning party for termination pay, loans, advances, or otherwise. 5.8. MARY K. QUASS EMPLOYMENT AGREEMENT. Subject to the terms and conditions hereof, Mary K. Quass hereby agrees, and Buyer agrees that it shall cause Central Star Communications, Inc., to execute and deliver the Employment Agreement at or immediately prior to the Closing. 5.9. SURVEY. If requested by Buyer, the Company and Selling Stockholders shall permit Buyer, at its sole cost and expense, to obtain a survey of the Owned Real Property which shall be prepared by a registered land surveyor reasonably selected by Buyer and shall satisfy the ALTA-ACSM Standards (1992). 31 37 5.10. MONTHLY FINANCIALS. Promptly after the end of each month occurring during the period commencing on the date of this Agreement and ending on the Closing Date, the Company shall deliver to Buyer an unaudited balance sheet of the Company as of the last day of such month and an unaudited income statement for the month then ended. Such monthly financial statements shall be prepared in accordance with GAAP. ARTICLE VI COVENANTS OF BUYER 6.1. NOTIFICATION OF CERTAIN MATTERS. If Buyer or any of its Affiliates receives an administrative or other order or notification relating to any violation or claimed violation of the rules and regulations of the FCC, or of any Governmental Entity, that could affect Buyer's ability to consummate the transactions contemplated hereby, or should Buyer or any of its Affiliates become aware of any fact relating to the qualifications of Buyer that reasonably could be expected to cause the FCC to withhold its consent to the assignment of the Station Licenses, Buyer shall promptly notify the Company thereof and shall use its commercially reasonable efforts to take such steps as may be necessary to remove any such impediment to the transactions contemplated by this Agreement; provided, however, that Buyer shall not be required pursuant to this Section 6.1 to divest itself or cause any Affiliate thereof to divest itself of any media business or interest therein. In addition, Buyer shall give to the Company prompt written notice of (a) the occurrence, or failure to occur, of any event of which it becomes aware that has caused or that would be likely to cause any representation or warranty of Buyer contained in this Agreement to be untrue or inaccurate at any time from the date hereof to the Closing Date, and (b) the failure of Buyer, or any officer, director, employee, or agent thereof, to comply with or satisfy in any material respect any covenant, condition, or agreement to be complied with or satisfied by it hereunder. No such notification shall affect the representations or warranties of the parties or the conditions to their respective obligations hereunder. 6.2. EMPLOYEE MATTERS. Subject to the provisions of the employment contracts listed in Schedule 3.1(p) and Section 5.8 and except as set forth on Schedule 6.2, nothing contained in this Agreement shall be deemed to give any employee of the Company the right to be retained in the employ of the Company on or after the Closing Date, to retain the same salary, job responsibility or job location, or interfere with the right of the Company to terminate any employee at any time. 6.3. CERTAIN LEGAL QUALIFICATIONS. Buyer covenants that, after the date of this Agreement, neither it nor any Affiliate of Buyer will acquire broadcast stations or other property or interests therein that will prevent the parties from obtaining the FCC Consents by reason of the "multiple ownership" or "cross-interest" rules promulgated under the Communications Act or otherwise make the acquisition of the Shares hereunder illegal or, if such an acquisition is made that has such an affect, the Selling Stockholders shall have the rights specified in Article X with respect to a material breach of this Agreement by Buyer. 6.4. FUTURE ACQUISITIONS. Buyer agrees that if Buyer acquires any radio stations licensed to Cedar Rapids, Iowa or Iowa City, Iowa (each, an "Acquired Station") prior to the Closing or the termination of this Agreement, then if this Agreement is terminated (other than as a result of a breach 32 38 of or default under this Agreement by the Company or any Selling Stockholder) Buyer shall offer the Company the opportunity to purchase the Acquired Station from Buyer at a price equal to the purchase price paid for the Acquired Station by Buyer on substantially identical terms to those provided in the agreements documenting Buyer's acquisition of any such Acquired Station, including the assumption of any indemnification or similar obligations, subject to any modifications required to address the passage of time or other changed circumstances. The Company shall deliver written notice of its election to exercise such right to Buyer within ten business days after the termination of this Agreement and Buyer and the Company shall negotiate, execute and deliver any documents necessary to evidence the transactions contemplated by this Section 6.4 within 20 business days of the receipt of such notice. Buyer acknowledges that the provisions of this Section 6.4 do not modify, reduce or mitigate Buyer's obligations under Section 6.3. ARTICLE VII MUTUAL COVENANTS 7.1. APPLICATION FOR FCC CONSENTS. By the tenth business day after the date hereof, the Company and Buyer will, and will cause all necessary persons or entities to join in one or more applications filed with the FCC requesting the FCC's written consent to the assignment of the FCC Licenses pursuant to this Agreement (the "Applications"). The parties will take all proper steps reasonably necessary (a) to diligently prosecute the Applications and (b) to obtain the FCC Consents. The failure by either party to timely file or diligently prosecute its portion of any Application shall be a material breach of this Agreement; provided, however, that Buyer shall not be required pursuant to this Section 7.1 to divest itself or cause any Affiliate thereof to divest itself of any media business or interest therein. 7.2. CONTROL OF STATIONS. The Closing shall not occur until after the FCC Consents with respect to the Applications referred to in Section 7.1 are granted and have become Final Orders, subject to the waiver thereof by Buyer. Between the date of this Agreement and the Closing Date, Buyer will not directly or indirectly control, supervise or direct the operation of the Stations. Further, between the date of this Agreement and the Closing Date, the Company shall, directly or indirectly, supervise and control the operation of the Stations. Such operation shall be the sole responsibility of the Company. 7.3. OTHER GOVERNMENTAL CONSENTS. Promptly following the execution of this Agreement, the parties shall proceed to prepare and file with the appropriate Governmental Entities (other than the FCC) such requests, reports, or notifications as may be required in connection with this Agreement and shall diligently and expeditiously prosecute, and shall cooperate fully with each other in the prosecution of, such matters. Without limiting the foregoing, promptly following the execution of this Agreement, the parties shall (a) file with the Federal Trade Commission and the Antitrust Division of the Department of Justice the notifications and other information (if any) required to be filed under the HSR Act with respect to the transactions contemplated hereby and shall use their commercially reasonable efforts to cause all applicable waiting periods under the HSR Act to expire or be terminated as of the earliest possible date and (b) make all necessary filings and, thereafter, make any other required submissions with respect to the transactions contemplated hereby 33 39 under the Securities Act and the rules and regulations thereunder and any other applicable federal or state securities laws. Nothing in this Section 7.3 shall require Buyer to divest itself or to cause any Affiliate thereof to divest itself of any media business or interest therein. 7.4. BROKERS OR FINDERS. The Company and the Selling Stockholders represent and warrant to Buyer, that no agent, broker, investment banker, or other or person engaged by the Company or a Selling Stockholder is or will be entitled to any broker's or finder's fee or any other commission or similar fee payable by the Selling Stockholders, Buyer or the Company in connection with any of the transactions contemplated by this Agreement. Except for the previously disclosed fee payable to Media Venture Partners, which fee shall be paid in accordance with the provisions of Section 12.7, Buyer represents and warrants to the Company and the Selling Stockholders that Buyer has not engaged any agent, broker, investment banker or other person that will be entitled to any broker's or finder's fee or any other commissions or fee from the Selling Stockholders, Buyer or the Company in connection with any of the transactions contemplated by this Agreement. 7.5. RISK OF LOSS. (a) The risk of any loss, damage, impairment, confiscation, or condemnation of any of the assets of the Company from any cause whatsoever shall be borne by the Company at all times prior to the Closing. In the event of any material loss, damage, impairment, confiscation, or condemnation, whether or not covered by insurance, the Company shall promptly notify Buyer of such loss, damage, impairment, confiscation, or condemnation. Such notice shall state the estimated cost of repair, replacement or restoration of such assets and whether the Company intends to repair, replace or restore the assets. (b) In order to complete such repair, replacement or restoration, the Selling Stockholders shall have the right to postpone the Closing to a date, to be specified in a notice delivered to Buyer, no later than 60 days after the date of the occurrence of the loss, damage, impairment, confiscation or condemnation. (c) If the Company, at its expense, repairs, replaces, or restores such assets to their prior condition to the satisfaction of Buyer before the Closing, the Company shall be entitled to all insurance proceeds and condemnation awards, if any, by reason of such award or loss. (d) If the Company does not or cannot repair, restore or replace lost, damaged, impaired, confiscated or condemned assets having a replacement cost in excess of $50,000 in the aggregate or informs Buyer that it does not intend to repair, restore or replace such assets, Buyer may at its option: (i) subject to the last sentence of Section 10.1, terminate this Agreement by notice forthwith without any further obligation hereunder; or (ii) proceed to the Closing without the Company completing the restoration and replacement of such assets, provided that the Company shall retain all rights under applicable insurance policies and condemnation awards, if any; and in such event, the 34 40 Selling Stockholders shall have no further liability with respect to the condition of the assets directly attributable to the loss, damage, impairment, confiscation, or condemnation. (e) If the Company informs Buyer that it does not intend to repair, restore or replace the lost, damaged, impaired, confiscated or condemned assets, then Buyer will notify the Company of a decision under the options described in Section 7.5(d)(i) or (ii) above within 10 business days after the Company's notice to Buyer of the damage or destruction of assets, the estimate of the costs to repair or replace and the Company's intention not to repair, restore or replace. If the Company states that it intends to restore the damaged assets and if the Company has not restored such damaged assets immediately prior to the Closing Date (after giving effect to any postponement pursuant to Section 7.5(b)), then, notwithstanding any prior delivery of a notice by Buyer to proceed pursuant to this Section 7.5(e), then Buyer shall have the right to either postpone the Closing or, subject to the last sentence of Section 10.1, terminate this Agreement by notice forthwith. 7.6. ADDITIONAL AGREEMENTS. Subject to the terms and conditions of this Agreement, each of the parties hereto will use its commercially reasonable efforts to do, or cause to be taken all action and to do, or cause to be done, all things necessary, proper, or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. If at any time after the Closing Date, any further action is reasonably necessary or desirable to carry out the purposes of this Agreement, the parties to this Agreement and their duly authorized representatives shall take all such action. Without limiting the generality of the foregoing, if, after the Closing Date, Buyer seeks indemnification or recovery from one or more other parties to a Contract or otherwise seeks to enforce such Contract and, in order to obtain such indemnification, recovery or enforcement, it is necessary for a Selling Stockholder to participate in any enforcement proceeding or otherwise provide assistance to Buyer, then, at the request and the sole expense of Buyer, each Selling Stockholder shall take such action as Buyer may reasonably request in connection with Buyer's efforts to obtain such indemnification, recovery or enforcement. ARTICLE VIII CONDITIONS PRECEDENT 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION. The respective obligations of Buyer, the Company and the Selling Stockholders to effect the transactions contemplated hereby are subject to the satisfaction (or, in the case of the condition specified in the last sentence of Section 8.l(a), the waiver by Buyer) on or prior to the Closing Date of the following conditions: (a) Consents and Approvals. All authorizations, consents, orders, or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any Governmental Entity necessary for the consummation of the transactions contemplated by this Agreement shall have been filed, occurred, or been obtained; provided, however, that no consent or approval of the Securities and Exchange Commission shall be considered necessary for such consummation. The FCC Consents shall have become Final Orders and shall be in form and substance satisfactory to Buyer. 35 41 (b) No Injunctions or Restraints. No temporary restraining order, preliminary or permanent injunction, or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated hereby shall be in effect. (c) No Action. No action shall have been taken, nor any statute, rule, or regulation shall have been enacted, by any Governmental Entity that makes the consummation of the transactions contemplated hereby illegal. 8.2. CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to effect the transactions contemplated hereby is subject to the satisfaction of the following conditions unless waived, in whole or in part, by Buyer: (a) Representations and Warranties. The representations and warranties of the Company and the Selling Stockholders set forth in this Agreement shall be true and correct in all material respects (provided that any representation or warranty of the Company or a Selling Stockholder contained herein that is qualified by a materiality standard shall not be further qualified hereby) as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, and Buyer shall have received a certificate to such effect signed on behalf of the Company by the chief executive officer or by the chief financial officer of the Company and by each of the Selling Stockholders with respect to the representations and warranties of such Selling Stockholder. (b) Performance of Obligations. The Company and the Selling Stockholders shall have performed in all material respects all obligations required to be performed by it or them under this Agreement prior to the Closing Date, and Buyer shall have received a certificate to such effect signed on behalf of the Company by the chief executive officer or by the chief financial officer of the Company and by each of the Selling Stockholders. (c) Consents Under Agreements. Buyer shall have been furnished with evidence reasonably satisfactory to it of the consent or approval of each person that is a party to a Contract specifically identified in Schedule 3.1(p) whose consent or approval shall be required in order to permit the consummation of the transactions contemplated hereby and such consent or approval shall be in form and substance reasonably satisfactory to Buyer. (d) Legal Opinions. Buyer shall have received from each of Latham & Watkins Moyer & Bergman, P.L.C., and Sparks & Beyer, counsel to the Selling Stockholders and the Company, an opinion dated the Closing Date, in substantially the form of the opinions of such counsel attached as Exhibits E- 1, E-2 and E-3 hereto. (e) Mary K. Quass Employment Agreement. Central Star Communications, Inc. and Mary K. Quass shall have executed and delivered the Employment Agreement as required by Section 5.8. 36 42 (f) Closing Deliveries. All documents, instruments, certificates or other items required to be delivered by the Company or the Selling Stockholders pursuant to Section 9.2 shall have been delivered. 8.3. CONDITIONS TO OBLIGATIONS OF THE SELLING STOCKHOLDERS. The obligation of the Selling Stockholders to effect the transactions contemplated hereby is subject to the satisfaction of the following conditions unless waived, in whole or in part, by the Selling Stockholders (or the Stockholders' Representative). (a) Representations and Warranties. The representations and warranties of Buyer set forth in this Agreement shall be true and correct in all material respects (provided that any representation or warranty of Buyer contained herein that is qualified by a materiality standard shall not be further qualified hereby) as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, and the Selling Stockholders shall have received a certificate to such effect signed on behalf of Buyer by the chief executive officer or by the chief financial officer of Buyer. (b) Performance of Obligations of Buyer. Buyer shall have performed in all material respects the obligations required to be performed by it under this Agreement prior to the Closing Date, and the Selling Stockholders shall have received a certificate to such effect signed on behalf of Buyer by the chief executive officer or by the chief financial officer of Buyer. (c) Legal Opinion. The Selling Stockholders shall have received from Vinson & Elkins L.L.P., counsel to the Buyer, an opinion dated the Closing Date, in substantially the form of the opinion of such counsel attached as Exhibit F hereto. (d) Closing Deliveries. All documents and instruments required to be delivered by Buyer pursuant to Section 9.2 shall have been delivered. ARTICLE IX CLOSING 9.1. CLOSING. Subject to the satisfaction or waiver of the conditions set forth in Article VIII, the Closing will take place at the offices of Vinson & Elkins L.L.P., Dallas, Texas, at 10:00 a.m., local time (or at such other place and time as Buyer and the Selling Stockholders may agree), on the later to occur of (a) January 12, 1998, or (b) a date selected by Buyer and the Selling Stockholders, which date shall be no later than the 10th business day after the day on which the FCC Consents have been granted by Final Order (the "Closing Date"). If Buyer and Selling Stockholders fail to select the Closing Date, the Closing Date shall be such 10th business day. Notwithstanding the foregoing: (a) In the case of a Station Event (as defined below), (i) if the Cessation Date (as defined below) is less than 60 days after the Event Date (as defined below), Buyer, in its discretion, may extend the Closing Date to a date not later than the 10th day after the Cessation Date, (ii) if the 37 43 Cessation Date is more than 60, but less than 90, days after the Event Date, Buyer, in its discretion, shall elect on the first to occur of the 10th business day after the Cessation Date or the 90th day (or, if not a business day, the next business day) after the Event Date (the "Election Date") to either (A) close the transactions contemplated by this Agreement on the later to occur of the fifth business day after the Election Date or the 90th day (or, if not a business day, the next business day) after the Event Date or (B) terminate this Agreement, or (iii) if the Cessation Date has not occurred by the 90th day after the Event Date, then on the 90th day (or, if not a business day, the next business day) after the Event Date, Buyer, in its discretion, shall elect to close the transactions contemplated by this Agreement on the fifth business day thereafter or terminate this Agreement; (b) In the case of a Banking Event, Trading Event or Conflict Event, Buyer, in its discretion, may extend the Closing Date to a date not to exceed the 30th day after the Event Date; (c) If a Cure Period has not ended on or before the Closing Date, the Closing Date shall be extended to the end of the Cure Period; (d) If the Company intends to repair, replace or restore a lost, damaged, impaired, confiscated or condemned asset in accordance with the provisions of Section 7.5, the Closing may be extended by the Selling Stockholders until the date specified by the Selling Stockholders pursuant to Section 7.5(b); and (e) If the Closing does not occur within 80 days after the date of the Final Order, the parties shall request approval from the FCC to extend the Closing so that the Closing contemplated hereunder will not violate any FCC rules or regulations. For purposes of this Agreement, a "Banking Event" shall mean that a general moratorium on commercial banking activities in New York, New York shall have been declared by any federal or state authority; a "Conflict Event" shall mean the occurrence of any major armed conflict involving a substantial participation by the armed forces of the United States of America that causes a disruption of the capital markets of the United States of a magnitude similar to the disruption that could be caused by a Trading Event or Banking Event; a "Station Event" shall mean any act of nature, calamity or casualty (including fires, floods, earthquakes, and storms), or condemnation that has caused one or more Stations representing an aggregate of at least 3% of the consolidated gross revenues of the Company for the last full 12 calendar months prior to the Station Event not to be operating in a manner substantially consistent with the operations conducted before such act, calamity, casualty, condemnation occurred or not in material compliance with its or their respective Station License(s); a "Trading Event" shall mean that trading generally in securities on the New York Stock Exchange shall have been suspended or materially limited; an "Event Date" shall mean the date on which a Banking Event, Conflict Event, Station Event, or a Trading Event occurs; and a "Cessation Date" shall mean the date on which a Station Event ends. Pro forma adjustments shall be made for purposes of calculating gross revenues for the 12-month period specified in the definition of "Station Event" with respect to any radio broadcast station acquired during such 12-month period, to assume that such station was acquired at the beginning of such 12-month period and include the gross revenues of such station for the full 12-month period. 38 44 9.2. ACTIONS TO OCCUR AT CLOSING. (a) At the Closing, Buyer shall deliver to the Selling Stockholders (or to the Escrow Agent or the creditors of the Funded Debt, as indicated) the following: (i) Purchase Price. The Purchase Price (less the Holdback Amount and the amount of the Funded Debt) by wire transfer of immediately available funds; (ii) Funded Debt. The amount of the Funded Debt to the persons designated in the Funded Debt Payoff Notice; (iii) Holdback Amount. The Holdback Amount to the Escrow Agent by wire transfer of immediately available funds; (iv) Certificates. The certificates referred to in Section 8.3(a) and (b); (v) Legal Opinion. The opinion of counsel referred to in Section 8.3(c); and (vi) Indemnification Escrow Agreement. A counterpart of the Indemnification Escrow Agreement executed by Buyer. (b) At the Closing, the Company and the Selling Stockholders shall deliver to Buyer the following: (i) Share Certificates. Certificates representing the Shares, duly endorsed in blank or accompanied by stock powers duly endorsed in blank, and otherwise in proper form for transfer; (ii) Certificates. The certificates described in Section 8.2(a) and (b); (iii) Indemnification Escrow Agreement. A counterpart of the Indemnification Escrow Agreement executed by the Selling Stockholders or the Stockholders' Representative; (iv) Legal Opinion. The opinion of counsel referred to in Section 8.2(d); (v) Consents; Acknowledgments. The original of each Consent; and (vi) Resignations. The resignations described in Section 5.7. (c) At the Closing, the Selling Stockholders and Buyer shall instruct the Escrow Agent to deliver, and it shall deliver, the Deposit Letter of Credit to Buyer. (d) At the Closing, Buyer shall receive from the chief executive officer or chief financial officer of each Selling Stockholder a non-foreign affidavit within the meaning of section 1445(b)(2) of the Code. 39 45 (e) At the Closing, Mary K. Quass shall execute, and Buyer shall cause Central Star Communications, Inc. to execute, the Employment Agreement. (f) At the Closing, the Liens described in Schedule 3.2(a) shall be released and if such Liens were perfected by the filing of a financing statement or other instrument, the Selling Stockholders shall deliver to Buyer appropriate termination statements or instruments reflecting the release of such Liens. ARTICLE X TERMINATION, AMENDMENT AND WAIVER 10.1. TERMINATION. This Agreement may be terminated prior to the Closing: (a) by mutual consent of Buyer and the Selling Stockholders; (b) by either the Selling Stockholders or Buyer; (i) if there shall have been any material breach (provided that any representation or warranty of a party contained herein that is qualified by a materiality standard or a Material Adverse Effect qualification shall not be further qualified hereby) of any representation, warranty, covenant, or agreement, on the part of Buyer, on the one hand, or the Company and the Selling Stockholders, on the other hand, set forth in this Agreement, which breach shall not have been cured within 20 days, or within five days, in the case of a failure by Buyer to observe its covenant to pay the Purchase Price if the conditions to such payment are satisfied (the "Cure Period") following receipt by the breaching party of written notice of such breach; (ii) if a court of competent jurisdiction or other Governmental Entity shall have issued an order, decree, or ruling or taken any other action (which order, decree or ruling the parties hereto shall use their best efforts to lift), in each case permanently restraining, enjoining, or otherwise prohibiting the transactions contemplated by this Agreement, and such order, decree, ruling, or other action shall have become final and nonappealable; (iii) if, for any reason, the FCC denies or dismisses any of the Applications and the time for reconsideration or court review under the Communications Act with respect to such denial or dismissal has expired and there is not pending with respect thereto a timely filed petition for reconsideration or request for review; (iv) if, for any reason, any of the Applications is designated for an evidentiary hearing by the FCC; or (v) if the Closing shall not have occurred by the latest of May 31, 1998 or the date to which the Closing Date is extended pursuant to Section 7.5(b) or the second sentence of Section 9.1; provided, however, that the right to terminate this Agreement under this clause (v) 40 46 shall not be available to any party whose breach of this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date; or (c) by Buyer: (i) pursuant to the provisions of Section 7.5; (ii) with respect to a Station Event, at its option, as provided in the second sentence of Section 9.1; or (iii) if the FCC grants any of the Applications with any adverse conditions not generally imposed on grants of such applications other than adverse conditions imposed upon such grants relating to Buyer's qualification to hold the FCC Licenses and the time for reconsideration or court review under the Communications Act with respect to such adverse conditions has expired and there is not pending with respect thereto a timely filed petition for reconsideration or request for review. The right of any party hereto to terminate this Agreement pursuant to this Section 10.1 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any party hereto, any person controlling any such party or any of their respective officers, directors, employees, accountants, consultants, legal counsel, agents, or other representatives whether prior to or after the execution of this Agreement. If the Buyer or the Selling Stockholders intend to terminate the Agreement pursuant to Section 10.1 (b)(i), then the party having that intention shall notify the other party or parties, which notice shall specify the particular breach upon which such party intends to rely to terminate this Agreement. Notwithstanding anything in the foregoing to the contrary, a party that is in material breach of this Agreement shall not be entitled to terminate this Agreement except, in the case of a default by the Company or either Selling Stockholder, with the consent of Buyer, or in the case of a default by Buyer, with the consent of each Selling Stockholder. 10.2. EFFECT OF TERMINATION. (a) In the event of a termination of this Agreement by either the Selling Stockholders or Buyer as provided above, there shall be no liability on the part of either the Selling Stockholders, the Company or Buyer, except for liability arising out of a breach of this Agreement. If this Agreement is terminated by the Selling Stockholders pursuant to Section 10.1(b)(i) or is terminated pursuant to clause (iii) of Section 10.1(b) and the sole reason for the denial or dismissal of the Application is the breach by Buyer of the covenant contained in Section 6.3, the parties agree and acknowledge that the Selling Stockholders will suffer damages that are not practicable to ascertain. Accordingly, in such event and if, within 15 business days after termination of this Agreement by the Selling Stockholders pursuant to Section 10.1(b)(i) or pursuant to clause (iii) of Section 10.1(b) and the sole reason for the denial or dismissal of the Application is the breach by Buyer of the covenant contained in Section 6.3, the Selling Stockholders deliver to Buyer a written demand for liquidated damages, subject to Buyer's receipt of a counterpart of the Release executed by the Selling Stockholders, the Selling Stockholders shall be entitled to the sum of $750,000 as liquidated damages payable by Buyer within 10 business days after receipt of the Selling Stockholder's written demand and payable in accordance with the provisions of the Deposit Escrow 41 47 Agreement. As security for payment thereof, Buyer has, concurrently with the execution of this Agreement, entered into the Deposit Escrow Agreement with the Selling Stockholders and the Escrow Agent as provided in Section 2.7. The parties agree that the foregoing liquidated damages are reasonable considering all the circumstances existing as of the date hereof and constitute the parties' good faith estimate of the actual damages reasonably expected to result from the termination of this Agreement by the Selling Stockholders pursuant to Section 10.1(b)(i) or by the Selling Stockholders or Buyer pursuant to Section 10.1(b)(iii) because of the denial or dismissal of an Application caused by the breach by Buyer of the covenant contained in Section 6.3. The Selling Stockholders and the Company agree that, to the fullest extent permitted by law, Selling Stockholders's right to payment of such liquidated damages as provided in this Section 10.2 shall be the Selling Stockholders' and the Company's sole and exclusive remedy if the Closing does not occur with respect to any damages whatsoever that Selling Stockholders or the Company may suffer or allege to suffer as a result of any claim or cause of action asserted by Selling Stockholders relating to or arising from breaches of the representations, warranties or covenants of Buyer contained in this Agreement and to be made or performed at or prior to the Closing. If this Agreement is terminated by Selling Stockholders pursuant to Section 10.1(b)(i) or is terminated pursuant to clause (iii) of Section 10.1(b) and the sole reason for the denial or dismissal of the Application is the breach by Buyer of the covenant contained in Section 6.3, upon Buyer's receipt of a counterpart of the Release executed by Selling Stockholders and the Company, Buyer and Selling Stockholders shall instruct the Escrow Agent to release the Deposit Letter of Credit to Selling Stockholders. If this Agreement is terminated either by Buyer or Selling Stockholders pursuant to any provision of Section 10.1 other than a termination by Selling Stockholders pursuant to Section 10.1(b)(1) or by the Selling Stockholders or Buyer pursuant to Section 10.1(b)(ii) because of the denial or dismissal of an Application caused by Buyer's breach of the covenant contained in Section 6.3, then Buyer and Selling Stockholders shall instruct the Escrow Agent to release the Deposit Letter of Credit to Buyer. (b) As a condition of payment, and upon receipt of the liquidated damages under this Section 10.2, the Selling Stockholders hereby irrevocably and unconditionally release, acquit, and forever discharge Buyer and its successors, assigns, officers, directors, employees, agents, stockholders, subsidiaries, parent companies and other affiliates (corporate or otherwise) (the "Released Parties") of and from any and all Released Claims, including, without limitation, all Released Claims arising out of, based upon, resulting from or relating to the negotiation, execution, performance, breach or otherwise related to or arising out of the Transaction Documents or any agreement entered into in connection therewith or related thereto. "Released Claims" as used herein shall mean any and all charges, complaints, claims, causes of action, promises, agreements, rights to payment, rights to any equitable remedy, rights to any equitable subordination, demands, debts, liabilities, express or implied contracts, obligations of payment or performance, rights of offset or recoupment, accounts, damages, costs, losses or expenses (including attorneys' and other professional fees and expenses) held by any party hereto, whether known or unknown, matured or unmatured, suspected or unsuspected, liquidated or unliquidated, absolute or contingent, direct or derivative. 42 48 ARTICLE XI INDEMNIFICATION 11.1. INDEMNIFICATION OF BUYER. Subject to the provisions of this Article XI (in particular, to Section 11.6(e) and (f)) and of Section 12.17(b), each Selling Stockholders and the Company, jointly and severally agrees to indemnify and hold harmless the Buyer Indemnified Parties from and against any and all Buyer Indemnified Costs. 11.2. INDEMNIFICATION OF SELLING STOCKHOLDERS. Subject to the provisions of this Article XI, Buyer agrees to indemnify and hold harmless the Selling Stockholders Indemnified Parties from and against any and all Selling Stockholders Indemnified Costs. 11.3. DEFENSE OF THIRD-PARTY CLAIMS. An Indemnified Party shall give prompt written notice to any entity or person who is obligated to provide indemnification hereunder (an "Indemnifying Party") of the commencement or assertion of any action, proceeding, demand, or claim by a third party (collectively, a "third-party action") in respect of which such Indemnified Party shall seek indemnification hereunder. Any failure so to notify an Indemnifying Party shall relieve such Indemnifying Party from any liability that it, he, or she may have to such Indemnified Party under this Article XI to the extent that the failure to give such notice materially and adversely prejudices such Indemnifying Party. The Indemnifying Party shall have the right to assume control of the defense of, settle, or otherwise dispose of such third-party action on such terms as they deem appropriate; provided, however, that: (a) The Indemnified Party shall be entitled, at its own expense, to participate in the defense of such third-party action (provided, however, that the Indemnifying Parties shall pay the attorneys' fees of the Indemnified Party if (i) the employment of separate counsel shall have been authorized in writing by any such Indemnifying Party in connection with the defense of such third- party action, (ii) such third-party action could reasonably be expected to result in Buyer Indemnified Costs in excess of the remainder of the Holdback Amount then held by the Escrow Agent pursuant to the terms of the Indemnification Escrow Agreement (and not subject to pending claims), or (iii) the Indemnified Party's counsel shall have advised the Indemnified Party in writing, with a copy delivered to the Indemnifying Party, that there is a conflict of interest that could make it inappropriate under applicable standards of professional conduct to have common counsel); (b) The Indemnifying Party shall obtain the prior written approval of the Indemnified Party before entering into or making any settlement, compromise, admission, or acknowledgment of the validity of such third-party action or any liability in respect thereof if, pursuant to or as a result of such settlement, compromise, admission, or acknowledgment, injunctive or other equitable relief would be imposed against the Indemnified Party or if, in the opinion of the Indemnified Party, such settlement, compromise, admission, or acknowledgment could reasonably be expected to have an adverse effect on its business which approval shall not be unreasonably withheld or delayed (it shall not be deemed unreasonable for Buyer to withhold consent with respect to any settlement, compromise, admission, or acknowledgment if the amount of Buyer Indemnified Costs resulting therefrom could reasonably be expected to exceed the remainder of the Holdback 43 49 Amount then held by the Escrow Agent pursuant to the terms of the Indemnification Escrow Agreement (and not subject to pending claims)); (c) No Indemnifying Party shall consent to the entry of any judgment or enter into any settlement in respect of any claim for which indemnity is required hereunder that does not include as an unconditional term thereof the giving by each claimant or plaintiff to each Indemnified Party of a release from all liability in respect of such third-party action; and (d) The Indemnifying Party shall not be entitled to control (but shall be entitled to participate at its own expense in the defense of), and the Indemnified Party shall be entitled to have sole control over, the defense or settlement, compromise, admission, or acknowledgment of any third-party action (i) as to which the Indemnifying Party fails to assume the defense within a reasonable length of time and such failure could reasonably be expected to prejudice the defense of the action, or (ii) to the extent the third-party action seeks an order, injunction, or other equitable relief against the Indemnified Party which, if successful, would materially adversely affect the business, operations, assets, or financial condition of the Indemnified Party; provided, however, that the Indemnified Party shall make no settlement, compromise, admission, or acknowledgment that would give rise to liability on the part of any Indemnifying Party without the prior written consent of such Indemnifying Party. The parties hereto shall extend reasonable cooperation in connection with the defense of any third-party action pursuant to this Article XI and, in connection therewith, shall furnish such records, information, and testimony and attend such conferences, discovery proceedings, hearings, trials, and appeals as may be reasonably requested. 11.4. DIRECT CLAIMS. In any case in which an Indemnified Party seeks indemnification hereunder which is not subject to Section 11.3 because no third-party action is involved, the Indemnified Party shall notify the Indemnifying Party in writing of any Indemnified Costs which such Indemnified Party claims are subject to indemnification under the terms hereof. Subject to the limitations set forth in Section 11.6(c), the failure of the Indemnified Party to exercise promptness in such notification shall amount to a waiver of such claim to the extent that the resulting delay materially prejudices the position of the Indemnifying Party with respect to such claim. 11.5. ESCROW. On the Closing Date, Buyer, the Selling Stockholders (or the Selling Stockholders' Representatives on behalf of the Selling Stockholders) and the Escrow Agent will enter into the Indemnification Escrow Agreement in accordance with which Buyer shall, at Closing, deposit an amount of the Purchase Price equal to $500,000 (the "Holdback Amount") with the Escrow Agent. 11.6. LIMITATIONS. Subject to Section 11.7 and Section 11.8 hereof, the following provisions of this Section 11.6 shall be applicable after the Closing: (a) Minimum Loss. Except for Capped Indemnified Costs arising out of a breach of a covenant or an agreement under this Agreement or another Transaction Document that would have the effect of avoiding, delaying or deferring an obligation of the Company or the Selling Stockholders which by its terms was due and payable at or prior to the Closing, no Indemnifying 44 50 Party shall be required to indemnify an Indemnified Party for Capped Indemnified Costs unless and until the aggregate amount of such Capped Indemnified Costs for which the Indemnified Party is otherwise entitled to indemnification pursuant to this Article XI exceeds $50,000 (the "Minimum Loss"). After the Minimum Loss is exceeded, the Indemnified Party shall be entitled to be paid the amount of its Capped Indemnified Costs in excess of the amount of the Minimum Loss, subject to the limitations on recovery and recourse set forth in this Section 11.6 and in Section 11.7 and subject to the exception contained in Section 11.8. Subject to such limitations and exceptions, an Indemnified Party shall be entitled to be paid the entire amount of its Capped Indemnified Costs for a breach of a covenant or agreement under this Agreement or another Transaction Document without regard to any Minimum Loss threshold. For purposes of determining the aggregate amount of Minimum Loss suffered by an Indemnified Party, each representation and warranty contained in this Agreement for which indemnification can be or is sought hereunder shall be read (including for purposes of determining whether a breach of such representation or warranty has occurred) without regard to materiality (including Material Adverse Effect) qualifications that may be contained therein. In addition, in determining whether an Indemnifying Party shall be required to indemnify an Indemnified Party under this Article XI, once the Minimum Loss requirement set forth in this clause (a) has been satisfied, each representation and warranty contained in this Agreement for which indemnification can be or is sought hereunder shall be read (including for purposes of determining whether a breach of such representation or warranty has occurred) without regard to materiality (including Material Adverse Effect) qualifications that may be contained therein. (b) Limitation as to Time. No Indemnifying Party shall be liable for any Capped Indemnified Costs pursuant to this Article XI unless a written claim for indemnification in accordance with Section 11.3 or 11.4 is given by the Indemnified Party to the Indemnifying Party with respect thereto on or before the 450th day after the Closing Date, except that this time limitation shall not apply to any claims contemplated by Section 11.8. (c) Recourse against Escrowed Funds. Subject to Section 11.8 hereof, a Buyer Indemnified Party shall be entitled to payment only out of the Holdback Amount pursuant to the terms of this Article XI and the Indemnification Escrow Agreement for all amounts due to a Buyer Indemnified Party with respect to any claim by a Buyer Indemnified Party against a Selling Stockholder for Capped Buyer Indemnified Costs payable under this Article XI. Except as provided in Section 11.8 and except to the extent that the remedy of specific performance may be available for the enforcement of a covenant, subsequent to the Closing, indemnification under this Article XI shall be the exclusive remedy of Buyer Indemnified Parties with respect to any Capped Buyer Indemnified Costs. (d) Other Indemnified Costs. The provisions of this Section 11.6 (other than the last sentence of Section 11.6(a) and Sections 11.6(e) and 11.6(f)) shall only be applicable to Capped Indemnified Costs and shall not be applicable to any other Indemnified Costs. Moreover, such provisions (and the provisions of Section 11.6(e)) shall only be applicable to the period following the Closing. (e) Buyer Indemnified Costs Other than Capped Buyer Indemnified Costs. A Buyer Indemnified Party shall be entitled to payment out of the Holdback Amount pursuant to the terms of this Article XI and the Indemnification Escrow Agreement for all amounts due to a Buyer 45 51 Indemnified Party with respect to any claim by a Buyer Indemnified Party against a Selling Stockholder for Buyer Indemnified Costs other than Capped Buyer Indemnified Costs and, if such Buyer Indemnified Costs other than Capped Buyer Indemnified Costs exceed the amount available for such payment from the Holdback Amount, then each Selling Stockholder shall be liable for, and shall pay to Buyer, (i) its Proportionate Share (but only its Proportionate Share) of such excess with respect to any Buyer Indemnified Costs arising out of a breach or default by the Company or any Selling Stockholder of the representations or warranties contained in Section 3.1(o), and (ii) the full amount of any Buyer Indemnified Costs arising out of a breach or default by such Selling Stockholder under Section 3.2(a) or Section 3.2(b). (f) No Contribution. If the Closing occurs, then the Selling Stockholders, and not the Company, shall be fully liable for any Buyer Indemnified Costs sustained by any Buyer Indemnified Parties. In that event, the Selling Stockholders shall not be entitled to contribution or any other payments from the Company for any Buyer Indemnified Costs that the Selling Stockholders are obligated to pay. 11.7. INSTRUCTIONS TO ESCROW AGENT. Each Selling Stockholder hereby covenants and agrees that at any time a Selling Stockholder is or becomes obligated to indemnify a Buyer Indemnified Party for Buyer Indemnified Costs under this Article XI, the Selling Stockholders will execute and deliver to the Escrow Agent written instructions to release to the Buyer Indemnified Party such portion of the Holdback Amount as is necessary to indemnify the Buyer Indemnified Party for such Buyer Indemnified Costs. 11.8. NO WAIVER RELATING TO CLAIMS FOR FRAUD. The liability of any party under this Article XI shall be in addition to, and not exclusive of any other liability that such party may have at law or equity based on such party's fraudulent acts or omissions. None of the provisions set forth in this Agreement, including but not limited to the provisions set forth in Section 11.6(a), 11.6(b), or 11.6(c), shall be deemed a waiver by any party to this Agreement of any right or remedy which such party may have at law or equity based on any other party's fraudulent acts or omissions, nor shall any such provisions limit, or be deemed to limit, (a) the amounts of recovery sought or awarded in any such claim for fraud, (b) the time period during which a claim for fraud may be brought, or (c) the recourse which any such party may seek against another party with respect to a claim for fraud; provided, that with respect to such rights and remedies at law or equity, the parties further acknowledge and agree that none of the provisions of this Section 11.8, nor any reference to this Section 11.8 throughout this Agreement, shall be deemed a waiver of any defenses which may be available in respect of actions or claims for fraud, including but not limited to, defenses of statutes of limitations or limitations of damages. ARTICLE XII GENERAL PROVISIONS 12.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. Regardless of any investigation at any time made by or on behalf of any party hereto or of any information any party may have in respect thereof, each of the representations, warranties and covenants made hereunder 46 52 or pursuant hereto or in connection with the transactions contemplated hereby shall survive the Closing. The representations, warranties and covenants set forth in this Agreement shall terminate on the 450th day after the Closing Date except (a) that the representations and warranties set forth in Section 3.1(o) shall terminate on the date of expiration of the applicable statute of limitations, (b) the representations and warranties set forth in Section 3.2(a) shall survive indefinitely, (c) the provisions of this Article XII shall survive indefinitely, and (d) as provided in the next succeeding sentence. Following the date of termination of a representation, warranty or covenant, no claim can be brought with respect to a breach of such representation, warranty or covenant, but such termination shall not affect any claim for a breach of a representation, warranty or covenant that was asserted before the date of termination. If this Agreement is terminated pursuant to Section 10.1, the provisions of Articles I, X, XI and XII and Section 7.7 shall survive such termination. 12.2. FURTHER ACTIONS. After the Closing Date, each Selling Stockholder shall execute and deliver such other certificates, agreements, conveyances, and other documents, and take such other action, as may be reasonably requested by Buyer in order to transfer and assign to, and vest in, Buyer the Shares pursuant to the terms of this Agreement or to permit Buyer to control the Company and its assets. 12.3. AMENDMENT AND MODIFICATION. This Agreement may not be amended except by an instrument in writing signed by the parties hereto or by Buyer, the Company and the Stockholders' Representative. 12.4. WAIVER OF COMPLIANCE. Any failure of Buyer on the one hand, or the Company or a Selling Stockholder, on the other hand, to comply with any obligation, covenant, agreement, or condition contained herein may be waived only if set forth in an instrument in writing signed by the party or parties to be bound by such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any other failure. 12.5. SPECIFIC PERFORMANCE. The parties recognize that in the event the Company or a Selling Stockholder should refuse to perform under the provisions of this Agreement, monetary damages alone will not be adequate. Buyer shall therefore be entitled, in addition to any other remedies which may be available, including money damages, to obtain specific performance of the terms of this Agreement. In the event of any action to enforce this Agreement specifically, the Company and the Selling Stockholders hereby waive the defense that there is an adequate remedy at law. 12.6. SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of applicable law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated herein are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated herein are consummated as originally contemplated to the fullest extent possible. 47 53 12.7. EXPENSES AND OBLIGATIONS. Except as otherwise expressly provided in this Agreement or as provided by law, if the Closing does not occur, all costs and expenses incurred by the parties hereto in connection with the consummation of the transactions contemplated hereby shall be borne solely and entirely by the party which has incurred such expenses. If the Closing does occur, then, except as so provided, all costs and expenses incurred by the Company and the Selling Stockholders, on the one hand, and Buyer, on the other, in connection with such consummation shall be borne solely and entirely by the Selling Stockholders and Buyer, respectively. Notwithstanding the foregoing, (a) the fee payable to the Escrow Agent shall be borne as provided in the Indemnification Escrow Agreement and the Deposit Escrow Agreement, (b) the brokerage fee payable to Media Venture Partners shall be borne by the Buyer and the Selling Stockholders shall pay the brokerage fee of any person retained by the Company or any of the Selling Stockholders, and (c) all sales, documentary or stamp taxes arising out of the transactions contemplated by this Agreement shall be paid one-half by Buyer and one-half by the Selling Stockholders. Buyer, on one hand, and the Selling Stockholders, on the other hand, shall each be responsible for their own fees and expenses in connection with the arbitration contemplated by Section 2.5(b), and the fees and expenses of the Referee shall be borne equally by Buyer, on one hand, and the Selling Stockholders, on the other hand; provided, however, that if the Referee determines that one party has not proceeded in good faith in resolving such dispute, the fees and expenses of the prevailing party and of the Referee shall be borne by the party deemed not to have proceeded in good faith. In the event of a dispute between the parties in connection with this Agreement and the transactions contemplated hereby (other than the arbitration contemplated by Section 2.5(b)), each of the parties hereto hereby agrees that the prevailing party shall be entitled to reimbursement by the other party of reasonable legal fees and expenses incurred in connection with any action or proceeding. 12.8. PARTIES IN INTEREST. This Agreement shall be binding upon and, except as provided below, inure solely to the benefit of each party hereto and their successors and assigns, and nothing in this Agreement, except as set forth below, express or implied, is intended to confer upon any other person (other than the Indemnified Parties as provided in Article XI) any rights or remedies of any nature whatsoever under or by reason of this Agreement. 12.9. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) If to Buyer, to Capstar Acquisition Company, Inc. 200 Crescent Court, Suite 1600 Dallas, Texas 75201 Attn: Lawrence D. Stuart, Jr. Facsimile: (214) 740-7313 48 54 with copies to Vinson & Elkins L.L.P. 3700 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 Attn: Michael D. Wortley Facsimile: (214) 220-7716 Capstar Broadcasting Partners 600 Congress Avenue, Suite 1400 Austin, Texas 78701 Attn: William S. Banowsky, Jr. Facsimile: (512) 404-6850 Leibowitz & Associates, P.A. Suite 1450 Suntrust International Center One Southeast Third Avenue Miami, Florida 33131-1715 Attn: Matthew L. Leibowitz Facsimile: (305) 530-4417 (b) If to the Company, to Quass Broadcasting Company 425 2nd Street S.E., Suite 450 Cedar Rapids, Iowa 52401 Attn: Mary K. Quass Facsimile: (319) 298-2497 with a copy to Latham & Watkins 1001 Pennsylvania Avenue, N.W. Suite 1300 Washington, D.C. 20002 Attn: Joseph D. Sullivan Facsimile: (202) 637-2201 (c) If to the Selling Stockholders or the Selling Stockholder's Representative, to Mary K. Quass 425 2nd Street S.E., Suite 450 Cedar Rapids, Iowa 52401 Facsimile: (319) 298-2497 49 55 with a copy to Carlton O. Tronvold Trust Carlton O. Tronvold Charitable Remainder Trust 2131 1st Avenue S.E., Unit 216 Cedar Rapids, Iowa 52403 and 8665 Bay Colony Drive, Unit 604 Naples, Florida 34108 12.10. COUNTERPARTS. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 12.11. ENTIRE AGREEMENT. This Agreement (which term shall be deemed to include the exhibits and schedules hereto and the other certificates, documents and instruments delivered hereunder) constitutes the entire agreement of the parties hereto and supersedes all prior agreements, letters of intent and understandings, both written and oral, among the parties with respect to the subject matter hereof. There are no representations or warranties, agreements, or covenants other than those expressly set forth in this Agreement. 12.12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 12.13. PUBLIC ANNOUNCEMENTS. The Company and the Selling Stockholders, on the one hand, and Buyer, on the other, shall consult with each other before issuing any press release or otherwise making any public statements with respect to this Agreement or the transactions contemplated hereby and shall not issue any such press release or make any such public statement prior to such consultation. Prior to the Closing, neither the Company nor the Selling Stockholders will issue any other press release or otherwise make any public statements regarding the Company's business, except as may be required by applicable law or applicable rules of the Nasdaq Stock Market or any stock exchange. 12.14. ASSIGNMENT. Neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned by any of the parties hereto, whether by operation of law or otherwise; provided, however, that (a) upon notice to the Selling Stockholders and without releasing Buyer from any of its obligations or liabilities hereunder, Buyer may assign or delegate any or all of its rights or obligations under this Agreement to any Affiliate thereof, and (b) nothing in this Agreement shall limit Buyer's ability to make a collateral assignment of its rights under this Agreement to any institutional lender that provides funds to Buyer without the consent of the Selling Stockholders or the Company. The Company and the Selling Stockholders shall execute an acknowledgment of such assignment(s) and collateral assignments in such forms as Buyer or its institutional lenders may 50 56 from time to time reasonably request; provided, however, that unless written notice is given to the Company and the Selling Stockholders that any such collateral assignment has been foreclosed upon, the Company and the Selling Stockholders shall be entitled to deal exclusively with Buyer as to any matters arising under this Agreement or any of the other agreements delivered pursuant hereto. In the event of such an assignment, the provisions of this Agreement shall inure to the benefit of and be binding on Buyer's assigns. 12.15. DIRECTOR AND OFFICER LIABILITY. The directors, officers, and stockholders of Buyer and its Affiliates shall not have any personal liability or obligation arising under this Agreement (including any claims that the Company or a Selling Stockholder may assert) other than as an assignee of this Agreement. The current directors of the Company, other than Mary K. Quass and Carlton O. Tronvold, shall not have any personal liability or obligation arising under this Agreement. 12.16. NO REVERSIONARY INTEREST. The parties expressly agree, pursuant to Section 73.1150 of the FCC's rules, that the Selling Stockholders do not retain any right to reassignment of any of the FCC Licenses in the future, or to operate or use the facilities of the Stations for any period beyond the Closing Date. 12.17. RELATIONSHIP OF SELLING STOCKHOLDERS. (a) Except as expressly provided herein, the representations, warranties and covenants of the Selling Stockholders are joint and several. The default of one Selling Stockholder shall not relieve any other Selling Stockholder of its obligations hereunder. Each Selling Stockholder agrees that she or it shall cause the Company to comply with the provisions of the Agreement and perform its obligations hereunder that are to be complied with or performed on or before the Closing Date. Buyer shall not have any responsibility for the distribution of the proceeds of a draw on the Deposit Letter of Credit or the Purchase Price among the Selling Stockholders, but this sentence shall not be construed as relieving any Buyer from its obligation to pay the Purchase Price to the Selling Stockholders at Closing. (b) Notwithstanding Section 12.17(a), or any other provision of this Agreement, each Selling Stockholder shall indemnify Buyer for (i) its Proportionate Share (but only its Proportionate Share) of any Buyer Indemnified Costs arising out of a breach or default by the Company or any Selling Stockholder of the representations and warranties contained in Section 3.1(o), and (ii) the full amount of any Buyer Indemnified Costs arising out of a breach or default by such Selling Stockholder of the representations of warranties contained in Sections 3.2(a) or (b)), that are in excess of the Holdback Amount available to pay such Buyer Indemnified Costs. The obligation of a Selling Stockholder to pay such Proportionate Amount is several and not joint. 12.18. APPOINTMENT OF STOCKHOLDERS' REPRESENTATIVE. By the execution and delivery of this Agreement, each Selling Stockholder hereby irrevocably constitutes and appoints Mary K. Quass as the true and lawful agent and attorney-in-fact (the "Stockholders' Representative") of such Selling Stockholder with full power of substitution to act in the name, place and stead of such Selling Stockholder with respect to the following: 51 57 (a) During the period between the date of this Agreement and the Closing Date, the Stockholders' Representative shall have the following powers: (i) the power to execute and deliver all applications and associated exhibits, forms, affidavits, and other documents required to be signed by the Selling Stockholders and filed with any federal, state or local administrative agency from whom Consents must be obtained; and (ii) the power to amend this Agreement and the Deposit Escrow Agreement; provided, however, that no such amendment shall be binding upon a Selling Stockholder if the effect thereof is to reduce the Purchase Price or any other sums due and owing to such Selling Stockholder hereunder by an amount that cumulatively exceeds $100,000.00, to make or expand any warranties and representations on behalf of such Selling Stockholder, to limit the Selling Stockholder's right to indemnification under Section 11.1 above, or to materially delay (by the express terms of such amendment) the contemplated Closing. (b) After the Closing, the Stockholders' Representative shall have the following powers: (i) the power to amend the Indemnification Escrow Agreement (other than any amendment that would increase the amount of the Holdback Amount); (ii) the power to deal exclusively with the Buyer with regard to all matters involving the indemnification of Selling Stockholders as set forth in Section 11.2 of this Agreement; (iii) the power to deal exclusively with the Buyer and the Escrow Agent, with regard to all matters involving indemnification of the Buyer as set forth in Section 11.1 of this Agreement; subject, however, to the limitation on Capped Buyer Indemnified Costs evidenced by the Holdback Amount; (iv) the power to negotiate with the Buyer with regard to any indemnification sought by the Buyer pursuant to the terms of Section 3.1(o) of this Agreement; and (v) to the extent that collusive fraud is alleged against all Selling Stockholders, the power to deal with the Buyer with regard to any indemnification sought by the Buyer pursuant to Section 11.8 of this Agreement. In the event the Buyer seeks indemnification against a Selling Stockholder for fraud committed solely by such Selling Stockholder pursuant to Section 11.8, or in the event the Buyer seeks indemnification solely against a Selling Stockholder for breach of the representations and warranties of such Selling Stockholder under Section 3.2 of this Agreement, the Stockholder's Representative shall have no authority or power to act on behalf of such Selling Stockholder, and 52 58 the defense to any claim for indemnification by the Buyer with regard to such matter shall be the exclusive privilege of the Selling Stockholder from whom indemnification is sought. Except as limited by the immediately preceding paragraph, Buyer, the other Buyer Indemnified Parties, and any other person, may conclusively and absolutely rely, without inquiry, upon any action of the Stockholders' Representative as the action of each Selling Stockholder in all matters referred to herein, and each such Selling Stockholder confirms all that the Stockholders' Representative shall do or cause to be done by virtue of her appointment as Stockholders' Representative. All actions by the Stockholders' Representative are acknowledged by the parties hereto to be taken by it solely as agent and attorney-in-fact for each Selling Stockholder. By the execution of this Agreement, Mary K. Quass has accepted her appointment as Stockholders' Representative and in consideration for Mary K. Quass' agreement to act as the Stockholders' Representative, each Selling Stockholder hereby agrees to indemnify and hold Mary K. Quass harmless from and against all damages, losses, liabilities, charges, penalties, costs and expenses (including court costs and attorneys' fees and expenses, if any) incurred by her in connection with her performance as Stockholders' Representative, unless such performance constituted gross negligence or willful misconduct on the part of the Stockholders' Representative. Each Selling Stockholder covenants and agrees that he or she will not voluntarily revoke the power of attorney conferred in this Section 12.18. If any Selling Stockholder dies or becomes incapacitated, disabled or incompetent (such deceased, incapacitated, disabled or incompetent Selling Stockholder being a "Former Selling Stockholder") and, as a result, the power of attorney conferred by this Section 12.18 is revoked by operation of law, it shall not be a breach under this Agreement if the heirs, beneficiaries, estate, administrator, executor, guardian, conservator or other legal representative of such Former Selling Stockholder (each a "Successor Selling Stockholder") confirms the appointment of the Stockholders' Representative as agent and attorney-in-fact for such Successor Selling Stockholder. If the power of attorney conferred by this Section 12.18 is revoked by operation of law and thereafter not reconfirmed by the Successor Selling Stockholder prior to the Closing, such revocation shall not be deemed a breach of any of the provisions of this Agreement provided that such Successor Selling Stockholder executes and delivers such other certificates, documents or instruments (including, without limitation, any amendments hereto, the Deposit Escrow Agreement and the Indemnification Escrow Agreement) that would have been delivered on its behalf by the Stockholders' Representative had such Successor Selling Stockholder reconfirmed the agency and power of attorney conferred by this Section 12.18. If at any time Mary K. Quass dies or resigns from his position as the Stockholders' Representative, the other Selling Stockholders shall designate a successor to Mary K. Quass as soon as practicable. 12.19. Consulting Agreement. Concurrently with the execution hereof Mary K. Quass and Buyer are entering into the Consulting Agreement substantially in the form of Exhibit G hereto. [Remainder of page intentionally left blank] 53 59 IN WITNESS WHEREOF, the Company, the Selling Stockholders and Buyer have caused this Agreement to be signed, all as of the date first written above. QUASS BROADCASTING COMPANY: By: /S/ Mary Quass --------------------------------------------------- Name: Mary Quall ------------------------------------------------- Title: President ------------------------------------------------ SELLING STOCKHOLDERS: /S/ Mary K. Quass ------------------------------------------------------ Mary K. Quass CARLTON O. TRONVOLD TRUST, 9/29/92 /S/ Carlton O. Tronvold, Trustee ------------------------------------------------------ By: Carlton O. Tronvold, Trustee CARLTON O. TRONVOLD CHARITABLE REMAINDER TRUST, 1997 /S/ Carlton O. Tronvold, Trustee ------------------------------------------------------ By: Carlton O. Tronvold, Trustee BUYER: CAPSTAR ACQUISITION COMPANY, INC. By: /S/ Paul D. Stone --------------------------------------------------- Name: /S/ Paul D. Stone ------------------------------------------------- Its: Vice President -------------------------------------------------- 54 60 ANNEX A LIST OF SELLING STOCKHOLDERS AND OWNERSHIP Mary K. Quass 64.71% 19 Blake Court SE 1,000 Shares Cedar Rapids, Iowa 52402 Common Stock Carlton O. Tronvold Trust 22.06% 2131 1st Avenue SE #216 3,750 Shares Cedar Rapids, Iowa 52402 Common Stock Carlton O. Tronvold Charitable Remainder Trust 13.24% 2131 1st Avenue SE #216 2,250 Shares Cedar Rapids, Iowa 52402 Common Stock 61 ANNEX B THE STATIONS KHAK-FM Cedar Rapids, Iowa KDAT-FM Cedar Rapids, Iowa KTOF-AM Cedar Rapids, Iowa 56 EX-10.29.3 21 LETTER AGREEMENT DATED MAY 9, 1997 1 EXHIBIT 10.29.3 Reference is made to the Asset Purchase Agreement (the "Purchase Agreement") between Ameron Broadcasting, Inc. ("Ameron") and Capstar Acquisition Company, Inc. ("Capstar") dated as of April 24, 1997, including without limitation Section 12.3 of the Purchase Agreement, and to the Agreement to Assign Construction Permit (the "Permit Agreement") between Sharepoint Management, Inc. ("Sharepoint") and Capstar dated as of May 5, 1997. Since Sharepoint is controlled personally by the President of Ameron who will receive all of the Construction Permit proceeds personally, Ameron and Capstar hereby agree that the Purchase Price (as defined in the Purchase Agreement) to be paid under the Purchase Agreement shall be reduced on a dollar-for-dollar basis by the amount of the purchase price to be paid under the Permit Agreement. This letter is intended to comply with the terms of Section 12.3 of the Purchase Agreement. IN WITNESS WHEREOF, Ameron and Capstar have caused this letter to be signed as of this 9th day of May, 1997. AMERON BROADCASTING, INC. By: /s/ Ronald W. Recker ----------------------------------- Name: Ronald W. Recker Title: Secretary CAPSTAR ACQUISITION COMPANY, INC. By: /s/ William S. Banowsky, Jr. ----------------------------------- William S. Banowsky, Jr. Vice President EX-10.29.4 22 AMENDMENT TO ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.29.4 AMENDMENT TO ASSET PURCHASE AGREEMENT This Amendment (this "Amendment") to Asset Purchase Agreement (the "Purchase Agreement") between Ameron Broadcasting, Inc. ("Ameron") and Capstar Acquisition Company, Inc. ("Capstar"), dated as of April 24, 1997, as such may have been previously amended, is entered into this 9th day of May, 1997. Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to them in the Purchase Agreement. Notwithstanding anything to the contrary contained in the Purchase Agreement, Ameron and Capstar hereby agree that Capstar shall have the right to extend the Closing until October 15, 1997 (the "Extension Right"), which right it may exercise at any time on or before the third business day after the FCC Consents have been given by Final Order by giving written notice to Ameron; provided, however, that such Extension Right may not be exercised if Capstar is in default under the Purchase Agreement. If Capstar exercises the Extension Right, the Purchase Price shall be increased by an additional $65,000.00. This Amendment is intended to comply with the terms of Section 12.3 of the Purchase Agreement. IN WITNESS WHEREOF, Ameron and Capstar have caused this Amendment to be signed as of the date first set forth above. AMERON BROADCASTING, INC. By: /s/ Ronald W. Recker ----------------------------------- Name: Ronald W. Recker Title: Secretary CAPSTAR ACQUISITION COMPANY, INC. By: /s/ William S. Banowsky, Jr. ----------------------------------- William S. Banowsky, Jr. Vice President EX-10.30.1 23 STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.30.1 STOCK PURCHASE AGREEMENT BY AND AMONG CAPSTAR ACQUISITION COMPANY, INC., CAPSTAR BROADCASTING PARTNERS, INC., PATTERSON BROADCASTING, INC. AND THE SELLING STOCKHOLDERS NAMED HEREIN DATED AS OF JUNE 12, 1997 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINED TERMS 1.1. Defined Terms ........................................................ 1 1.2. References and Titles ................................................ 21 ARTICLE II PURCHASE AND SALE OF SHARES 2.1. Purchase and Sale .................................................... 21 2.2. Purchase Price ....................................................... 21 2.3. Delivery of Funded Debt Payoff Notice ................................ 22 2.4. Delivery of Company Accrued Obligation Payoff Notice ................ 22 2.5. Payments at Closing .................................................. 22 2.6. Cancellation of Series A Preferred Shares and Warrants ............... 23 2.7. Earnest Money ........................................................ 23 2.8. Termination of Certain Agreements .................................... 23 2.9. Cash and Cash Equivalents ............................................ 23 ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1. Representations and Warranties Regarding the Company ................. 24 3.2. Representations and Warranties of Selling Stockholders ............... 36 3.3. Representations and Warranties of Buyer .............................. 37 3.4. Representations and Warranties of Capstar ............................ 39 ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS 4.1. Covenants of the Company ............................................. 40 4.2. Approved Transactions ................................................ 44 4.3. Environmental Site Assessments ....................................... 44 4.4. Broadcast Transmission Interruptions ................................. 45
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PAGE ---- ARTICLE V ADDITIONAL AGREEMENTS OF THE COMPANY AND THE SELLING STOCKHOLDERS 5.1. No Solicitation of Transactions ..................................... 45 5.2. Access and Information .............................................. 45 5.3. Assistance .......................................................... 46 5.4. Compliance With Station Licenses .................................... 47 5.5. Notification of Certain Matters ..................................... 48 5.6. Third Party Consents ................................................ 48 5.7. Resignations of Directors ........................................... 48 5.8. Employment Agreements ............................................... 48 5.9. Bank Accounts ....................................................... 48 5.10. Real Estate Title Commitment ........................................ 48 5.11. Survey .............................................................. 48 5.12. Issuance of Management Contingent Shares and Berkshire Contingent Shares ................................................... 49 5.13. Conversion of Letters of Credit ..................................... 49 5.14. Notification of Breach .............................................. 49 ARTICLE VI COVENANTS OF BUYER 6.1. Notification of Certain Matters ..................................... 49 6.2. Employee Matters .................................................... 50 6.3. Labor Relations ..................................................... 50 6.4. Access to Information ............................................... 50 6.5. Notification of Breach .............................................. 51 6.6. Completion of Required Divestitures ................................. 51 6.7. Acceptance of Pending Renewal Proceedings ........................... 51 6.8. Section 338 Election ................................................ 52 6.9. 401(k) Plan ......................................................... 52 6.10. Capstar ............................................................. 52
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PAGE ---- ARTICLE VII MUTUAL COVENANTS 7.1. Application for FCC Consents ........................................ 52 7.2. Control of Stations ................................................. 53 7.3. Other Governmental Consents ......................................... 53 7.4. Brokers or Finders .................................................. 54 7.5. Risk of Loss ........................................................ 54 7.6. Additional Agreements ............................................... 55 7.7. Insurance Matters ................................................... 56 7.8. Investigation and Agreement by Buyer and Capstar; No Other Representations or Warranties ....................................... 57 ARTICLE VIII CONDITIONS PRECEDENT 8.1. Conditions to Each Party's Obligation ............................... 59 8.2. Conditions to Obligation of Buyer ................................... 59 8.3. Conditions to Obligations of the Company and Selling Stockholders ... 60 ARTICLE IX CLOSING 9.1. Closing ............................................................. 61 9.2. Actions to Occur at Closing ......................................... 63 ARTICLE X TERMINATION, AMENDMENT AND WAIVER 10.1. Termination ......................................................... 65 10.2. Effect of Termination ............................................... 67 10.3. Return of Documentation ............................................. 69 10.4. Sole and Exclusive Remedy ........................................... 70
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PAGE ---- ARTICLE XI INDEMNIFICATION 11.1. Indemnification of Buyer ........................................... 70 11.2. Indemnification of Selling Stockholders ............................ 70 11.3. Defense of Third-Party Claims ...................................... 70 11.4. Direct Claims ...................................................... 72 11.5. Escrow ............................................................. 72 11.6. Limitations ........................................................ 72 11.7. Alternate Remedies ................................................. 73 11.8. Recourse against Escrowed Funds .................................... 73 11.9. Instructions to Escrow Agent ....................................... 75 ARTICLE XII GENERAL PROVISIONS 12.1. Survival of Representations, Warranties, and Covenants ............. 75 12.2. No Waiver Relating to Claims for Fraud ............................. 75 12.3. Amendment and Modification ......................................... 76 12.4. Waiver of Compliance ............................................... 76 12.5. Specific Performance ............................................... 76 12.6. Severability ....................................................... 76 12.7. Expenses and Obligations ........................................... 76 12.8. Parties in Interest ................................................ 77 12.9. Notices ............................................................ 78 12.10. Counterparts ....................................................... 80 12.11. Entire Agreement ................................................... 80 12.12. Governing Law ...................................................... 80 12.13. Public Announcements ............................................... 80 12.14. Assignment ......................................................... 80 12.15. Director and Officer Liability ..................................... 81 12.16. No Reversionary Interest ........................................... 81 12.17. Appointment of Stockholders' Representative ........................ 81
EXHIBITS: Exhibit A -- Form of Deposit Escrow Agreement Exhibit B -- Form of Employment Agreement Exhibit C -- Form of Indemnification Escrow Agreement Exhibit D -- Form of Release Exhibit E -- Form of Legal Opinion Exhibit F -- Form of Vinson & Elkins L.L.P. Legal Opinion (iv) 6 SCHEDULES: Schedule I -- Selling Stockholders Schedule 2.2(a) -- Acquisition Adjustments Schedule 3.1(a) -- Qualification to do Business and Good Standing Schedule 3.1(b) -- Subsidiaries Schedule 3.1(c) -- List of Stockholders and Ownership Schedule 3.1(e) -- Required Consents Schedule 3.1(f)(i) -- Balance Sheet Schedule 3.1(f)(ii) -- Unrecorded Liabilities Schedule 3.1(f)(iii) -- Conduct of Business Schedule 3.1(g) -- Licenses and Permits Schedule 3.1(h) -- Litigation Schedule 3.1(i) -- Insurance Schedule 3.1(j) -- Real Estate Schedule 3.1(k) -- Leased Real Property Schedule 3.1(l) -- Personal Property Schedule 3.1(m) -- Liens Schedule 3.1(o) -- Taxes Schedule 3.1(p) -- Certain Agreements Schedule 3.1(q) -- Employee Benefit Plans Schedule 3.1(r) -- Patents, Trademarks; Etc. Schedule 3.1(s) -- Affiliate Relationships Schedule 3.1(u) -- Trade Deals Schedule 3.2(c) -- Selling Stockholders Conflicts Schedule 3.3(e) -- Required Divestitures Schedule 3.4(a) -- Capstar Subsidiaries Schedule 3.4(c) -- Required Filings Schedule 4.1(d) -- Station Formatting Schedule 4.1(k) -- Permitted Accounting Changes Schedule 4.1(t) -- Approved Agreements Schedule 4.1(u) -- Affiliate Transactions Schedule 12.9 -- Notices (v) 7 STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into as of June 12, 1997, by and among Patterson Broadcasting, Inc., a Delaware corporation (the "Company"), each of the persons identified on Schedule I (the "Selling Stockholders"), Capstar Acquisition Company, Inc., a Delaware corporation ("Buyer"), and Capstar Broadcasting Partners, Inc., a Delaware corporation (solely for the limited purposes acknowledged on the signature page hereto). R E C I T A L S A. Each Selling Stockholder owns as of the date hereof the number of shares of the Company's Class A Common Stock, par value $0.01 per share (the "Class A Common Stock"), Class B Common Stock, par value $0.01 per share (the "Class B Common Stock" and collectively with the Class A Common Stock, the "Common Stock"), warrants (the "Warrants") to purchase shares of Class A Common Stock, or shares of the Company's 12% Series A Cumulative Preferred Stock (the "Series A Preferred Stock") set forth opposite such Selling Stockholder's name on Schedule I, representing all of the issued and outstanding capital stock as of the date of this Agreement and, other than the Berkshire Contingent Shares and the Management Contingent Shares, all other securities convertible into, exercisable for or exchangeable for shares of capital stock of the Company (collectively, including the Berkshire Contingent Shares and the Management Contingent Shares, but excluding the Series A Preferred Shares, the "Shares"). B. Buyer desires to purchase from the Selling Common Stockholders and the Preferred Stockholder, and the Selling Common Stockholders and the Preferred Stockholder desire to sell to Buyer, the Shares and the Series A Preferred Shares, respectively, in consideration of the Purchase Price, upon the terms and subject to the conditions set forth herein. A G R E E M E N T S NOW, THEREFORE, in consideration of the respective representations, warranties, agreements, and conditions hereinafter set forth, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINED TERMS 1.1. DEFINED TERMS. The following terms shall have the following meanings in this Agreement: "Acquisition Addition" means the aggregate increase to the Purchase Price for all Purchaser Approved Acquisitions, which (i) for Purchaser Approved Acquisitions that have closed 1 8 prior to the Closing Date, shall be an amount equal to the purchase price for such transaction plus all fees and expenses (including reasonable attorneys' fees and expenses) incurred by the Company in connection with such transaction and (ii) for all Purchaser Approved Acquisitions that have been terminated or that have not closed prior to the Closing Date, shall be an amount equal to all fees and expenses (including reasonable attorneys' fees and expenses) incurred by the Company in connection with such transaction. "Acquisition Adjustment" means the aggregate deduction from the Purchase Price for all Approved Acquisitions that have not closed prior to the Closing Date, which for each Approved Acquisition shall be the amount set forth on Schedule 2.2(a). "Acquisition Agreements" means (i) Agreement and Plan of Merger dated as of May 3, 1995 by and among Patterson Broadcasting, Inc., a Delaware corporation, Westra Communications, Inc., a Delaware corporation, The Dyson-Kissner-Moran Corporation, a Delaware corporation, James W. Wesley, Jr., James M. Strawn and Roger P. Heffelfinger; (ii) Asset Purchase Agreement dated as of May 4, 1995, as amended, by and among ASQ Acquisitions Corporation, a Delaware corporation, NewTex Communications of Fresno, L.P., a Delaware limited partnership, NewTex Communications of Honolulu, L.P., a Delaware limited partnership and Patterson Broadcasting, Inc., a Delaware corporation; (iii) Asset Purchase Agreement dated as of July 21, 1995, as amended, by and among Liggett Broadcast, Inc., a Michigan corporation, New Tower, Inc., a Michigan corporation and Patterson Broadcasting, Inc,, a Delaware corporation; (iv) Agreement of Purchase and Sale dated as of August 2, 1995, as amended, by and among Patterson Reno Broadcasting Corp., a Delaware corporation, A&A Broadcasting Corporation, a Nevada corporation and Lorraine Arms; (v) Agreement of Purchase and Sale dated as of August 29, 1995, as amended, by and among Patterson Savannah Broadcasting Corp , a Delaware corporation, Tri-City Broadcasting Co., Inc., a Connecticut corporation and Enzo DeDominicis; (vi) Agreement of Purchase and Sale dated as of August 31, 1995, as amended, by and among Patterson Fresno Broadcasting Corp ., a Delaware corporation, CenCal Broadcasting Corp., a California corporation, Stephen D. Miller and John W. Brocks; (vii) Asset Purchase Agreement dated as of September 1, 1995, as amended, by and among Patterson Fresno Broadcasting Corp., a Delaware corporation, Patterson Fresno Licensee Corp., a Delaware corporation and Americom II, a California general partnership; (viii) Stock and Warrant Purchase Agreement dated as of October 1995, as amended, by and among M&F June Holdings, L.P., a Delaware limited partnership, Calendar Broadcasting, Inc., a Delaware corporation, Rufus K. Griscom, Philip J. Giordano, Allied Investment Corporation II, a Maryland corporation, Allied Capital Financial Corporation, a Maryland corporation, Allied Financial Corporation II, a Maryland corporation and Patterson Broadcasting, Inc., a Delaware corporation; (ix) Agreement of Purchase and Sale dated as of May l, 1996 by and among Patterson Springfield Broadcasting Corp., a Delaware corporation, Neuhoff Broadcasting Corporation, an Illinois corporation, Neuhoff Broadcasting-WCVS, Inc., an Illinois corporation, and Geoffrey H. Neuhoff; (x) Asset Purchase Agreement dated as of June 3, 1996, as amended, by and among Henry Hawaii Broadcasting Company, a California corporation, Marina Radio, Inc., a California corporation, Patterson Honolulu Broadcasting Corp., a Delaware corporation, and Charlton H. Buckley; (xi) Agreement of Purchase and Sale dated as of July 3, 1996, as amended, by and among Patterson Savannah Broadcasting Corp., a Delaware corporation, Southeastern Broadcasting Company, L.L.C., a Delaware limited liability company, The LBJ Holding Company, a Texas 2 9 corporation, MetroSouth Media, a Florida general partnership, Thomas C. Birch and Raymond Quinn; (xii) Agreement of Purchase and Sale dated as of July 15, 1996, as amended, by and among June Broadcasting, Inc., a Delaware corporation, Gulf Coast Communications Services, Ltd., a Georgia limited partnership, and Affable, Inc., a Florida corporation; (xiii) Agreement of Purchase and Sale dated as of January 29, 1997 by and among WMEZ-FM, Inc., a Florida corporation, Frederic T.C. Brewer and June Broadcasting, Inc., a Delaware corporation; (xiv) Agreement of Purchase and Sale dated as of April 24, 1997 by and among Patterson Fresno Broadcasting Corp., a Delaware corporation, Radio Dinuba Company, a California corporation, David L. Hofer, as Special Trustee of the David L. Hofer Family Trust, Jamie L. Davidson, as Trustee of the Charitable Remainder Unitrust #ONE2LF, Jamie L. Davidson, as Trustee of the Charitable Remainder Unitrust #TW04LF, Jamie L. Davidson, as Trustee of the charitable Remainder Unitrust #THREELFGC, Jamie L. Davidson, as Trustee of the Charitable Remainder Unitrust #FOUR2LFGC, David L. Hofer and Sylvia K. Hofer; and (xv) Agreement of Purchase and Sale dated as of May 5, 1997 by and between Patterson Grand Rapids Broadcasting Corp., a Delaware corporation, and William E, Kuiper, Jr. "Acquisition Documents" means the Acquisition Agreements and all agreements related to Approved Acquisitions and any Purchaser Approved Acquisition, and, in each case, all agreements, assignments, bills of sale, certificates, escrow agreements and other documents executed in connection therewith and all related documents. "Acquisition Escrow Amount" means the aggregate increase to the Purchase Price for all Approved Acquisitions and Purchaser Approved Acquisitions that have not been terminated and have not closed as of the Closing Date, which for each such Approved Acquisition or Purchaser Approved Acquisition shall be an amount equal to the amount deposited by the Company or the Selling Stockholders in escrow as of the Closing Date for the benefit of the seller pending the completion or termination of such Approved Acquisition or Purchaser Approved Acquisition. "Affiliate" means, with respect to any person, any other person controlling, controlled by or under common control with such person. For purposes of this definition and this Agreement, 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. "Applicable Laws" means all laws, statutes, rules, regulations, ordinances, judgments, orders, decrees, injunctions, and writs of any Governmental Entity having jurisdiction over the Company or any of its subsidiaries or their respective businesses, operations or assets, as they may be in effect on or prior to the Closing. "Applications" has the meaning set forth in Section 7.1. "Approved Acquisitions" means (a) the acquisition relating to Agreement of Purchase and Sale dated as of January 29, 1997 by and among June Broadcasting, Inc., Frederic T.C. Brewer and WMEZ-FM, Inc., (b) the acquisition relating to the Agreement of Purchase and Sale dated as of April 24, 1997 by and among Patterson Fresno Broadcasting Corp., Radio Dinuba Company, David L. Hofer, as Special Trustee of the David L. Hofer Family Trust, Jamie L. Davidson, as 3 10 Trustee of the Charitable Remainder Unitrust #ONE2LF, Jamie L. Davidson, as Trustee of the Charitable Remainder Unitrust #TWO4LF, Jamie L. Davidson, as Trustee of the Charitable Remainder Unitrust #THREE3LFGC, and Jamie L. Davidson, as Trustee of the Charitable Remainder Unitrust #FOUR2LFGC, David L. Hofer and Sylvia K. Hofer, as Co-Trustees of the David L. Hofer Family Trust, Sylvia K. Hofer and David L. Hofer and (c) the acquisition relating to the Asset Purchase Agreement dated May 5, 1997 by and between William E. Kuiper, Jr. and Patterson Grand Rapids Broadcasting Corp. "Balance Sheet" has the meaning set forth in Section 3.1(f). "Balance Sheet Date" has the meaning set forth in Section 3.1(f). "Banking Event" has the meaning set forth in Section 9.1. "Barter Time" means the value of time owed under barter agreements to which any of the Stations is a party or by which any of them is bound. "Benchmark Acquisition" means the acquisition to be effected pursuant to the Agreement and Plan of Merger 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, Joseph L. Mathias IV, Bruce R. Spector, Capstar and BCR Holding, Inc., dated as of December 9, 1996. "Beneficiary" means the person(s) or entity designated by an Employee, Former Employee, by operation of law or otherwise, as the party entitled to compensation, benefits, damages, insurance coverage, payments, indemnification or any other goods or services as a result of any liability or claim under any applicable welfare or benefit plan or program. "Berkshire Contingent Rights" has the meaning set forth in Section 2(f) of the Berkshire Subscription Agreement. "Berkshire Contingent Shares" means the shares of Class A Common Stock to be issued pursuant to the Berkshire Contingent Rights. "Berkshire Subscription Agreement" means the Subscription Agreement dated as of February 27, 1996, as amended as of April 10, 1996 and July 29, 1996, by and among the Company, Berkshire Fund III Investment Corp., a Massachusetts corporation, Berkshire Fund III, L.P., a Massachusetts limited partnership, Third Berkshire Associates Limited Partnership, a Massachusetts limited partnership, and the individual investors listed on Exhibit A thereto. "Business Day" means any day other than (i) a Saturday or Sunday or (ii) a day on which commercial banks in New York, New York or Dallas, Texas are authorized or required to be closed. 4 11 "Buyer" has the meaning set forth in the first paragraph of this Agreement, and it includes its permitted successors and assigns. "Buyer Indemnified Costs" means (a) any and all Capped Buyer Indemnified Costs, and (b) any and all Unlimited Claims, but Buyer Indemnified Costs shall exclude any and all punitive damages. "Buyer Indemnified Parties" means Buyer and each officer, director, employee, stockholder, and Affiliate of Buyer. After the Closing, the Company and each of its subsidiaries shall be deemed to be a Buyer Indemnified Party. "Capped Buyer Indemnified Costs" means all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses, including reasonable legal fees and expenses (including Recovery Costs and court costs and reasonable legal fees and expenses incurred in investigating and preparing for any litigation or proceeding), that any of the Buyer Indemnified Parties incurs and that arise out of any breach by the Company or any Selling Stockholder of any of the representations and warranties, covenants or agreements of the Company or any Seller Stockholder under this Agreement or any other Transaction Document executed in connection herewith other than damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses arising from a breach by the Company of a covenant or agreement under this Agreement or any Transaction Document after the Closing Date and other than Unlimited Claims and other than any and all punitive damages, and in no event shall Capped Buyer Indemnification Costs exceed $5,000,000 in the aggregate. "Capstar" means Capstar Broadcasting Partners, Inc., a Delaware corporation, and the indirect parent of Buyer. "Capstar Radio" means Capstar Radio Broadcasting Partners, Inc., a Delaware corporation. "Capstar Stock" means the class of voting common stock of Capstar or any ultimate parent of Capstar entitled to one vote per share. "Cash on Hand" means all cash and cash equivalents of the Company or its subsidiaries as of the Closing Date that is not utilized to pay Funded Debt or otherwise utilized pursuant to Section 2.9, but shall not include any Acquisition Escrow Amount. "CERCLA" has the meaning set forth in the definition of Environmental Laws contained in this Section 1.1. "Certificate of Designations" means the Certificate of Designations setting forth the "Resolution of the Board of Directors of Patterson Broadcasting, Inc. Designating 12% Series A Cumulative Preferred Stock and Fixing Preferences and Rights Thereof," as adopted by the Board of Directors of the Company on April 3, 1996 and filed with the Secretary of State of the State of Delaware on April 11, 1996. 5 12 "Closing" means the consummation of the transactions contemplated by this Agreement in accordance with the provisions of Article IX. "Closing Date" means the date of the Closing. "Code" shall mean the United States Internal Revenue Code of 1986, as amended. All references to the Code, U.S. Treasury regulations or other governmental pronouncements shall be deemed to include references to any applicable successor regulations or amending pronouncement. "Common Stock" has the meaning set forth in the recitals. "Communications Act" means the Communication Act of 1934, as amended, and all material rules, regulations and written policies of the FCC thereunder. "Company Accrued Obligations" means the aggregate amount of all accrued and unpaid Transaction Costs (including legal fees and expenses) at the Closing Date incurred in connection with the transactions contemplated in this Agreement and the other Transaction Documents. "Company Accrued Obligation Amount" has the meaning set forth in Section 2.5(b). "Company Accrued Obligation Payoff Notice" has the meaning set forth in Section 2.4. "Company Reports" has the meaning set forth in Section 3.1(g)(i). "Confidentiality Agreement" means that certain confidentiality agreement dated as of August 22, 1996 by and between the Company and Hicks, Muse, Tate & Furst, Incorporated. "Conflict Event" has the meaning set forth in Section 9.1. 6 13 "Consents" means all governmental consents and approvals, including the FCC Consents, and all consents and approvals of third parties, in each case that are necessary in order to transfer the Shares, or the control of the Company and its properties and assets, to Buyer and otherwise to consummate the transactions contemplated hereby. "Contracts" means all agreements, contracts, or other binding commitments, arrangements or plans, written or oral (including any amendments and other modifications thereto), to which the Company or any of its subsidiaries is a party or is otherwise bound. "Credit Agreement" means, collectively, (a) the Amended and Restated Credit Agreement dated as of June 20, 1996 between the Company and Chase Manhattan Bank N.A., as administrative agent, and (b) any and all guaranty, security and other agreements or documents executed and delivered in connection therewith, as each has been successively extended, renewed or modified. "Cure Period" has the meaning set forth in Section 10.1(b). "Debt", without duplication, means (a) all indebtedness of the Company or any of its subsidiaries, whether or not represented by bonds, debentures, notes or other securities, for the repayment of money borrowed (but excluding the Warrants and the Series A Preferred Stock), (b) all deferred indebtedness of the Company for the payment of the purchase price of property or assets purchased, (c) all obligations of the Company or any of its subsidiaries to pay rent or other payment amounts under a lease of real or personal property which is required to be classified as a capital lease or a liability on the face of a balance sheet prepared in accordance with GAAP, (d) any outstanding reimbursement obligation of the Company or any of its subsidiaries with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of the Company or any of its subsidiaries, (e) any payment obligation of the Company or any of its subsidiaries under any interest rate swap agreement, forward rate agreement, interest rate cap or collar agreement or other financial agreement or arrangement entered into for the purpose of limiting or managing interest rate risks, (f) all indebtedness for borrowed money secured by any Lien existing on property owned by the Company or any of its subsidiaries, whether or not indebtedness secured thereby shall have been assumed, and (g) all guaranties, endorsements, assumptions and other contingent obligations of the Company or any of its subsidiaries in respect of, or to purchase or to otherwise acquire, indebtedness for borrowed money of others. "Deposit Escrow Agreement" means the Deposit Escrow Agreement among Buyer, the Selling Stockholders and the Escrow Agent, a copy of which is attached hereto as Exhibit A. "Deposit Letter of Credit" means that certain original, irrevocable letter of credit in favor of the Company and the Escrow Agent issued by Bankers Trust Company or another lender reasonably acceptable to the Company for the sum of $10,000,000 and held in accordance with the provisions of the Deposit Escrow Agreement. 7 14 "Divestiture Condition" means any condition imposed or required by the FCC, DOJ or FTC as a condition to its consent to or approval of the transfer of control of any of the FCC Licenses or otherwise to the transactions (or any of them) contemplated hereby or as a condition to its agreement not to institute litigation or any other proceedings to prevent the transfer of control of any of the FCC Licenses or otherwise to prevent any of the transactions contemplated hereby which would require Buyer, Capstar or any of their subsidiaries or any of their other Affiliates to dispose of any interest in any media or communications property or interest (including, without limitation, any of the Stations), terminate any venture or arrangement, or effectuate any change or restructuring of its ownership (including, without limitation, the removal or withdrawal of officers or directors or the conversion or repurchase of equity securities of Buyer, Capstar or any Affiliate). "DKM" means The Dyson-Kissner-Moran Corporation, a Delaware corporation. "DLJ" means Donaldson, Lufkin & Jenrette Securities Corporation, a Delaware corporation. "DLJ Amount" means the amount payable by the Company to DLJ upon the Closing pursuant to that certain letter agreement dated August 21, 1996 between DLJ and the Company. "DOJ" means the Department of Justice. "Employee Benefit Plans" means any "employee benefit plan" within the meaning of Section 3(3) of ERISA providing benefits to any present or former employee of the Company or any member of the ERISA Group maintained by any such entity or as to which any such entity has any liability or obligation and any bonus, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, vacation, severance, disability, death benefit, hospitalization or insurance plan providing benefits to any present or former employee of the Company or any member of the ERISA Group maintained by any such entity. "Employees" means all individuals as to whom an employer-employee relationship with the Company or any of its subsidiaries exists as of the Closing Date. "Employment Agreements" means the Employment Agreement between Capstar Broadcasting Corporation, a Delaware corporation, and James W. Wesley, Jr. and between Capstar Radio and James M. Strawn substantially in the forms attached hereto as Exhibit B-1 and Exhibit B-2, respectively. "Environmental Costs or Liabilities" has the meaning set forth in Section 3.1(n)(iv). "Environmental Laws" means all Applicable Laws and rules of common law pertaining to the environment, natural resources, and public or employee health and safety including the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. ss. 9601 et seq.) ("CERCLA"), the Emergency Planning and Community Right to Know Act, the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Hazardous and Solid Waste Amendments Act of 1984, the Clean Air Act, the Clean Water Act, the 8 15 Toxic Substances Control Act, the Safe Drinking Water Act, the Occupational Safety and Health Act of 1970, the Oil Pollution Act of 1990, the Hazardous Materials Transportation Act, and any similar or analogous statutes, regulations and decisional law of any Governmental Authority, as each of the foregoing may be amended and in effect on or prior to the Closing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Group" has the meaning set forth in Section 3.1(q). "ESA" means Phase I or Phase II environmental site assessments. "Escrow Agent" means Norwest Bank Texas, N.A. and includes its successors and assigns. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Existing ESAs" means (l) Phase I Environmental Site Assessment dated January 17, 1996 with respect to WNNK FM Tower, Tower Road and Darlington Trail, Blue Mountain, Pennsylvania; (2) Letter dated March 12, 1996 from LAW Engineering and Environmental Services to Patterson Broadcasting, Inc. regarding Summary of Tank Tightness Test Results with respect to WNNK FM Tower, Tower Road and Darlington Trail, Harrisburg, Pennsylvania; (3) Phase I Environmental Site Assessment dated January 17, 1996 with respect to WNNK AM Tower, 911 Sycamore Street, Harrisburg, Pennsylvania; (4) Phase I Environmental Site Assessment dated January 17, 1996 with respect to WNNK studio/offices, 3400 North 6th Street, Harrisburg, Pennsylvania; (5) Limited Phase II Environmental Site Assessment dated February 14, 1996 with respect to WNNK studios/offices, Harrisburg, Pennsylvania; (6) Corrective Action Plan - Part A dated November 1, 1995 with respect to WCHY Radio Transmission Tower Facility, 137 Uncle Shed's Road, Savannah, Chatham County, Georgia; (7) Phase I Environmental Site Assessment dated May 31, 1995 with respect to WCHY Radio Transmission Tower Site, Savannah, Georgia; (8) Phase I Environmental Site Assessment dated October 25, 1995 with respect to WYKZ-FM studio/offices, 1623 Okatie Highway, Okatie, South Carolina; (9) Phase I Environmental Site Assessment dated February 13, 1996 with respect to studio/offices - WXBM-FM, 1687 Quintette Road, Pace, Florida; (10) Phase I Environmental Site Assessment and Limited Asbestos Survey dated August 11, 1995 with respect to New Office Space, 1066 East Shaw Avenue, Fresno, California; (11) Phase I Environmental Site Assessment dated August 11, 1995 with respect to KTHT tower site, 15010 East Shaw Avenue, Sanger, California; (12) Limited Phase II Subsurface Assessment dated August 11, 1995 with respect to KTHT tower site, 15010 East Shaw Avenue, Sanger, California; (13) Phase I Environmental Site Assessment dated August 11, 1995 with respect to KRZR tower site, 12592 South Cedar Avenue, Fresno County, California; (14) Limited Phase I Environmental Site Assessment dated August 11, 1995 with respect to KTHT office building, 2775 East Shaw Avenue, Fresno, California; (15) Phase I Environmental Site Assessment and Limited Asbestos Survey dated September 12, 1995 with respect to KBOS/KKTR office building and transmitter tower, 2020 East McKinley Avenue, Fresno, California; (16) Phase I Environmental Site Assessment dated October 18, 1995 with respect to KBOS transmitter tower site, Eshom Point, 9 16 Tulare County, California; (17) Limited Phase I Environmental Site Assessment dated October 18, 1995 with respect to KBOS leased office space, 120 North L Street, Suite C, Tulare, California; (18) Phase I Environmental Site Assessment and Limited Asbestos Survey dated August, 1995 with respect to Radio Station WIPI/WODE Studios and office building, 107 Paxinosa Road West, Easton, Pennsylvania; (19) Limited Phase I Environmental Site Assessment dated August, 1995 with respect to leased radio transmitter and antenna, 300 East Rock Road, Allentown, Pennsylvania; (20) Phase I Environmental Site Assessment dated July 14, 1995 with respect to KSSK FM and KUCD FM towers and transmitter spaces, Palehua Road, Palehua, Hawaii; (21) Limited Phase I Environmental Site Assessment dated July 14, 1995 with respect to KSSK two-way radio relay space and antenna, Marco Polo Building, 2332 Kapiolani Boulevard, Honolulu, Hawaii; (22) Phase I Environmental Site Assessment dated July 14, 1995 with respect to KSSK AM/FM and KUCD FM Studio, 1505 Dillingham Boulevard, Honolulu, Hawaii; (23) Phase I Environmental Site Assessment dated July 11, 1996 with respect to KKLV-FM transmitter, 1188 Bishop Street, Honolulu, Hawaii; (24) Phase I Environmental Site Assessment dated July 11, 1996 with respect to KKLV-FM Studio, 345 Queen Street, Honolulu, Hawaii; (25) Phase I Environmental Site Assessment dated July 11, 1996 with respect to KIKI-FM and KHVH-AM transmitters, 1111 Dillingham Boulevard, Honolulu, Hawaii; (26) Phase I Environmental Site Assessment dated August 16, 1996 with respect to WLVH transmitter, Pine Barren Road, Bloomingdale, Georgia; (27) Phase I Environmental Site Assessment dated August 16, 1996 with respect to WSOK transmitter, Perry Lane, Savannah, Georgia ; (28) Phase I Environmental Site Assessment dated August 16, 1996 with respect to WAEV transmitter, Fort Argyle Road, Pooler, Georgia; (29) Phase I Environmental Site Assessment dated August 16, 1996 with respect to WSOK studio/offices, 24 W. Henry Street, Savannah, Georgia; (30) Phase I Environmental Site Assessment dated August 11, 1995 with respect to KRNO-FM standby & KWNZ-FM transmitters, McClellan Peak, County of Washoe, Nevada; (31) Phase I Environmental Site Assessment dated August 11, 1995 with respect to KCBN-AM transmitter, Cleanwater Way, Sparks, Nevada; (32) Phase I Environmental Site Assessment dated August 11, 1995 with respect to KRNO-main transmitter, Slide Mountain, County of Washoe, Nevada; (33) Phase I Environmental Site Assessment dated August 11, 1995 with respect to studio/offices, 2395 Tampa Street, Reno, Nevada; (34) Phase I Environmental Site Assessment dated July 15, 1996 with respect to WFMB-AM/FM studio, 3055 South 4th Street, Springfield, Illinois; (35) Phase I Environmental Site Assessment dated July 15, 1996 with respect to WCVS-AM/FM transmitter, 926 South 1st Street, Divernon, Illinois; (36) Phase I Environmental Site Assessment dated April 9, 1997 with respect to KJOY transmitter tower, Eshom Point, Tulare County, California; (37) Report of Soil Excavation and Disposal dated April 9, 1997 with respect to KJOY transmitter tower site, Eshom Point, Tulare County, California; (38) Phase I Environmental Site Assessment dated April 9, 1997 with respect to KRDU transmitter tower, Yettem, Tulare County, California; (39) Phase I Environmental Site Assessment dated April 9, 1997 with respect to KJOY/KRDU studio building, 597 North Alta Avenue, Dinuba, California; (40) Phase I Environmental Site Assessment and Limited Asbestos Survey dated April 9, 1997 with respect to KJOY/KRDU sales office, leased Space, 5070 North Sixth Street, Suite 160, Fresno, California; (41) Phase I Environmental Site Assessment and Limited Asbestos Survey dated April 9, 1997 with respect to KJOY sales office, leased space, 107 South Church Street, Suite F, Visalia, California; (42) Phase I Environmental Site Assessment and Limited Asbestos Survey dated January 21, 1997 with respect to WBSR-AM and WMEZ-FM studio, 1601 North Pace Boulevard, Pensacola, Escambia County, California; (43) Phase I Environmental Site Assessment dated July 20, 1995 with respect to WLHT-FM transmitter, 10 17 Cordes Road, Grand Rapids, Michigan; (44) Phase I Environmental Site Assessment dated July 20, 1995 with respect to WGRD-AM transmitter, Plymouth Avenue, Grand Rapids, Michigan; (45) Phase I Environmental Site Assessment dated July 20, 1995 with respect to WGRD-FM transmitter, 92nd Street, Grand Rapids, Michigan; (46) Phase I Environmental Site Assessment dated July 20, 1995 with respect to WLHT-FM studio/offices, 50 Louis Street, Grand Rapids, Michigan; (47) Phase I Environmental Site Assessment dated July 20, 1995 with respect to WGRD-FM studio/offices, 38 West Fulton Street, Grand Rapids, Michigan; (48) Phase I Environmental Site Assessment dated July 20, 1995 with respect to WBXX-FM transmitter, 6.5 Mile Road, Battle Creek, Michigan; (49) Phase I Environmental Site Assessment dated July 20, 1995 with respect to WELL-FM transmitter, 19 Mile Road, Battle Creek, Michigan; (50) Phase I Environmental Site Assessment dated July 20, 1995 with respect to WBCK-AM studio/offices, 390 Golden Avenue, Battle Creek, Michigan; (51) Phase I Environmental Site Assessment dated July 20, 1995 with respect to WELL-AM transmitter, Territorial Road, Battle Creek, Michigan; and (52) Phase I Environmental Site Assessment dated June 6, 1997 with respect to FM transmitter site, Station WQFN, 2853 Three Mile Road, Walker (Kent County), Michigan. "Existing Title Policies" means the title insurance policies listed in Schedule 3.1 (i) hereto and Title Insurance Policy (policy no. 000449195GL) issued by Chicago Title Company to David L. Hofer and Sylvia K. Hofer, Trustees of the David L. Hofer and Sylvia R. Hofer Family Trust Agreement dated November 21, 1991 and Radio Dinuba Company with respect to certain real property located in Tulare County, California. "Extension Period" has the meaning set forth in Section 7.1. "FCC" means the Federal Communications Commission. "FCC Consents" means actions by the FCC (including the Chief, Mass Media Bureau, acting under delegated authority) granting its consent to the transfer of the control of the FCC Licenses for each of the Stations to Buyer as contemplated by this Agreement whether or not such consent has become a Final Order. "FCC Licenses" means all of the licenses, permits, and other authorizations issued by the FCC to the Company or any of its subsidiaries and used in the business or operations of each of the Stations, including those listed on Schedule 3.1(g) (other than those relating to the Approved Acquisitions or Purchaser Approved Acquisitions, which shall be deemed FCC Licenses only upon consummation of such Approved Acquisitions or Purchaser Approved Acquisitions) and any additions thereto between the date hereof and the Closing Date. "Federal Income Tax Representation" means the representations and warranties of the Company contained in Section 3.1(o) only with respect to any federal income Tax Returns or federal income Taxes of the Company and its subsidiaries. "Final Order" means written action or order issued by the FCC setting forth the FCC Consents and (a) which has not been reversed, stayed, enjoined, set aside, annulled, or suspended and (b) with respect to which (i) no requests have been filed for administrative or judicial review, 11 18 reconsideration, appeal, or stay, and the time provided in the rules and regulations of the FCC (or in the case of judicial review the time provided by statute) for filing any such requests and for the FCC to set aside the action on its own motion has expired or (ii) in the event of review, reconsideration, appeal or stay, such review, reconsideration, appeal or stay has been dismissed or denied and the time provided in the rules and regulations of the FCC for further review, reconsideration, appeal or stay has expired. "Financial Statements"has the meaning set forth in Section 3.1(f)(ii). "Former Employees" means all individuals as to whom an employer-employee relationship with the Company or any of its subsidiaries existed prior to the Closing Date, but does not exist on the Closing Date, who remain entitled to benefits under any applicable welfare or benefit plan or program. "Former Selling Stockholder" has the meaning as set forth in Section 12.16. "FTC" shall mean the Federal Trade Commission. "Funded Debt" means (a) all Debt of the Company or any of its subsidiaries (excluding any intercompany Debt) maturing by its terms more than one year after, or which is renewable or extendible at the option of the Company or any of its subsidiaries for a period ending one year or more after, the date as of which Funded Debt is being determined, and shall include Debt of such maturity created, assumed or guaranteed by the Company or any of its subsidiaries either directly or indirectly, including obligations of such maturity secured by a lien upon property of the Company or any of its subsidiaries, (b) all Debt of the Company or any of its subsidiaries outstanding under the Credit Agreement and all other Debt for borrowed money (excluding any intercompany Debt) (whether maturing in more or less than one year), and (c) all interest, unamortized discount, charges, fees, expenses, penalties, premiums, or other amounts, including prepayment penalties, which became due on the foregoing items. "Funded Debt Amount" has the meaning set forth in Section 2.5(c). "Funded Debt Payoff Notice" has the meaning set forth in Section 2.3. "GAAP" means generally accepted accounting principles in the United States. "Goods and Services Amount" means the value of goods and services to be received under barter agreements to which any of the Stations is a party or by which any of them is bound. "Governmental Entity" means any governmental department, commission, board, bureau, agency, court or other instrumentality of the United States or any state, county, parish or municipality, jurisdiction, or other political subdivision thereof. "Group's Health Plan" has the meaning set forth in Section 7.7. 12 19 "Hazardous Substances" has the meaning set forth in Section 3.1(n). "Holdback Amount" has the meaning set forth in Section 11.5. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Indemnification Escrow Agreement" means the Indemnification Escrow Agreement among Buyer, the Selling Stockholders and the Escrow Agent substantially in the form attached hereto as Exhibit C. "Indemnified Costs" means the Buyer Indemnified Costs or the Selling Stockholders Indemnified Costs, as the case may be. "Indemnified Parties" means the Buyer Indemnified Parties or the Selling Stockholders Indemnified Parties, as the case may be. "Indemnifying Party" means any person who is obligated to provide indemnification hereunder. "Intellectual Property" has the meaning set forth in Section 3.1(r). "IPO" means an underwritten initial public offering of Capstar Stock. "Knowledge" means, with respect to the Company, the actual knowledge of any officer or director of the Company or any of its subsidiaries or the General Manager of any of the Stations, with respect to a Selling Stockholder, means the actual knowledge of such Selling Stockholder, or any officer or director thereof if the Selling Stockholder is not an individual, and with respect to Buyer or Capstar means the actual knowledge of any officer or director of Buyer or Capstar, as applicable, or any of their respective subsidiaries. "Leased Real Property" means all of the Company's or any of its subsidiaries' leasehold interests, easements, licenses, rights to access and rights-of-way which are used or held for use in the business and operations of the Company or any of its subsidiaries, including those interests which are identified and described in Schedule 3.1(k), as modified by any addition or permitted deletion thereto between the date hereof and the Closing Date. "Licenses" means the FCC Licenses and all Permits issued by any Governmental Entity to the Company or any of its subsidiaries, including those listed on Schedule 3.1(l), with any additions thereto between the date hereof and the Closing Date. "Liens" has the meaning set forth in Section 3.1(m). "Majority-in-Interest of the Selling Stockholders" means Selling Common Stockholders whose Shares represent more than 50% of the Shares (based on shares of Common 13 20 Stock actually issued and outstanding at the time of determination and, with respect to any time following the Closing, as of the Closing Date). "Management Agreement" means that certain Services and Management Agreement dated as of June 1, 1995 between the Company and Patterson Planning and Services Inc. "Management Contingent Rights" has the meaning set forth in Section 1(e) of the Merger Agreement. "Management Contingent Shares" means the shares of Class A Common Stock to be issued pursuant to the Management Contingent Rights. "Material Adverse Effect" means a material adverse effect on the business, operations, properties, financial condition, results of operations or assets of the Company and its subsidiaries, in each case taken as a whole. "Material Contract" has the meaning set forth in Section 3.1(p)(i). "Merger Agreement" means the Agreement and Plan of Merger dated as of May 3, 1995 by and among the Company, Westra Communications, Inc., a Delaware corporation, DKM, James W. Wesley, Jr., James M. Strawn and Roger P. Heffelfinger. "Minimum Loss" has the meaning as set forth in Section 11.6(a). "Multiemployer Plan" has the meaning set forth in Section 3(37) or Section 4001(a)(3) of ERISA. "Negative Trade Balance" means the amount by which Barter Time exceeds the sum of (a) the Goods and Services Amount plus (b) $100,000 determined as follows: If the Closing occurs after the 15th of the month, the Negative Trade Balance shall be determined based on the amounts reflected in the balance sheet of the Company as of the last day of the month preceding the month in which the Closing occurs, and if the Closing occurs on or prior to the 15th of the month, the Negative Trade Balance shall be determined based on the amounts reflected in the balance sheet of the Company as of the last day of the month which is two months preceding the month in which the Closing occurs. "Owned Real Property" means those parcels of real property owned in fee and used or held for use by the Company or any of its subsidiaries as described in Schedule 3.1(k), and all buildings, structures, improvements, and fixtures thereon, together with all rights of way, easements, privileges, and appurtenances pertaining or belonging thereto, including any right, title, and interest of the Company or any of its subsidiaries in and to any street or other property adjoining any portion of such property. "Pension Plans" has the meaning set forth in Schedule 3.1(q). 14 21 "Percentage Interest" means, with respect to each Selling Common Stockholder, the percentage calculated at the Closing obtained by dividing the number of Shares owned by such Selling Common Stockholder immediately prior to Closing by the aggregate Shares outstanding immediately prior to Closing. The foregoing calculation shall be made at Closing after the issuance of the Berkshire Contingent Shares and the Management Contingent Shares issuable at Closing. For purposes of calculating the Percentage Interest of Northwestern Mutual Life Insurance Company, such Percentage Interest shall be based only on the number of Shares (including Warrants) owned by it immediately prior to the Closing and shall not include any Series A Preferred Shares. "Permits" has the meaning set forth in Section 3.1(n). "Permitted Encumbrances" means (a) statutory Liens for current Taxes not yet due and payable or being contested in good faith by appropriate proceedings and for which adequate reserves have been established, (b) mechanics', carriers', workers', repairers', and other similar liens imposed by law arising or incurred in the ordinary course of business for obligations which are not overdue for a period of more than 90 days or which are being contested in good faith by appropriate proceedings, (c) in the case of leases of vehicles, rolling stock, and other personal property, encumbrances which do not, individually or in the aggregate, materially impair the operation of the business at the facility at which such leased equipment or other personal property is located, (d) other liens, charges, easements, restrictions or other encumbrances incidental to the operation of the Company of any of its subsidiaries or the ownership of the Company's or any of its subsidiaries' assets which were not incurred in connection with the borrowing of money or the advance of credit and which do not materially detract from the value of the assets of the Company and its subsidiaries, taken as a whole, or materially interfere with the use thereof or the operation of such assets or the Stations, taken as a whole, (e) Liens on leases of real property arising from the provisions of such leases, including, without limitation (i) the right of first option pursuant to Lease dated November 16, 1990 between Regional Broadcasters of Michigan, Inc. and Radio Towers, Inc., as assigned to Liggett Broadcast, Inc., as assigned to Patterson Grand Rapids Broadcasting Corp. and (ii) the right of first refusal pursuant to Sublease dated November 16, 1990 between Radio Towers, Inc. and the County of Kent, Michigan, as assigned to Patterson Grand Rapids Broadcasting Corp., including, in relation to leased real property, any agreements and/or conditions imposed on the issuance of land use permits, zoning, business licenses, use permits, or other entitlements of various types issued by any Governmental Entity, necessary or beneficial to the continued use and occupancy of the Company's or any of its subsidiaries' assets or the continuation of the operation of any Station, (f) pledges or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation, (g) deposits to secure the performance of bids, contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business, (h) Liens disclosed in the Existing Title Policies, or (i) Liens disclosed on schedules to the Acquisition Agreements. "Permitted Liens" has the meaning set forth in Section 3.1(m). "person" means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization, or other entity. 15 22 "Personal Property" means all of the machinery, equipment (including the transmitter and studio equipment), computer programs, computer software, tools, motor vehicles, furniture, furnishings, leasehold improvements, office equipment, inventories, supplies, plant, spare parts, and other tangible property which is owned or leased by the Company or any of its subsidiaries and which is used or held for use in its business or operations, together with any additions thereto between the date hereof and the Closing Date less any dispositions made in accordance with Section 4.1. "Preferred Stock Premium Amount" means an aggregate amount equal to the product of $750 (as such amount shall be appropriately adjusted by the Board of Directors of the Company for stock splits, stock dividends and other similar events) multiplied by the number of shares of Series A Preferred Stock issued and outstanding as of the Closing Date immediately prior to the Closing. "Preferred Stock Value Amount" means an aggregate amount equal to the product of $10,000 (as such amount shall be appropriately adjusted by the Board of Directors of the Company for stock splits, stock dividends and other similar events) multiplied by the number of shares of Series A Preferred Stock issued and outstanding as of the Closing Date immediately prior to the Closing, plus any and all accrued and unpaid cumulative dividends on such shares of Series A Preferred Stock (whether or not declared or earned). "Preferred Stock Payment" means the sum of the Preferred Stock Value Amount and the Preferred Stock Premium Amount. "Preferred Stockholder" means The Northwestern Mutual Life Insurance Company, in its capacity as the holder of the shares of Series A Preferred Stock. "Purchase Price" means the consideration payable by Buyer as provided in Section 2.2 hereof. "Purchase Price Increase" means the lesser of (i) $5,000,000 and (ii) an amount determined as of the Closing Date equal to the product of (a) the number of days elapsed after (and not including) January 30, 1998 to (and including) the Closing Date multiplied by (b) $55,555.55. "Purchaser Approval" means the written approval of Buyer given to the Company approving any Purchaser Approved Acquisition, including the definitive purchase agreement (including the schedules and exhibits thereto) relating to such acquisition. "Purchaser Approved Acquisition" means any acquisition, proposed acquisition, local marketing agreement, time brokerage agreement or other transaction entered into by the Company or any of its subsidiaries for which Purchaser Approval has been obtained. None of the foregoing shall be deemed a Purchaser Approved Acquisition until Buyer approves the definitive purchase agreement (including the schedules and exhibits thereto ) relating to such acquisition. "Real Property" means the Leased Real Property and the Owned Real Property. 16 23 "Recovery Costs" means reasonable out-of-pocket costs or expenses (including reasonable legal fees and expenses) incurred by a Buyer Indemnified Party in connection with the enforcement of available remedies under any Acquisition Documents to the extent such costs and expenses are not costs and expenses to which the Company or any other Buyer Indemnified Party is entitled to payment under any such Acquisition Documents. "Release" means the Release of Claims between Buyer, the Company and the Selling Stockholders or, if applicable, the Stockholders' Representative in the form attached hereto as Exhibit D. "Released Claims" has the meaning set forth in Section 10.2(b). "Released Parties" has the meaning set forth in Section 10.2(b). "Required Divestitures" means all divestitures, terminations, arrangements and restructurings identified in Schedule 3.3(e), if any, and all other divestitures, terminations, arrangements or restructurings, if any, arising after the date of this Agreement that would have been required to be listed on Schedule 3.3(e) if known to be in existence as of such date or that are necessary to satisfy any and all Divestiture Conditions. "Restated Certificate of Incorporation" means that certain Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware, as amended to date including without limitation the Certificate of Designations. "Retro-Premium Insurance Amounts" means any liability or other obligation, other than obligations arising under any "employee welfare benefit plan" within the meaning of Section 3(1) of ERISA, paid by DKM (or any Affiliate of DKM) (whether by reimbursement to any claims security, any additional premiums on retrospective adjustment or otherwise) under any policies of insurance maintained by DKM (or any Affiliate of DKM) for the benefit of the Company or any of its subsidiaries attributable to events or occurrences on or prior to the Closing Date. "Savannah Agreement" means Agreement of Purchase and Sale dated as of July 3, 1996, as amended, by and among Patterson Savannah Broadcasting Corp., a Delaware corporation, Southeastern Broadcasting Company, L.L.C., a Delaware limited liability company, The LBJ Holding Company, a Texas corporation, MetroSouth Media, a Florida general partnership, Thomas C. Birch and Raymond Quinn. "Schedules" means the Schedules attached hereto. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Securities Laws Restrictions" means any applicable restrictions on the transfer of the Shares or Series A Preferred Shares under the Securities Act or any state securities laws. 17 24 "Securities Purchase Agreement" means that certain Securities Purchase Agreement dated as of April 11, 1996 by and among the Company and The Northwestern Mutual Life Insurance Company. "Selling Common Stockholders" means all Selling Stockholders other than the Preferred Stockholder. "Selling Stockholders" has the meaning set forth in the first paragraph of this Agreement. "Selling Common Stockholders Closing Payment" means the Purchase Price, minus the Preferred Stock Payment, minus the Funded Debt Amount, minus the DLJ Amount, minus the Company Accrued Obligation Amount, and minus the Holdback Amount. "Selling Stockholders Indemnified Costs" means any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses, including reasonable legal fees and expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding), that any of the Selling Stockholders Indemnified Parties incurs and that arise out of (a) any breach by Buyer or Capstar of any of the representations, warranties, covenants or agreements under this Agreement or any other Transaction Documents, (b) the items indemnified against pursuant to Sections 5.3(b) and 6.3 and (c) any breach by the Company of a covenant or agreement to be performed after the Closing, but Selling Stockholders Indemnified Costs shall exclude any and all punitive damages. "Selling Stockholders Indemnified Parties" means each of the Company, any of its subsidiaries and the Selling Stockholders and each officer, director, employee, stockholder, and Affiliate of the Selling Stockholders (but, with respect to the Company or any subsidiary of the Company, prior to the Closing only) . "Series A Preferred Shares" means the shares of Series A Preferred Stock issued and outstanding immediately prior to the Closing. "Series A Preferred Stock" has the meaning set forth in the recitals. "Shares" has the meaning set forth in the recitals. "Station Event" has the meaning set forth in Section 9.1. "Station Licenses" has the meaning set forth in Section 3.1(g)(ii). "Stations" means all full service radio broadcast stations and FM translator stations owned by the Company or any of its subsidiaries as of the date of this Agreement and any full service radio broadcast stations and FM translator stations acquired by the Company or any of its subsidiaries prior to the Closing. 18 25 "Stockholders Agreement" means the Amended and Restated Stockholders Agreement dated as of April 1, 1996 by and among the Company and the Selling Stockholders. "Stockholders' Representative" means DKM or its successor in that capacity appointed pursuant to Section 12.17. "subsidiary" or "subsidiaries" of any person means any corporation, partnership, joint venture or other legal entity of which such person (either alone or through or together with any other subsidiary), owns, directly or indirectly, 50% or more of the capital stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity. "Successor Selling Stockholders" has the meaning set forth in Section 12.17. "Taxes" means taxes, charges, fees, imposts, levies, interest, penalties, additions to tax or other assessments or fees of any kind, including, but not limited to, income, corporate, capital, excise, property, sales, use, turnover, value added and franchise taxes, deductions, withholdings and customs duties, imposed by any Governmental Entity and any payments with respect thereto required under any tax-sharing agreement. For the purpose of this Agreement, the term "taxes" shall include all federal, state, local, foreign and other income, gross receipts, use, ad valorem, transfer, franchise, profits, license, payroll, severance, occupation, property, sales, excise, withholding, unemployment compensation, social security and other taxes and charges of any nature whatsoever (including interest, penalties and additions to tax relating to any of the specified items). "Tax Returns" means any return, report, information return or other document filed or required to be filed with any Governmental Entity in connection with the determination, assessment, collection or administration of any Taxes or the administration of any laws, regulations or administrative requirements relating to any Taxes. "Tax Sharing Agreement" means that certain Amended and Restated Tax Sharing Agreement dated as of August 16, 1995 between DKM, the Company and each of its subsidiaries. "Termination Date" has the meaning set forth in Section 10.1(b). "Title Company" means a title insurance company selected by Buyer. "Trade Deals" means the exchanges by a Station of its advertising time for goods or services, other than in connection with the licensing of programs and programming material. "Trading Event" has the meaning set forth in Section 9.1. "Transaction Costs" means all fees, expenses and other costs, including any brokerage or finders fees, incurred by the Company or any of its subsidiaries prior to the Closing including any expenses on behalf of the Selling Stockholders in connection with the transactions contemplated by this Agreement and the other Transaction Documents, but in each case excluding any and all fees, 19 26 costs and other expenses arising out of or in connection with the IPO or Buyer's, Capstar's or any of their Affiliates other financing activities or transactions relating thereto. "Transaction Documents" means this Agreement, the Deposit Escrow Agreement, the Indemnification Escrow Agreement and all other documents to be executed by any of the Company, the Selling Stockholders, the Stockholders' Representative or Buyer in connection with the consummation of the transactions contemplated in this Agreement. "Tri-City Agreement" means the Agreement of Purchase and Sale dated as of August 29, 1995, as amended, by and among Patterson Savannah Broadcasting Corp , a Delaware corporation, Tri-City Broadcasting Co., Inc., a Connecticut corporation and Enzo DeDominicis. "Unlimited Claims" means all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs and expenses, including reasonable legal fees and expenses (including Recovery Costs and court costs and reasonable legal fees and expenses incurred in investigating and preparing for any litigation or proceeding), that any of the Buyer Indemnified Parties incurs and that arise out of any breach by the Company of the Federal Income Tax Representation or the last sentence of Section 3.1(c) or a breach by any Selling Stockholder of any of its representations and warranties contained in Section 3.2(a), or a breach by the Company or any Selling Stockholder of any of its respective representations, warranties and covenants contained in Section 7.4, or its respective covenant contained in Section 12.7, other than breaches by the Company of such covenants after the Closing. "Voting Debt" has the meaning set forth in Section 3.1(c). "Warrants" has the meaning set forth in the recitals. "Welfare Benefit Plans" has the meaning set forth in Section 3(1) of ERISA. 1.2. REFERENCES AND TITLES. All references in this Agreement to Exhibits, Schedules, Articles, Sections, subsections, and other subdivisions refer to the corresponding Exhibits, Schedules, Articles, Sections, subsections, and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any Articles, Sections, subsections, or other subdivisions of this Agreement are for convenience only do not constitute any part of such Articles, Sections, subsections or other subdivisions, and shall be disregarded in construing the language contained therein. The words "this Agreement," "herein," "hereby," "hereunder," and "hereof," and words of similar import, refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The words "this Section," "this subsection," and words of similar import, refer only to the Sections or subsections hereof in which such words occur. The word "including" (in its various forms) means "including without limitation." Pronouns in masculine, feminine, or neuter genders shall be construed to state and include any other gender and words, terms, and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise expressly requires. Unless the context otherwise requires, all defined terms contained herein shall include the singular and plural and the conjunctive and disjunctive forms of such defined terms. 20 27 ARTICLE II PURCHASE AND SALE OF SHARES 2.1. PURCHASE AND SALE. Upon the terms and subject to the conditions of this Agreement, at the Closing (hereinafter defined), (a) each Selling Common Stockholder shall sell to Buyer, and Buyer shall purchase from such Selling Common Stockholder, the Shares owned by such Selling Common Stockholder on the Closing Date (it being understood that the Warrants shall be sold directly to Buyer and do not need to be exercised) and (b) the Preferred Stockholder shall sell to Buyer, and Buyer shall purchase from the Preferred Stockholder, the Series A Preferred Shares owned by the Preferred Stockholder on the Closing Date, in each case, free and clear of all Liens, except for Securities Laws Restrictions and any Liens created by or through Buyer or any of its Affiliates. 2.2. PURCHASE PRICE. (a) If the Closing occurs on or before January 30, 1998, the aggregate purchase price payable by Buyer in consideration for the sale of the Shares and the Series A Preferred Shares shall be an amount equal to $215,000,000 minus the Negative Trade Balance, minus the Acquisition Adjustment and plus all Cash on Hand, plus the Acquisition Addition, and plus the Acquisition Escrow Amount, payable to the Selling Common Stockholders, the Preferred Stockholder and other persons and/or entities as provided in Section 2.5 below (as it may be increased as provided below, the "Purchase Price"). Notwithstanding the foregoing, (i) if the Closing is postponed beyond January 30, 1998 (A) by Buyer as permitted in Section 9.1(b), (B) as a result of the existence of a Cure Period relating to any breach by Buyer, (C) as a result of Buyer's exercise of its right to obtain an ESA, title policy or survey pursuant to Section 4.3, 5.10 or 5.11, respectively, or (D) pursuant to Section 9.1(c) as a result of a Banking Event, Trading Event or Conflict Event, then the Purchase Price shall be increased by an amount equal to $5,000,000, and (ii) if the Closing is postponed beyond January 30, 1998 due to the failure to remove or satisfy a Divestiture Condition or otherwise because the FCC Consents have not become Final Orders, other than as a result of a delay caused solely by the Company or any Selling Stockholder, the Purchase Price shall be increased by an amount equal to the Purchase Price Increase. (b) The Selling Common Stockholders Closing Payment and the distribution of the Holdback Amount shall be allocated and paid pro rata among the Selling Common Stockholders in accordance with their respective Percentage Interests. 2.3. DELIVERY OF FUNDED DEBT PAYOFF NOTICE. No later than the date that is two Business Days prior to the scheduled Closing Date, the Company shall deliver to Buyer a written notice (the "Funded Debt Payoff Notice") setting forth (i) the payments necessary to be made in order for the Funded Debt to be repaid in full and retired as of the Closing Date, (ii) the name of the persons to whom such payments are to be made, and (iii) wiring instructions for the recipients of such payments. At the Closing, the Funded Debt Amount shall be transferred to the Company by Buyer and applied to the payment and retirement in full of the Funded Debt identified in such notice. 21 28 2.4. DELIVERY OF COMPANY ACCRUED OBLIGATION PAYOFF NOTICE. No later than the date that is two Business Days prior to the scheduled Closing Date, the Company shall deliver to Buyer a written notice (the "Company Accrued Obligation Payoff Notice") setting forth (i) the payments necessary to be made in order for the Company Accrued Obligations to be paid in full as of the Closing Date, (ii) the name of the persons to whom such payments are to be made, and (iii) wiring instructions for the recipients of such payments. At the Closing, the Company Accrued Obligation Amount shall be transferred to the Company by Buyer and applied to the payment and retirement in full of the Company Accrued Obligations identified in such notice. 2.5. PAYMENTS AT CLOSING. At the Closing, subject to the satisfaction of the other terms and conditions of this Agreement, Buyer shall cause the Purchase Price to be paid as follows: (a) pay or cause to be paid to the Selling Common Stockholders cash, via wire transfer of immediately available funds to an account designated by each such Selling Common Stockholder, in an amount equal to the Selling Common Stockholders Closing Payment, which shall be allocated pro rata among the Selling Common Stockholders in accordance with their Percentage Interests; (b) wire transfer an amount equal to the Company Accrued Obligations in accordance with the Company Accrued Obligation Payoff Notice (the "Company Accrued Obligation Amount"); (c) wire transfer an amount to repay in full the Funded Debt in accordance with the Funded Debt Payoff Notice (the "Funded Debt Amount"); (d) wire transfer an amount equal to the DLJ Amount to an account designated by DLJ; (e) pay or cause to be paid to the Preferred Stockholder cash, via wire transfer of immediately available funds to an account designated by the Preferred Stockholder, in an amount equal to the Preferred Stock Payment; and (f) deposit or cause to be deposited the Holdback Amount with the Escrow Agent. 2.6. CANCELLATION OF SERIES A PREFERRED SHARES AND WARRANTS. After the Closing, Buyer shall contribute the Series A Preferred Shares and Warrants to the Company for cancellation and the Company shall cancel such Series A Preferred Shares and Warrants. 2.7. EARNEST MONEY. (a) Concurrently with the execution of this Agreement, Buyer shall deposit the Deposit Letter of Credit with the Escrow Agent to be held in escrow in accordance with the terms hereof and the Deposit Escrow Agreement. (b) Subject to satisfaction of the conditions to the obligations set forth in Article VIII, at the Closing, Buyer and the Stockholders' Representative shall instruct the Escrow Agent to 22 29 release and return the Deposit Letter of Credit and/or proceeds thereof (together with any earnings thereon) to Buyer for cancellation. (c) If this Agreement is terminated as provided in Section 10.1, Buyer and the Stockholders' Representative shall instruct the Escrow Agent to release the Deposit Letter of Credit and/or proceeds thereof (together with any earnings thereon) to Buyer or to the Company, all as provided in Section 10.2. 2.8. TERMINATION OF CERTAIN AGREEMENTS. The Company and each of the Selling Stockholders hereby agrees that, subject to the consummation of the purchase and sale of the Shares and the Series A Preferred Shares pursuant hereto, the Stockholders Agreement, the Management Agreement and the Tax Sharing Agreement are each, effective as of the Closing, hereby terminated and shall be of no further force and effect following the Closing. Notwithstanding anything to the contrary contained in the Stockholders Agreement, the Restated Certificate of Incorporation, the Securities Purchase Agreement, the Warrants or any other document or agreement, except as provided in this Agreement and as provided in Section 2(f) of the Berkshire Subscription Agreement and Section 1(e) of the Merger Agreement, each of the Selling Stockholders and the Company hereby waives any and all notice or other rights it may have solely in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby. 2.9. CASH AND CASH EQUIVALENTS. Buyer agrees and acknowledges that any and all cash and cash equivalents of the Company and its subsidiaries at or immediately prior to the Closing (excluding any Acquisition Escrow Amount) shall be utilized in the sole discretion of the Company including, without limitation, to pay any Funded Debt. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1. REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY. The Company represents and warrants to Buyer as of the date hereof as follows (with the understanding that Buyer is relying on such representations and warranties in entering into and performing this Agreement). (a) Organization, Good Standing, Etc. Each of the Company and its subsidiaries is a corporation, validly existing and in good standing under the laws of its jurisdiction of incorporation, has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted and is duly qualified and in good standing to do business in each state listed on Schedule 3.1(a), which states represent every jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary, except where the failure to be so qualified would not have a Material Adverse Effect. The Company has delivered to Buyer or its representatives true and complete copies of the Restated Certificate of Incorporation and Bylaws of the Company and each of its subsidiaries, as in effect at the date of this Agreement. Neither the Company nor any subsidiary is in violation of any provisions of its Certificate of Incorporation or Bylaws. 23 30 (b) Subsidiaries of the Company. Schedule 3.1(b) sets forth a true and complete list of all of the Company's subsidiaries, together with the jurisdiction of incorporation of each such subsidiary and the percentage of each such subsidiary's outstanding capital stock or other equity interests owned by the Company or another subsidiary of the Company. Except as disclosed on Schedule 3.1(b), the Company does not own, directly or indirectly, any subsidiaries or own, or have the right, pursuant to a contract or otherwise, to acquire any capital stock, equity interest or other similar investment in any corporation, partnership, joint venture, association, limited liability company, trust or other entity. (c) Capital Structure. The authorized capital stock of the Company consists of 200,000 shares of Class A Common Stock, 200,000 shares of Class B Common Stock and 100,000 shares of preferred stock, par value $1.00 per share ("Preferred Stock"), of which 25,000 shares are designated as Series A Preferred Stock. As of the date of this Agreement, there are 70,571.91 shares of Class A Common Stock and 4,227 shares of Class B Common Stock issued and outstanding and no shares of Common Stock are held by the Company in its treasury. As of the date of this Agreement, there are 2,854 shares of Series A Preferred Stock issued and outstanding and there are 12,177 shares of Class A Common Stock reserved for issuance upon the exercise of the Warrants, 2,840 shares of Class A Common Stock reserved for issuance upon the exercise of the Management Contingent Rights, 1,160 shares of Class A Common Stock reserved for issuance upon the exercise of the Berkshire Contingent Rights. No other shares of capital stock of the Company are reserved for issuance for any other purpose other than shares of Class A Common Stock and Class B Common Stock, respectively, reserved for issuance upon the conversion of such shares into Class B Common Stock and Class A Common Stock, respectively. All the issued and outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable and have not been issued in violation of any preemptive or similar rights. There are no bonds, debentures, notes or other indebtedness issued or outstanding having the right to vote ("Voting Debt") on any matters on which holders of Common Stock may vote, except as permitted under the Certificate of Designations, the Securities Purchase Agreement and the Stockholders Agreement. Except as provided on Schedule 3.1(c), there are no options, warrants, calls, rights, commitments, or agreements of any character to which the Company or any of its subsidiaries is a party or by which any of them is bound obligating the Company or any of its subsidiaries to issue, deliver, or sell, or cause to be, issued, delivered or sold, additional shares of capital stock or any Voting Debt of the Company or any of its subsidiaries, or obligating the Company or any of its subsidiaries to grant, extend, or enter into any such option, warrant, call, right, commitment, or agreement. Except as provided on Schedule 3.1(c), there are no outstanding contractual obligations of the Company to repurchase, redeem, or otherwise acquire any shares of Common Stock or other capital stock of the Company. Except as provided on Schedule 3.1(c), there are no outstanding contractual obligations of any of the Company's subsidiaries to purchase, redeem or otherwise acquire any shares of capital stock of such subsidiaries. Schedule 3.1(c) identifies as of the date of this Agreement the record and beneficial owner, if different, of the issued and outstanding shares of Common Stock and Preferred Stock and the capitalization of each subsidiary of the Company listed on Schedule 3.1(b), including the number of authorized shares of each class of capital stock and the par value (if any) thereof, the number of shares of each class of capital stock held in the treasury of the subsidiary, and the number of issued and outstanding shares of each class of capital stock and the names of (and number of shares held by) the record owners thereof. All the issued and outstanding shares of capital stock of 24 31 each subsidiary of the Company are duly authorized, validly issued, fully paid and nonassessable and have not been issued in violation of any preemptive or similar rights. Upon Buyer's acquisition of the Shares and the Series A Preferred Shares at the Closing pursuant to the terms and conditions of this Agreement, Buyer will own 100% of the issued and outstanding capital stock of the Company and all securities convertible into, exercisable for or exchangeable into capital stock of the Company, excluding any capital stock or other securities of the Company that Buyer or any of its Affiliates causes to be issued at or after the Closing. (d) Authority. The Company has all requisite corporate power and authority to enter into this Agreement and any other Transaction Documents to which it is a party and to consummate the transactions contemplated hereby or thereby. The execution and delivery of this Agreement and the other Transaction Documents to which the Company is a party and the consummation by the Company of the transactions contemplated hereby or thereby have been duly authorized by all necessary corporate action on the part of the Company. The Transaction Documents to which the Company is a party have been, or upon execution and delivery will be, duly executed and delivered and constitute the valid and binding obligations of the Company enforceable against it in accordance with their respective terms. (e) No Conflict; Required Filings and Consents. The execution and delivery of this Agreement and the other Transaction Documents to which the Company is a party do not and the performance by the Company of the transactions contemplated hereby or thereby will not, subject to obtaining the consents, approvals, authorizations, and permits and making the filings described in this Section or as otherwise described on Schedule 3.1(e), (i) violate, conflict with, or result in any breach of any provision of the Company's Certificate of Incorporation or Bylaws, (ii) violate, conflict with, or result in a violation or breach of, or constitute a default (with or without due notice or lapse of time or both) under, or give any party the right to terminate or accelerate (whether as a result of a change of control of the Company or otherwise as a result of this Agreement) any obligation, or give any person the right to require any security to be repurchased, or give rise to the creation of any Lien upon any of the material assets of the Company or any of its subsidiaries under, any of the terms, conditions, or provisions of any loan or credit agreement, note, bond, mortgage, indenture, deed of trust or any Material Contract to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their respective assets is bound, or (iii) violate any material order, writ, judgment, injunction, decree, statute, law, rule, or regulation, of any Governmental Entity binding upon the Company or any of its subsidiaries or by which or to which any of their respective material assets is bound or subject. No Consent of or registration, declaration, or filing with any Governmental Entity is required by or with respect to the Company or any of its subsidiaries in connection with the execution and delivery of this Agreement and any other Transaction Documents by the Company or the consummation of the transactions contemplated hereby or thereby, except for (A) the FCC Consents (as contemplated by Section 7.1 hereof) and notification to the FCC upon consummation, (B) the filing of a premerger notification report and any other filings required under the HSR Act and the expiration or termination of any waiting period in connection therewith, and (C) applicable requirements, if any, of the Securities Act and the Exchange Act and state securities or blue sky laws. 25 32 (f) Financial Statements; Absence of Certain Changes or Events. (i) The Company has delivered to Buyer copies of (A) the audited consolidated balance sheets of the Company and its subsidiaries as of December 31, 1995 and December 31, 1996, together with the audited consolidated statements of income and cash flows of the Company and its subsidiaries for the periods then ended, and the notes thereto, accompanied by the reports thereon of Arthur Andersen LLP, independent public accountants, and (B) the unaudited consolidated balance sheet of the Company and its subsidiaries as of March 31, 1997, a copy of which is attached as Schedule 3.1(f)(i) (the "Balance Sheet"), together with the related unaudited consolidated statements of income for the three-month period then ended (such audited and unaudited financial statements collectively being referred to as the "Financial Statements"). The Financial Statements, including the notes thereto, were prepared in accordance with GAAP (except that the Balance Sheet and such unaudited consolidated statements of income do not contain footnotes and do not reflect year end adjustments) applied on a consistent basis throughout the periods covered thereby (except to the extent disclosed therein or required by changes in GAAP or pursuant to changes requested by Buyer) and fairly present in all material respects the consolidated financial position of the Company and its subsidiaries at the dates thereof and the consolidated results of the operations of the Company and its subsidiaries for the respective periods indicated. (ii) Except as disclosed in Schedule 3.1(f)(ii), there is no material liability of any kind, whether accrued, absolute, fixed, contingent, or otherwise, of the Company or any of its subsidiaries that is not reflected or reserved against in the Balance Sheet (or referred to in the footnotes to the Financial Statements), other than (A) liabilities incurred in the ordinary course of business since March 31, 1997 (the "Balance Sheet Date"), or (B) any such liability which would not be required to be presented in unaudited interim financial statements (excluding the notes thereto) prepared in conformity with GAAP applied, in a manner consistent with past practice, in the preparation of the Balance Sheet. (iii) Except as disclosed in Schedule 3.1(f)(iii), since the Balance Sheet Date, the Company and each of its subsidiaries has conducted its respective business only in the ordinary course consistent with past practice and nothing has occurred that would have been prohibited by Section 4.1 if the terms of such section had been in effect as of and after the Balance Sheet Date. Since the Balance Sheet Date to the date of this Agreement, there has not occurred, and neither the Company nor any of its subsidiaries has incurred or suffered, (a) any event, circumstance, or fact that has resulted in a Material Adverse Effect, or (b) to the Knowledge of the Company, any event, circumstance, or fact that materially impairs the operation of the physical assets which are material to the operation of any of the Stations. (g) Compliance with Applicable Laws; FCC Matters. (i) Except as set forth on Schedule 3.1(g), the Company and each of its subsidiaries are in compliance in all material respects with each Applicable Law (excluding 26 33 Environmental Laws). Without limiting the generality of the foregoing, except as set forth on Schedule 3.1(g), the Company and each of its subsidiaries is in compliance in all material respects with the Communications Act, all material obligations with respect to equal employment opportunity under Applicable Law, and all material rules and regulations of the Federal Aviation Administration applicable to each of the towers used or held for use by a Station. The Company and each of its subsidiaries has duly and timely filed or caused to be so filed, all material forms, reports, statements, and other documents (other than Tax Returns) required under Applicable Law to be filed with the FCC and any and all other Governmental Entities. All such material forms, reports, statements and other documents required under Applicable Law to be filed with the FCC or any other Governmental Entity (other than Tax Returns) are referred to herein, collectively, as the "Company Reports." Except as set forth on Schedule 3.1(g), all such Company Reports complied in all material respects with Applicable Laws when made. The Stations are in compliance in all material respects with the provisions of 47 C.F.R. ss. 73.3526 relating to materials to be kept in the public inspection files. (ii) Schedule 3.1(g) is a true and complete list of (A) all of the FCC Licenses, including the expiration dates thereof, as of the date of this Agreement and (B) all other material licenses, permits, or authorizations issued to the Company or any of its subsidiaries by any other Governmental Entities and held by them as of the date of this Agreement. Such FCC Licenses, and other material licenses, permits, and authorizations, are collectively referred to herein as the "Station Licenses." Schedule 3.1(g) accurately lists as of the date of this Agreement the legally authorized holder(s) of the Station Licenses and all pending applications for modification, extension, or renewal thereof or for new material licenses, permits, or authorizations, (such pending applications at the date of grant by the FCC, to the extent such grant results in the issuance of new FCC Licenses, shall be deemed to be "Station Licenses" subject to the consummation of the Approved Acquisition or Purchaser Approved Acquisition, as the case may be, to which such application relates). Except as set forth on Schedule 3.1(g), (i) the Station Licenses constitute all the material licenses, permits, and authorizations required for the operation of each of the Stations and the business of the Company and each of its subsidiaries as of the date of this Agreement, and (ii) each of the Station Licenses is in full force and effect. Except as set forth in Schedule 3.1(g), each of the Stations has been operated in all material respects in accordance with the terms of its Station Licenses and the Company and each of its subsidiaries is otherwise in compliance in all material respects with the terms of such Station Licenses. Except as set forth on Schedule 3.1(g), there are no proceedings pending against the Company or any of its subsidiaries or, to the Knowledge of the Company, threatened with respect to the Company's or any of its subsidiaries' ownership or operation of any Station which has resulted in or would result in the revocation, material adverse modification, non-renewal, or suspension of any of the Station Licenses, the denial of any pending applications for any Station Licenses by reason of the actions or qualifications of the Company and its subsidiaries, the issuance against the Company or any of its subsidiaries of any cease and desist order, or the imposition of any administrative actions, including the proposed assessment of fines and penalties, by the FCC or any other Governmental Entity with respect to any Station Licenses, or which has affected or would affect any Station's ability to operate 27 34 as currently operated, or (pursuant to the Approved Acquisitions or any Purchaser Approved Acquisitions) the Company's or any of its subsidiaries' ability to obtain control of any additional Station Licenses or to operate any additional Station. To the Knowledge of the Company, except as set forth in Schedule 3.1(g), no other broadcast station or radio communications facility is causing interference to any Station's transmissions beyond that which is allowed by FCC rules and regulations and no Station is causing interference to any other broadcast station or radio communications facilities' transmissions beyond that which is allowed by the FCC rules and regulations. To the Knowledge of the Company, except as set forth in Schedule 3.1(g), there is no reason to believe that the FCC will not renew any of the Station Licenses issued by the FCC in the ordinary course of business. To the Knowledge of the Company, except as set forth in Schedule 3.1(g), there are no facts relating to any Selling Stockholder, the Company or any of the Company's subsidiaries under the Communications Act that have disqualified or would disqualify the Selling Stockholders from transferring control of any of the Station Licenses pursuant to the terms of this Agreement or that would prevent the consummation by the Company or any Selling Stockholder of the transactions contemplated by this Agreement. 28 35 (h) Absence of Litigation. Except as set forth on Schedule 3.1(h), there is no material investigation, action, suit, judicial, or administrative proceeding, grievance, or arbitration pending or, to the Knowledge of the Company, threatened against the Company, any of its subsidiaries or any of the material assets of the Company or any of its subsidiaries by or before any arbitrator or Governmental Entity, nor, to the Knowledge of the Company, is there any material investigation or proceeding (other than in connection with applications or notices filed by or on behalf of the Company or its subsidiaries or responses to the FCC regarding listener complaints) relating to the Company, any of its subsidiaries or any of their respective material assets threatened by or before any arbitrator or Governmental Entity. Except as set forth in Schedule 3.1(h), there is no judgment, decree, injunction, order, determination or award of any Governmental Entity or arbitrator, or settlement agreement, outstanding against the Company, any of its subsidiaries or any of their respective material assets. There is no action, suit, judicial, or administrative proceeding pending or, to the Knowledge of the Company threatened against any Selling Stockholder, the Company or any of the Company's subsidiaries relating to the transactions contemplated by this Agreement and the other Transaction Documents. (i) Insurance. Schedule 3.1(i) sets forth as of the date of this Agreement an accurate list of all title, fire, general liability, malpractice liability, theft, and other forms of property and casualty insurance and the deductible for each policy and all fidelity bonds held by or applicable to the Company and each of its subsidiaries. To the Knowledge of the Company, no event has occurred, including the failure by the Company or any of its subsidiaries to give any notice or information or the delivery of any inaccurate or erroneous notice or information, which limits or impairs the rights of the Company or any of its subsidiaries under any such insurance policies in such a manner as has had or would have a Material Adverse Effect. Excluding insurance policies that have expired and been replaced in the ordinary course of business, no insurance policy of the Company or any of its subsidiaries has been canceled within the last two years prior to the date hereof. (j) Owned Real Property. Except as otherwise set forth on Schedule 3.1(j), Schedule 3.1(j) contains an accurate description in all material respects of all the Owned Real Property. Except as set forth on Schedule 3.1(j), the Company or a subsidiary of the Company has good and marketable, fee simple title in and to the Owned Real Property, free and clear of all Liens other than Permitted Liens. The Company or a subsidiary of the Company has sufficient title to such easements, rights of way and other rights appurtenant to each of the Owned Real Properties as are necessary to permit ingress and egress to and from the Owned Real Property to a public way, and the improvements on the Owned Real Property have access to such sewer, water, gas, electric, telephone, and other utilities as are necessary to allow the business of the Company and each of its subsidiaries operated thereon to be operated in the ordinary course and consistent with past practice. The Company has not received written notice of any pending condemnation or similar proceeding affecting the Owned Real Property or any portion thereof, and to the Knowledge of the Company, no such action is threatened. Except as set forth on Schedule 3.1(j), the material improvements located on the Owned Real Property are in sufficiently good condition (except for ordinary wear and tear) to allow the business of the Company and its subsidiaries to be operated in the ordinary course as currently being operated. The current use of the Owned Real Property by the Company and its 29 36 subsidiaries does not violate in any material respect any restrictive covenants of record affecting any of the Owned Real Property. The Company's owner's title insurance policies (or copies thereof) have been previously delivered to Buyer or its representatives. (k) Leased Real Property. Schedule 3.1(k) contains a list of all material real property leases to which the Company of any of its subsidiaries is a party. Each lease described in Schedule 3.1(k) is a valid and binding obligation of the Company or a subsidiary of the Company and is in full force and effect without amendment other than as described in Schedule 3.1(k). Except as otherwise disclosed on Schedule 3.1(k), neither the Company nor any of its subsidiaries, and to the Knowledge of the Company, no other party, is in default in any material respect under any lease listed in Schedule 3.1(k). (l) Personal Property. Except as set forth on Schedule 3.1(l), the Company or a subsidiary has good title to, or a valid leasehold or license interest in, all material Personal Property and none of the material Personal Property is subject to any Lien or other encumbrances, except for Permitted Liens. Except as otherwise disclosed in Schedule 3.1(l), the Personal Property is in good operating condition and repair (ordinary wear and tear excepted). (m) Liens and Encumbrances. Except as set forth in the Stockholders Agreement, at the date of this Agreement, all of the material assets of the Company and each of its subsidiaries are free and clear of all liens, pledges, voting agreements, voting trusts, proxy agreements, security interests, restrictions, mortgages, tenancies, and other possessory interests, conditional sale or other title retention agreements, assessments, easements, rights of way, covenants, restrictions, rights of first refusal, defects in title, encroachments, and other burdens, options or encumbrances of any kind (collectively, "Liens") except (i) Permitted Encumbrances and (ii) Liens set forth on Schedule 3.1(m) (the Liens referred to in clauses (i) and (ii) being "Permitted Liens"). At the Closing and upon payment of the Purchase Price as provided in Section 2.2, all of the assets of the Company and each of its subsidiaries, including without limitation any leasehold interests and the Owned Real Property, shall be free and clear of all Liens other than Permitted Encumbrances. (n) Environmental Matters. Except as expressly disclosed in the Existing ESAs with enough specificity that a reasonable person reading such description would understand that the matter described was contrary to the following representations and warranties and except as set forth on the Existing ESAs or disclosed in Schedule 3.08 of the Savannah Agreement and Schedule III(J)(iv) of the Tri-City Agreement. (i) The real property and facilities owned, operated, and leased by the Company or any of its subsidiaries and the operations of the Company or any of its subsidiaries thereon comply in all material respects with all applicable Environmental Laws; (ii) No judicial proceedings are pending or, to the Knowledge of the Company, threatened against the Company or any of its subsidiaries alleging the violation of any Environmental Laws, and there are no administrative proceedings pending or, to the Knowledge of the Company threatened against the Company or any of its subsidiaries, alleging the violation of any Environmental Laws and no written notice from any 30 37 Governmental Entity or any private or public person has been received by the Company or any of its subsidiaries claiming any violation of any Environmental Laws in connection with any real property or facility owned, operated or leased by the Company or any of its subsidiaries, or requiring any remediation, clean-up, modification, repairs, work, construction, alterations, or installations on or in connection with any real property or facility owned, operated or leased by the Company or any of its subsidiaries that are necessary to comply with any Environmental Laws and that have not been complied with or otherwise resolved to the satisfaction of the party giving such notice; (iii) All material permits, registrations, licenses and authorizations ("Permits") required to be obtained or filed by the Company or any of its subsidiaries under any Environmental Laws in connection with the Company's or any of its subsidiaries' operations, including those activities relating to the generation, use, storage, treatment, disposal, release, or remediation of Hazardous Substances (as such term is defined in Section 3.1(n)(iv) hereof), have been duly obtained or filed, and the Company and each of its subsidiaries is in compliance in all material respects with the terms and conditions of all such Permits; (iv) All Hazardous Substances used or generated by the Company or any of its subsidiaries or any of their predecessors on, in, or under any of the Company's or any of its subsidiaries owned, operated, or leased real property or facilities are and have at all times been generated, stored, used, treated, disposed of, and released by such persons or on their behalf in such manner as not to result in any material Environmental Costs or Liabilities. "Hazardous Substances" means (A) any hazardous materials, hazardous wastes, hazardous substances, toxic wastes, and toxic substances as those or similar terms are defined under any Environmental Laws; (B) any asbestos or any material which contains any hydrated mineral silicate, including chrysolite, amosite, crocidolite, tremolite, anthophylite and/or actinolite, whether friable or non-friable; (C) PCBs, or PCB-containing materials, or fluids; (D) radon; (E) any other hazardous, radioactive, toxic or noxious substance, material, pollutant, contaminant, constituent, or solid, liquid or gaseous waste regulated under any Environmental Law; (F) any petroleum, petroleum hydrocarbons, petroleum products, crude oil and any fractions or derivatives thereof, any oil or gas exploration or production waste, and any natural gas, synthetic gas and any mixtures thereof; and (G) any substance that, whether by its nature or its use, is subject to regulation under any Environmental Laws or with respect to which any Environmental Laws or Governmental Entity requires environmental investigation, monitoring or remediation. "Environmental Costs or Liabilities" means any material losses, liabilities, obligations, damages, fines, penalties, judgments, settlements, actions, claims, costs and expenses (including, without limitation, reasonable fees, disbursements and expenses of legal counsel, experts, engineers and consultants, and the costs of investigation or feasibility studies and performance of remedial or removal actions and cleanup activities) in connection with (1) any violation of any Environmental Laws, (2) order of, or contract of the Company or any of its subsidiaries with, any Governmental Entity or any private or public persons arising out of or resulting from the treatment, storage, disposal or release by the Company or any of its subsidiaries or any of 31 38 their predecessors of any Hazardous Substances or (3) a claim by any private or public person arising out of any exposure of any person or property to Hazardous Substances; (v) There are not now, nor have there been in the past, on, in or under any property or facilities when owned, leased, or operated by the Company or any of its subsidiaries or when owned, leased, or operated by any of their predecessors, any Hazardous Substances that are in a condition or location that violates any Environmental Law or that has required or would require remediation under any Environmental Laws or give rise to a claim for damages or compensation by any affected person or to any Environmental Costs or Liabilities and that have not been cured, complied with, remediated, or resolved to the satisfaction of such affected person or paid or resolved in all material respects; and (vi) Neither the Company nor any of its subsidiaries has received any written notification from any source advising the Company or any of its subsidiaries that: (A) it is a potentially responsible party under CERCLA or any other Environmental Laws; (B) any real property or facility currently or previously owned, operated, or leased by it is identified or proposed for listing as a federal National Priorities List ("NPL") (or state- equivalent) site or a Comprehensive Environmental Response, Compensation and Liability Information System ("CERCLIS") list (or state-equivalent) site; and (C) any facility to which it has ever transported or otherwise arranged for the disposal of Hazardous Substances is identified or proposed for listing as an NPL (or state-equivalent) site or CERCLIS (or state- equivalent) site. (o) Taxes. Except as set forth in Schedule 3.1(o), each of the Company and its subsidiaries has timely filed, or caused to be filed, all Tax Returns required to be filed with all Governmental Entities through the date hereof, except for any such Governmental Entity, the failure to file with which has not had, or would have, a Material Adverse Effect, and all such Tax Returns which have been filed are accurate and complete in all material respects. Except as set forth in Schedule 3.1(o), no extension of time within which to file any Tax Return which has not been filed has been requested or granted. Each of the Company and its subsidiaries has paid (or there has been paid on its behalf), or has set up an adequate reserve for the payment of, or accrued in its financial statements or books and records, all material Taxes required to be paid, withheld, or deducted, or for which the Company or any of its subsidiaries is liable, in respect of the periods covered by such Tax Returns. With respect to each Tax payable, from the end of the period covered by the most recently filed Tax Return to the Balance Sheet Date, the Balance Sheet reflects an adequate accrual or reserve in all material respects for all Taxes payable, or required to be withheld and remitted, by the Company or any of its subsidiaries, or for which the Company or any of its subsidiaries are liable, accrued through the Balance Sheet Date. The Company has not received written notice of any deficiencies for any Taxes, asserted or assessed against the Company or any of its subsidiaries and no written requests for waivers of the time to assess any such Taxes are pending. Except as set forth on Schedule 3.1(o), the federal income Tax Returns of the Company and its subsidiaries have not been examined by the Internal Revenue Service. Neither the Company nor any of its subsidiaries (i) has filed a consent under section 341(f) of the Code, (ii) has made, or is obligated or may become obligated to make, any payments that will not be deductible by reason of section 280G of the Code, (iii) has been a member of an affiliated group of corporations which has filed a consolidated federal 32 39 income Tax Return (other than the group of which the Company is the common parent and except as provided in the next sentence) or otherwise has any liability for the Taxes of any person (other than the Company and its subsidiaries and except as provided in the next sentence) under Treas. Reg. ss. 1.1502-6, any similar provision of state, local, or foreign law, or by reason of its status as a transferee, successor, indemnitor or otherwise, (iv) is a party or bound by (nor will become a party to or bound by) any tax indemnity, tax sharing or tax allocation agreement which will survive the Closing, except as described in Schedule 3.1(o), or (v) has agreed to make, nor is required to make, any adjustment under Section 48 of the Code by reason of a change in accounting method or otherwise. During the period from May 31, 1995 through February 27, 1996, the Company was a member of an affiliated group of corporations which filed a consolidated federal income tax return and whose common parent was DKM. During the period from February 28, 1996 through the Closing Date, the Company has been the common parent of an affiliated group of corporations which filed consolidated federal income tax returns. (p) Certain Agreements. (i) Schedule 3.1(p) hereto lists (excluding advertising contracts or commitments for the sale of advertising time for cash or trade entered into in the ordinary course of business and Contracts referred to in Sections 3.1(i) and 3.1(q)) each (A) employment Contract with employees of the Company or any of its subsidiaries (other than any noncompetition agreements) which is not terminable without liability or penalty on 30 days or less notice, (B) Contract under which any party thereto remains obligated to provide goods or services having a value, or to make payments aggregating, in excess of $50,000 per year, and (C) other Contract that is material to the Company and its subsidiaries, taken as a whole (such Contracts listed or required to be listed on Schedule 3.1(p), 3.1(i) and 3.1(q), the "Material Contracts"). Each Material Contract is a valid and binding obligation of the Company or a subsidiary of the Company and is in full force and effect. Neither the Company nor any of its subsidiaries and, to the Knowledge of the Company, no other party to any Material Contract is (with or without lapse of time or the giving of notice, or both) in material breach thereunder. Schedule 3.1(p) identifies, as to each Material Contract listed thereon, whether the consent of the other party thereto is required in order for such Material Contract to continue in full force and effect upon the consummation of the transactions contemplated hereby or whether such Material Contract can be canceled by the other party without liability to such other party due solely to the consummation of the transactions contemplated hereby. Except as set forth on Schedule 3.1(p), a complete copy of each written Material Contract and a description of each oral Material Contract set forth in Schedule 3.1(p) has been provided to Buyer or its representatives prior to the date of this Agreement. 33 40 (ii) Except with respect to any Employee Benefit Plan or as otherwise set forth on Schedule 3.1(p), none of the Company or any of its subsidiaries is a party to any oral or written Contract with any employee or other station or broadcast personnel (whether an employee, consultant or an independent contractor) of the Company or any of its subsidiaries (A) the benefits of which are contingent, or the terms of which are materially altered, upon, or result from, the occurrence of the transactions contemplated by this Agreement, (B) except as may be required under Applicable Law, providing severance benefits longer than 45 days after the termination of employment or other contractual relationship regardless of the reason for such termination and regardless of whether such termination is before or after a change of control, (C) under which any person may receive payments subject to the tax imposed by Section 4999 of the Code or (D) any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. (q) ERISA Compliance; Labor. (i) The present value of all accrued benefits (vested and unvested) under all the "employee pension benefit plans" as such term is defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which the Company or any other trades or businesses under common control within the meaning of Section 4001(b)(1) of ERISA with the Company (collectively, the "ERISA Group") maintains, or to which the Company or any member of the ERISA Group is or has been obligated to contribute (the "Pension Plans"), did not, as of the respective last annual valuation dates for such Pension Plans, exceed the value of the assets of such Pension Plan allocable to such benefits. Neither the Company nor any member of the ERISA Group maintains, sponsors or contributes to, and neither the Company nor any member of the ERISA Group has maintained, sponsored or contributed to within the last three years, a "defined benefit plan" as such term is defined in Section 3(35) of ERISA. No "prohibited transaction," as such term is described in Section 4975 of the Code has occurred with respect to any of the Employee Benefit Plans, which would subject the Company or any member of the ERISA Group, any officer of the Company or any of such plans or any trust to any tax or penalty on prohibited transactions imposed by such Section 4975. Neither the Company or any member of the ERISA Group has contributed or been obligated to contribute to any "multi-employer plan" as such term is defined in Section 3(37) or Section 4001(a)(3) of ERISA. Except as set forth on Schedule 3.1(q), there are no Employee Benefit Plans. With respect to the Employee Benefit Plans, no event has occurred and, to the Knowledge of the Company, there exists no condition which would subject the Company or any member of the ERISA Group to any liability under the terms of such Employee Benefit Plans or Applicable Laws, other than any payment of benefits or premiums in the normal course, or any condition that has not had or would not have a Material Adverse Effect. (ii) True, correct, and complete copies of each of the Employee Benefit Plans, and related trusts and favorable determination letters, if applicable, have been 34 41 furnished to Buyer or its representatives, along with the most recent report filed on Form 5500 and summary plan description with respect to each Employee Benefit Plan required to file Form 5500. All material reports and disclosures relating to the Employee Benefit Plans required to be filed with or furnished to governmental agencies or plan participants or beneficiaries have been furnished in accordance with Applicable Law in a timely manner. Each Employee Benefit Plan has been maintained in all material respects in compliance with Applicable Laws, and each Employee Benefit Plan intended to be qualified under Section 401 of the Code satisfies the requirements of such Section in all material respects and has not been operated in a manner which would adversely affect such qualified status. There are no actions, suits, or claims pending (other than routine claims for benefits) or, to the Knowledge of the Company, threatened against, or with respect to any of the Employee Benefit Plans. All contributions required to be made to the Employee Benefit Plans pursuant to their terms have been timely made. To the Knowledge of the Company, there is no matter pending with respect to any of the Employee Benefit Plans before the Internal Revenue Service, Department of Labor or the Pension Benefit Guaranty Corporation. Except as required by Applicable Law, none of the Employee Benefit Plans provides medical insurance coverage following retirement. Each Employee Benefit Plan which is an "employee welfare benefit plan," as defined in Section 3(1) of ERISA, may be unilaterally amended or terminated in its entirety without liability except as to benefits accrued prior to such amendment or termination. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not (i) require the Company or any of its subsidiaries to make a larger contribution or pay greater benefits under, any Employee Benefit Plan or employment agreement or (ii) create or give rise to any additional vested rights or service credits under any Employee Benefit Plan. (iii) Neither the Company nor any of its subsidiaries is a party to any collective bargaining agreement. Neither the Company nor any of its subsidiaries has agreed to recognize any union or other collective bargaining representative, nor has any union or other collective bargaining representative been certified as the exclusive bargaining representative of any of its employees. Except as set forth on Schedule 3.1(q), each of the Company and its subsidiaries (A) is not engaged, nor has it since April 1, 1997, engaged, in any unfair labor practices, and has no, and has not had since April 1, 1997, any, unfair labor practice charges or complaints before the National Labor Relations Board pending or, to the Knowledge of the Company, threatened against it, and (B) has no, and has not had since April 1, 1997 written notice of any, charges, complaints, or proceedings before the Equal Employment Opportunity Commission, Department of Labor or any other Governmental Entity responsible for regulating employment practices, pending, or, to the Knowledge of the Company, threatened against it. There is no labor strike, work stoppage or lockout pending or, to the Knowledge of the Company, threatened against or affecting the Company or any of its subsidiaries, and neither the Company nor any of its subsidiaries has experienced any labor strike, work stoppage or lockout since April 1, 1997. To the Knowledge of the Company, no union organizational campaign or representation petition is currently pending with respect to any of the employees of the Company or any of its subsidiaries. 35 42 (r) Patents, Trademarks, Etc. Other than the call letters relating to each of the radio stations of the Company and its subsidiaries and certain other intellectual property rights set forth on Schedule 3.1(r) hereto, there are no patents, copyrights, trademarks, tradenames and service marks or pending applications therefor material to the Company and its subsidiaries, taken as a whole (collectively, the "Intellectual Property"), owned in whole or in part by the Company or any of its subsidiaries and used in the business of the Company or any of its subsidiaries. To the Knowledge of the Company, neither the Company nor any of its subsidiaries is infringing any such Intellectual Property, and the Company is not aware of any infringement by others of such Intellectual Property owned by the Company or any of its subsidiaries. (s) Affiliate Relationships. Except with respect to health and other insurance arrangements referred to in Schedules 3.1(i) and 3.1(q) and other arrangements set forth in Section 7.7 hereof, and except as set forth in Schedule 3.1(s) and except for advances to officers or directors of the Company of business expenses incurred in the ordinary course of business, there are no Material Contracts to which any officer, director or stockholder of the Company is a party and no officer, director or stockholder of the Company is indebted for borrowed money to the Company or any of its subsidiaries. (t) No Dispositions. Since the Balance Sheet Date to the date of this Agreement, there has not occurred any sale, lease, transfer, assignment, abandonment or other disposition of any of the assets of the Company or any of its subsidiaries other than any disposition of (i) obsolete property, (ii) property in connection with the acquisition of replacement property of equal value, or (iii) assets having, in the aggregate, a value of less than $50,000 disposed of in the ordinary course of business and consistent with past practices. (u) Trade Deals. Schedule 3.1(u) correctly sets forth as of March 31, 1997 in all material respects the balance, in dollar value, of both (i) the Company's and its subsidiaries' aggregate obligations to the other parties under each Trade Deal in effect as of March 31, 1997 (as indicated on Schedule 3.1(u)) and (ii) the aggregate amount due the Company and its subsidiaries under such Trade Deals as of March 31, 1997 (as indicated on Schedule 3.1(u)). 3.2. REPRESENTATIONS AND WARRANTIES OF SELLING STOCKHOLDERS. Each Selling Stockholder, severally as to it and not jointly, represents and warrants to Buyer as of the date hereof as follows (with the understanding that Buyer is relying on such representations and warranties in entering into and performing this Agreement): (a) Owners of Shares. As of the date of this Agreement, such Selling Stockholder is the holder of record and owns beneficially that number of shares of Common Stock, Warrants, Management Contingent Rights, Berkshire Contingent Rights or Series A Preferred Stock and, as of the Closing Date, will be the holder of record and will own beneficially that number of shares of Common Stock, Warrants, Management Contingent Shares, Berkshire Contingent Shares or Series A Preferred Stock, as provided on and subject to adjustment pursuant to Schedule I hereto, free and clear of all Liens other than Securities Laws Restrictions. At the Closing, Buyer will receive good and valid title to the Shares and/or Series A Preferred Shares owned by such Selling Stockholder free 36 43 and clear of all Liens except for the Securities Laws Restrictions and any Liens created by or through Buyer or any Affiliate thereof. (b) Authority. Such Selling Stockholder has full legal capacity to execute and deliver this Agreement and the other Transaction Documents to which such Selling Stockholder is a party and to perform the obligations of such Selling Stockholder hereunder and thereunder. This Agreement and such Transaction Documents have been, or upon execution and delivery will be, duly and validly executed and delivered by such Selling Stockholder and constitute a valid and binding obligation of such Selling Stockholder. (c) No Conflict; Required Filings and Consents. The execution and delivery of this Agreement and the other Transaction Documents to which it is a party by such Selling Stockholder do not, and the performance by such Selling Stockholder of the transactions contemplated hereby or thereby will not, subject to obtaining the consents, approvals, authorizations, and permits and making the filings described in this Section or otherwise described on Schedule 3.2(c), (i) violate, conflict with, or result in a violation or breach of any provisions of the Selling Stockholder's Articles or Certificate of Incorporation or Bylaws, (ii) violate, conflict with, or result in a violation or breach of, or constitute a default (with or without due notice or lapse of time or both) under, or give any party the right to terminate or accelerate any obligation, or give rise to the creation of any Lien upon the Shares other than Securities Laws Restrictions or Liens created by or through Buyer or its Affiliates, under, any of the terms, conditions, or provisions of any agreement or other instrument or obligation to which such Selling Stockholder is a party or by which it may be bound, or (iii) violate any order, writ, judgment, injunction, decree, statute, law, rule, or regulation of any Governmental Entity binding upon the such Selling Stockholder. No Consent of or registration, declaration, or filing with any Governmental Entity is required by or with respect to such Selling Stockholder in connection with the execution and delivery of any Transaction Documents by such Selling Stockholder or the consummation of the transactions contemplated hereby or thereby, except for (A) the FCC Consents (as contemplated by Section 7.1 hereof) and notification to the FCC upon consummation, (B) the filing of a premerger notification report and all other filings required under the HSR Act and the expiration or termination of any waiting period in connection therewith, and (C) applicable requirements, if any, of the Securities Act and the Exchange Act and state securities or blue sky laws. 3.3. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to each Selling Stockholder and the Company as of the date hereof as follows (with the understanding that the Selling Stockholders and the Company are relying on such representations and warranties in entering into and performing this Agreement): 37 44 (a) Organization Standing and Power. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware 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) Authority. Buyer has all requisite corporate power and authority to enter into this Agreement and the other Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other Transaction Documents by Buyer and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of Buyer. This Agreement and the other Transaction Documents to which Buyer is a party have been, or upon execution and delivery will be, duly executed and delivered and constitute the valid and binding obligations of Buyer. (c) No Conflict; Required Filings and Consents. The execution and delivery of this Agreement and the other Transaction Documents to which Buyer is a party do not, and the performance by Buyer of the transactions contemplated hereby or thereby will not, subject to obtaining the consents, approvals, authorizations, and permits and making the filings described in this Section or otherwise described on Schedule 3.3(c), (i) violate, conflict with, or result in any breach of any provisions of Buyer's Certificate of Incorporation or Bylaws, (ii) violate, conflict with, or result in a violation or breach of, or constitute a default (with or without due notice or lapse of time or both) under, any of the terms, conditions, or provisions of any loan or credit agreement, note, bond, mortgage, indenture, or deed of trust, or any license, lease, agreement, or other instrument or obligation to which Buyer is a party or by which it or any of its assets is bound, or (iii) violate any order, writ, judgment, injunction, decree, statute, law, rule or regulation, of or registration, declaration, or filing with any Governmental Entity applicable to Buyer or by which it or any of its assets is bound. No Consent of any Governmental Entity is required by or with respect to Buyer in connection with the execution and delivery of this Agreement or any Transaction Documents by Buyer or the consummation by it of the transactions contemplated hereby or thereby, except for (A) the FCC Consents (as contemplated by Section 7.1) and notification to the FCC upon consummation, (B) the filing of a premerger notification report and any other filing required under the HSR Act and the expiration or termination of any waiting period in connection therewith, and (C) applicable requirements, if any, of the Securities Act and the Exchange Act and the rules and regulations thereunder and state securities or blue sky laws. (d) Litigation. As of the date hereof, there is no action, suit, judicial or administrative proceeding pending or, to the Knowledge of Buyer, threatened against it relating to the transactions contemplated by this Agreement or any other Transaction Documents or which, if adversely determined, would adversely affect its ability to consummate the transactions contemplated by this Agreement or to perform its covenants and agreements under this Agreement. 38 45 (e) FCC Matters. Except as set forth in Schedule 3.3(e), there are no facts relating to Buyer (or an Affiliate thereof) under the Communications Act that would disqualify it (or any Affiliate or assignee) from obtaining control of the Station Licenses or that would prevent it (or any Affiliate or assignee) from consummating the transactions contemplated by this Agreement or materially delay the grant of the FCC Consents. Except as may be set forth in Schedule 3.3(e), it is not necessary for Buyer, Capstar or any subsidiary or other Affiliate of Buyer or Capstar to seek or obtain any waiver from the FCC, dispose of any interest in any media or communications property or interest (including, without limitation, any of the Stations), terminate any venture or arrangement, or effectuate any change or restructuring of its ownership (including, without limitation, the removal or withdrawal of officers or directors or the conversion or repurchase of equity securities in Buyer or Capstar or any Affiliate) to obtain, or to avoid any delay in obtaining, the FCC Consents. Buyer is able to certify on an FCC Form 315 that it is financially qualified. (f) Investment Intent. The Shares and Series A Preferred Shares to be acquired by Buyer are being acquired for its own account, for investment and with no intention of distributing or reselling such Shares or Series A Preferred Shares or any part thereof or interest therein in any transaction which would be a violation of the securities laws of the United States of America or any state or any foreign country or jurisdiction. Buyer has not been formed for the purpose of acquiring the Shares or Series A Preferred Shares and Buyer is a sophisticated investor and has such Knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and the risks of acquiring the Shares and Series A Preferred Shares and is able to bear the risks of such investment. Buyer acknowledges that (i) the Shares and Series A Preferred Shares are "restricted securities" (as defined under the rules and regulations promulgated under the Securities Act), (ii) the Shares and Series A Preferred Shares have not been issued or sold pursuant to any registration or similar filing, listing, prospectus or document, or pursuant to any delivery requirements under the laws of any Governmental Entity or the rules, regulations or guidelines of any stock exchange or quotation system and (iii) it has had access to all information which it considers necessary or advisable to enable it to make a decision concerning the purchase of the Shares and Series A Preferred Shares. At the (i) time Buyer was offered the Shares and the Series A Preferred Shares, it was, (ii) date hereof, Buyer is, and (iii) Closing Date, Buyer will be, an "accredited investor" as defined in Rule 501 under the Securities Act. 3.4. REPRESENTATIONS AND WARRANTIES OF CAPSTAR. Capstar represents and warrants to each Selling Stockholder and the Company as of the date hereof as follows (with the understanding that the Selling Stockholders and the Company are relying on such representations and warranties in entering into and performing this Agreement): (a) Organization Standing and Power. Capstar is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware 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. Capstar directly or indirectly holds all of the issued and outstanding capital stock of Buyer and each other entity set forth on Schedule 3.4(a). 39 46 (b) Authority. Capstar has all requisite corporate power and authority to enter into this Agreement and the other Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other Transaction Documents by Capstar and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of Capstar. This Agreement and the other Transaction Documents to which Capstar is a party have been, or upon execution and delivery will be, duly executed and delivered and constitute the valid and binding obligations of Capstar. (c) No Conflict; Required Filings and Consents. The execution and delivery of this Agreement and the other Transaction Documents to which Capstar is a party do not, and the performance by Capstar of the transactions contemplated hereby or thereby will not, subject to obtaining the consents, approvals, authorizations, and permits and making the filings set forth on Schedule 3.4(c) or as described in this Section, (i) violate, conflict with, or result in any breach of any provisions of Capstar's Certificate of Incorporation or Bylaws, (ii) violate, conflict with, or result in a violation or breach of, or constitute a default (with or without due notice or lapse of time or both) under, any of the terms, conditions, or provisions of any loan or credit agreement, note, bond, mortgage, indenture, or deed of trust, or any license, lease, agreement, or other instrument or obligation to which Capstar is a party or by which it or any of its assets is bound, or (iii) violate any order, writ, judgment, injunction, decree, statute, law, rule or regulation, of or registration, declaration, or filing with any Governmental Entity applicable to Capstar or by which it or any of its assets is bound. No Consent of any Governmental Entity is required by or with respect to Capstar in connection with the execution and delivery of this Agreement or any Transaction Documents by Capstar or the consummation by it of the transactions contemplated hereby or thereby, except for (A) the FCC Consents (as contemplated by Section 7.1) and notification to the FCC upon consummation, (B) the filing of a premerger notification report and any other filing required under the HSR Act and the expiration or termination of any waiting period in connection therewith, and (C) applicable requirements, if any, of the Securities Act and the Exchange Act and the rules and regulations thereunder and state securities or blue sky laws. (d) Litigation. As of the date hereof, there is no action, suit, judicial or administrative proceeding pending or, to the Knowledge of Capstar, threatened against it relating to the transactions contemplated by this Agreement or any other Transaction Documents or which, if adversely determined, would adversely affect its ability to consummate the transactions contemplated by this Agreement or to perform its covenants and agreements under this Agreement. ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS 4.1. COVENANTS OF THE COMPANY. Subject to Section 4.2 below, except as contemplated by or otherwise permitted under this Agreement (including, without limitation, Section 2.9 hereof) or to the extent that Buyer shall otherwise consent in writing, from the date of this Agreement until the Closing, the Company covenants and agrees with Buyer (it being understood and agreed that each 40 47 of the covenants and agreements contained in this Section 4.1 shall apply to the Company and its subsidiaries and their respective assets with respect to any additional radio broadcast stations and other assets acquired pursuant to any Approved Acquisition or Purchaser Approved Acquisition after the date hereof and prior to the Closing Date only to the extent of events, acts or omissions occurring or conditions coming into existence after the date such Approved Acquisition or Purchaser Approved Acquisition is consummated) that the Company shall not, and shall not permit any of its subsidiaries to: (a) conduct its business in any manner except in the ordinary course consistent with past practice of the Company; or (b) fail to act in the ordinary course of business consistent with past practices of the Company to (i) preserve substantially intact the Company's and each of its subsidiaries' present business organization, (ii) keep available the services of their present General Manager and any employee with an employment contract with the Company or any of its subsidiaries, and (iii) preserve its present relationships with customers, suppliers and others having business dealings with them; or (c) fail to use commercially reasonable efforts to maintain the material assets of the Company and each of its subsidiaries in their current physical condition, except for ordinary wear and tear and damage by casualty, confiscation or condemnation governed by Section 7.5(c) (any compliance with this Section 4.1(c) shall not be deemed to be a breach of Section 4.1(i)); or (d) except as listed on Schedule 4.1(d), fail to use all commercially reasonable efforts to maintain the present format of the Stations consistent with past practices of the Company; or (e) except for amendments, terminations or non-renewals in the ordinary course of business and consistent with past practices of the Company, materially amend, terminate, or fail to use its commercially reasonable efforts to renew any Material Contract, or enter into any Contracts under which any party thereto becomes obligated to provide goods or services having a value of, or to make payments aggregating, $50,000 or more per year (other than advertising contracts or commitments including Trade Deals); or (f) merge or consolidate with or into any other legal entity, dissolve, or liquidate except in connection with any Approved Acquisition; or (g) except as required by the terms and provisions of written contracts between the Company or any of its subsidiaries and an employee thereof as in existence on the date of this Agreement, (i) adopt or amend any Employee Benefit Plan (except for amendments to Welfare Benefit Plans sponsored or maintained by DKM or any of its Affiliates as of the date of this Agreement provided that such amendments apply uniformly to the Company and all participating entities in the Welfare Benefit Plan and such amendments do not result in a termination cost to Buyer in excess of any termination cost which would be incurred by Buyer if such amendment had not been implemented) or (ii) increase in any manner the aggregate compensation or fringe benefits (including 41 48 without limitation commissions) of any General Manager, officer, director, or employee or other station and broadcast personnel of the Company or any of its subsidiaries (whether employees or independent contractors) if the aggregate of all such increases would be in excess of an amount equal to 5% of the Company's 1997 budget, excluding any increases required to be made pursuant to contractual obligations of the Company existing as of the date of this Agreement and excluding the Management Contingent Shares; or (h) terminate any General Manager of any of the Stations without prior consultation with Buyer regarding the basis for such termination; or (i) except for capital expenditures in the aggregate of $1.5 million per calendar year, acquire (including, without limitation, by merger, consolidation, or the acquisition of any equity interest or assets) except in connection with any Approved Acquisition or sell (whether by merger, consolidation, or the sale of an equity interest or assets), lease, or dispose of any assets except in the ordinary course of business (which for purposes of this Section 4.1(i) shall exclude the acquisition of radio broadcast stations) and consistent with past practices of the Company or, with respect to sales or dispositions, even if in the ordinary course of business and consistent with past practices (other than sales or other disposals of surplus or obsolete equipment or other assets which sales and disposals may be made at any time), whether in one or more transactions, in no event involving an asset having a fair market value in excess of $50,000 unless such asset is replaced with an asset or assets of substantially equal value; or (j) mortgage, pledge, or subject to any material Lien, other than Permitted Liens, any assets; or (k) except as set forth on Schedule 4.1(k) or as required by GAAP, by Applicable Law or by accounting rules or Regulations S-X as promulgated under the Securities Act, change any of the material accounting principles or practices used by the Company; or (l) change in any material respect its existing practices and procedures with respect to the collection of accounts receivable of the Stations and, except with respect to good faith attempts consistent with past practice to obtain payment of a past due receivable or a contested receivable, offer to discount the amount of any outstanding receivable or extend any other incentive (whether to the account debtor or any employee or third party responsible for the collection of receivables) to accelerate the collection thereof other than in the ordinary course of business; or (m) pay, discharge, or satisfy any material claims, liabilities, or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than in the ordinary course of business consistent with past practice or as provided in Sections 2.3(a) or 2.8, or fail to pay or otherwise satisfy (except if being contested in good faith) any material accounts payable, liabilities, or obligations when due and payable other than on a basis, and within the time, consistent with past practice; or (n) change any Station's advertising rates or policies, procedures or methods in connection with the sale of advertising time in a manner expected to accelerate the receipt of cash 42 49 payments or fail to expend at least 95% of the aggregate 1997 budgeted annual advertising and promotional department expenses; provided that if the Company fails to meet its revenue budget for 1997, the Company may decrease its budgeted advertising and promotional department expenses so long as the Company expends at least 75% of its aggregate 1997 budgeted annual advertising and promotional department expenses; or (o) except for dividends declared and/or paid on the Series A Preferred Stock, split, combine, divide, distribute, or reclassify any shares of its capital stock, declare, pay, or set aside for payment any dividend or other distribution in respect of its capital stock, or directly or indirectly, redeem, purchase, or otherwise acquire any shares of its capital stock or other securities; provided, however, that immediately prior to the Closing, the Company may pay a cash dividend to the Selling Stockholders; or (p) except for the issuance of shares of capital stock of the Company in connection with the Management Contingent Rights, the Berkshire Contingent Rights, the conversion of Class A Common Stock and Class B Common Stock into Class B Common Stock and Class A Common Stock, respectively, and the payment of dividends on the Series A Preferred Stock (including in additional shares of Series A Preferred Stock), issue, sell, pledge, dispose of, encumber, or deliver (whether through the issuance or granting of any options, warrants, commitments, subscriptions, rights to purchase or otherwise) any stock of any class or any securities convertible into or exercisable or exchangeable for shares of stock of any class (except for pledges of capital stock or securities under the Credit Agreement and other than the issuance of certificates in replacement of lost certificates); or (q) change or amend its charter documents or bylaws; or (r) except under the Credit Agreement and except for current liabilities within the meaning of GAAP incurred in the ordinary course of business, incur or assume any Debt (including obligations in respect of capital leases and for interest), assume, guarantee, endorse, or otherwise become liable or responsible (whether directly, contingently, or otherwise) for the obligations of any other person (other than endorsements of checks in the ordinary course and other than under Acquisition Agreements or in connection with Approved Acquisitions or Purchaser Approved Acquisitions) or make any loans, advances, or capital contributions to, or investments in, any person (other than among the Company and its subsidiaries and among such subsidiaries, other than advances to officers, directors and employees in the ordinary course of business); or (s) make any settlement of or compromise any tax liability, change in any material respect any tax election or tax method of accounting or make any new tax election or adopt any new tax method of accounting; or 43 50 (t) enter into any agreement with any person other than Buyer with respect to, any local marketing agreement, time brokerage agreement, joint sales agreement, or any other similar agreement other than in connection with the Approved Acquisitions or Purchaser Approved Acquisitions or as set forth on Schedule 4.1(t); or (u) engage in any transactions with any of its Affiliates (other than among the Company and its subsidiaries and among such subsidiaries) other than (i) transactions approved by Buyer in writing, (ii) transactions on terms no more favorable in the aggregate to the Company or any of its subsidiaries or their Affiliates than would have been obtainable in arm's-length dealing, (iii) transaction with officers and directors of the Company or any of its subsidiaries in the ordinary course of business and consistent with past practices of the Company, or (iv) transactions disclosed on Schedule 4.1(u); or (v) agree to or make any commitment, orally or in writing, to take any actions prohibited by this Section 4.1. 4.2. APPROVED TRANSACTIONS. Notwithstanding anything in Section 4.1 above or any other provision of this Agreement to the contrary, nothing in this Agreement shall prohibit or be deemed to prohibit or restrict the Company or any of its subsidiaries from (a) entering into or consummating any Approved Acquisition or Purchaser Approved Acquisition, (b) performing any obligation under any Acquisition Agreement or agreement related to an Approved Acquisition or a Purchaser Approved Acquisition, or (c) entering into discussions or negotiating with respect to any Approved Acquisition, Purchaser Approved Acquisition or other acquisition or other transaction (whether through a stock, merger, asset transaction or otherwise). Neither the Company nor any subsidiary shall amend or waive any provisions of any Acquisition Agreement or agreement with respect to a Purchaser Approved Acquisition or Approved Acquisition, except for any amendment or waivers that the Company in its sole discretion may deem advisable in connection with the consummation of an Approved Acquisition or Purchaser Approved Acquisition that are not adverse in any material respect to the Company and its subsidiaries, taken as a whole. 4.3. ENVIRONMENTAL SITE ASSESSMENTS. If Buyer's lenders or other financing sources require Phase I or Phase II ESAs, the Company covenants and agrees that, upon written notice from Buyer to the Company identifying the locations at which such ESAs are required, the Company shall, at the sole cost and expense of Buyer, permit Buyer's environmental consultants to perform an ESA at each identified transmission site owned, operated, or leased by the Company or any of its subsidiaries and at such other identified real properties and facilities owned, operated, or leased by the Company or any of its subsidiaries. The Company shall provide access to such consultants in a manner consistent with Section 5.2 subject to the terms and conditions of any leases and in each case at such times and locations as is approved in advance by the Company. Buyer shall promptly notify the Company of the request for an ESA by Buyer's lenders or other financing sources and shall use its commercially reasonable efforts to promptly obtain such ESA in a manner that will not delay the Closing. The cost of any Phase I or Phase II ESA shall be borne by Buyer. 44 51 4.4. BROADCAST TRANSMISSION INTERRUPTIONS. If before the Closing the regular broadcast transmission of any of the Stations in the normal or usual manner is interrupted for a period of 24 consecutive hours or more, excluding normal and routine maintenance, the Company shall give prompt written notice thereof to Buyer. ARTICLE V ADDITIONAL AGREEMENTS OF THE COMPANY AND THE SELLING STOCKHOLDERS 5.1. NO SOLICITATION OF TRANSACTIONS. Neither the Company nor any Selling Stockholder shall, nor shall they permit their respective subsidiaries or Affiliates to, directly or indirectly, through any officer, director, stockholder, employee, agent, financial advisor, banker or other representative, or otherwise, solicit, initiate, or encourage the submission of any proposal or offer from any person relating to any acquisition or purchase of all or any material portion of the assets of the Company or any of its subsidiaries or any equity interest in the Company or any of its subsidiaries or any merger, consolidation, share exchange, business combination, or other similar transaction with the Company or any of its subsidiaries or participate in any negotiations regarding, or furnish to any other person any information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate, or encourage, any effort or attempt by any other person to do or seek any of the foregoing. The Company and each Selling Stockholder immediately shall cease and cause to be terminated all existing discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. 5.2. ACCESS AND INFORMATION. (a) Until the Closing, subject only to applicable rules and regulations of the FCC and provided that Buyer shall agree to be bound by any confidentiality provisions of the Material Contracts, the Company shall, at the sole cost and expense of Buyer, afford to Buyer and its representatives (including accountants and counsel) reasonable access, in each case, during normal business hours, upon reasonable prior notice and in such manner as will not unreasonably interfere with the conduct of the business of the Company or any of its subsidiaries, to all properties, books, records, and Tax Returns of the Company and each of its subsidiaries and all other information with respect to their respective businesses, together with the opportunity, at the sole cost and expense of Buyer, to make copies of such books, records, and other documents and to discuss the business of the Company and each of its subsidiaries with such officers, directors, and counsel for the Company as Buyer deems reasonably necessary for the purposes of familiarizing itself with the Company, each of its subsidiaries and the Stations, including the right to visit the Stations; provided that such Station visits shall be scheduled at least five (5) Business Days in advance and shall be conducted in a manner intended to minimize the disruption to the operations of such Station; provided, further, that Buyer shall not contact any Station personnel regarding the transactions contemplated by this Agreement without the express prior consent of the Company. All information provided pursuant to this Agreement shall remain subject in all respects to the Confidentiality Agreement until such time as the transactions contemplated by this Agreement have been consummated at the Closing. In furtherance of and subject to the foregoing, at the sole cost and expense of Buyer, the Company shall authorize and request its independent public accountants to 45 52 meet with Buyer and its representatives, including Buyer's independent public accountants, to discuss the business and accounts of the Company and its subsidiaries and request its independent public accountants to make available (with the opportunity to make copies at the sole cost and expense of Buyer) to Buyer and its representatives, including its independent public accountants, all the work papers of its accountants related to their audit of the consolidated financial statements and Tax Returns of the Company and its subsidiaries. (b) Within 30 days after the end of each calendar month, the Company shall deliver to Buyer for the Company and its subsidiaries, taken as a whole, monthly operating statements (in a form consistent with the monthly operating statements previously supplied to Buyer) prepared in the ordinary course of business for internal purposes. In addition, within 45 days after the end of each calendar quarter, the Company shall deliver to Buyer quarterly statements prepared in the ordinary course for internal purposes containing a listing of all trade and barter agreements of the Stations showing the status of all such agreements as of the end of the quarter. The Company or a subsidiary of the Company shall deliver to Buyer the rating books for the Stations promptly following receipt of the same by any officer or director of the Company. In addition, promptly following the distribution to the Company by the Stations, the Company will provide Buyer with copies of the Stations' weekly sales pacing reports. 5.3. ASSISTANCE. (a) If Buyer requests, the Company will cooperate, and the Company will cause each of its subsidiaries and will request its accountants, at the sole cost and expense of Buyer, to cooperate, in all reasonable respects in connection with any financing efforts of Buyer or its Affiliates (including providing reasonable assistance in the preparation of one or more registration statements or other offering documents relating to debt and/or equity financing) and any other filings that may be made by Buyer or its Affiliates with the Securities and Exchange Commission, all at the sole expense of Buyer and during normal business hours, upon reasonable prior notice and in such manner as will not unreasonably interfere with the conduct of the Company's or any of its subsidiaries' businesses. Subject to the foregoing (including at the sole cost of Buyer), the Company shall, and shall cause each of its subsidiaries to, (i) furnish to its independent accountants (or, if requested by Buyer to Buyer's independent public accountants), such customary management representation letters as its accountants may reasonably require of the Company as a condition to its execution of any required accountants' consents necessary in connection with the delivery of any "comfort" letters requested by financing sources of Buyer or its Affiliates and (ii) furnish to Buyer all financial statements (audited and unaudited) and other information in the possession of the Company or any of its subsidiaries or their representatives or agents as Buyer shall reasonably determine is required in connection with such financing. (b) Buyer and Capstar shall, jointly and severally, indemnify and hold harmless the Company and each Selling Stockholder and their respective officers, directors, and controlling persons against any and all claims, losses, liabilities, damages, costs, or expenses (including reasonable attorneys' fees and expenses and any other Selling Stockholders Indemnified Costs) that may arise out of or with respect to (i) the IPO or any other financing efforts by Buyer, Capstar or their respective Affiliates, including without limitation arising out of or relating to any registration 46 53 statement, prospectus, offering documents, and other filings related thereto or any and all assistance and cooperation by the Company, and its subsidiaries, accountants and other representatives, including without limitation, arising out of or relating to the conduct of any person or entity in connection with any (1) ESAs conducted or obtained by Buyer or its consultants as contemplated by Section 4.3, (2) title policies obtained by Buyer as contemplated by Section 5.10 or (3) surveys obtained by Buyer as contemplated by Section 5.11; provided that Buyer shall have no indemnity obligations with respect to any costs or liabilities of the Company discovered as a result of the investigations permitted in Section 4.3, 5.10 or 5.11 and to the extent that such costs or liabilities were not caused by Buyer or its representatives, and (ii) all obligations and liabilities of Buyer with respect to liquidated damages payable by Buyer to the Company under Section 10.2(a) and all other fees, costs and expenses payable by Buyer under the Deposit Escrow Agreement and the Indemnification Escrow Agreement; provided, however, that subject to the limitations and provisions of this Agreement, nothing in this Section 5.3(b) shall prevent Buyer from asserting any right it may have for breach of representation or warranty under, and subject to the limitations and other conditions set forth in this Agreement. 5.4. COMPLIANCE WITH STATION LICENSES. After the date hereof and prior to the Closing: the Company shall cause the Stations to be operated in all material respects in accordance with the Station Licenses and all applicable rules and regulations of the FCC and in compliance in all material respects with all other applicable laws, regulations, rules, and orders; the Company shall use its commercially reasonable efforts not to cause or permit any of the Station Licenses to expire without the timely filing of an application for renewal or be surrendered, other than private radio authorizations and auxiliary broadcast authorizations that the Stations may cease to use in their businesses and operations, or materially adversely modified, or terminated; the Company shall file or cause to be filed with the FCC all material applications (including license renewals) or other documents required to be filed in connection with the operation of the Stations; should the FCC institute any proceedings for the suspension, revocation or adverse modification of any of the FCC Licenses (other than arising as a result of any action by Buyer or its Affiliates) or any forfeiture proceedings, the Company will use its commercially reasonable efforts to promptly contest such proceedings and to seek to have such proceedings terminated in a manner that is favorable to the Stations; the Company will use its commercially reasonable efforts to maintain the FCC construction permits (if any) listed in Schedule 3.1(g) in effect until the applicable construction projects are timely completed and to diligently prosecute all pending FCC applications listed in Schedule 3.1(g); and if the Company receives an administrative or other order or notification from the FCC relating to any violation or claimed violation by the Company or its subsidiaries of the rules and regulations of the FCC, or of any other Governmental Entity, that could materially affect the Company's or any Selling Stockholder's ability to consummate the transactions contemplated hereby, or should the Company obtain Knowledge of any fact relating to the qualifications of the Company or a Selling Stockholder that reasonably could be expected to cause the FCC to withhold its consent to the assignment of the FCC Licenses, the Company shall promptly notify Buyer in writing and, other than with respect to a Divestiture Condition or in connection with any action or omission by Buyers or any of its Affiliates, use its commercially reasonable efforts to take such steps as may be necessary to remove any such impediment to the transactions contemplated by this Agreement. 47 54 5.5. NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt written notice to Buyer of (a) the occurrence, or failure to occur, of any event of which it has Knowledge that has caused any representation or warranty of the Company or any Selling Stockholder contained in this Agreement to be untrue or inaccurate in any material respect as of the date of this Agreement, (b) the failure of the Company, to comply with or satisfy in any material respect any covenant to be complied with by it hereunder, and (c) the occurrence of a Station Event (as defined in Section 9.1). No such notification shall affect the representations or warranties of the parties or the conditions to their respective obligations hereunder. 5.6. THIRD PARTY CONSENTS. After the date hereof and prior to the Closing, the Company shall use its commercially reasonable efforts, but excluding making any payments, to obtain the written consent from any party to a Material Contract which is required to permit the consummation of the transactions contemplated hereby or which is required to prevent a breach of such Material Contract or the creation of the right to terminate such Material Contract. 5.7. RESIGNATIONS OF DIRECTORS. The Company shall cause all directors of the Company to deliver their written resignations to Buyer, which resignations shall be effective at or before the Closing. 5.8. EMPLOYMENT AGREEMENTS. Subject to the terms and conditions hereof, Buyer shall cause Capstar Broadcasting Corporation to enter into an Employment Agreement with James W. Wesley, Jr. substantially in the form attached hereto as Exhibit B-1 and shall cause Capstar Radio to enter into an Employment Agreement with James M. Strawn substantially in the form attached hereto as Exhibit B-2. 5.9. BANK ACCOUNTS. The Company shall take all actions necessary to remove the existing signatories to all bank accounts of the Company and each of its subsidiaries as of the Closing Date and to replace such signatories effective as of the Closing Date with individuals to be designated at least 10 days prior to the Closing Date by Buyer. 5.10. REAL ESTATE TITLE COMMITMENT. If Buyer's lenders or other financing sources require, upon written notice from Buyer to the Company, Buyer may, at Buyer's sole cost and expense, obtain a preliminary report on title to the Owned Real Property covering a date subsequent to the date of this Agreement, issued by the Title Company. Buyer shall cause each owner's title insurance policy insuring the interest of the Company or any of its subsidiaries in the Owned Real Property to be issued promptly and in a manner that will not delay the Closing Date. 5.11. SURVEY. If Buyer's lenders or other financing sources require, upon written notice from Buyer to the Company, Buyer may, at Buyer's sole cost and expense, obtain a survey of the Owned Real Property as of a date subsequent to the date hereof. Buyer shall cause such survey to be prepared promptly and in a manner that will not delay the Closing. 5.12. ISSUANCE OF MANAGEMENT CONTINGENT SHARES AND BERKSHIRE CONTINGENT SHARES. Prior to or at the Closing, the Company shall cause the Management Contingent Shares, if any, and 48 55 Berkshire Contingent Shares, if any, to be issued in accordance with the terms of the Merger Agreement and Berkshire Subscription Agreement, respectively. 5.13. CONVERSION OF LETTERS OF CREDIT. Prior to the Closing Date, the Company shall, at its sole cost and expense, cause all letters of credit held in escrow for the benefit of the seller in connection with any Approved Acquisition or Purchaser Approved Acquisition to be replaced with an equal amount in cash and shall cause such letters of credit to be terminated. 5.14. NOTIFICATION OF BREACH. If the Company obtains Knowledge of a breach by Buyer or Capstar of a representation, warranty, covenant or agreement of Buyer or Capstar contained in this Agreement or any other Transaction Document, the Company shall promptly notify Buyer of such breach; provided that such notification shall not result in the waiver by the Company or any Selling Stockholder of any of the Company's or any Selling Stockholder's rights or remedies under this Agreement or any other Transaction Document. ARTICLE VI COVENANTS OF BUYER 6.1. NOTIFICATION OF CERTAIN MATTERS. If Buyer, Capstar or any other Affiliate of Capstar receives an administrative or other order or notification relating to any violation or claimed violation of the rules and regulations of the FCC, or of any Governmental Entity (including without limitation seeking or relating to a Divestiture Condition), that could affect Buyer's ability to consummate the transactions contemplated hereby, or should Buyer, Capstar or any other Affiliate of Capstar become aware of any fact relating to the qualifications of Buyer, Capstar or any of their Affiliates that reasonably could be expected to cause the FCC to withhold its consent to the assignment of the Station Licenses, Buyer shall promptly notify the Company thereof and shall use its commercially reasonable efforts to take such steps as are necessary to remove any such impediment to the transactions contemplated by this Agreement, including without limitation steps to satisfy or remove all Divestiture Conditions, including to divest itself or cause any Affiliate thereof to divest itself of any media business or interest therein, including without limitation one or more of the Stations. In addition, Buyer shall give to the Company prompt written notice of (a) the occurrence, or failure to occur, of any event of which it has Knowledge that has caused or that would be likely to cause any representation or warranty of Buyer contained in this Agreement to be untrue or inaccurate in any material respect as of the date of this Agreement, and (b) the failure of Buyer or Capstar to comply with or satisfy in any material respect any covenant to be complied with by it hereunder. No such notification shall affect the representations or warranties of the parties or the conditions to their respective obligations hereunder. 49 56 6.2. EMPLOYEE MATTERS. Subject to the provisions of the employment contracts listed in Schedule 3.1(p), nothing contained in this Agreement shall be deemed to give any employee of the Company or any of its subsidiaries the right to be retained in the employ of the Company or any of its subsidiaries after the Closing Date, to retain the same salary, job responsibility or job location, or interfere with the right of the Company to terminate any employee of the Company or any of its subsidiaries at any time. After the Closing Date and subject to Applicable Law and the terms of any Employee Benefit Plan, Buyer may amend, modify, or terminate any Employee Benefit Plan in existence prior to the Closing. Except as specifically provided herein (including in Section 7.7 hereof) and without limiting the obligations and liabilities of the Company or any of its subsidiaries arising by operation of law or under the terms of this Agreement, after the Closing, the Company and each of its subsidiaries is and shall remain liable for and the Company and each of its subsidiaries and Buyer shall be responsible for and shall promptly discharge all liabilities, duties and claims (by or to an Employee, Former Employee, Beneficiary, Governmental Entity or otherwise) arising out of or relating to the employment relationship between the Company or any of its subsidiaries and an Employee or Former Employee, whether made to or imposed upon the Company or any of its subsidiaries, or any Selling Stockholder (or any Affiliate thereof) or Buyer, including, without limitation, liabilities, duties and claims: (i) for deferred compensation, incentive compensation, retirement benefits, health and life benefits, severance arrangements and benefits, disability benefits and other fringe benefits under any employee benefit plan, fund, program, arrangement, policy or practice; (ii) relating to continuation health coverage pursuant to ss.4980B of the Code and Title I, Subtitle B, Part 6 of ERISA; (iii) for unemployment and workers' compensation or similar benefits; and (iv) to file any and all annual reports, filings or notices that may be required to be filed with Governmental Entities or provided to participants and beneficiaries after the Closing. In addition, with respect to any welfare benefit plans (as defined in Section 3(1) of ERISA) maintained or established by Buyer, the Company or any of its subsidiaries or any Affiliate of any of the foregoing for the benefit of Employees and Beneficiaries on and after the Closing Date, Buyer shall cause there to be waived any pre-existing condition limitations. 6.3. LABOR RELATIONS. Buyer, the Company and each of its subsidiaries hereby agrees to indemnify each of the Selling Stockholders Indemnified Parties, and to hold each Selling Stockholders Indemnified Party harmless, from and against all Selling Stockholders Indemnified Costs, which are sustained or incurred by any Selling Stockholders Indemnified Parties by reason of or in connection with any claim, proceeding or suit brought against any Selling Stockholders Indemnified Parties under the Worker Adjustment Retraining and Notification Act, or any local, state, federal or foreign law, which relates to actions taken by Buyer (any of its subsidiaries or Affiliates) or the Company or any of its subsidiaries at any time after the Closing with regard to any site of employment or one or more facilities or operating units within any site of employment of the Company or any of its subsidiaries. 6.4. ACCESS TO INFORMATION. From and after the Closing Date, Buyer shall (and shall cause the Company and each of its subsidiaries and other Affiliates to), during normal business hours and upon reasonable notice, make available and provide each of the Selling Stockholders and their respective representatives (including, without limitation, counsel and independent auditors) with access to the facilities and properties of the Company and each of its subsidiaries and to all 50 57 information, files, documents and records (written and computer) relating to the Company or its subsidiaries or any of their businesses or operations for any and all periods prior to or including the Closing Date which such Selling Stockholder (or any Affiliate of such Selling Stockholder) requires with respect to any reasonable business purpose or in connection with any claim, dispute, action, cause of action, investigation or proceeding of any kind by or against any person including any Buyer Indemnified Party or any Selling Stockholders Indemnified Party, and shall (and shall cause the Company and each of its subsidiaries to) cooperate fully with such Selling Stockholder and its representatives (including, without limitation, its counsel and independent auditors) in connection with the foregoing, at such Selling Stockholder's sole cost and expense, including, without limitation, by making tax, accounting and financial personnel and other appropriate employees and officers of the Company and each of its subsidiaries available to each of the Selling Stockholders and their respective representatives (including, without limitation, counsel and independent auditors), with regard to any reasonable business purpose (including as aforesaid). Without limiting the generality of this Section 6.4, following the Closing, the Selling Stockholders and their representatives shall be given the opportunity to review, comment upon and suggest changes or corrections to any Tax Returns, reports and declarations which include the Company or any of its subsidiaries prepared by Buyer, Capstar or any Affiliate thereof, including without limitation the Company and its subsidiaries (and the work papers used in the preparation thereof) which relate to or include any period or portion thereof ending on or before the Closing Date (or periods beginning prior to the Closing Date and ending subsequent thereto, if any), in each case prior to the filing thereof (but in no event less than 30 days prior to such filing). 6.5. NOTIFICATION OF BREACH. If Buyer, Capstar or any of their Affiliates obtains Knowledge of a breach by the Company of any Selling Stockholder of a representation, warranty, covenant or agreement of the Company or any Selling Stockholder contained in this Agreement or any other Transaction Document, Buyer shall promptly notify the Company of such breach; provided that such notification shall not result in the waiver by Buyer of any of Buyer's rights or remedies under this Agreement or any other Transaction Document. 6.6. COMPLETION OF REQUIRED DIVESTITURES. Buyer covenants and agrees to keep the Company and the Selling Stockholders fully informed as to all matters concerning all Required Divestitures and shall promptly notify the Company and the Selling Stockholders in writing of any and all significant developments relating thereto. 6.7. ACCEPTANCE OF PENDING RENEWAL PROCEEDINGS. Buyer acknowledges and agrees that certain of the Stations may file applications for renewal of license during the time that an application for the FCC Consents is pending before the FCC. To the extent any such application for renewal may be filed, Buyer agrees to amend the transferee's portion of any application for the FCC Consents and, as may be required to amend any license renewal applications for any of the Stations, to confirm Buyer's intention to consummate this Agreement during the pendency of such license renewal application and to agree to assume the consequences associated with succeeding to the place of the Selling Stockholders and the Company in such license renewal applications. The making of this statement shall not be deemed to limit or waive any other rights that Buyer may otherwise have under this Agreement. 51 58 6.8. SECTION 338 ELECTION. Buyer shall not, and shall cause each of its Affiliates not to, make an election under Section 338(g) of the Code with respect to Buyer's purchase of the Shares. 6.9. 401(K) PLAN. After the Closing Date, Buyer shall either (a) cause the Company to continue to provide benefits to the Employees pursuant to the Patterson Broadcasting 401(k) Savings Plan (the "401(k) Plan"), or (b) in accordance with Applicable Law, adopt or cause the Company to adopt or participate in a cash or deferred arrangement (i) which meets the requirements of Section 401(k) of the Code and (ii) which accepts a transfer, through merger or otherwise, of Employees' account balances from the 401(k) Plan as soon as administratively feasible after such adoption or participation. 6.10. CAPSTAR. If an IPO has not been consummated prior to the Closing Date and Capstar is not the ultimate parent of Buyer, the entities to be acquired in the Benchmark Acquisition, and the entities set forth on Schedule 3.4(a) on the Closing Date (other than those entities which have been disposed of by Capstar in the ordinary course of business), Buyer shall cause the ultimate parent entity of Capstar, Buyer, the entities to be acquired in the Benchmark Acquisition, and the entities set forth on Schedule 3.4(a) to agree in a written agreement (in form and substance reasonably satisfactory to the Company and the Stockholders' Representative) to be bound by the terms and conditions of this Agreement applicable to Capstar (including without limitation Capstar's indemnification obligations) and shall, in such agreement, make the representations and warranties as to itself that Capstar made with respect to itself in Section 3.4. If an IPO has been consummated prior to the Closing Date, Buyer shall cause the issuer of the Capstar Stock to agree in a written agreement (in form and substance reasonably satisfactory to the Company and the Stockholders' Representative) to be bound by the terms and conditions of this Agreement applicable to Capstar (including without limitation Capstar's indemnification obligations) and shall, in such agreement, make the representations and warranties as to itself that Capstar made with respect to itself in Section 3.4. ARTICLE VII MUTUAL COVENANTS 7.1. APPLICATION FOR FCC CONSENTS. Prior to the date hereof, the Company and Buyer have requested the FCC's written consent to the transfer of control of the licensees to each of the FCC Licenses pursuant to this Agreement and have caused all necessary persons to join in one or more such applications filed with the FCC (the "Applications"). The Company and Buyer will use their commercially reasonable efforts to take such steps as may be necessary (a) to diligently prosecute the Applications and to prepare and file any further Applications or amendments as may be necessary to obtain the consent for the transfer of control to Buyer of other FCC Licenses and authorizations to be acquired pursuant to the Purchaser Approved Acquisitions and (b) to obtain the FCC Consents, including actions by Buyer, at its sole cost and expense (except as provided in Section 7.3), to satisfy or cause to be removed all Divestiture Conditions, if any, including to divest itself or cause any Affiliate thereof to divest itself of any media business or interest therein, including without limitation one or more Stations. The failure by the Company or Buyer to use commercially 52 59 reasonable efforts to timely file or diligently prosecute its portion of any Application or, in the case of Buyer, the failure to use commercially reasonable efforts to make any Required Divestiture or otherwise satisfy or cause to be removed all Divestiture Conditions on or before the Termination Date, shall be a material breach of this Agreement. The Company and each Selling Stockholder agree that any delay in prosecuting the Applications or obtaining the FCC Consents resulting from Buyer's good faith negotiations with the FCC, DOJ or FTC with respect to the imposition of a Divestiture Condition shall not constitute a failure by Buyer to use commercially reasonable efforts to diligently prosecute the Applications or obtain the FCC Consents; provided that if the FCC Consents have not been obtained or become Final Orders prior to the Termination Date, other than as a result of a delay caused solely by the Company or any Selling Stockholder, the Selling Stockholders shall be entitled to liquidated damages as provided in Section 10.2. If the Applications are required by the FCC to be resubmitted after the execution of this Agreement due to the failure to provide an executed copy of this Agreement in the initial filing, the Company shall promptly reimburse Buyer for the filing fee incurred in connection with the resubmission of the Applications. In addition, if the Applications are required by the FCC to be resubmitted pursuant to the preceding sentence or if the FCC has notified Buyer or the Company in writing that the review of the Applications will be delayed until after the receipt of an executed copy of this Agreement, the Termination Date shall be extended by the number of days equal to (a) the number of days from April 18, 1997 to the date of such resubmitted filing or (b) the number of days from the date of such notice from the FCC to the date of the filing of an executed copy of this Agreement, as the case may be (such number of days, the "Extension Period"). 7.2. CONTROL OF STATIONS. Between the date of this Agreement and the Closing Date, Buyer will not directly or indirectly control, supervise or direct the operation of the Stations. Further, between the date of this Agreement and the Closing Date, the Company shall, directly or indirectly, supervise and control the operation of the Stations. Such operation shall be the sole responsibility of the Company. 7.3. OTHER GOVERNMENTAL CONSENTS. Prior to the execution of this Agreement, the parties filed with the FTC and the DOJ the notifications and other information (if any) required to be filed under the HSR Act with respect to the transactions contemplated hereby. In addition to the obligations of the Company and Buyer with respect to the Applications, promptly following the execution of this Agreement, the Company and Buyer shall promptly proceed to prepare and file with the appropriate Governmental Entities such additional requests, reports, or notifications as may be required in connection with this Agreement and shall diligently and expeditiously prosecute, and shall cooperate fully with each other in the prosecution of, such matters (and, in the case of any Divestiture Condition, at the sole cost and expense of Buyer, except as otherwise provided in this Section 7.3). Without limiting the foregoing, promptly following the execution of this Agreement, the Company and Buyer shall use their commercially reasonable efforts to (a) cause all applicable waiting periods under the HSR Act to expire or be terminated as of the earliest possible date, including without limitation reasonable cooperation by the Company and Buyer in connection with Buyer's obligations hereunder to satisfy or cause to be removed all Divestiture Conditions, if any (provided that Buyer shall pay all costs of the Company in excess of $20,000 incurred in connection with this Section 7.3), including to divest Buyer, Capstar or any Affiliate of any media business or interest therein, which may include one or more of the Stations, in connection with Sections 6.1, 7.1 53 60 or this Section 7.3, (b) make all necessary filings and, (c) thereafter, at the sole cost and expense of Buyer except as otherwise provided in this Section 7.3, make any other required submissions with respect to the transactions contemplated hereby under the Securities Act and the rules and regulations thereunder and any other applicable federal or state securities laws. The failure by the Company or Buyer to use commercially reasonable efforts to timely file or diligently prosecute its portion of any Application or, in the case of Buyer, the failure to use commercially reasonable efforts to make any Required Divestiture or otherwise satisfy or cause to be removed all Divestiture Conditions on or before the Termination Date, shall be a material breach of this Agreement. The Company and each Selling Stockholder agree that any delay in prosecuting the Applications or obtaining the FCC Consents resulting from Buyer's good faith negotiations with the FCC, DOJ or FTC with respect to the imposition of a Divestiture Condition shall not constitute a failure by Buyer to use commercially reasonable efforts to diligently prosecute the Applications or obtain the FCC Consents; provided that if the FCC Consents have not been obtained or become Final Orders prior to the Termination Date, other than as a result of a delay caused solely by the Company or any Selling Stockholder, the Selling Stockholders shall be entitled to liquidated damages as provided in Section 10.2. 7.4. BROKERS OR FINDERS. Except for the DLJ Amount, which fee shall be paid in accordance with Section 2.5(d), the Company and each Selling Stockholder represents and warrants, severally as to each such person and not jointly, to Buyer that no agent, broker, investment banker, or other person engaged by the Company or such Selling Stockholder, respectively, is or will be entitled to any broker's or finder's fee or any other commission or similar fee payable by Buyer or the Company in connection with any of the transactions contemplated by this Agreement. Except for the previously disclosed fee payable to Media Venture Partners, which fee shall be paid in accordance with the provisions of Section 12.7, Buyer represents and warrants to the Company and each Selling Stockholder that neither Buyer, Capstar, nor any Affiliate of Buyer has engaged any broker, investment banker or other person that will be entitled to any broker's or finder's fee or any other commission or similar fee from the Company or any Selling Stockholder in connection with any of the transactions contemplated by this Agreement. 7.5. RISK OF LOSS. (a) The risk of any material casualty, damage, confiscation, or condemnation of any of the material assets of the Company or any of its subsidiaries from any cause whatsoever shall be borne by the Company at all times prior to the Closing. In the event of any such material casualty, damage, confiscation, or condemnation, whether or not covered by insurance, the Company shall promptly notify Buyer of such material casualty, damage, confiscation, or condemnation. 54 61 (b) If the Company, at its expense, repairs, replaces, or restores such assets in all material respects to their prior condition before the Closing, the Company shall be entitled to all insurance proceeds and condemnation awards, if any, by reason of such award or loss; provided, however, if such proceeds or awards are realized after the Closing, each of Buyer, Capstar and the Company shall cause such proceeds and awards to be distributed promptly after receipt to the Selling Stockholders in accordance with their respective Percentage Interests.. (c) If the Company notifies Buyer in writing that it cannot repair, restore or replace such, damaged, confiscated or condemned assets having a replacement cost in excess of $2.5 million in the aggregate or informs Buyer in writing that it does not intend to repair, restore or replace such assets (either notice, the "Casualty Notice"), Buyer may at its option: (i) terminate this Agreement pursuant to Section 10.1(c)(i) by notice forthwith and in such event, notwithstanding any other provision herein to the contrary (including any representation or warranty), neither the Company nor any of the Selling Stockholders shall have any liability with respect to the condition of the assets attributable to such damage, casualty, confiscation, or condemnation; or (ii) proceed to the Closing without the Company completing the restoration and replacement of such assets, provided that the Company shall retain all rights under applicable insurance policies and condemnation awards, if any, and in such event, notwithstanding any other provision herein to the contrary (including any representation or warranty), the Selling Stockholders shall have no liability with respect to the condition of the assets attributable to such damage, confiscation, or condemnation. Notwithstanding anything in this Agreement to the contrary, the failure by the Company to repair, restore or replace damaged, confiscated or condemned assets having a repair or replacement cost of more than $2.5 million shall not be a breach of this Agreement. (d) Buyer will notify the Company of a decision under the options described in Section 7.5(c)(i) or (ii) above, if applicable, within ten Business Days after the Company's Casualty Notice to Buyer. 7.6. ADDITIONAL AGREEMENTS. Subject to the terms and conditions of this Agreement, each of the Company and Buyer will use its commercially reasonable efforts to do, or cause to be taken all action and to do, or cause to be done, all things necessary, proper, or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. If at any time after the Closing Date, any further action is necessary to comply with this Agreement, the parties to this Agreement shall take all such action as is commercially reasonable and as is required by such party hereby. Without limiting the generality of the foregoing, if, after the Closing Date, Buyer seeks indemnification or recovery from one or more other parties to a Contract or otherwise seeks to enforce such Contract and, in order to obtain such indemnification, recovery or enforcement, it is necessary for a Selling Stockholder to participate in any enforcement proceeding or otherwise provide assistance to Buyer, then, at the request, upon reasonable prior notice, during 55 62 normal business hours and without unreasonable interruption of such Person's business activities, and at the sole expense of Buyer, each Selling Stockholder shall take such action as Buyer may reasonably request in connection with Buyer's efforts to obtain such indemnification, recovery or enforcement. 7.7. INSURANCE MATTERS. (a) Buyer and the Company acknowledge and agree that, effective as of the Closing Date, coverage for all Employees, Former Employees and their Beneficiaries under all health and medical insurance plans or programs as applied to the Company and each of its subsidiaries including the $50,000 per covered participant stop loss health insurance coverage as applied to the Company and its subsidiaries in accordance with DKM's and the Company's prior practice (other than Patterson Honolulu Broadcasting Corp.) (the "Group's Health Plan") shall terminate and be of no further force or effect. Notwithstanding the preceding sentence, any expense incurred by an Employee, Former Employee or Beneficiary prior to the Closing Date that would have been covered under the Group's Health Plan shall continue to be the responsibility of DKM. From and after the Closing Date, Buyer shall cause the Company and each of its subsidiaries to pay (and the Company and each subsidiary hereby agree to pay) to DKM any premium or other charges due in respect of coverage of Employees, Former Employees or Beneficiaries under the Group's Health Plan through the Closing Date within 30 days after receipt of an invoice or statement relating to the same. The amount of such premiums and charges shall be calculated in accordance with DKM's and the Company's and each of its subsidiaries' prior practices regarding such premiums and charges. DKM shall promptly refund to the Company any excess premiums and charges paid by the Company through the Closing Date in accordance with DKM's prior practices regarding excess premiums and charges. Buyer agrees to notify all Employees, Former Employees and their Beneficiaries of the manner in which pre-Closing Date expenses under the Group's Health Plan are to be submitted for reimbursement and to request that all such expenses be submitted within 60 days after the Closing Date. Buyer and the Company acknowledge and agree that, effective as of the Closing Date, coverage for all Employees, Former Employees and their Beneficiaries under all life insurance, disability, AD&D or any other welfare or benefit plans or programs sponsored or maintained by DKM as applied to the Company and each of its subsidiaries shall terminate and be of no further force or effect with respect to periods after the Closing Date. Buyer and the Company acknowledge and agree that, effective as of the Closing Date, coverage for all Employees, Former Employees and their beneficiaries under the Stop Loss Contract between Trustmark Insurance Company ("Trustmark") and DKM (the "Stop Loss Contract") shall terminate and be of no further force or effect. Notwithstanding the preceding sentence, DKM shall cause all claims for expenses incurred by an Employee, Former Employee or beneficiary prior to the Closing Date that otherwise would have been allowed to be submitted under the Stop Loss Contract to be submitted to Trustmark in accordance with prior practices. Buyer shall cause the Company and each of its subsidiaries to pay (and the Company and each subsidiary hereby agrees to pay) to DKM the premiums for such coverage calculated in accordance with the prior practices regarding such premiums within 30 days after receipt of an invoice or statement relating to the same. (b) From and after the Closing Date, (i) the Company and each of its subsidiaries shall cease to be covered with respect to any event or occurrence after the Closing Date under all 56 63 insurance policies covering the Company or any of its subsidiaries (other than insurance policies described in the first sentence of subsection (a) above and other than the Stop Loss Contract, each of which shall be subject to the provisions of such subsection) and (ii) with respect to any event or occurrence on or prior to the Closing Date, the Company and each of its subsidiaries shall, subject to the terms and conditions of such policies, continue to be entitled to the benefits thereof. (c) Buyer shall cause the Company and each of its subsidiaries to pay to DKM from time to time any and all Retro-Premium Insurance Amounts within 30 days after receipt by Buyer of an invoice from DKM that DKM has paid Retro-Premium Insurance Amounts. Buyer shall cause the Company and each of its subsidiaries to promptly notify DKM of any claims which would be subject to any insurance coverage maintained by DKM or any of its Affiliates (other than the Company or its subsidiaries) for the benefit of the Company or any of its subsidiaries and based on events or occurrences on or prior to the Closing Date, and shall cause the Company and each of its subsidiaries to keep DKM advised of the status of (and any developments regarding) any such claims, to promptly notify DKM of any new claims following the Closing Date which would be subject to any insurance coverage maintained by DKM or any of its Affiliates (other than any the Company or its subsidiaries) for the benefit of the Company or its subsidiaries and based on events or occurrences on or prior to the Closing Date, and to cooperate with DKM (and its Affiliates) and any insurance carrier in connection with the investigation and defense of any such claims, all in accordance and consistent with standard practices and procedures established from time to time by DKM or any such insurance carrier. (d) No covenant or agreement by any party hereto to indemnify any other party hereto shall release, or be deemed to release, any insurer or indemnitor of any Indemnified Costs which might be the basis for any claim under Article XI of this Agreement. 7.8. INVESTIGATION AND AGREEMENT BY BUYER AND CAPSTAR; NO OTHER REPRESENTATIONS OR WARRANTIES. (a) Buyer acknowledges and agrees that it has made its own inquiry and investigation into, and, based thereon, has formed an independent judgment concerning, the Company and its subsidiaries and their businesses and operations, and Buyer has been furnished with or given full access to such information about the Company and its subsidiaries and their businesses and operations as it has requested. In connection with Buyer's investigation of the Company and its subsidiaries and their businesses and operations, Buyer and its representatives have received from the Company or its representatives certain projections and other forecasts for the Company and its subsidiaries and certain estimates, plan and budget information. Buyer acknowledges and agrees that there are uncertainties inherent in attempting to make such projections, forecasts, estimates, plans and budgets; that Buyer is familiar with such uncertainties; that Buyer is taking full responsibility for making its own evaluation of the adequacy and accuracy of all estimates, projections, forecasts, plans and budgets so furnished to it or its representatives; and that Buyer will not (and will cause Capstar and any of its subsidiaries or other Affiliates or any other person on its behalf not to) assert any claim or cause of action against the Company or its subsidiaries or against the Selling Stockholders (or any of them) or any of their direct or indirect partners, directors, officers, employees, agents, stockholders, Affiliates, consultants, counsel, accountants, investment bankers or representatives with respect thereto, or hold the Company or its subsidiaries or the Selling 57 64 Stockholders (or any of them) or any such other Person liable with respect thereto, except in each case as otherwise set forth in Section 12.2. (b) Buyer agrees that except for the representations and warranties made by the Selling Stockholders, severally and not jointly, that are expressly set forth in Section 3.2 of this Agreement and except for the representations and warranties made by the Company that are expressly set forth in Section 3.1 of this Agreement, neither the Company, nor any of the Selling Stockholders nor any of their respective Affiliates has made and shall not be construed as having made to Buyer or to any representative or Affiliate thereof any representation or warranty of any kind. Without limiting the generality of the foregoing, and notwithstanding any otherwise express representations and warranties made by the Company in Section 3.1 hereof and by the Selling Stockholder in Section 3.2 hereof, Buyer agrees that neither the Company, nor any of the Selling Stockholders nor any of their respective Affiliates makes or has made any representation or warranty to Buyer or to any representative or Affiliate thereof with respect to: (i) any projections, forecasts, estimates, plans or budgets heretofore or hereafter delivered to or made available to Buyer or its counsel, accountants, advisors, lenders, representatives or Affiliates of future revenues, expenses or expenditures, future results of operations (or any component thereof), future cash flows (or any component thereof) or future financial condition (or any component thereof) of the Company or any of its subsidiaries or the future business, operations or affairs of the Company or any of its subsidiaries: and (ii) any other information, statement or documents heretofore or hereafter delivered to or made available to Buyer or its counsel, accountants, advisors, lenders, representatives of Affiliates with respect to the Company or any of its subsidiaries or the business, operations or affairs of the Company or any of its subsidiaries, except to the extent and as expressly covered by (x) a representation and warranty made by the Company and contained in Section 3.1 of this Agreement or (y) a representation and warranty made severally, and not jointly, by the Selling Stockholders and contained in Section 3.2 of this Agreement. (c) The Company and each Selling Stockholder acknowledges and agrees that except for the representations and warranties made by Buyer or Capstar as expressly set forth in this Agreement or any other Transaction Document, neither Buyer nor any of its Affiliates has made and shall not be construed as having made to the Company or any Selling Stockholder or to any Affiliate thereof any representation or warranty of any kind. 58 65 ARTICLE VIII CONDITIONS PRECEDENT 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION. The respective obligations of Buyer, the Company and each Selling Stockholder to effect the transactions contemplated hereby are subject to the satisfaction (or, in the case of the condition specified in the last sentence of Section 8.l(a), the waiver by Buyer) on or prior to the Closing Date of the following conditions: (a) Consents and Approvals. All authorizations, consents, orders, or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any Governmental Entity necessary for the consummation of the transactions contemplated by this Agreement shall have been filed, occurred, or been obtained. The FCC Consents shall have become Final Orders and shall be in form and substance satisfactory to Buyer and shall not impose any material adverse conditions on Buyer, the Company, or the Selling Stockholders; provided, however, that, notwithstanding the foregoing or any other provision herein, any Divestiture Condition shall not constitute a materially adverse condition with respect to Buyer (or any subsidiary or other Affiliate of Buyer) and shall not excuse Buyer from its obligation to consummate the Closing, and the failure of the Closing to occur by reason of the imposition of such a Divestiture Condition or the failure of Buyer to discharge and satisfy or remove such a Divestiture Condition shall be deemed a material breach by Buyer; and, provided further, that neither consummation of, nor the obtaining of the approval of the FCC for or with respect to, the consummation of the Approved Acquisitions or the Purchaser Approved Acquisitions by the Company shall be a condition to the obligations of Buyer hereunder. (b) No Injunctions or Restraints. No temporary restraining order, preliminary or permanent injunction, or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated hereby shall be in effect; provided, however, that if the foregoing impediment could have been removed or otherwise avoided by the satisfaction or removal of a Divestiture Condition, Buyer shall be deemed in material breach of this Agreement if Buyer did not utilize commercially reasonable efforts to satisfy or remove such Divestiture Condition. (c) No Action. No action shall have been taken nor any statute, rule, or regulation shall have been enacted by any Governmental Entity that makes the consummation of the transactions contemplated hereby illegal; provided, however, that if the foregoing impediment could have been removed or otherwise avoided by the satisfaction or removal of a Divestiture Condition, Buyer shall be deemed in material breach of this Agreement if Buyer did not utilize commercially reasonable efforts to satisfy or remove such Divestiture Condition. 8.2. CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to effect the transactions contemplated hereby is subject to the satisfaction of the following conditions unless waived, in whole or in part, by Buyer: 59 66 (a) Representations, Warranties and Covenants. The representations and warranties of the Company and each Selling Stockholder set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date as though made (and they shall be deemed to have been made if the Closing shall have occurred) on and as of the Closing Date (unless otherwise limited to the date of this Agreement) and the Company and each Selling Stockholder shall have performed all obligations required to be performed by it under this Agreement at or prior to the Closing Date, except (i) as a result of changes resulting from the actions or omissions by the Company that were not prohibited by the terms of this Agreement and (ii) to the extent that any inaccuracies in such representations or warranties or any breaches of such performance that have not been waived have not and could not reasonably be expected to have a Material Adverse Effect. Buyer shall have received a certificate to the foregoing effect signed on behalf of the Company by the chief executive officer or by the chief financial officer of the Company and by each of the Selling Stockholders (but only as to themselves) or the Stockholders' Representative and, with respect to the Company's certificate, stating that the Shares and the Series A Preferred Shares as of the Closing Date represent 100% of the issued and outstanding capital stock of the Company and setting forth the Percentage Interests. For the purposes of this Section 8.2(a), the representations, warranties and covenants of the Company and the Selling Stockholders shall be deemed to be true and correct unless the aggregate effect of all breaches thereof has had or could reasonably be expected to have a Material Adverse Effect. (b) Consents Under Agreements. Buyer shall have been furnished with evidence reasonably satisfactory to it of the consent or approval of each person that is a party to the Material Contracts as indicated with an asterisk, if any, and identified in Schedule 3.1(p) and whose consent or approval shall be required in order to permit the consummation of the transactions contemplated hereby or to prevent a breach of such Contract or the creation of a right to terminate such Contract, and such consent or approval shall be in form and substance reasonably satisfactory to Buyer. (c) Legal Opinions. Buyer shall have received from Haythe & Curley, corporate counsel to the Company, Dow, Lohnes & Albertson, FCC counsel to the Company, and from the general counsel of DKM, an opinion dated the Closing Date, in substantially the forms attached as Exhibits E-1, E-2 and E-3 hereto, respectively. (d) Closing Deliveries. All documents, instruments, certificates or other items required to be delivered by the Company and the Selling Stockholders pursuant to Section 9.2 shall have been delivered. 8.3. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND SELLING STOCKHOLDERS. The obligation of the Company and the Selling Stockholders to effect the transactions contemplated hereby is subject to the satisfaction of the following conditions unless waived, in whole or in part, by the Selling Stockholders (or the Stockholders' Representative) and the Company. (a) Representations and Warranties. The representations and warranties of Buyer and Capstar set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made (and they shall be deemed to have been made if the Closing shall have occurred) on and as of the Closing Date (unless otherwise limited to 60 67 the date of this Agreement) and Buyer and Capstar shall have performed in all material respects the obligations required to be performed by them under this Agreement at or prior to the Closing Date. The Selling Stockholders shall have received a certificate to the foregoing effect signed on behalf of Buyer and Capstar by the chief executive officer or by the chief financial officer of Buyer and Capstar. (b) Closing Deliveries. All documents, instruments, certificates or other items required to be delivered by Buyer pursuant to Section 9.2 shall have been delivered. (c) Legal Opinion. The Selling Stockholders shall have received from Vinson & Elkins L.L.P., counsel to Buyer, an opinion dated the Closing Date, in substantially the form attached as Exhibit F hereto. (d) Capstar. If an IPO has been consummated prior to the Closing, the Company and the Stockholders' Representative shall have received a written agreement (in form and substance reasonably satisfactory to the Company and the Stockholders' Representative) that the issuer of the Capstar Stock agrees to be bound by the terms and conditions of this Agreement applicable to Capstar (including without limitation Capstar's indemnification obligations) and such issuer shall, in such agreement, make the representations and warranties as to itself that Capstar made as to itself in Section 3.4. If an IPO has not been consummated prior to the Closing, the Stockholders' Representative shall have received evidence reasonably satisfactory to the Stockholders' Representative and the Company that Capstar is the ultimate parent of Buyer, the entities to be acquired in the Benchmark Acquisition, and the entities set forth on Schedule 3.4(a) on the Closing Date (other than those entities which have been disposed of by Capstar in the ordinary course of business); provided, however, that if Capstar is not the ultimate parent of Buyer, the entities to be acquired in the Benchmark Acquisition, and the entities set forth on Schedule 3.4(a) on the Closing Date (other than those entities which have been disposed of by Capstar in the ordinary course of business), the Stockholders' Representative shall have received from the ultimate parent entity of Capstar, Buyer, the entities to be acquired in the Benchmark Acquisition, and the entities set forth on Schedule 3.4(a) a written agreement (in form and substance reasonably satisfactory to the Company and the Stockholders' Representative) that it agrees to be bound by the terms and conditions of this Agreement applicable to Capstar (including without limitation Capstar's indemnification obligations) and such ultimate parent entity shall, in such agreement, make the representations and warranties as to itself that Capstar made as to itself in Section 3.4. ARTICLE IX CLOSING 9.1. CLOSING. Subject to the satisfaction or waiver of the conditions set forth in Article VIII, the Closing will take place at the offices of Vinson & Elkins L.L.P., Dallas, Texas, at 10:00 a.m., local time (or at such other place and time as Buyer and the Stockholders' Representative may agree), on a date selected by Buyer and the Stockholders' Representative, which date, unless otherwise provided below, shall be no later than the 10th Business Day after the day on which the 61 68 FCC Consents become Final Orders (the "Closing Date"). If Buyer and the Stockholders' Representative fail to select the Closing Date, the Closing Date shall be such 10th Business Day. Notwithstanding the foregoing , but subject to the satisfaction or waiver of the conditions set forth in Article VIII: (a) If Buyer has not consummated an IPO at the time the FCC Consents have become Final Orders, Buyer may, at its option, by written notice to the Company, elect to postpone the Closing to a date which is the tenth Business Day after the consummation of the IPO; provided that the Closing may not be postponed under this Section 9.1(a) beyond January 30, 1998; (b) If Buyer has not consummated an IPO on or prior to January 16, 1998, Buyer may, at its option, by written notice to the Company, elect to postpone the Closing to the date that is the earlier of (i) the 10th Business Day after consummation of an IPO and (ii) May 1, 1998; provided that if Buyer reasonably believes that an IPO will be consummated on or prior to January 30, 1998 and gives written notice to the Company by January 16, 1998 that the Closing will take place on January 30, 1998, the failure to consummate an IPO on or prior to January 30, 1998 will not prevent Buyer from giving another notice on or prior to January 30, 1998 electing to extend the Closing beyond January 30, 1998; (c) In the case of a Station Event (as defined below), (i) if the Cessation Date (as defined below) is less than 60 days after the Event Date (as defined below), Buyer, in its discretion, may extend the Closing Date to a date not later than the 10th day after the Cessation Date, (ii) if the Cessation Date is more than 60, but less than 90, days after the Event Date, Buyer, in its discretion, may extend the Closing Date to a date not later than the first to occur of the 10th Business Day after the Cessation Date or the 90th day (or, if not a Business Day, the next Business Day) after the Event Date, or (iii) if the Cessation Date has not occurred by the 90th day after the Event Date, then on the 90th day (or, if not a Business Day, the next Business Day) after the Event Date, Buyer, in its discretion, shall elect to close the transactions contemplated by this Agreement on the fifth Business Day thereafter or terminate this Agreement; (d) In the case of a Banking Event, Trading Event or Conflict Event, Buyer, in its discretion and upon written notice to the Company, may extend the Closing Date by 10-Business Day increments to a date not to exceed the earlier of the 45th day after the Event Date or the date on which Buyer reestablishes its financing that was materially disrupted by the occurrence of such Banking Event, Trading Event or Conflict Event; provided that Buyer may extend the Closing Date pursuant to this Section 9.1(d) only one time, except that after the initial extension request under this Section 9.1(d), Buyer may request additional 10-Business Day extensions to extend the Closing Date up to the 45th day after the Event Date, if necessary. (e) If a Cure Period has not ended on or before the scheduled Closing Date, the Closing Date shall be extended to the end of the Cure Period; (f) If the Closing does not occur within 20 days prior to the latest date upon which the FCC Consents lapse, the parties shall request approval from the FCC to extend the 62 69 effective period of the FCC Consents so that the Closing contemplated hereunder will not violate any FCC rules or regulations; and (g) If the Company is repairing, replacing or restoring assets as a result of a casualty, damage, confiscation or condemnation pursuant to Section 7.5, the Company may postpone the Closing to a date which is the 10th Business Day after such assets are repaired, replaced or restored. For purposes of this Agreement, a "Banking Event" shall mean that a general moratorium on commercial banking activities in New York, New York, which materially disrupts Buyer's financing of the transactions contemplated in this Agreement, shall have been declared by any federal or state authority; a "Conflict Event" shall mean the occurrence of any major armed conflict involving a substantial participation by the armed forces of the United States of America which materially disrupts Buyer's financing of the transactions contemplated in this Agreement; a "Station Event" shall mean any act of nature (including fires, floods, earthquakes, and storms), calamity, casualty or condemnation or the act or omission to act of any state or federal regulatory agency having jurisdiction over the Stations, that has caused one or more Stations representing an aggregate of at least 5% of the consolidated gross revenues of the Company for the last full 12 calendar months prior to the Station Event not to be providing a signal to its authorized service area substantially similar to the signal provided before such act, omission, calamity, casualty, condemnation or agency action occurred; provided that the signal of any of the Stations shall be deemed to be substantially similar if, following such act, omission, calamity, casualty, condemnation or agency action, its principal community contour under regular or temporary authorization includes a population equal to or greater than seventy percent (70%) of the population in the principal community contour of such Station as operating immediately prior to such act, omission, calamity, casualty, condemnation or agency action (and, with respect to WEEX-AM, as operating under the special temporary authority referred to in Schedule 3.1(g)); a "Trading Event" shall mean that trading generally in securities on the New York Stock Exchange shall have been suspended and such suspension materially disrupts Buyer's financing of the transactions contemplated by this Agreement; an "Event Date" shall mean the date on which a Banking Event, Conflict Event, Station Event, or a Trading Event occurs; and a "Cessation Date" shall mean the date on which a Station Event ends. Pro forma adjustments shall be made for purposes of calculating gross revenues for the 12-month period specified in the definition of "Station Event" with respect to any radio broadcast station acquired during such 12-month period, to assume that such station was acquired at the beginning of such 12-month period and include the gross revenues of such station for the full 12-month period. 9.2. ACTIONS TO OCCUR AT CLOSING. (a) At the Closing, Buyer shall deliver to the Selling Stockholders (or to the Preferred Stockholder, Escrow Agent, the creditors of the Funded Debt, the creditors of the Company Accrued Obligations or DLJ, as indicated) the following: (i) Purchase Price. The Selling Common Stockholders Closing Payment by wire transfer of immediately available funds; 63 70 (ii) Funded Debt. The Funded Debt Amount by wire transfer of immediately available funds to the persons designated in the Funded Debt Payoff Notice; (iii) Company Accrued Obligation Amount. The Company Accrued Obligation Amount by wire transfer of immediately available funds to the persons designated in the Company Accrued Obligation Payoff Notice; (iv) Holdback Amount. The Holdback Amount to the Escrow Agent by wire transfer of immediately available funds; (v) DLJ Amount. The DLJ Amount to DLJ by wire transfer of immediately available funds; (vi) Preferred Stock Payment. The Preferred Stock Payment to the Preferred Stockholder by wire transfer of immediately available funds; (vii) Certificates. The certificates referred to in Section 8.3(a) or another certificate or certificates with exceptions to the matters contemplated in Section 8.2(a); (viii) Opinion. The opinion of counsel referred to in Section 8.3(d). (b) At the Closing, the Company and the Selling Stockholders shall deliver to Buyer the following: (i) Share Certificates. Certificates representing the Shares and the Series A Preferred Shares, duly endorsed in blank or accompanied by stock powers duly endorsed in blank, and otherwise in proper form for transfer; (ii) Certificates. The certificates described in Section 8.2(a) or another certificate or certificates with exceptions to the matters contemplated in Section 8.2(a); (iii) Legal Opinions. The opinions of counsel referred to in Section 8.2(c); (iv) Consents; Acknowledgments. The original of each Consent, if any, pursuant to Section 8.2(b); (v) Resignations. The resignations described in Section 5.7; (vi) Release of Liens. Evidence of the release of all Permitted Liens except Permitted Encumbrances; (vii) Bank Accounts. Evidence of the replacement of the Company's and each of its subsidiaries' bank account signatories with Buyer's designees; 64 71 (c) At the Closing, the Stockholders' Representative and Buyer shall instruct the Escrow Agent to deliver, and it shall deliver, the Deposit Letter of Credit and/or proceeds thereof (and any earnings thereon) to Buyer. (d) At the Closing, Buyer shall receive from each Selling Stockholder a non-foreign affidavit within the meaning of section 1445(b)(2) of the Code. ARTICLE X TERMINATION, AMENDMENT AND WAIVER 10.1. TERMINATION. This Agreement may be terminated prior to the Closing: (a) by mutual consent of Buyer and the Majority-in-Interest of the Selling Stockholders; (b) by either Buyer or the Majority-in-Interest of the Selling Stockholders: (i) if the terminating party is not then in material breach of this Agreement and if there shall have been any breach (which has not been waived) of one or more representations or warranties (on the date when any such representation or warranty was made), covenants or agreements set forth in this Agreement by a party, which breach or breaches, (A) in the case of one or more breaches by the Company or any Selling Stockholder (1) when aggregated with any other such breaches has had or could reasonably be expected to have a Material Adverse Effect, (2) results in the failure of the FCC Consents to have been obtained or become Final Orders prior to the Termination Date and such failure is solely the result of a breach by the Company or any Selling Stockholder of its representations, warranties, covenants or agreements contained in this Agreement, or (3) is a breach of a covenant by the Company or any Selling Stockholders committed with the intent to delay the Closing beyond the Termination Date and which has caused the Closing not to occur by the Termination Date, or (B) in the case of one or more breaches by Buyer or Capstar, constitutes a material breach of this Agreement, which breach, in the case of clause (A) or (B) shall not have been cured within 30 days following receipt by the breaching party of written notice of such breach or such longer period in the event that such breach cannot reasonably be expected to be cured within such 30-day period and such nonterminating party is diligently pursuing such cure, but in no event later than the Termination Date (the "Cure Period"); provided, however, that (x) there shall be no Cure Period for Buyer's failure to obtain all funds on or prior to the Closing Date necessary to pay all funds required under Section 9.2(a)(i) to consummate the transactions contemplated hereby in accordance with the terms and conditions hereof (which failure shall constitute a material breach hereunder) and (y) in no event may the Cure Period be extended beyond the Termination Date without the written consent of the Majority-in-Interest of the Selling Stockholders in the event the breach being cured by Buyer relates to one or more Divestiture Conditions; and provided further that if the Closing shall not have occurred prior to the Termination Date due to (A) Buyer's failure to satisfy or remove a Divestiture Condition, (B) the failure of the FCC Consents to have been obtained or become Final Orders prior to the Termination Date, which failure is solely the result of a breach by Buyer or Capstar of any of its representations, warranties, covenants or agreements contained in 65 72 this Agreement or (C) a breach of a covenant by Buyer or Capstar committed with the intent to delay the Closing beyond the Termination Date and which has caused the Closing not to occur by the Termination Date, such failure or breach shall constitute a material breach of this Agreement by Buyer and Capstar; (ii) if a court of competent jurisdiction or other Governmental Entity shall have issued an order, decree, or ruling or taken any other action (which order, decree, or ruling Buyer and the Company shall use their best efforts to lift and, in the case any such order, decree, ruling or injunction relates to a Divestiture Condition, at the sole cost and expense of Buyer), in each case permanently restraining, enjoining, or otherwise prohibiting the transactions contemplated by this Agreement, and such order, decree, ruling, or other action shall have become final and nonappealable; (iii) if, for any reason, the FCC denies or dismisses any of the Applications and the time for reconsideration or court review under the Communications Act with respect to such denial or dismissal has expired and there is not pending with respect thereto a timely filed petition for reconsideration or request for review; (iv) if, for any reason, any of the Applications is designated for an evidentiary hearing by the FCC (except that if such designation occurs because of facts constituting a material breach, only the party not in breach may terminate); or (v) if the Closing shall not have occurred on or before April 18, 1998 (as extended by the Extension Period or pursuant to Sections 9.1(b), (c), (d), (e) or (g)) (the "Termination Date"); provided, however, that the right to terminate this Agreement under (x) this clause (v) shall not be available to any party whose breach of this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date or (y) any of clauses (i) through (v) of this Section 10.1(b) or under Section 10.1(c)(iii) below shall not be available to Buyer in the event that Buyer's failure to satisfy or remove all Divestiture Conditions, if any, has been the cause of, or resulted in, the matter giving rise to the termination right set forth in the applicable clause or Section 10.1(c)(iii), as the case may be; or (c) by Buyer: (i) pursuant to the provisions of Section 7.5(c); (ii) with respect to a Station Event, at its option, as provided in Section 9.1(c)(iii); or (iii) if the FCC grants any of the Applications with any material adverse conditions (other than any Divestiture Condition) and the time for reconsideration or court review under the Communications Act with respect to such adverse condition has expired and there is not pending with respect thereto a timely filed petition for reconsideration or request for review, except for any Divestiture Condition. 66 73 The right of any party hereto to terminate this Agreement pursuant to this Section 10.1 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any party hereto, any person controlling any such party or any of their respective officers, directors, employees, accountants, consultants, legal counsel, agents, or other representatives whether prior to or after the execution of this Agreement. Notwithstanding anything in the foregoing to the contrary, a party that is in material breach of this Agreement shall not be entitled to terminate this Agreement except, in the case of a default by the Company or any Selling Stockholder, with the consent of Buyer, or in the case of a default by Buyer, with the consent of each Selling Stockholder. 10.2. EFFECT OF TERMINATION. (a) In the event of a termination of this Agreement by either the Majority-in-Interest of the Selling Stockholders or Buyer as provided above, there shall be no liability on the part of any of the Selling Stockholders, the Company or Buyer, except as provided in Section 10.2(c) below and except as provided in this Section 10.2(a) in the event of a breach by Buyer. If this Agreement is terminated by the Majority-in-Interest of the Selling Stockholders pursuant to Section 10.1(b)(i), the parties agree and acknowledge that the Selling Stockholders will suffer damages that are not practicable to ascertain. Accordingly, in such event and if within 30 Business Days after termination of this Agreement by the Majority-in-Interest of the Selling Stockholders pursuant to Section 10.1(b)(i), the Company delivers to Buyer a written demand for liquidated damages, subject to Buyer's receipt of a counterpart of the Release executed by the Selling Stockholders (or the Stockholders' Representative) and the Company, the Company shall be entitled to and Buyer shall cause to be paid to the Company the sum of $10,000,000 in cash as liquidated damages payable by Buyer within three Business Days after receipt of the Company's written demand. As security for payment thereof, Buyer has, concurrently with the execution of this Agreement, entered into the Deposit Escrow Agreement with the Selling Common Stockholders, the Company and the Escrow Agent as provided in Section 2.7. Capstar hereby agrees to be jointly and severally liable with Buyer for all obligations of Buyer with respect to liquidated damages payable by Buyer to the Company under this Section 10.2(a) and all other fees and expenses payable by Buyer under Section 12.7(f), the Deposit Escrow Agreement and the Indemnification Escrow Agreement. The parties agree that the foregoing liquidated damages are reasonable considering all the circumstances existing as of the date hereof and constitute the parties' good faith estimate of the actual damages reasonably expected to result from the termination of this Agreement by the Majority-in-Interest of the Selling Stockholders pursuant to Section 10.1(b)(i). The Selling Stockholders and the Company agree that, to the fullest extent permitted by law, the Company's receipt in full of such $10,000,000 in cash as liquidated damages as provided in this Section 10.2 and any and all interest, fees and expenses pursuant to Section 12.7(f) shall be the Company's and the Selling Stockholders' sole and exclusive remedy if the Closing does not occur with respect to any damages whatsoever that the Company or the Selling Stockholders may suffer or allege to suffer as a result of any claim or cause of action asserted by the Company or the Selling Stockholders relating to or arising from breaches of the representations, warranties or covenants of Buyer contained in this Agreement and to be made or performed at or prior to the Closing other than as provided in Section 10.2(c). If this Agreement is terminated by the Majority-in-Interest of the Selling Stockholders pursuant to Section 10.1(b)(i), upon Buyer's receipt of a counterpart of the Release executed by the Selling Stockholders (or the Stockholders' Representative) and the Company, Buyer shall (i) pay $10,000,000 in cash to the 67 74 Company or (ii) Buyer and the Stockholders' Representative shall immediately instruct the Escrow Agent to release the Deposit Letter of Credit and/or any proceeds thereof relating thereto (including all earnings thereon) to the Company, in which case Buyer shall remain obligated to cause $10,000,000 in cash to be paid to the Company under the Letter of Credit or otherwise within 3 Business Days after Buyer's receipt of a counterpart of the Release. If this Agreement is terminated either by Buyer or the Selling Stockholders pursuant to any provision of Section 10.1 other than a termination by the Majority-in-Interest of the Selling Stockholders pursuant to Section 10.1(b)(i), then Buyer and the Stockholders' Representative shall instruct the Escrow Agent to release the Deposit Letter of Credit (including any earnings thereon) to Buyer. If the Company delivers to the Escrow Agent a counterpart of the Release in accordance with Section 2(b)(ii) of the Deposit Escrow Agreement, Buyer shall be deemed to have received a counterpart of the Release for purposes of this Section 10.2(a). (b) As a condition of payment, and upon receipt of the $10,000,000 in cash (and all other amounts required pursuant to Section 10.2(a) and the Deposit Escrow Agreement) as liquidated damages under this Section 10.2 and all other amounts required pursuant to Section 12.7(f), the Company and the Selling Stockholders hereby irrevocably and unconditionally release, acquit, and forever discharge Buyer and its successors, assigns, officers, directors, employees, agents, stockholders, subsidiaries, parent companies and other affiliates (corporate or otherwise) (the "Released Parties") of and from any and all Released Claims arising on or before the receipt by the Company of such $10,000,000 in cash and arising out of, based upon, resulting from or relating to the negotiation, execution, performance, breach or otherwise related to or arising out of the Transaction Documents or any agreement entered into in connection therewith or related thereto except for Sections 5.3(b), 7.4, 12.7 and this Section 10.2. "Released Claims" as used herein shall mean any and all charges, complaints, claims, causes of action, promises, agreements, rights to payment, rights to any equitable remedy, rights to any equitable subordination, demands, debts, liabilities, express or implied contracts, obligations of payment or performance, rights of offset or recoupment, accounts, damages, costs, losses or expenses (including attorneys' and other professional fees and expenses) held by any party hereto, whether known or unknown, matured or unmatured, suspected or unsuspected, liquidated or unliquidated, absolute or contingent, direct or derivative. The Release to be delivered pursuant to Section 10.2(a) shall be in addition to the provisions of this Section 10.2(b). (c) Termination of this Agreement pursuant to Section 10.1 shall terminate all obligations of the parties to each other hereunder, except for the obligations and agreements under Article I and Sections 5.3(b), 7.4, 10.2, 12.2, 12.7, 12.8, 12.9, 12.10, 12.11, 12.12, 12.13, 12.17, 12.18, 12.19, and 12.20 and except, in the event of a termination of this Agreement by Buyer pursuant to Section 10.1(b)(i), for any liability arising out of the breach by the Company and/or any Selling Stockholder of its respective representations, warranties, covenants or agreements in this Agreement or any other Transaction Document; provided, however, that the aggregate liability of the Company and the Selling Stockholders, collectively, in connection with all such breaches by the Company and/or the Selling Stockholders (or any of them) if this Agreement is terminated by Buyer shall be limited to $10,000,000 in the aggregate (other than (i) with respect to any such breach constituting a fraudulent act or omission by the Company and/or any Selling Stockholder in which event such limit on liability with respect to such breach shall not apply to the Company or such 68 75 Selling Stockholder, as the case may be, or (ii) with respect to the Company or a Selling Stockholder, a breach (a "Refusal Breach") by the Company or such Selling Stockholder consisting of its refusal to deliver the certificate required in Section 8.2(a) and, with respect to a Selling Stockholder, a refusal to sell its Shares or Series A Preferred Shares, as applicable, in accordance with and subject to the terms and conditions hereof, notwithstanding that the Company's or such Selling Stockholder's conditions to close the transactions contemplated by this Agreement contained in Article VIII hereof have been satisfied or that Buyer stands ready, willing and able to satisfy such conditions but for such breach, in which event such limit on liability with respect to such breach shall not apply to the Company or such Selling Stockholder); provided, further, however, that if the Closing does not occur (1) in no event shall the Selling Stockholders (or any of them) be obligated or liable for any costs, expenses, liabilities, damages or other Buyer Indemnified Costs of any kind whatsoever as a result of any claim or cause of action asserted by Buyer, Capstar or any Affiliate thereof relating to or arising from one or more breaches of any representation, warranty, covenant or agreement of the Company or the Selling Stockholders contained in this Agreement or any other Transaction Document other than and only to the extent of a breach by such Selling Stockholder of its several representations, warranties, covenants or agreements set forth in this Agreement or a Refusal Breach by such Selling Stockholder and (2) in no event shall the Company be obligated or liable for any costs, expenses, liabilities, damages or other Buyer Indemnified Costs of any kind whatsoever as a result of any claim or cause of action asserted by Buyer, Capstar or any Affiliate thereof relating to or arising from one or more breaches of any representation, warranty, covenant or agreement of the Selling Stockholders (or any of them) contained in this Agreement or any other Transaction Document. Notwithstanding the foregoing or any other provision herein to the contrary, neither the Company nor any Selling Stockholder shall have any obligation or liability if this Agreement is terminated by Buyer relating to or arising out of any breach of any representation, warranty, covenant or agreement of the Company or any Selling Stockholder contained in this Agreement which is discovered by Buyer after the date of this Agreement as a result of the investigations performed by or on behalf of Buyer or its representatives after the date hereof pursuant to Section 4.3. 10.3. RETURN OF DOCUMENTATION. Following a termination in accordance with Section 10.1, Buyer shall return all agreements, documents, contracts, instruments, books, records, materials and all other information of the Company or any of its subsidiaries or Affiliates or any Selling Stockholder provided by any of them, or by any representative of any of them to Buyer, Capstar or any of their subsidiaries or other Affiliates or any representatives of Buyer, Capstar or any of their subsidiaries or other Affiliates in connection with the transactions contemplated by this Agreement, and the Company and the Selling Stockholders shall return all agreements, documents, contracts, instruments, books, records, materials and all other information of Buyer or Capstar provided by Buyer, Capstar or any representative thereof to the Company or any of the Selling Stockholders in connection with the transactions contemplated by this Agreement. 10.4. SOLE AND EXCLUSIVE REMEDY. Following termination of this Agreement or, if the Closing does not otherwise occur, each party hereto acknowledges and agrees that such party's sole and exclusive remedy with respect to any and all claims for any breach or liability under this Agreement or otherwise relating to the subject matter of this Agreement and the transactions contemplated hereby shall be solely in accordance with, and limited by the right to terminate this Agreement pursuant to Section 10.1 and the effect of any such termination pursuant to Section 10.2 69 76 hereof; provided that nothing in this Section 10.4 shall prevent Buyer from electing to not terminate this Agreement and to seek specific performance under Section 12.5. ARTICLE XI INDEMNIFICATION 11.1. INDEMNIFICATION OF BUYER. Subject to the overall limitations, minimum amounts, time and other limitations set forth in Sections 11.6, 11.7 and 11.8, and subject to the provisions of Section 12.2 below, from and after the Closing Date: (a) Each Selling Common Stockholder, jointly and severally, agrees to indemnify and hold harmless the Buyer Indemnified Parties from and against any and all Buyer Indemnified Costs which any of the Buyer Indemnified Parties may sustain, or to which any of Buyer Indemnified Parties may be subjected, relating to or arising out of any breach by the Company of a representation, warranty, covenant or agreement of the Company in this Agreement or any other Transaction Document. (b) Each Selling Stockholder severally (and not jointly) agrees to indemnify and hold harmless each of the Buyer Indemnified Parties from and against any and all Buyer Indemnified Costs which any of the Buyer Indemnified Parties may sustain, or to which any of the Buyer Indemnified Parties may be subjected, arising out of any breach by such Selling Stockholder of any of the representations, warranties, covenants or agreements of such Selling Stockholder in this Agreement or any other Transaction Documents. 11.2. INDEMNIFICATION OF SELLING STOCKHOLDERS. Buyer agrees to indemnify and hold harmless each of the Selling Stockholder Indemnified Parties from and against any and all Selling Stockholder Indemnified Costs. 11.3. DEFENSE OF THIRD-PARTY CLAIMS. An Indemnified Party shall give prompt written notice to any entity or person who is obligated to provide indemnification under Section 11.1, 11.2, 5.3(b), 6.3 or 12.21 hereof (an "Indemnifying Party") of the commencement or assertion of any action, proceeding, demand, or claim by a third party including without limitation any taxing authority (collectively, a "third-party action") in respect of which such Indemnified Party shall seek indemnification hereunder, which notice shall specify in reasonable detail the nature of the action, proceeding, demand or claim. Any failure so to notify an Indemnifying Party shall not relieve such Indemnifying Party from any liability that it, he, or she may have to such Indemnified Party under this Article XI unless the failure to give such notice materially and adversely prejudices such Indemnifying Party. The Indemnifying Party shall have the right to assume control of the defense of, settle, or otherwise dispose of such third-party action or to prove the availability of remedies under Section 11.7 on such terms as it deems appropriate; provided, however, that: (a) The Indemnified Party shall be entitled, at its own expense, to participate in the defense of such third-party action (provided, however, that the Indemnifying Parties shall pay 70 77 the attorneys' fees of the Indemnified Party if (i) the employment of separate counsel shall have been authorized in writing by all Indemnifying Parties in connection with the defense of such third-party action, (ii) the Indemnifying Parties shall not have employed counsel reasonably satisfactory to the Indemnified Party to have charge of such third-party action, or (iii) the Indemnified Party's counsel shall have advised the Indemnified Party in writing, with a copy delivered to the Indemnifying Party, that there is a material conflict of interest that could violate applicable standards of professional conduct to have common counsel); (b) The Indemnifying Party shall obtain the prior written approval of the Indemnified Party before entering into or making any settlement, compromise, admission, or acknowledgment of the validity of such third-party action or any liability in respect thereof if, pursuant to or as a result of such settlement, compromise, admission, or acknowledgment, injunctive or other equitable relief would be imposed against the Indemnified Party or if, in the reasonable opinion of the Indemnified Party, such settlement, compromise, admission, or acknowledgment could have a material adverse effect on its business; (c) No Indemnifying Party shall consent to the entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by each claimant or plaintiff to each Indemnified Party of a release from all liability in respect of such third-party action; and (d) The Indemnifying Party shall not be entitled to control (but shall be entitled to participate at its own expense in the defense of), and the Indemnified Party shall be entitled to have sole control over, the defense or settlement, compromise, admission, or acknowledgment of any third-party action (i) as to which the Indemnifying Party fails to assume the defense within a reasonable length of time; provided that such reasonable length of time (in the case of the Selling Common Stockholders) shall not be deemed to have begun until Buyer shall have complied with its obligations under Section 11.7 or (ii) to the extent the third-party action seeks an order, injunction, or other equitable relief against the Indemnified Party which, if successful, would materially adversely affect the business, operations, assets, or financial condition of the Indemnified Party; provided, however, that the Indemnified Party shall make no settlement, compromise, admission, or acknowledgment that would give rise to liability on the part of any Indemnifying Party without the prior written consent of such Indemnifying Party. (e) If the Indemnifying Party is a Selling Common Stockholder (other than with respect to a breach by an individual Selling Common Stockholder only), the Stockholders' Representative shall have the exclusive right, power and authority under Section 12.17 to take any and all actions of the Indemnifying Party pursuant to this Agreement. The parties hereto shall extend reasonable cooperation in connection with the defense of any third-party action pursuant to this Article XI and, in connection therewith, shall furnish such records, information, and testimony and attend such conferences, discovery proceedings, hearings, trials, and appeals as may be reasonably requested. 71 78 11.4. DIRECT CLAIMS. In any case in which an Indemnified Party seeks indemnification hereunder which is not subject to Section 11.3 because no third-party action is involved, the Indemnified Party shall notify the Indemnifying Party in writing of any Indemnified Costs which such Indemnified Party claims are subject to indemnification under the terms hereof and describe in reasonable detail the nature of such claims. Subject to the limitations set forth in Sections 11.6(b) and 12.1, the failure of the Indemnified Party to exercise promptness in such notification shall not amount to a waiver of such claim unless the resulting delay materially prejudices the position of the Indemnifying Party with respect to such claim. 11.5. ESCROW. On the Closing Date, Buyer, the Stockholders' Representative and the Escrow Agent will enter into the Indemnification Escrow Agreement in accordance with which Buyer shall, at Closing, deposit an amount of the Purchase Price equal to $5,000,000 (the "Holdback Amount") with the Escrow Agent. 11.6. LIMITATIONS. Subject to Sections 11.7, 11.8, and 12.2 hereof, the following provisions of this Section 11.6 shall apply to indemnification claims under this Article XI: (a) Minimum Loss. No Selling Stockholder Indemnifying Party shall be required to indemnify a Buyer Indemnified Party for Capped Buyer Indemnified Costs unless and until the aggregate amount of such Capped Buyer Indemnified Costs for which the Buyer Indemnified Party is otherwise entitled to indemnification pursuant to this Article XI exceeds $850,000 (the "Minimum Loss"). After the Minimum Loss is exceeded, the Buyer Indemnified Party shall be entitled to be paid the entire amount of its Capped Buyer Indemnified Costs in excess of the amount of the Minimum Loss, subject to the limitations on recovery and recourse set forth in this Section 11.6 and in Sections 11.7 and 11.8 and subject to the provisions of Section 12.2. For purposes of this Section 11.6(a), breaches of the Federal Income Tax Representation shall be included in establishing the Minimum Loss. A Selling Stockholder Indemnified Party shall be entitled to be paid the entire amount of its Selling Stockholder Indemnified Costs without regard to any Minimum Loss threshold. (b) Limitation as to Time. No Indemnifying Party shall be liable for any Capped Buyer Indemnified Costs pursuant to this Article XI unless a written claim for indemnification in accordance with Section 11.3 or 11.4 is given by the Indemnified Party to the Indemnifying Party with respect thereto on or before the date which is 18 months after the Closing Date, except that this time limitation shall not apply to any claims pursuant to Section 12.2. (c) Other Indemnified Costs. Except as otherwise provided in Section 11.6(a) with respect to the Federal Income Tax Representation, the provisions of clauses (a) and (b) of this Section 11.6 shall be applicable to Capped Buyer Indemnified Costs only and shall not be applicable to any Unlimited Claims. (d) No Contribution. The Selling Stockholders, and not the Company (which will be released as of the Closing of its obligations under Section 11.1), shall be liable for any Buyer Indemnified Costs sustained by any Buyer Indemnified Parties subject to the terms, limitations and conditions of this Article XI. In that event, the Selling Stockholders shall not be entitled to 72 79 contribution or any other payments from the Company for any Buyer Indemnified Costs that the Selling Stockholders are obligated to pay. (e) Sole and Exclusive Remedy. Each party hereto acknowledges and agrees that, notwithstanding any other provision herein to the contrary, such party's sole and exclusive remedy with respect to Buyer Indemnified Costs and Selling Stockholders Indemnified Costs and any and all other claims relating to the subject matter of this Agreement and the transactions contemplated hereunder or hereby and any other Transaction Document shall be in accordance with, and limited by, the provisions set forth in this Article XI. 11.7. ALTERNATE REMEDIES. After the Closing, a Buyer Indemnified Party seeking indemnification for any Buyer Indemnified Costs arising under this Agreement or any other Transaction Documents shall be required to enforce available remedies under the Company's Acquisition Documents (including any escrows) prior to seeking or receiving indemnification under this Agreement. Buyer shall notify and keep the Selling Stockholders informed as to all material developments with respect to availability of and Buyer's actions to enforce any and all available remedies under the Acquisition Documents. At the time a claim is made by a Buyer Indemnified Party against a third party under any Acquisition Documents, the Buyer Indemnified Party may also make a claim under this Agreement as provided in Section 11.3; provided that the Buyer Indemnified Party shall not be entitled to receive indemnification under this Agreement until all remedies, if any, under the Acquisition Documents have been exhausted. After all remedies, if any, under any Acquisition Documents have been exhausted, the Buyer Indemnified Party shall be entitled to payment of any remaining indemnification claim pursuant to the terms of this Article XI and the Indemnification Escrow Agreement with respect to any claim by a Buyer Indemnified Party against a Selling Stockholder for Buyer Indemnified Costs payable under this Article XI. 11.8. RECOURSE AGAINST ESCROWED FUNDS. (a) Capped Buyer Indemnified Costs. With respect to any claim by a Buyer Indemnified Party against any Selling Common Stockholder for Capped Buyer Indemnified Costs payable under Section 11.1, the Buyer Indemnified Party shall seek and be entitled to payment only out of the Holdback Amount (and not from any Selling Stockholder) for all amounts due to the Buyer Indemnified Party from such Selling Common Stockholder with respect to such claim in an amount not to exceed the Maximum Escrow Amount (as defined below) of such Selling Common Stockholder. In no event shall the Buyer Indemnified Party be entitled to be paid out of the Holdback Amount in respect of claims against a Selling Common Stockholder for Capped Buyer Indemnification Costs in an amount in excess of such Selling Common Stockholder's Maximum Escrow Amount. In no event shall any Buyer Indemnified Party be entitled to any payment in respect of Capped Buyer Indemnification Costs other than from the Holdback Amount. In the event of any claim by a Buyer Indemnified Party against one or more Selling Stockholders for Capped Buyer Indemnified Costs payable under Section 11.1, each Selling Stockholder's Maximum Escrow Amount shall be reduced (but not below zero) by such Selling Stockholder's pro rata portion, determined in accordance with such Selling Stockholder's Percentage Interest, of the amount paid out of the Holdback Amount in respect of such claim (or, if applicable, such Selling Stockholder's Maximum Escrow Amount shall be reduced (but not below zero), and, to the extent that the portion 73 80 of such claim for which such Selling Stockholder would otherwise be liable exceeds such Selling Stockholder's Maximum Escrow Amount as of the time of payment of such claim out of the Holdback Amount, then, notwithstanding any other provision in this Agreement to the contrary, the Buyer Indemnified Party shall not be entitled to seek or receive payment from such Selling Stockholder (or any other Selling Stockholder) directly or otherwise for such excess; provided, with respect to indemnification claims payable to Buyer pursuant to Section 11.1(a), that the Buyer Indemnified Party shall then be entitled to seek the remaining amount of such claim only out of the Holdback Amount from such other Selling Stockholders whose respective Maximum Escrow Amounts exceed zero, pro rata based upon the Maximum Escrow Amounts of such Selling Stockholders as of the time of payment of such claim, until such claim has been paid in full or each Selling Stockholder's Maximum Escrow Amount has been reduced to zero. The parties hereto intend and agree that, notwithstanding anything to the contrary stated this Article XI or otherwise, the Buyer Indemnified Parties' sole recourse against the Selling Stockholders for indemnification for Capped Buyer Indemnified Costs shall be limited to the Holdback Amount and governed by, and subject to the terms and provisions of, the Indemnification Escrow Agreement, and that the maximum aggregate liability for the Selling Stockholders under this Article XI (other than in respect of Unlimited Claims) shall in no event exceed the Holdback Amount. (b) Other Buyer Indemnified Costs. With respect to any claim by a Buyer Indemnified Party against any Seller Stockholder for Unlimited Claims, the Buyer Indemnified Party shall, subject to the terms and conditions of this Agreement, first seek payment out of the Holdback Amount; provided, that if such Selling Stockholder's Maximum Escrow Amount has been reduced to zero, the Buyer Indemnified Party shall be entitled to seek payment from such Selling Stockholder directly for all amounts remaining due or thereafter becoming due to the Buyer Indemnified Party from such Selling Stockholder for Unlimited Claims. Notwithstanding the foregoing or any other provision (including without limitation Section 11.1), the liability of a Selling Stockholder arising from a breach by the Company or such Selling Stockholder of any and all Unlimited Claims (except for such Selling Stockholder's several representations and warranties in Section 3.2(a)) shall be limited (i) to such Selling Stockholder's pro rata portion of each such Unlimited Claim (based upon its respective Percentage Interest) and (ii) in the aggregate with respect to all Unlimited Claims an amount equal to such Selling Stockholder's Percentage Interest multiplied by the Purchase Price. 74 81 (c) For purposes of this Section 11.8, a Selling Stockholder's "Maximum Escrow Amount" shall mean, at any time, an amount equal to such Selling Stockholder's Percentage Interest of the Holdback Amount (as reduced from time to time), less all amounts previously deducted from such Selling Stockholder's Maximum Escrow Amount. 11.9. INSTRUCTIONS TO ESCROW AGENT. Each Selling Stockholder hereby covenants and agrees that at any time such Selling Stockholder is obligated to indemnify a Buyer Indemnified Party for Buyer Indemnified Costs under this Article XI and such Buyer Indemnified Costs are to be paid out of the Holdback Amount, such Selling Stockholder or the Stockholder's Representative will execute and deliver to the Escrow Agent written instructions to release to the Buyer Indemnified Party such portion of the Holdback Amount as is necessary to indemnify the Buyer Indemnified Party for such Buyer Indemnified Costs. Buyer hereby covenants and agrees that at any such time as any Buyer Indemnified Party is no longer entitled to receive the Holdback Amount, Buyer shall execute and deliver to the Escrow Agent written instructions to release to the Selling Stockholders the balance, if any, of the Holdback Amount. ARTICLE XII GENERAL PROVISIONS 12.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. Regardless of any investigation at any time made by or on behalf of any party hereto or of any information any party may have in respect thereof, each of the representations and warranties made in this Agreement or any other Transaction Document shall survive the Closing except as provided below. The representations and warranties set forth in this Agreement or any other Transaction Document shall terminate on the date that is 18 months after the Closing Date except (a) that the Federal Income Tax Representation shall terminate on the date of expiration of the applicable statute of limitations, (b) the representations and warranties set forth in Section 3.2(a) and the last sentence of Section 3.1(c) shall survive indefinitely, and (c) as provided in the next succeeding sentence. Following the date of termination of a representation or warranty, no claim can be brought with respect to a breach of such representation or warranty, but no such termination shall affect any claim for a breach of a representation or warranty that was asserted in writing pursuant to Section 11.3 or 11.4 hereof before the date of termination. To the extent that such are performable after the Closing, each of the covenants and agreements contained in this Agreement and each other Transaction Document shall survive the Closing indefinitely, and a party shall remain liable, to the extent set forth in Article XI, for breaches of covenants prior to the Closing. 12.2. NO WAIVER RELATING TO CLAIMS FOR FRAUD. The liability of any party under this Article XI shall be in addition to, and not exclusive of, any other liability that such party may have at law or equity based on such party's fraudulent acts or omissions. None of the provisions set forth in this Agreement, including but not limited to the provisions set forth in Sections 11.6, 11.7 or 11.8, shall be deemed a waiver by any party to this Agreement of any right or remedy which such party may have at law or equity based on any other party's fraudulent acts or omissions, nor shall any such 75 82 provisions limit, or be deemed to limit, (a) the amounts of recovery sought or awarded in any such claim for fraud, (b) the time period during which a claim for fraud may be brought, or (c) the recourse which any such party may seek against another party with respect to a claim for fraud; provided, that with respect to such rights and remedies at law or equity, the parties further acknowledge and agree that none of the provisions of this Section 12.2, nor any reference to this Section 12.2 throughout this Agreement, shall be deemed a waiver of any defenses which may be available in respect of actions or claims for fraud, including but not limited to, defenses of statutes of limitations or limitations of damages. 12.3. AMENDMENT AND MODIFICATION. This Agreement may not be amended except by an instrument in writing signed by the parties hereto or by Buyer, the Company and the Stockholders' Representative (except as set forth in Section 12.17). 12.4. WAIVER OF COMPLIANCE. Any failure of Buyer on the one hand, or the Company or a Selling Stockholder, on the other hand, to comply with any obligation, covenant, agreement, or condition contained herein may be waived only if set forth in an instrument in writing signed by the party or parties to be bound by such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement, or condition shall not operate as a waiver of, or estoppel with respect to, any other failure. 12.5. SPECIFIC PERFORMANCE. The parties recognize that in the event the Company or a Selling Stockholder should refuse to perform under the provisions of this Agreement, monetary damages alone will not be adequate. Buyer shall therefore be entitled, in addition to any other remedies which may be available, including money damages, to obtain specific performance of the terms of this Agreement. In the event of any action to enforce this Agreement specifically, the Company and the Selling Stockholders hereby waive the defense that there is an adequate remedy at law. 12.6. SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of applicable law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. The parties further agree that any such court or arbitration panel of competent jurisdiction is expressly authorized to modify any such unenforceable provision of this Agreement in lieu of severing such unenforceable provision from this Agreement in its entirety, whether by rewriting the offending provision, deleting any or all of the offending provision, adding additional language to this Agreement, or by making such other modifications as it deems warranted to carry out the intent and agreement of the parties as embodied herein to the maximum extent permitted by law. The parties expressly agree that this Agreement as so modified by a court or arbitration panel of competent jurisdiction shall be binding upon and enforceable against each of them. 12.7. EXPENSES AND OBLIGATIONS. Except as otherwise expressly provided in this Agreement (including without limitation Sections 5.2, 5.3, 6.2, 6.3, 7.1 and 7.3) or any other Transaction Document, if the Closing does not occur, all costs and expenses incurred by the parties hereto in connection with the consummation of the transactions contemplated hereby shall be borne solely and entirely by the party which has incurred such expenses. If the Closing does occur, then, 76 83 except as otherwise expressly provided in this Agreement (including without limitation Sections 5.2, 5.3, 6.2, 6.3, 7.1 and 7.3) or any other Transaction Document, all Transaction Costs and all costs and expenses incurred by the Selling Stockholders, on the one hand, and Buyer, on the other, in connection with such consummation shall be borne solely and entirely by the Selling Stockholders and Buyer, respectively. Notwithstanding the foregoing, (a) the fees payable to the Escrow Agent shall be borne as provided in the Indemnification Escrow Agreement and the Deposit Escrow Agreement, (b) subject to Section 7.1, the filing fees incurred with the Applications shall be borne by Buyer, (c) the brokerage fee payable to any person retained by Buyer or any of its subsidiaries or other Affiliates, including Media Venture Partners, shall be borne by Buyer, and the Selling Stockholders shall pay the brokerage fee of any person retained by the Company or any of the Selling Stockholders, including without limitation DLJ, (d) all sales, documentary or stamp taxes arising out of the transactions contemplated by this Agreement shall be paid one-half by Buyer and one-half by the Selling Stockholders, (e) all fees, costs and other expenses of any kind incurred by or on behalf of the Company or any of its subsidiaries in connection with, or relating to, the IPO or any other financing activity of Buyer, Capstar or any Affiliate thereof (including without limitation all accounting and legal fees and expenses) shall be the responsibility of and paid by Buyer and Capstar and (f) in the event of a dispute regarding the entitlement of the Company to liquidated damages under Section 10.2(a), the Company, on the one hand, or Buyer and Capstar, jointly and severally, on the other hand, shall pay to the prevailing party any and all reasonable legal fees and expenses incurred by such party in connection with such dispute and an amount in cash equal to interest accruing on the $10,000,000 liquidated damages from and after the date which is three Business Days after the delivery of a fully executed copy of the Release to Buyer (if the Company is the prevailing party) or the delivery of a Final Order to the Escrow Agent (if Buyer is the prevailing party) and until such $10,000,000 is paid to Buyer or the Company, as applicable, at the per annum rate equal to the prime rate of NationsBank, N.A. (or its successors), as in effect from time to time on the basis of a 360-day year and the actual number of days elapsed. Notwithstanding anything herein to the contrary, each Selling Stockholder shall be liable only for its or his or her pro rata share, based on its or his or her Percentage Interest on the Closing Date, of all costs and expenses of the Company (including but not limited to Transaction Costs) for which the Selling Stockholders are obligated to pay under this Section 12.7 (collectively, "Seller Company Costs") and if and to the extent that at any time prior to or subsequent to the Closing any Selling Stockholder incurs any Seller Company Costs which, when added to all Seller Company Costs theretofore incurred by such Selling Stockholder, are in excess of such Selling Stockholder's pro rata share, based on its or his or her Percentage Interest on the Closing Date, of the aggregate amount of all Seller Company Costs outstanding at such time, each of the other Selling Stockholders hereby agrees to pay to such Selling Stockholder its or his or her pro rata share, based upon its or his or her Percentage Interest on the Closing Date, of such Seller Company Costs within 10 days after receiving evidence of such Selling Stockholder's payment of such costs and expenses. 12.8. PARTIES IN INTEREST. This Agreement shall be binding upon and, except as provided below, inure solely to the benefit of each party hereto and their successors and assigns, and nothing in this Agreement, except as set forth below, express or implied, is intended to confer upon any other person (other than the Indemnified Parties as provided in Article XI) any rights or remedies of any nature whatsoever under or by reason of this Agreement. 77 84 12.9. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) If to Buyer, to: Capstar Acquisition Company, Inc. 600 Congress Avenue, Suite 400 Austin, Texas 78701 Attention: William S. Banowsky, Jr. Facsimile: (512) 404-6850 with copies to: Vinson & Elkins L.L.P. 3700 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 Attention: Michael D. Wortley Facsimile: (214) 220-7716 Capstar Broadcasting Partners 600 Congress Avenue, Suite 1400 Austin, Texas 78701 Attention: William S. Banowsky, Jr. Facsimile: (512) 404-6850 Liebowitz & Associates, P.A. Suite 1450 Suntrust International Center One Southeast Third Avenue Miami, Florida 33131-1715 Attention: Matthew L. Liebowitz Facsimile: (305) 530-9417 (b) If to the Company, to: 400 Perimeter Center Terrace, N.E., Suite 410 Atlanta, Georgia 30346 Attention: President Facsimile: (770) 391-0260 with copies to: 78 85 The Dyson-Kissner-Moran Corporation 565 Fifth Avenue New York, New York 10017 Attention: Secretary and General Counsel Facsimile: (212) 599-5105 and Haythe & Curley 237 Park Avenue New York, New York 10017 Attention: Joseph J. Romagnoli, Esq. Facsimile: (212) 682-0200 (c) If to the Stockholders' Representative, to: The Dyson-Kissner-Moran Corporation 565 Fifth Avenue New York, New York 10017 Attention: Secretary and General Counsel Facsimile: (212) 599-5105 and Haythe & Curley 237 Park Avenue New York, New York 10017 Attention: Joseph J. Romagnoli, Esq. Facsimile: (212) 682-0200 (d) If to a Selling Stockholder, to such Selling Stockholder at the address set forth for such Selling Stockholder on Schedule 12.9 to this Agreement. 79 86 Any of the above addresses may be changed at any time by notice given as provided above; provided, however, that any such notice of change of address shall be effective only upon receipt. All notices, requests or instructions given in accordance herewith shall be deemed received on the date of delivery, if hand delivered, on the date of receipt, if telecopied, three Business Days after the date of mailing, if mailed by registered or certified mail, return receipt requested, and one Business Day after the date of sending, if sent by Federal Express or other recognized overnight courier. 12.10. COUNTERPARTS. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 12.11. ENTIRE AGREEMENT. This Agreement (which term shall be deemed to include the exhibits and schedules hereto and the other certificates, documents and instruments delivered hereunder) and the Confidentiality Agreement constitute the entire agreement of the parties hereto and supersede all prior agreements, letters of intent and understandings, both written and oral, among the parties with respect to the subject matter hereof. There are no representations or warranties, agreements, or covenants other than those expressly set forth in this Agreement. 12.12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAW PROVISIONS. 12.13. PUBLIC ANNOUNCEMENTS. No party hereto shall issue any press release or make any public statement with respect to this Agreement or the transactions contemplated hereby without the prior consent of Buyer and the Company, except that any party may make any disclosure required by applicable law (including federal securities laws and the Communications Act) if it determines in good faith that it is required to do so and, with respect to the first such disclosure, provides Buyer and the Company with prior notice and a reasonable opportunity to review the disclosure. In addition, except as provided in this Section 12.13, Buyer and Capstar shall comply with the Confidentiality Agreement and shall not contact (orally or in writing) any employees, advertisers or service providers at any of the radio stations of the Company and each of its subsidiaries with respect to the transactions contemplated in this Agreement without the prior express consent of an officer of the Company. The terms of this Section 12.13 shall terminate upon the Closing. 12.14. ASSIGNMENT. Neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned by any of the parties hereto, whether by operation of law or otherwise; provided, however, that upon notice to the Selling Stockholders and without releasing Buyer from any of its obligations or liabilities hereunder, (a) Buyer may assign or delegate any or all of its rights or obligations under this Agreement to any Affiliate thereof which is a direct or indirect subsidiary of Capstar so long as such assignee, as a condition to such assignment, agrees in writing (in form and substance reasonably satisfactory to the Company and the Stockholders' Representative), to be bound by the terms and conditions of this Agreement applicable to Buyer and shall, in such writing, 80 87 make the representations and warranties of Buyer set forth in Section 3.3, and provided that such assignment will not delay or cause any delay in obtaining the FCC Consents, or require the obtaining of a waiver from the FCC or the disposition of any interest in any media or communications property or interest (including, without limitation, any of the Stations) and (b) nothing in this Agreement shall limit Buyer's ability to make a collateral assignment of its rights under this Agreement to any institutional lender that provides funds to Buyer without the consent of the Selling Stockholders or the Company. The Company and the Selling Stockholders (or the Stockholders' Representative) shall execute an acknowledgment of such collateral assignments in such forms as Buyer's lenders may from time to time reasonably request; provided, however, that unless written notice is given to the Company and the Selling Stockholders that any such collateral assignment has been foreclosed upon, the Company and the Selling Stockholders shall be entitled to deal exclusively with Buyer as to any matters arising under this Agreement or any of the other agreements delivered pursuant hereto. In the event of such an assignment, the provisions of this Agreement shall inure to the benefit of and be binding on Buyer's assigns. Any attempted assignment in violation of this Section 12.14 shall be null and void. 12.15. DIRECTOR AND OFFICER LIABILITY. The directors, officers, and stockholders of Buyer and its Affiliates shall not have any personal liability or obligation arising under this Agreement (including any claims that the Company or a Selling Stockholder may assert) other than as an assignee of this Agreement or as otherwise provided herein. The directors and officers of the Company and the Selling Stockholders and their respective Affiliates shall not have any personal liability or obligation arising under this Agreement (including any claims that Buyer may assert). Except as otherwise provided in this Agreement or any other Transaction Document, no stockholder of the Company shall have any personal liability or obligation arising under this Agreement (including any claims that Buyer may assert). 12.16. NO REVERSIONARY INTEREST. The parties expressly agree, pursuant to Section 73.1150 of the FCC's rules, that the Selling Stockholders do not retain any right to reassignment of any of the FCC Licenses in the future, or to operate or use the facilities of the Stations for any period beyond the Closing Date. 12.17. APPOINTMENT OF STOCKHOLDERS' REPRESENTATIVE. By the execution and delivery of this Agreement, each Selling Stockholder hereby irrevocably constitutes and appoints DKM as the true and lawful agent and attorney-in-fact (the "Stockholders' Representative") of such Selling Stockholder with full authority and power of substitution to act in the name, place and stead of such Selling Stockholder with respect to the consummation of the transactions contemplated hereunder and under any other Transaction Documents, including without limitation the power and authority to (a) execute any amendment to this Agreement, or a waiver of any provision of this Agreement (including without limitation the waiver of any breach by Buyer under this Agreement or the waiver of any condition precedent to the Closing under Sections 8.1 or 8.3 hereof other than any waiver of clauses (i), (ii), (iii), (iv), (v) or (vi) of Section 9.1(a)), as the Stockholders' Representative shall deem necessary or appropriate in its, his or her sole discretion; provided, however, that (x) without the written consent of all of the Selling Stockholders, the Stockholders' Representative shall not have the authority to execute any amendment which would amend Section 2.2 or the definition of the Preferred Stock Premium Amount (other than an amendment which would increase the Selling 81 88 Common Stockholders Closing Payment or otherwise which would increase the Purchase Price), Section 3.2 or Article XI hereof (excluding Sections 11.3 or 11.4 and excluding any amendment to such Article which would increase the rights or remedies of the Selling Stockholders), (y) without the written consent of the Preferred Stockholder, the Stockholders' Representative shall not have the authority to execute any amendment which would amend Section 2.5(e) or the definitions of Preferred Stock Premium Amount, Preferred Stock Value Amount or Preferred Stock Payment or which would otherwise affect only the Preferred Stockholder and not the other Selling Stockholders and (z) the Stockholders' Representative shall not have the authority to execute any amendment which would adversely affect any Selling Common Stockholder(s) but not the other Selling Common Stockholders without the written consent of such adversely affected Selling Common Stockholder(s), (b) execute and deliver the Release (including any Release delivered pursuant to Section 10.2(b)), the Deposit Escrow Agreement, the Indemnification Escrow Agreement, the Certificate to be delivered by the Selling Stockholders pursuant to Section 8.2(a) and any amendment to or waiver of any of such instruments and any and all other Transaction Documents in connection herewith, (c) execute and deliver the written instructions described in Section 11.9 on behalf of such Selling Stockholder and to deliver any instructions under the Deposit Escrow Agreement or the Indemnification Escrow Agreement or as otherwise permitted or contemplated hereunder or under any other Transaction Document, (d) receive or deliver any and all notices required to be delivered to or sent by the Selling Stockholders pursuant to this Agreement or any other Transaction Documents, (e) perform the obligations and rights of such Selling Stockholder under the Deposit Escrow Agreement and the Indemnification Escrow Agreement and any and all other Transaction Documents, (f) receive, hold and deliver to Buyer the certificates for the Shares and the Series A Preferred Shares and any other documents (including stock powers or other instruments of transfer) relating thereto, (g) execute, acknowledge, deliver, record and file all ancillary agreements, certificates and documents which the Stockholders' Representative deems necessary or appropriate in its, his or her sole discretion in connection with the consummation of the transactions contemplated by the terms and provisions of this Agreement, (h) terminate this Agreement in accordance with Section 10.1, at the request of a Majority-in-Interest of the Selling Stockholders, (i) perform the obligations and exercise the rights hereunder and under the Deposit Escrow Agreement or the Indemnification Escrow Agreement, including, without limitation, the settlement of any claims and disputes with Buyer arising hereunder or thereunder, and (k) take any other action permitted or contemplated to be taken by the Stockholders' Representative hereunder or under any other Transaction Documents. The parties hereto understand and agree that the Stockholders' Representative may, but shall be under no duty or obligation to, take or refrain from taking any or all of the above actions or any other action, and any taking or refraining from taking any or all of the above actions or any other action shall not create any duty or obligation to take or to refrain from taking any later or successive action. Buyer, the other Buyer Indemnified Parties, and any other person, may conclusively and absolutely rely, without inquiry, upon any action of the Stockholders' Representative as the action of each Selling Stockholder in all matters referred to herein, and each Selling Stockholder confirms all that the Stockholders' Representative shall do or cause to be done by virtue of his or her or its appointment as Stockholders' Representative. All actions by the Stockholders' Representative are 82 89 acknowledged by the parties hereto to be taken by it solely as agent and attorney-in-fact for each Selling Stockholder. By the execution of this Agreement, DKM has accepted its appointment as the initial Stockholders' Representative and in consideration for DKM's (or any successor's) agreement to act as the Stockholders' Representative, each Selling Stockholder hereby consents and agrees to all actions or inactions taken or omitted to be taken in good faith by the Stockholders' Representative under this Agreement, the Deposit Escrow Agreement, the Indemnification Escrow Agreement or any other Transaction Documents and hereby agrees to indemnify and hold DKM and each of DKM's stockholders, Affiliates, directors, officers, employees and representatives (collectively, the "Representatives") and any and all successor Stockholders' Representative and their respective Representatives harmless from and against all damages, losses, liabilities, charges, penalties, costs and expenses (including court costs and attorneys' fees and expenses, if any) incurred in any claim, action, dispute or proceeding between any such person and the Selling Stockholders (or any of them) or between any such person and any third party (including, without limitation, Buyer or the Company or any Affiliate thereof) or otherwise incurred or suffered as a result of or arising out of such actions or inactions by the Stockholders' Representative or otherwise relating to DKM's (or any successor's) appointment as the Stockholders' Representative. Each Selling Stockholder covenants and agrees that it will not voluntarily revoke the power of attorney conferred in this Section 12.17. If any Selling Stockholder dies or becomes incapacitated, disabled or incompetent (such deceased, incapacitated, disabled or incompetent Selling Stockholder being a "Former Selling Stockholder") and, as a result, the power of attorney conferred by this Section 12.17 is revoked by operation of law, it shall not be a breach by such Former Selling Stockholder under this Agreement if the heirs, beneficiaries, estate, administrator, executor, guardian, conservator or other legal representative of such Former Selling Stockholder (each a "Successor Selling Stockholder") confirms the appointment of the Stockholders' Representative as agent and attorney-in-fact for such Successor Selling Stockholder. Notwithstanding the foregoing sentence, if the power of attorney conferred by this Section 12.17 is revoked by operation of law and thereafter not reconfirmed by the Successor Selling Stockholder prior to the Closing, such revocation shall not be deemed a breach by the Successor Selling Stockholder of any of the provisions of this Agreement provided that the Shares or Series A Preferred Shares held by such Successor Selling Stockholder are delivered for transfer to Buyer at the Closing duly endorsed for transfer or accompanied by stock powers duly endorsed for transfer and further provided that such Successor Selling Stockholder executes and delivers such other certificates, documents or instruments (including, without limitation, any amendments hereto, the Deposit Escrow Agreement and the Indemnification Escrow Agreement) that would have been delivered on its behalf by the Stockholders' Representative had such Successor Selling Stockholder reconfirmed the agency and power of attorney conferred by this Section 12.17. The Stockholders' Representative may resign as the Stockholders' Representative for any reason and at any time by written notice to Buyer and each Selling Stockholder. If at any time DKM (or any successor Stockholders' Representative) resigns from its position as the Stockholders' Representative, the Majority-in-Interest of the Selling Stockholders shall designate a successor as soon as practicable and shall notify Buyer in writing of such designation. Upon written notice delivered to Buyer, the Selling Stockholders may change the identity of the Stockholders' Representative by written consent signed by the Majority-in-Interest of the Selling Stockholders (including as a result of the resignation by the Stockholders' Representative). 83 90 Each of the Selling Stockholders hereby consents and agrees to all actions or inactions taken or omitted to be taken in good faith by the Majority-in-Interest of the Selling Stockholders under this Agreement, the Deposit Escrow Agreement, the Indemnification Escrow Agreement or any other Transaction Document and hereby agrees to indemnify and hold harmless the Majority-in-Interest of the Selling Stockholders and each of its Representatives from and against all damages, losses, liabilities, charges, penalties, costs and expenses (including court costs and attorneys' fees and expenses) incurred in any claim, action, dispute or proceeding between any such person or persons and the Selling Stockholders (or any of them) or between any such person or persons and any third party (including, without limitation, Capstar, Buyer or the Company) or otherwise incurred or suffered as a result of or arising out of such actions or inactions. 12.18. HEADINGS. The headings of this Agreement are for convenience of reference only and are not part of the substance of this Agreement. 12.19. SCHEDULES. All Schedules and all Exhibits to this Agreement are integral parts of this Agreement. Any item disclosed hereunder (including in the Schedules hereto) shall be deemed disclosed for all purposes hereof irrespective of the specific representation or warranty to which it is explicitly referenced. Without limitation the generality of the foregoing, the fact that any disclosure on any of the Schedules is not required to be disclosed in order to render the applicable representation or warranty to which it relates true, or that the absence of such disclosure on the Schedules would not constitute a breach of such representation or warranty, shall not be deemed or construed to expand the scope of any representation or warranty hereunder or to establish a standard of disclosure in respect of any representation or warranty. To the extent any Schedule to this Agreement is required to be amended to be consistent with any Schedules prepared in connection with an Acquisition Document or other documents in connection with a Purchaser Approved Acquisition, the Company shall amend the Schedules to this Agreement to reflect such transactions. 12.20. WAIVER OF CONFLICT OF INTEREST CLAIM. It is expressly agreed that in the event of any controversy, suit, petition, arbitration, or other legal action which arises or is commenced in connection with this Agreement, its schedules or exhibits, including without limitation, the Deposit Escrow Agreement and the Indemnification Escrow Agreement, each of the Selling Stockholders, Buyer and the Company shall be free to retain counsel of their choice to represent them in connection with any such controversy, suit, petition, arbitration, or other legal action, irrespective of whether or not selected counsel participated in, or represented a party to, this transaction, or whether or not selected counsel either represents the Company or represented the Company in any capacity whatsoever. Each of the Selling Stockholders, Buyer and the Company expressly waives any claim of conflict of interest and agree that they will not take any steps to attempt to disqualify counsel selected and retained by the other for any reason whatsoever. This Section shall survive the Closing. 84 91 12.21. SPECIAL DKM INDEMNITY. DKM agrees to indemnify and hold harmless each of the Buyer Indemnified Parties from and against any and all Taxes of DKM or any of its subsidiaries (other than the Company and/or any of its subsidiaries) asserted against the Company and/or its subsidiaries under Treas. Reg. ss.1.1502-6, or any similar provision of state, local or foreign law, with respect to the period from May 31, 1995 through February 27, 1996 for which the Company and its subsidiaries were members of an affiliated group of corporations whose common parent was DKM. [Remainder of page intentionally left blank] 85 92 IN WITNESS WHEREOF, the Company, the Selling Stockholders and Buyer have caused this Agreement to be signed, all as of the date first written above. Address: PATTERSON BROADCASTING, INC.: By: /s/ James W. Wesley, Jr. ----------------------------------- Name: James W. Wesley, Jr. Title: President SELLING STOCKHOLDERS: THE DYSON-KISSNER-MORAN CORPORATION By: /s/ Robert R. Dyson ----------------------------------- Name: Robert R. Dyson Title: Chairman of the Board and Chief Executive Officer D.J. PARTNERS LIMITED PARTNERSHIP By: /s/ James W. Wesley, Jr. ----------------------------------- Name: James W. Wesley, Jr. Title: Sole General Partner BLT ET. AL., LIMITED PARTNERSHIP By: /s/ James M. Strawn ----------------------------------- Name: James M. Strawn Title: Sole General Partner /s/ Roger Heffelfinger --------------------------------------- Roger Heffelfinger 86 93 /s/ James W. Wesley, Jr. --------------------------------------- James W. Wesley, Jr. /s/ James M. Strawn --------------------------------------- James M. Strawn /s/ Clifford M. Kirtland, Jr. --------------------------------------- Clifford M. Kirtland, Jr. CHASE MANHATTAN INVESTMENT HOLDINGS, L.P. By: /s/ Arnold L. Chavkin ----------------------------------- Name: Arnold Chavkin Title: General Partner NORO-MOSELEY PARTNERS III, L.P. By: Moseley & Company III, LLC, General Partner By: /s/ Charles D. Moseley, Jr. --------------------------- Name: Charles D. Moseley, Jr. Title: Member BERKSHIRE FUND III INVESTMENT CORP. By: /s/ Kevin T. Callaghan ----------------------------------- Name: Kevin T. Callaghan Title: Vice President 87 94 BERKSHIRE FUND III, L.P. By: THIRD BERKSHIRE ASSOCIATES LIMITED PARTNERSHIP, SOLE GENERAL PARTNER By: /s/ Kevin T. Callaghan ------------------------------- Name: Kevin T. Callaghan Title: General Partner /s/ Bradley M. Bloom --------------------------------------- Bradley M. Bloom /s/ J. Christopher Clifford --------------------------------------- J. Christopher Clifford /s/ Russell L. Epker --------------------------------------- Russell L. Epker /s/ Carl Ferenbach --------------------------------------- Carl Ferenbach /s/ Richard K. Lubin --------------------------------------- Richard K. Lubin /s/ Jane Brock-Wilson --------------------------------------- Jane Brock-Wilson 88 95 /s/ Kevin T. Callaghan --------------------------------------- Kevin T. Callaghan /s/ Garth H. Greimann --------------------------------------- Garth H. Greimann /s/ Ross M. Jones --------------------------------------- Ross M. Jones /s/ Ian K. Loring --------------------------------------- Ian K. Loring /s/ Robert J. Small --------------------------------------- Robert J. Small THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY By: /s/ A. Kipp Koester ----------------------------------- Name: A. Kipp Koester Title: Vice President BUYER: CAPSTAR ACQUISITION COMPANY, INC. By: /s/ William S. Banowsky, Jr. ----------------------------------- Name: William S. Banowsky, Jr. Its: Vice President 89 96 The undersigned hereby accepts its appointment as Stockholders' Representative pursuant to Section 12.17. THE DYSON-KISSNER-MORAN CORPORATION By: /s/ Robert R. Dyson ----------------------------------- Name: Robert R. Dyson Its: Chairman of the Board and Chief Executive Officer The undersigned hereby executes this Agreement for the purpose of acknowledging and agrees to be bound by its obligations, representations, warranties, covenants and agreements under Sections 3.4, 5.3(b), 10.2(a), 10.2(c), 10.4 and Articles I and XII and for no other purpose. CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ William S. Banowsky, Jr. ----------------------------------- Name: William S. Banowsky, Jr. Its: Executive Vice President 90 EX-10.31.1 24 ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.31.1 ASSET PURCHASE AGREEMENT BETWEEN KNIGHT RADIO, INC. AND CAPSTAR ACQUISITION COMPANY, INC. DATED AS OF JUNE 18, 1997 2 TABLE OF CONTENTS
Page ARTICLE I DEFINED TERMS 1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2. References and Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE II SALE AND PURCHASE OF ASSETS 2.1. Agreement to Sell and Buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.2. Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.3. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.4. Adjustments and Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.5. Assumption of Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.6. Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.7. Earnest Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1. Representations and Warranties Regarding Seller . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.2. Representations and Warranties of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS 4.1. Covenants of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.2. Environmental Site Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 4.3. Broadcast Transmission Interruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE V ADDITIONAL AGREEMENTS OF SELLER 5.1. No Solicitation of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(i) 3 5.2. Access and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 5.3. Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.4. Compliance With Station Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.5. Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.6. Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE VI COVENANTS OF BUYER 6.1. Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 6.2. Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 6.3. Certain Legal Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 6.4. Seller's Access to Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE VII MUTUAL COVENANTS 7.1. Application for FCC Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 7.2. Control of Stations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 7.3. Other Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 7.4. Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 7.5. Bulk Sales Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 7.6. Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 7.7. Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 7.8. Balance Sheet Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 ARTICLE VIII CONDITIONS PRECEDENT 8.1. Conditions to Each Party's Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 8.2. Conditions to Obligation of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 8.3. Conditions to Obligations of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 ARTICLE IX CLOSING 9.1. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 9.2. Actions to Occur at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(ii) 4 ARTICLE X TERMINATION, AMENDMENT AND WAIVER 10.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 10.2. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE XI INDEMNIFICATION 11.1. Indemnification of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 11.2. Indemnification of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 11.3. Defense of Third-Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 11.4. Direct Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 11.5. Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 11.6. Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 11.7. Instructions to Escrow Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 ARTICLE XII GENERAL PROVISIONS 12.1. Survival of Representations, Warranties, and Covenants . . . . . . . . . . . . . . . . . . . . . . . 47 12.2. Further Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 12.3. Amendment and Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 12.4. Waiver of Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 12.5. Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 12.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 12.7. Expenses and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 12.8. Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 12.9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 12.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 12.11. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 12.12. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 12.13. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 12.14. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 12.15. Director and Officer Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 12.16. No Reversionary Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 12.17. No Waiver Relating to Claims for Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Annexes: Annex A -- The Stations (iii) 5
EXHIBITS: - -------- Exhibit A -- Deposit Escrow Agreement Exhibit B -- Form of Non-Competition Agreements Exhibit C -- Form of Bill of Sale and Assignment Exhibit D -- Form of Assumption Agreement Exhibit E -- Form of Indemnification Escrow Agreement Exhibit F -- Form of Opinions of Seller's Counsel Exhibit G -- Form of Opinion of Vinson & Elkins L.L.P. Exhibit H -- Form of Release of Claims Exhibit I -- Form of Studio/Tower Lease SCHEDULES: - --------- Schedule 2.1(k) -- Choses in Action Schedule 2.2(a) -- Excluded Real Property Schedule 2.2(j) -- Excluded Personal Property Schedule 2.4 -- Manchester Sales Agreement and Deposit Receipt Schedule 2.5(b) -- Trade Deals Schedule 2.6 -- Allocation of Purchase Price Schedule 3.1(a) -- Qualification to do Business and Good Standing Schedule 3.1(e) -- Unrecorded Liabilities and Conduct of Business Schedule 3.1(f) -- Licenses and Permits Schedule 3.1(g) -- Litigation Schedule 3.1(h) -- Insurance Schedule 3.1(i) -- Owned Real Estate Schedule 3.1(j) -- Leased Real Property Schedule 3.1(k) -- Personal Property Schedule 3.1(l) -- Liens and Encumbrances Schedule 3.1(m) -- Environmental Matters Schedule 3.1(o) -- Certain Agreements Schedule 3.1(p) -- Employee Benefit Plans; Labor Schedule 3.1(q) -- Patents, Trademarks; Etc. Schedule 3.1(r) -- Contracts with Affiliates Schedule 4.1(h) -- Sale, Lease or Disposition of Assets Schedule 8.2(c) -- Required Consents
(iv) 6 ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into as of June 18, 1997, between Knight Radio, Inc., a New Hampshire corporation ("Seller"), and Capstar Acquisition Company, Inc., a Delaware corporation ("Buyer"). R E C I T A L S A. Seller is the licensee of and owns and operates each of the radio stations listed on Annex A hereto (each referred to individually as a "Station" and collectively, the "Stations") pursuant to licenses issued by the Federal Communications Commission ("FCC"). B. Seller desires to sell and Buyer desires to buy substantially all the assets used or held for use in the operation of each of the Stations, both tangible and intangible, excluding the Excluded Assets (as hereinafter defined), and by so doing to acquire the radio broadcast business presently conducted by each of the Stations, upon the terms and conditions hereinafter set forth. A G R E E M E N T S NOW, THEREFORE, in consideration of the respective representations, warranties, agreements, and conditions hereinafter set forth, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINED TERMS 1.1. DEFINED TERMS. The following terms shall have the following meanings in this Agreement: "Accounts Receivable" means the rights of Seller to cash payment for the sale of advertising time by the Stations and other amounts (other than entries reflecting barter transactions) that would be classified as an account receivable on the asset side of a balance sheet of the Company prepared in accordance with GAAP prior to 11:59 p.m. on the day prior to the Closing Date. "Affiliate" means, with respect to any person, any other person controlling, controlled by or under common control with such person. For purposes of this definition and this Agreement, 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. "Applicable Laws" means all laws, statutes, rules, regulations, ordinances, judgments, orders, decrees, injunctions, and writs of any Governmental Entity having jurisdiction over the Assets or the business or operations of each of the Stations, as may be in effect on or prior to the Closing. 7 "Applications" has the meaning set forth in Section 7.1. "Assets" means all the tangible and intangible assets owned, leased, or licensed by Seller that are used or held for use in connection with the business or operations of any of the Stations, whether or not reflected on the Financial Statements or Balance Sheet of Seller, but specifically excluding therefrom the Excluded Assets. "Assumed Contracts" means (a) those Contracts set forth on Schedule 3.1(o) identified as being assumed by Buyer and all other contracts of Seller entered into in the ordinary course of business prior to the date of this Agreement that relate to the Assets or the business or operation of the Assets or any part thereof, (b) all other non- trade advertising Contracts for cash entered into by Seller for any of the Stations prior to the date of this Agreement and which are terminable on not more than 30 days notice, (c) all Contracts entered into by Seller on or after the date of this Agreement and before the Closing in accordance with the applicable provisions of Section 4.1, and (d) Trade Deals described in Section 2.5(b). "Assumption Agreement" means the Assumption Agreement between Buyer and Seller substantially in the form of Exhibit D. "Balance Sheet" has the meaning set forth in Section 3.1(e). "Balance Sheet Date" has the meaning set forth in Section 3.1(e). "Banking Event" has the meaning set forth in Section 9.1. "Bill of Sale and Assignment" means the Bill of Sale and Assignment between Buyer and Seller substantially in the form of Exhibit C. "Brokerage Fee" has the meaning set forth in Section 12.7. "Business Day" means any other day than (i) a Saturday or Sunday or (ii) a day on which commercial banks in New York, New York, Dallas, Texas or Boston, Massachusetts are authorized or required to be closed. "Buyer" has the meaning set forth in the first paragraph of this Agreement, and it includes its permitted successors and assigns. "Buyer Indemnified Costs" means (a) any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) that any of the Buyer Indemnified Parties incurs and that arise out of any breach or default by Seller of any of the representations or warranties under this Agreement or any agreement or document executed in connection herewith (collectively, "Buyer Indemnified Representation Costs"); (b) any 2 8 and all losses, liabilities, or damages incurred by any of the Buyer Indemnified Parties resulting from Seller's operation or control of any of the Stations prior to the Closing Date, including any and all liabilities arising under the FCC Licenses (including any stipulations or other obligations imposed on Buyer in connection with the renewal of the Licenses in 1998) or the Assumed Contracts which relate to events occurring prior to the Closing Date; (c) any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) that any of the Buyer Indemnified Parties incurs and that arise out of any breach or default by Seller of any covenant or agreement under this Agreement or any agreement or document executed in connection herewith; (d) any and all obligations or liabilities of Seller under any contract or agreement not expressly assumed by Buyer pursuant to the terms hereof; (e) the items indemnified against pursuant to Section 7.5; and (f) any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs, and expenses, including reasonable legal fees and expenses, incident to any of the foregoing; provided, however, that insofar as the items in this clause (f) relate to the items in clause (a) above, such items shall constitute Buyer Indemnified Representation Costs; and provided further that Buyer Indemnified Costs shall consist solely of damages actually suffered or sustained and shall not include speculative damages in the nature of lost profits or diminution in value. "Buyer Indemnified Parties" means Buyer and each officer, director, employee, consultant, stockholder, and Affiliate of Buyer. "CERCLA" has the meaning set forth in the definition of Environmental Laws contained in this Section 1.1. "Choses in Action" means a right to receive or recover property, debt, or damages on a cause of action, whether pending or not and whether arising in contract, tort or otherwise. The term shall include rights to indemnification, damages for breach of warranty or any other event or circumstance, judgments, settlements, and proceeds from judgments or settlements. "Closing" means the consummation of the transactions contemplated by this Agreement in accordance with the provisions of Article IX. "Closing Date" means the date of the Closing specified in Article IX. "Code" shall mean the United States Internal Revenue Code of 1986, as amended. All references to the Code, U.S. Treasury regulations or other governmental pronouncements shall be deemed to include references to any applicable successor regulations or amending pronouncement. "Communications Act" has the meaning set forth in Section 3.1(f). "Company Reports" has the meaning set forth in Section 3.1(e). 3 9 "Concurrent Transactions" means the transactions contemplated by (a) that certain Asset Purchase Agreement of even date herewith by and between Buyer and Knight Communications Corp., a Massachusetts corporation, and (b) that certain Asset Purchase Agreement of even date herewith by and among Buyer and Knight Broadcasting of New Hampshire, Inc., a New Hampshire corporation. "Conflict Event" has the meaning set forth in Section 9.1. "Consents" means all governmental consents and approvals, including the FCC Consents, and all consents and approvals of third parties, in each case that are necessary in order to transfer the Assets to Buyer and otherwise to consummate the transactions contemplated hereby. "Contracts" means all agreements, contracts, or other binding commitments or arrangements, written or oral (including any amendments and other modifications thereto), to which Seller is a party or is otherwise bound and which affect or relate to the Assets or the business or operations of each of the Stations. "Deposit Escrow Agreement" means the Deposit Escrow Agreement among Seller, Knight Communications Corp. and Knight Broadcasting of New Hampshire, Inc., Buyer and Escrow Agent, a copy of which is attached hereto as Exhibit A. "Deposit Letter of Credit" means that certain original, irrevocable letter of credit in favor of Seller, Knight Communications Corp. and Knight Broadcasting of New Hampshire, Inc. and the Escrow Agent issued by Bankers Trust Company or another lender reasonably acceptable to Seller for the sum of $3,000,000 and held in accordance with the provisions of the Deposit Escrow Agreement. "Employee Benefit Plans" means any "employee benefit plan" within the meaning of Section 3(3) of ERISA and any bonus, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, vacation, severance, disability, death benefit, hospitalization or insurance plan providing benefits to any present or former employee or contractor of Seller or any member of the ERISA Group maintained by any such entity or as to which any such entity has any liability or obligation. "Employee Pension Benefit Plan" has the meaning set forth in Section 3(2) of ERISA. "Environmental Costs or Liabilities" has the meaning set forth in Section 3.1(m)(iv). "Environmental Laws" means all Applicable Laws and rules of common law pertaining to the environment, natural resources, and public or employee health and safety including the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. Section 9601 et seq.) ("CERCLA"), the Emergency Planning and Community Right to Know Act and the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the 4 10 Hazardous and Solid Waste Amendments Act of 1984, the Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, the Safe Drinking Water Act, the Occupational Safety and Health Act of 1970, the Oil Pollution Act of 1990, the Hazardous Materials Transportation Act, and any similar or analogous statutes, regulations and decisional law of any Governmental Authority, as each of the foregoing may be amended and in effect on or prior to the Closing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Group" has the meaning set forth in Section 3.1(p). "ESA" means Phase I or Phase II environmental site assessments. "Escrow Agent" means U.S. Trust Company and includes its successors and assigns. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Excluded Assets" has the meaning set forth in Section 2.2. "Excluded Real Property" means the Owned Real Property set forth on Schedule 2.2(a). "FCC" has the meaning set forth in the first recital hereto. "FCC Consents" means actions by the FCC granting its initial consent to the assignment of the FCC Licenses for each of the Stations to Buyer as contemplated by this Agreement. "FCC Licenses" means all of the licenses, permits, and other authorizations issued by the FCC to Seller and applications of Seller, if any, to the FCC relating to or used in the business or operations of each of the Stations, including those listed on Schedule 3.1(f) and any additions thereto between the date hereof and the Closing Date. "Final Order" means written action or order issued by the FCC setting forth the FCC Consents and (a) which has not been reversed, stayed, enjoined, set aside, annulled, or suspended and (b) with respect to which (i) no requests have been filed for administrative or judicial review, reconsideration, appeal, or stay, and the time for filing any such requests and for the FCC to set aside the action on its own motion has expired or (ii) in the event of review, reconsideration, or appeal, such review, reconsideration, or appeal has been denied and the time for further review, reconsideration, or appeal has expired. "Financial Statements" has the meaning set forth in Section 3.1(e). 5 11 "GAAP" means generally accepted accounting principles in the United States. "Governmental Entity" means any governmental department, commission, board, bureau, agency, court or other instrumentality of the United States or any state, county, parish or municipality, jurisdiction, or other political subdivision thereof. "Hazardous Substances" has the meaning set forth in Section 3.1(m). "Holdback Amount" has the meaning set forth in Section 11.5. "HSR Act" has the meaning set forth in Section 3.1(d). "Indemnification Escrow Agreement" means the Indemnification Escrow Agreement among Seller, Knight Communications Corp., Knight Broadcasting of New Hampshire, Inc., Buyer, and Escrow Agent substantially in the form attached hereto as Exhibit E. "Indemnified Costs" means the Buyer Indemnified Costs or the Seller Indemnified Costs, as the case may be. "Indemnified Parties" means the Buyer Indemnified Parties or the Seller Indemnified Parties, as the case may be. "Indemnification Representation Costs" means the Buyer Indemnified Representation Costs or the Seller Indemnified Representation Costs, as the case may be. "Indemnifying Party" means any person who is or may be obligated to provide indemnification hereunder. "Intellectual Property" means all Trademarks, Know-how, copyrights, copyright registrations and applications for registration, Patents and all other intellectual property rights whether registered or not, licenses to or owned by Seller relating to the business or operations of any Station, including the call letters of each of the Stations and the goodwill related to the foregoing. "Know-how" means all plans, ideas, concepts and data, research records, all promotional literature, customer and supplier lists and similar data and information and all other confidential or proprietary technical and business information. "Knowledge" means, with respect to Seller, the actual knowledge of Norman Knight, N. Scott Knight, Robert A. Knight, or Randolf H. Knight, and with respect to Buyer, the actual knowledge of Steven R. Hicks, William S. Banowsky, Jr., or Paul Stone. "Leased Real Property" means all of the Seller's leasehold interests, easements, licenses, rights to access and rights-of-way which are used or held for use in the business and 6 12 operations of any Station, including those interests which are identified and described in Schedule 3.1(j), as modified by any addition or permitted deletion thereto between the date hereof and the Closing Date. "Licenses" means the FCC Licenses and all Permits issued by any Governmental Entity to Seller relating to or used or held for use in the business and operations of any Station, including those listed on Schedule 3.1(f), with any additions thereto between the date hereof and the Closing Date. "Liens" has the meaning set forth in Section 3.1(l). "Material Adverse Effect" means a material adverse effect on the business, operations, properties (taken as a whole), condition, results of operations, assets (taken as a whole), or liabilities of the Stations. "Multiemployer Plan" has the meaning set forth in Section 3(37) or Section 4001(a)(3) of ERISA. "Non-Competition Agreement" means the Non-Competition Agreement between Buyer and Seller substantially in the form of Exhibit B. "Owned Real Property" means those parcels of real property owned in fee and used or held for use by Seller as described in Schedule 3.1(i), and all buildings, structures, improvements, and fixtures thereon, together with all rights of way, easements, privileges, and appurtenances pertaining or belonging thereto, including any right, title, and interest of Seller in and to any street or other property adjoining any portion of such property. "Patents" means all patent and patent applications (including all reissues, divisions, continuations, continuations-in-part, renewals, and extensions of the foregoing) owned by Seller. "Pension Plans" has the meaning set forth in Schedule 3.1(p). "Permits" has the meaning set forth in Section 3.1(m). "Permitted Encumbrances" means (a) statutory Liens for current Taxes not yet due and payable, (b) mechanics', carriers', workers', repairers', and other similar liens imposed by law arising or incurred in the ordinary course of business for obligations not yet due, (c) in the case of leases of vehicles, rolling stock, and other personal property, encumbrances, which do not, individually or in the aggregate, materially impair the operation of the business at the facility at which such leased equipment or other personal property is located, (d) other liens, charges or encumbrances incidental to the operation of the Stations or the ownership of the Assets which were not incurred in connection with the borrowing of money or the advance of credit and which, in the aggregate, do not materially detract from the value of the Assets or materially interfere with the use 7 13 thereof or the operation of the Stations, and (e) Liens on leases of real property arising from the provisions of such leases or the actions of the lessor thereunder, including, in relation to leased real property, any agreements and/or conditions imposed on the issuance of land use permits, zoning, business licenses, use permits, or other entitlements of various types issued by any Governmental Entity, necessary or beneficial to the continued use and occupancy of the Assets or the continuation of the operation of any Station. "Person" means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization, or other entity. "Personal Property" means all of the machinery, equipment (including the transmitter and studio equipment), computer programs, computer software, tools, motor vehicles, furniture, furnishings, leasehold improvements, office equipment, inventories, supplies, plant, spare parts, and other tangible or intangible personal property which are owned or leased by Seller for any Station and which are used or held for use in the business or operations of any Station, including the personal property which is listed on Schedule 3.1(k) hereto, together with any additions thereto between the date hereof and the Closing Date less any dispositions made in accordance with Section 4.1. The term Personal Property shall not include any of the Excluded Assets. "Purchase Price" means the consideration payable by Buyer to Seller as provided in Section 2.3 hereof. "Real Property" means the Leased Real Property and the Owned Real Property. "Release" means the Release of Claims between Buyer and Seller substantially in the form of Exhibit H. "Released Claims" has the meaning set forth in Section 10.2(b). "Released Parties" has the meaning set forth in Section 10.2(b). "Schedules" means the Schedules attached hereto. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Seller" has the meaning set forth in the first paragraph of this Agreement. "Seller Indemnified Costs" means (a) any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) that any of the Seller Indemnified Parties incurs and that arise out of any breach or default by Buyer of any of the representations, or warranties under this Agreement or any agreement or document 8 14 executed in connection herewith (collectively, "Seller Indemnified Representation Costs"); (b) any and all losses, liabilities, or damages incurred by any of the Seller Indemnified Parties resulting from Buyer's operation or control of any of the Stations on and after the Closing Date, including any and all liabilities arising under the Licenses or the Assumed Contracts which relate to events occurring after the Closing Date; (c) any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) that any of the Seller Indemnified Parties incurs and that arise out of any breach or default by Buyer of any covenant or agreement under this Agreement or any agreement or document executed in connection herewith; (d) the items indemnified against pursuant to Section 5.3; and (e) any and all actions, suits, proceedings claims, demands, assessments, judgments, costs, and expenses, including reasonable legal fees and expenses, incident to any of the foregoing; provided, however, that insofar as the items in this clause (e) relate to the items in clause (a) above, such items shall constitute Seller Indemnified Representation Costs; and provided further that Seller Indemnified Costs shall consist solely of damages actually suffered or sustained and shall not include speculative damages in the nature of lost profits or diminution in value. "Seller Indemnified Parties" means Seller and each officer, director, employee, consultant, stockholder, and Affiliate of Seller. "Seller Negative Trade Balance" has the meaning set forth in Section 4.2. "Station Event" has the meaning set forth in Section 9.1. "Station Licenses" has the meaning set forth in Section 3.1(f). "Station Management" has the meaning set forth in Section 4.1(b). "Studio/Tower Lease" means the real property lease substantially in the form of Exhibit I to be entered into between Buyer and Seller. "Taxes" means taxes, charges, fees, imposts, levies, interest, penalties, additions to tax or other assessments or fees of any kind, including, but not limited to, income, corporate, capital, excise, property, sales, use, turnover, value added and franchise taxes, deductions, withholdings and customs duties, imposed by any Governmental Entity and any payments with respect thereto required under any tax-sharing agreement. "Tax Returns" means any return, report, information return or other document (including any related or supporting information) filed or required to be filed with any Governmental Entity in connection with the determination, assessment, collection or administration of any Taxes or the administration of any laws, regulations or administrative requirements relating to any Taxes. 9 15 "Title Commitment" means the commitment to issue an owner's title policy as provided in Section 8.2(e). "Title Company" means Republic Title Company or such other title insurance company reasonably acceptable to Buyer and Seller. "Trade Deals" means the exchanges by a Station of its advertising time for goods or services, other than in connection with the licensing of programs and programming material. "Trademarks" means (a) trademarks, service marks, trade names, trade dress, labels, logos, and all other names and slogans associated with any products or embodying the goodwill of the business of any Station, whether or not registered, and any applications or registrations therefor and (b) any associated goodwill incident thereto owned by Seller. "Trading Event" has the meaning set forth in Section 9.1. "Transaction Documents" has the meaning set forth in Section 3.1(c). "Warranty Deed" means a special warranty deed in form and substance reasonably acceptable to the Buyer and the Title Company pursuant to which Seller conveys to Buyer the Owned Real Property (other than the Excluded Real Property) at the Closing. 1.2. REFERENCES AND TITLES. All references in this Agreement to Exhibits, Schedules, Articles, Sections, subsections, and other subdivisions refer to the corresponding Exhibits, Schedules, Articles, Sections, subsections, and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any Articles, Sections, subsections, or other subdivisions of this Agreement are for convenience only, do not constitute any part of such Articles, Sections, subsections or other subdivisions, and shall be disregarded in construing the language contained therein. The words "this Agreement," "herein," "hereby," "hereunder," " and "hereof," and words of similar import, refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The words "this Section," "this subsection," and words of similar import, refer only to the Sections or subsections hereof in which such words occur. The word "or" is not exclusive, and the word "including" (in its various forms) means "including without limitation." Pronouns in masculine, feminine, or neuter genders shall be construed to state and include any other gender and words, terms, and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise expressly requires. Unless the context otherwise requires, all defined terms contained herein shall include the singular and plural and the conjunctive and disjunctive forms of such defined terms. 10 16 ARTICLE II SALE AND PURCHASE OF ASSETS 2.1. AGREEMENT TO SELL AND BUY. Subject to the terms and conditions set forth in this Agreement and except for the Excluded Assets, Seller shall sell, assign, transfer and deliver to Buyer on the Closing Date, and Buyer shall purchase on the Closing Date, all of the Assets, free and clear of any Liens or liabilities (except for Permitted Encumbrances and liabilities assumed by Buyer in accordance with Section 2.5). The Assets to be assigned, transferred and delivered by Seller hereunder shall include the following: (a) All Personal Property; (b) All Leased Real Property; (c) The Owned Real Property (other than the Excluded Real Property); (d) All Licenses and Permits; (e) All Assumed Contracts; (f) All Intellectual Property; (g) All Accounts Receivable; (h) Each of the Station's technical information and data, machinery and equipment warranties (to the extent such warranties are assignable), if any, maps, plans, diagrams, blueprints and schematics relating to such Station, if any, including filings with the FCC which relate to such Station, and goodwill relating to the foregoing; (i) All books and records relating to the business and operation of any of the Stations (excluding those described in, or relating to the assets described in, Section 2.2), including (i) executed copies of the Assumed Contracts, or if no executed agreement exists, summaries of each Assumed Contract transferred pursuant to clause (e) above and (ii) all records required by the FCC to be kept by each Station, subject to the right of Seller to request and receive copies thereof and have such books and records made reasonably available to Seller for tax and other legitimate organization purposes for a period of six years after the Closing; (j) To the extent assignable, all computer programs and software, and all rights and interests of Seller in and to computer programs and software used in connection with the business or operations of any Station; 11 17 (k) Except for claims relating to Taxes and all Choses in Action described in Schedule 2.1(k), all Choses in Action of Seller; and (l) All intangible assets of Seller relating to any Station or the business or operation of any Station not specifically described above, including goodwill, and all other assets, other than the Excluded Assets, used or held for use in connection with any Station or the business of the Seller. 2.2. EXCLUDED ASSETS. The Excluded Assets shall consist of the following: (a) The Excluded Real Property described in Schedule 2.2(a); (b) In each case determined as of 11:59 p.m. on the day prior to the Closing Date, Seller's cash on hand as of the Closing Date and all other cash in any of Seller's bank or savings accounts; notes receivable, letters of credit or other similar items of Seller; any stocks, bonds, certificates of deposit and similar investments of Seller; and any other cash equivalents of Seller; (c) Seller's books and records relating solely to internal corporate, financial and tax matters and any other books and records not related to any Station or the business or operations of any Station; (d) Any claims, rights and interest of Seller in and to any (i) refunds of Taxes or fees of any nature whatsoever or (ii) deposits or utility deposits, which, in each case, relate solely to the period prior to the Closing Date; (e) All insurance contracts, including the cash surrender value thereof, and all insurance proceeds or claims made by Seller relating to property or equipment repaired, replaced or restored by Seller prior to the Closing Date; (f) All Employee Benefit Plans and all assets or funds held in trust, or otherwise, associated with or used in connection with the Employee Benefit Plans; (g) All Choses in Action, if any, of Seller excluded from Section 2.1(k); (h) All tangible and intangible personal property disposed of or consumed in the ordinary course of business between the date of this Agreement and the Closing Date, or as otherwise permitted under the terms hereof; (i) Any collective bargaining agreement, any other Contract not included in the Assumed Contracts, and all Contracts that have terminated or expired prior to the Closing Date in the ordinary course of business and as permitted hereunder; and 12 18 (j) The personal effects and other personal property identified on Schedule 2.2(j). 2.3. PURCHASE PRICE. Subject to the adjustments set forth in Section 2.4 and 2.5(b), the Purchase Price for the Assets is Ten Million Dollars ($10,000,000). 2.4. ADJUSTMENTS AND PRORATIONS. (a) All revenues arising from the operation of the Stations earned or accrued up until 11:59 p.m. on the day prior to the Closing Date, and all expenses, costs and liabilities, arising therefrom incurred, accrued or payable up until such time, including expenses arising under the Assumed Contracts, tower rentals, business and license fees, utility charges, real and personal property Taxes levied against the Assets, property and equipment rentals, applicable copyright or other fees, sales and service charges, other Taxes, wages, salaries, vacation, sick and employee compensation pay shall be prorated between Buyer and Seller in accordance with the principle that (i) Seller shall receive all revenues, refunds and deposits of Seller held by third parties, and shall be responsible for all expenses, costs and liabilities incurred, payable or allocable to the conduct of the business and operations of each Station for the period ending at 11:59 p.m. on the day prior to the Closing Date and (ii) Buyer shall receive all revenues earned or accrued and shall be responsible for all expenses, costs and liabilities incurred, payable or allocable to the conduct of the business and operations of each Station for the period commencing on and continuing after the Closing Date. An adjustment of the Purchase Price and proration shall be made in favor of Buyer to the extent that Buyer assumes any liability under any Assumed Contract to refund (or to credit against payments otherwise due) any security deposit or similar prepayment paid to Seller by any lessee or other third party which is not otherwise credited to Buyer. Subject to Buyer's receipt of appropriate estoppel certificates, an adjustment of the Purchase Price and proration shall be made in favor of Seller to the extent that Seller has made (A) any security deposit under any Assumed Contract whether or not there is a proration under such Assumed Contract or (B) other prepayment under any Assumed Contracts for which there is a proration. The Purchase Price shall be increased by an amount equal to eighty percent of the face amount of Seller's Accounts Receivables. Seller shall be liable for all of the costs of employee compensation relating to each of the Stations properly attributable to or accruable on account of service with the Seller through 11:59 p.m. on the date prior to the Closing Date, including (1) all Taxes and related contributions, vacations and sick pay and (2) all group medical, dental or death benefits for expenses incurred, related to or arising from, events occurring on or prior to 11:59 p.m. on the date prior to the Closing Date, or death or disability occurring on or prior to 11:59 p.m. on the date prior to the Closing Date, whether reported by the Closing Date or thereafter; Buyer will be liable for all of the costs of employee compensation relating to each of the Stations, properly attributable or accruable thereafter on account of service with Buyer. Trade Deals shall not be adjusted or prorated. Seller has entered into a Sales Agreement and Deposit Receipt with respect to certain real property located in Manchester, New Hampshire (the "Manchester Tract"), a copy of which is set forth in Schedule 2.4. Subject to Buyer's reasonable due diligence inspection which shall be completed by July 1, 1997, if Seller purchases the Manchester Tract prior to Closing, the Purchase 13 19 Price shall be increased by an amount equal to the sum of (i) $85,900 plus (ii) Seller's reasonable closing costs as set forth on the closing statement delivered in connection with Seller's purchase of the Manchester Tract. If Buyer reasonably rejects the Manchester Tract, it shall be deemed to be Excluded Real Property and no adjustment shall be made to the Purchase Price in respect thereof. (b) Adjustments or prorations pursuant to this Section 2.4 will, insofar as feasible be determined and paid on the Closing Date based upon Seller's good faith calculation delivered to Buyer five days prior to the Closing Date, with final settlement and payment by the appropriate party occurring no later than 60 days after the Closing Date. Within 60 days after the Closing Date, Buyer shall submit to Seller its good faith determination of the adjustments or prorations required by this Section 2.4. Except as expressly provided in Section 2.4(a), Buyer's determination of the amount of adjustment under this Section 2.4 shall be made in accordance with GAAP, consistently applied. If Seller disagrees with the determination made by Buyer of the adjustment, Seller shall give prompt written notice thereof, but in no event later than 20 days after notice of Buyer's determination, specifying in reasonable detail the nature and extent of the disagreement, and Buyer and Seller shall have a period of 30 days in which to resolve the disagreement. If the parties are unable to resolve the disagreement within the 30-day period, the matter shall be submitted to an independent certified public accounting firm selected by Buyer and Seller, which accounting firm shall be directed to submit a final resolution within 30 days. The accounting firm's determination shall be binding on Buyer and Seller. Each party shall bear the fees and expenses of its own representatives, including its independent accountants, if any, and shall share equally the fees and expenses of any such accounting firm, if engaged, to resolve any disagreement between the parties. Within five business days following a final determination hereunder, the party obligated to make payment will make the payments determined to be due and owing in accordance with this Section 2.4. 2.5. ASSUMPTION OF LIABILITIES AND OBLIGATIONS. (a) As of the Closing Date, Buyer shall assume and undertake to pay, discharge and perform all the obligations and liabilities of Seller relating to each Station under the Licenses and the Assumed Contracts assumed by Buyer relating to the time period beginning on or arising out of events occurring on or after the Closing Date, including those incurred prior to the Closing Date and performable in accordance with their terms after the Closing Date. All other obligations and liabilities of Seller, including (i) obligations or liabilities under any contract not included in the Assumed Contracts, (ii) obligations or liabilities under any Assumed Contract for which a Consent, if required, has not been obtained as of the Closing, (iii) any obligations and liabilities arising under the Assumed Contracts that relate to the time period prior to the Closing Date or arise out of events occurring prior to the Closing Date and (iv) any forfeiture, claim or pending litigation or proceeding relating to the business or operations of any Station prior to the Closing Date (other than those to be performed in accordance with their terms after the Closing Date), shall remain and be the obligation and liability solely of Seller. Other than as specified in the first sentence of this Section 2.5, Buyer, directly or indirectly, shall assume no liabilities or obligations of Seller and shall not be liable therefor. (b) Schedule 2.5(b) contains a list of all of the Trade Deals in effect as of March 31, 1997 and correctly sets forth the balance, in dollar value, of either (i) Seller's obligations 14 20 to the other party under such Trade Deals (denoted by a minus on Schedule 2.5(b)) or (ii) the amount due Seller under such Trade Deals (reflected as a positive on Schedule 2.5(b)). On the Closing Date, Buyer shall assume Seller's obligations under (i) the Trade Deals listed on Schedule 2.5(b) to the extent that the goods or services to be provided by the advertisers pursuant to such Trade Deals are solely used or useful in connection with the business or operations of any Station and (ii) all Trade Deals entered into by Seller between the date hereof and the Closing Date. The Trade Deals assumed by Buyer pursuant to the terms of this Section 2.5(b) shall be considered Assumed Contracts. 2.6. ALLOCATION. The parties hereto acknowledge that the transactions contemplated hereby must be reported in accordance with Section 1060 of the Code. Accordingly, the parties shall report such transactions for all purposes in accordance with the Purchase Price allocation set forth on Schedule 2.6 hereto. 2.7. EARNEST MONEY. (a) Concurrently with the execution of this Agreement, Buyer shall deposit the Deposit Letter of Credit with the Escrow Agent to be held in escrow in accordance with the Deposit Escrow Agreement. (b) Subject to satisfaction of the conditions to the obligations set forth in Article VIII, at the Closing, Seller shall instruct the Escrow Agent to release and return the Deposit Letter of Credit to Buyer for cancellation. (c) If this Agreement is terminated as provided in Section 10.1, Buyer and Seller shall instruct the Escrow Agent to release the Deposit Letter of Credit to Buyer or to Seller, all as provided in Section 10.2. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1. REPRESENTATIONS AND WARRANTIES REGARDING SELLER. Seller represents and warrants to Buyer as follows (with the understanding that Buyer is relying on such representations and warranties in entering into and performing this Agreement). (a) Organization, Good Standing, Etc. Seller is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts, has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted and is duly qualified and in good standing to do business in each state listed on Schedule 3.1(a), which states represent every jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary. Seller has delivered to Buyer true and complete copies of its Articles of Organization and Bylaws, as in effect at the date of this Agreement. Seller is not in violation of any provisions of its Articles of Organization or Bylaws. 15 21 (b) Subsidiaries of Seller. Seller does not own, directly or indirectly, any equity interest in, any other corporation, partnership, or other person or have the right, pursuant to a contract or otherwise, to acquire any capital stock, equity interest or other similar investment in any corporation, partnership, or other person. (c) Authority. Seller has all requisite corporate power and authority to enter into this Agreement, the Deposit Escrow Agreement, the Bill of Sale and Assignment, the Assumption Agreement, the Indemnification Escrow Agreement, the Non-Competition Agreement and each other agreement, document, and instrument required to be executed by Seller in accordance herewith (collectively, the "Transaction Documents") and to consummate the transactions contemplated hereby or thereby. The execution and delivery of the Transaction Documents by Seller and the consummation by Seller of the transactions contemplated hereby or thereby have been duly authorized by all necessary corporate action on the part of Seller, including, without limitation, the requisite approval of the holders of the outstanding capital stock of Seller entitled to vote thereon. The Transaction Documents have been, or upon execution and delivery will be, duly executed and delivered and constitute the valid and binding obligations of Seller enforceable against it in accordance with their terms, subject as to enforceability to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (d) No Conflict; Required Filings and Consents. The execution and delivery of the Transaction Documents by Seller do not and the performance by Seller of the transactions contemplated hereby or thereby will not, subject to obtaining the consents, approvals, authorizations, and permits and making the filings described in this Section 3.1(d), (i) violate, conflict with, or result in any breach of any provision of Seller's Articles of Organization and Bylaws, (ii) violate, conflict with, or result in a violation or breach of, or constitute a default (with or without due notice or lapse of time or both) under, or permit the termination of, or result in the acceleration of, or entitle any party to accelerate (whether as a result of a change of control of Seller or otherwise) any material obligation, or result in the loss of any material benefit, or give any person the right to require any security to be repurchased, or give rise to the creation of any material lien, charge, security interest, or encumbrance upon any of the Assets under any of the terms, conditions, or provisions of any loan or credit agreement, note, bond, mortgage, indenture, or deed of trust, or any license, lease, agreement, or other instrument or obligation to which Seller is a party or by which it or any of the Assets may be bound or subjected, or (iii) violate any order, writ, judgment, injunction, decree, statute, law, rule, or regulation, of any Governmental Entity applicable to Seller or by which or to which any material Assets are bound or subject. No Consent of any Governmental Entity is required by or with respect to the Seller in connection with the execution and delivery of any Transaction Documents by Seller or the consummation of the transactions contemplated hereby or thereby, except for (A) the filing of a premerger notification report under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and (B) the FCC Consents (as contemplated by Section 7.1 hereof). 16 22 (e) Reports; Financial Statements; Absence of Certain Changes or Events. (i) Seller has filed all forms, reports, statements, and other documents required to be filed with the FCC. Seller has filed all forms, reports, statements, and other documents required to be filed with any and all other Governmental Entities. All such forms, reports, statements and other documents required to be filed with the FCC or any other Governmental Entity are referred to herein, collectively, as the "Company Reports". The Company Reports were prepared in all material respects in accordance with the requirements of applicable law. (ii) Seller has delivered to Buyer copies of (A) the reviewed balance sheets of Seller as of December 31, 1995 and December 31, 1996, together with the reviewed statements of income and cash flows of Seller for the periods then ended, and the notes thereto, accompanied by the reports thereon of Arthur Andersen LLP, independent public accountants (the "Reviewed Financial Statements"), and (B) the internally prepared balance sheet of Seller as of March 31, 1997, together with the related unaudited statements of income for the period then ended. The Reviewed Financial Statements, including the notes thereto, were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby (except to the extent disclosed therein or required by changes in GAAP) and present accurately the information purported to be presented therein as of such dates and for the periods then ended. (iii) Except as disclosed in Schedule 3.1(e), there is no material liability or obligation of any kind, whether accrued, absolute, fixed, contingent, or otherwise, of Seller that is not reflected or reserved against in the balance sheet for the period ended March 31, 1997 (the "Balance Sheet"), other than (A) liabilities incurred in the ordinary course of business in a manner consistent with past practice since March 31, 1997 (the "Balance Sheet Date"), or (B) any such liability or obligation which would not be required to be presented in financial statements or the notes thereto prepared in conformity with GAAP applied, in a manner consistent with past practice, in the preparation of the Financial Statements. (iv) Except as disclosed in Schedule 3.1(e), since the Balance Sheet Date, Seller has conducted its business only in the ordinary course consistent with past practice and nothing has occurred that would have been prohibited by Section 4.1 if the terms of such section had been in effect as of and after the Balance Sheet Date. Since the Balance Sheet Date, there has not occurred, and Seller has not incurred or suffered, any event, circumstance, or fact that could result in a Material Adverse Effect. Additionally, since the Balance Sheet Date, there has not occurred, and Seller has not incurred or suffered, any event, circumstance, or fact that materially impairs the physical assets of any of the Stations. 17 23 (f) Compliance with Applicable Laws: FCC Matters. (i) The business of Seller has been conducted in compliance in all material respects with each Applicable Law. No investigation or review by any Governmental Entity with respect to Seller is pending or, to the Knowledge of Seller, threatened. Without limiting the generality of the foregoing, Seller has complied with the Communications Act of 1934, as amended, and all material rules, regulations and written policies of the FCC thereunder (collectively, the "Communications Act"), all obligations with respect to equal employment opportunity under Applicable Law, and all material rules and regulations of the Federal Aviation Administration applicable to each of the towers used or held for use by a Station. In addition, Seller has duly filed, or caused to be so filed, with the FCC and other appropriate Governmental Entities all reports, statements, documents, registrations, filings, or submissions with respect to the operation of each Station and the ownership thereof, including, applications for renewal of authority required by Applicable Law to be filed. All such FCC filings complied in all material respects with Applicable Laws when made, and no deficiencies have been asserted with respect to any such filings. The material required by 47 C.F.R. Section 73.3526 to be kept in the public inspection files of each Station is in such files and was placed in such files at the appropriate times. (ii) Schedule 3.1(f) is a true and complete list of (A) all of the FCC Licenses, including the expiration dates thereof, as of the date of this Agreement and (B) all other material licenses, permits, or authorizations issued to Seller by any other Governmental Entities and held by it as of the date of this Agreement. Such FCC Licenses, licenses, permits, and authorizations, and all pending applications for modification, extension, or renewal thereof or for new licenses, permits, permissions, or authorizations, are collectively referred to herein as the "Station Licenses." Schedule 3.1(f) accurately lists the legally authorized holder(s) of the Station Licenses. The Station Licenses constitute all the licenses, permits and authorizations required for the operation of each of the Stations and the business of Seller, and each of the Station Licenses is in full force and effect. Each of the Stations has been operated in all material respects in accordance with the terms of its Station Licenses and the Seller is otherwise in compliance with, and has conducted its business so as to comply with, the terms of such Station Licenses. There are no proceedings pending or, to the Knowledge of Seller, threatened with respect to Seller's ownership or operation of any Station which reasonably may be expected to result in the revocation, material adverse modification, non- renewal, or suspension of any of the Station Licenses, the denial of any pending applications for any Station Licenses, the issuance against Seller of any cease and desist order, or the imposition of any administrative actions by the FCC, including the proposed assessment of fines or penalties, or any other Governmental Entity with respect to any Station Licenses, or which reasonably may be expected to adversely affect any Station's ability to operate as currently operated or Buyer's ability to obtain control of any Station Licenses or to operate any Station. To the Knowledge of Seller, no other broadcast station or radio communications facility is causing interference to any Station's transmissions beyond that which is allowed by FCC rules and regulations and no Station is causing 18 24 interference to any other broadcast station or radio communications facilities' transmissions beyond that which is allowed by the FCC rules and regulations. To the Knowledge of Seller, there is no reason to believe that the FCC will not renew any of the Station Licenses issued by the FCC in the ordinary course of business. To the Knowledge of Seller, there are no facts relating to Seller under the Communications Act that reasonably may be expected to disqualify Seller from transferring control of any of the Station Licenses pursuant to the terms of this Agreement or that would prevent the consummation by Seller of the transactions contemplated by this Agreement. (g) Absence of Litigation. Except as set forth on Schedule 3.1(g), there is no claim, action, suit, inquiry, judicial, or administrative proceeding, grievance, or arbitration pending or, to the Knowledge of Seller, threatened against Seller or any of the Assets by or before any arbitrator or Governmental Entity, nor are there any investigations relating to Seller or any of the Assets pending or, to the Knowledge of Seller, threatened by or before any arbitrator or Governmental Entity. Except as set forth in Schedule 3.1(g), there is no judgment, decree, injunction, order, determination, award, finding, or letter of deficiency of any Governmental Entity or arbitrator outstanding against Seller or any of the Assets. There is no action, suit, inquiry, judicial, or administrative proceeding pending or, to the Knowledge of Seller, threatened against Seller relating to the transactions contemplated by this Agreement. (h) Insurance. Since January 1, 1994, Seller has been insured against such risks as companies engaged in a similar business would, in accordance with good business practice, customarily be insured. Schedule 3.1(h) lists all fire, general liability, malpractice liability, theft, and other forms of insurance and all fidelity bonds held by or applicable to Seller. Except as set forth on Schedule 3.1(h), the policies of general liability, malpractice liability, fire, theft, and other insurance maintained with respect to the operations, assets, or business of Seller provide adequate coverage against loss. To the Knowledge of Seller, no event has occurred, including the failure by Seller to give any notice or information or the delivery of any inaccurate or erroneous notice or information, which limits or impairs the rights of Seller under any such insurance policies in such a manner as could have a Material Adverse Effect. Excluding insurance policies that have expired and been replaced in the ordinary course of business, no insurance policy has been canceled within the last two years prior to the date hereof. (i) Owned Real Property. Schedule 3.1(i) contains an accurate description of all the Owned Real Property. Except as set forth on Schedule 3.1(j) and subject to any Permitted Encumbrances, Seller has good and marketable, fee simple, absolute title in and to the Owned Real Property. Seller has sufficient title to such easements, rights of way and other rights appurtenant to each of the Owned Real Properties as are necessary to permit ingress and egress to and from the Owned Real Property to a public way, and the improvements on the Owned Real Property have access to such sewer, water, gas, electric, telephone and other utilities as are necessary to allow the business of the Seller operated thereon to be operated in the ordinary course. There is no pending condemnation or similar proceeding affecting the Owned Real Property or any portion thereof, and to the Knowledge of Seller, no such action is threatened. Except as set forth on Schedule 3.1(i), the 19 25 improvements located on the Owned Real Property are in sufficiently good condition (except for ordinary wear and tear) to allow the business of the Seller to be operated in the ordinary course and there has been no damage to such improvements that affects the conduct of such business in any material respect that has not been repaired or remedied. Except as set forth on Schedule 3.1(i), there are no lessees or tenants at will in possession of any portion of any of the Owned Real Property other than Seller, whether as lessees, tenants at will, trespassers or otherwise. Except as set forth on Schedule 3.1(i), no zoning, building or other federal, state or municipal law, ordinance, regulation or restriction is violated in any material respect by the continued maintenance, operation or use of the Owned Real Property or any tract or portion thereof or interest therein in its present manner. The current use of the Owned Real Property and all parts thereof does not violate any restrictive covenants of record affecting any of the Owned Real Property. All necessary Licenses by any Governmental Entity with respect to the Owned Real Property have been obtained, have been validly issued and are in full force and effect. (j) Leased Real Property. Schedule 3.1(j) contains an accurate description of all the leasehold interests relating to the business and operations of each of the Stations as now conducted. Each lease described in Schedule 3.1(j) is a valid and binding obligation of Seller and is in full force and effect without amendment other than as described in Schedule 3.1(j). Except as otherwise disclosed on Schedule 3.1(j), Seller is not, and to the Knowledge of the Seller, no other party is, in default under any lease described in Schedule 3.1(j). Subject to obtaining the Consents disclosed in Schedule 3.1(j), Seller has the full legal power and authority to assign its rights under the leases listed in Schedule 3.1(j) to Buyer. All leasehold interests listed in Schedule 3.1(j) (including the improvements thereon) are available for immediate use in the conduct of the business and operations of each of the Stations as currently conducted. (k) Personal Property. Schedule 3.1(k) contains a description of the items of Personal Property (having a replacement cost of not less than $25,000 for each item) which comprise all Personal Property used or held for use in connection with the business and operations of each Station or which permit the operation of each Station as now conducted. Except as set forth on Schedule 3.1(k), Seller has good title to, or a valid leasehold or license interest in, all Personal Property and none of the Personal Property is subject to any Lien or other encumbrances, except for Permitted Encumbrances. Seller is not, and to the Knowledge of the Seller, no other party is, in default under any of the leases, licenses and other Contracts relating to the Personal Property. Except as otherwise disclosed in Schedule 3.1(k), the Personal Property (i) is in good operating condition and repair (ordinary wear and tear excepted), (ii) is available for immediate use in the business and operation of each of the Stations as currently conducted and (iii) permits each of the Stations to operate in accordance with the terms of their respective FCC Licenses, and the rules and regulations of the FCC, and with all other applicable federal, state and local statutes, ordinances, rules and regulations. (l) Liens and Encumbrances. All of the Assets, including leases, are free and clear of all liens, pledges, claims, security interests, restrictions, mortgages, tenancies, and other possessory interests, conditional sale or other title retention agreements, assessments, easements, 20 26 rights of way, covenants, restrictions, rights of first refusal, defects in title, encroachments, and other burdens, options or encumbrances of any kind (collectively, "Liens") except (i) Permitted Encumbrances and (ii) Liens set forth on Schedule 3.1(l) (the Liens referred to in clauses (i) and (ii) being "Permitted Liens"). At the Closing, all of the Assets shall be free and clear of all Liens other than Permitted Encumbrances. (m) Environmental Matters. Except as described on Schedule 3.1(m), (i) The real property and facilities owned, operated, and leased by Seller and the operations of Seller thereon comply and have at all times complied in all material respects with all Applicable Laws and rules of common law pertaining to the environment, natural resources, and public or employee health and safety, including all Environmental Laws; (ii) No judicial proceedings are pending or, to the Knowledge of Seller, threatened against Seller alleging the violation of any Environmental Laws, and there are no administrative proceedings pending or, to the Knowledge of Seller, threatened against Seller, alleging the violation of any Environmental Laws and no notice from any Governmental Entity or any private or public person has been received by Seller claiming any violation of any Environmental Laws in connection with any real property or facility owned, operated or leased by Seller, or requiring any remediation, clean-up, modification, repairs, work, construction, alterations, or installations on or in connection with any real property or facility owned, operated or leased by Seller that are necessary to comply with any Environmental Laws and that have not been complied with or otherwise resolved to the satisfaction of the party giving notice; (iii) All permits, registrations, licenses, authorizations, and the like ("Permits") required to be obtained or filed by Seller under any Environmental Laws in connection with Seller's operations, including those activities relating to the generation, use, storage, treatment, disposal, release, or remediation of Hazardous Substances (as such term is defined in Section 3.1(m)(iv) hereof), have been duly obtained or filed, and Seller is and has at all times been in full compliance in all material respects with the terms and conditions of all such Permits; (iv) All Hazardous Substances used or generated by Seller or any of its predecessors on, in, or under any of the owned, operated, or leased real property or facilities are and have at all times been generated, stored, used, treated, disposed of, and released by such persons or on their behalf in such manner as not to result in any material Environmental Costs or Liabilities. "Hazardous Substances" means (A) any hazardous materials, hazardous wastes, hazardous substances, toxic wastes, and toxic substances as those or similar terms are defined under any Environmental Laws; (B) any asbestos or any material which contains any hydrated mineral silicate, including chrysolite, amosite, crocidolite, tremolite, anthophylite and/or actinolite, whether friable or non-friable; (C) PCBs, or PCB-containing 21 27 materials, or fluids; (D) radon; (E) any other hazardous, radioactive, toxic or noxious substance, material, pollutant, contaminant, constituent, or solid, liquid or gaseous waste; (F) any petroleum, petroleum hydrocarbons, petroleum products, crude oil and any fractions or derivatives thereof, any oil or gas exploration or production waste, and any natural gas, synthetic gas and any mixtures thereof; (G) any substance that, whether by its nature or its use, is subject to regulation under any Environmental Laws or with respect to which any Environmental Laws or Governmental Entity requires environmental investigation, monitoring or remediation; and (H) any underground storage tanks, dikes, or impoundments as defined under any Environmental Laws. "Environmental Costs or Liabilities" means any losses, liabilities, obligations, damages, fines, penalties, judgments, settlements, actions, claims, costs and expenses (including, without limitation, reasonable fees, disbursements and expenses of legal counsel, experts, engineers and consultants, and the costs of investigation or feasibility studies and performance of remedial or removal actions and cleanup activities) in connection with (1) any Environmental Laws, (2) order of, or contract of Seller with, any Governmental Entity or any private or public persons or (3) any exposure of any person or property to Hazardous Substances; (v) There are not now, nor have there been in the past, on, in or under any property or facilities when owned, leased, or operated by Seller or, to the knowledge of the Seller, when owned, leased, or operated by any of its predecessors, any Hazardous Substances that are in a condition or location that violates any Environmental Law or that reasonably could be expected to require remediation under any Environmental Laws or give rise to a claim for damages or compensation by any affected person or to any Environmental Costs or Liabilities; and (vi) Seller has not received, and to the Knowledge of Seller, does not expect to receive, any notification from any source advising Seller that: (A) it is a potentially responsible party under CERCLA or any other Environmental Laws; (B) any real property or facility currently or previously owned, operated, or leased by it is identified or proposed for listing as a federal National Priorities List ("NPL") (or state-equivalent) site or a Comprehensive Environmental Response, Compensation and Liability Information System ("CERCLIS") list (or state-equivalent) site; and (C) any facility to which it has ever transported or otherwise arranged for the disposal of Hazardous Substances is identified or proposed for listing as an NPL (or state-equivalent) site or CERCLIS (or state-equivalent) site. (n) Taxes. Seller has filed or caused to be filed all Tax Returns affecting the Stations or the Assets which are required to be filed by Seller, all such Tax Returns which have been filed are materially accurate and complete, and Seller has timely paid all Taxes shown on such returns or on any Tax assessment received by Seller to the extent that such Taxes have become due or is contesting such Taxes or assessments. There are no Liens for Taxes upon the Stations or the Assets except for the Permitted Encumbrances. Seller has not received notice of any Tax deficiency or delinquency. No Internal Revenue Service audit of Seller is pending or, to the Knowledge of 22 28 Seller, threatened, and the results of any completed audits are properly reflected in the Financial Statements. Substantially all monies required to be withheld by Seller from employees or collected from customers for Taxes and the portion of any Taxes to be paid by Seller to governmental agencies or set aside in accounts for such purposes have been so paid or set aside, or such monies have been reserved against and entered upon the books and are reflected in the Balance Sheet. There are no legal, administrative, or tax proceedings pursuant to which Seller is or could be made liable for any taxes, penalties, interest, or other charges, the liability for which could extend to Buyer as transferee of the business of the Stations. (o) Certain Agreements. (i) Schedule 3.1(o) hereto lists each (A) employment or consulting Contract which is not terminable without liability or penalty on 30 days or less notice, (B) Contract under which any party thereto remains obligated to provide goods or services having a value, or to make payments aggregating, in excess of $50,000 per year, and (C) other Contract that is material to the operation of the Stations or to the Seller's business, in any such case to which Seller is a party or Seller or the Assets is bound. Each such Contract described in Schedule 3.1(o) or required to be so described is a valid and binding obligation of Seller and is in full force and effect without amendment. Except as set forth on Schedule 3.1(o), Seller and, to the Knowledge of Seller, each other party to such Contracts, has performed in all material respects the obligations required to be performed by it under such Contracts and is not (with or without lapse of time or the giving of notice, or both) in breach or default thereunder. Schedule 3.1(o) identifies, as to each such Contract listed thereon, whether the consent of the other party thereto is required, and the extent of any payments required, in order for such Contract to continue in full force and effect upon the consummation of the transactions contemplated hereby or whether such Contract can be canceled by the other party without liability to such other party due to the consummation of the transactions contemplated hereby. A complete copy of each written Contract and a description of each oral Contract set forth in Schedule 3.1(o) has been provided to Buyer prior to the date of this Agreement. (ii) Except as set forth on Schedule 3.1(o), Seller is not a party to any oral or written agreement, plan or arrangement with any employee or other station or broadcast personnel (whether an employee, consultant or an independent contractor) of Seller (A) the benefits of which are contingent, or the terms of which are materially altered, upon, or result from, the occurrence of a transaction involving Seller of the nature of any of the transactions contemplated by this Agreement, (B) providing severance benefits longer than forty-five days or other benefits after the termination of employment or other contractual relationship regardless of the reason for such termination and regardless of whether such termination is before or after a change of control, (C) under which any person may receive payments subject to the tax imposed by Section 4999 of the Code or (D) any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits 23 29 of which will be calculated on the basis of any of the transactions contemplated by this Agreement. (p) ERISA Compliance; Labor. (i) The present value of all accrued benefits (vested and unvested) under all the Employee Pension Benefit Plans, which Seller or any other trades or businesses under common control within the meaning of Section 4001(b)(1) of ERISA with Seller (collectively, the "ERISA Group") maintains, or to which Seller or any member of the ERISA Group is or has been obligated to contribute (the "Pension Plans"), did not, as of the respective last annual valuation dates for such Pension Plans, exceed the value of the assets of such Pension Plan allocable to such benefits. None of such Pension Plans subject to Title IV of ERISA or any of their related trusts has been terminated or partially terminated. Neither Seller or any member of the ERISA Group has contributed or been obligated to contribute to any Multiemployer Plan. Except as set forth on Schedule 3.1(p), neither Seller nor any member of the ERISA Group has any Employee Benefit Plans. (ii) True, correct, and complete copies of each of the Employee Benefit Plans, and related trusts, if applicable, have been furnished to Buyer, along with the most recent report filed on Form 5500 and summary plan description with respect to each Employee Benefit Plan required to file Form 5500. (iii) Seller is not a party to any collective bargaining agreement. Seller has not agreed to recognize any union or other collective bargaining representative, nor has any union or other collective bargaining representative been certified as the exclusive bargaining representative of any of its employees. Seller (A) is, and has always been since January 1, 1995, in substantial compliance with all applicable laws regarding labor, employment and employment practices, terms and conditions of employment, equal employment opportunity, employee benefits, affirmative action, wages and hours, plant closing and mass layoff, occupational safety and health, immigration, and workers' compensation, (B) is not engaged, nor has it since January 1, 1995, engaged, in any unfair labor practices, and has no, and has not had since January 1, 1995, any, unfair labor practice charges or complaints before the National Labor Relations Board pending or, to the Knowledge of Seller threatened against it, (C) has no, and has not had since January 1, 1995, any, grievances, arbitrations, or other proceedings arising or asserted to arise under any collective bargaining agreement, pending or, to the Knowledge of Seller threatened, against it and (D) has no, and has not had since January 1, 1995, any, charges, complaints, or proceedings before the Equal Employment Opportunity Commission, Department of Labor or any other Governmental Entity responsible for regulating employment practices, pending, or, to Seller's Knowledge, threatened against it. There is no labor strike, slowdown, work stoppage or lockout pending or, to the Knowledge of Seller, threatened against or affecting Seller, and Seller has not experienced any labor strike, slowdown, work stoppage or lockout since January 1, 1995. To 24 30 the Knowledge of Seller no union organizational campaign or representation petition is currently pending with respect to any of the employees of Seller. (q) Patents, Trademarks, Etc. Schedule 3.1(q) is a true and complete list of all of the Intellectual Property. Except as set forth on Schedule 3.1(q), Seller owns or has the unencumbered right to use pursuant to a valid, binding, and enforceable license agreement or other contract or arrangement all such Intellectual Property. To the Knowledge of Seller, Seller is not infringing any such Intellectual Property, and Seller is not aware of any infringement by others of any of the Intellectual Property owned by Seller. (r) Affiliate Relationships. Except as set forth on Schedule 3.1(r), there are no contracts or other arrangements involving Seller in which any member, manager, officer, director, or Affiliate of Seller has a financial interest, including indebtedness to Seller. (s) Assets. The Assets and the Excluded Assets include substantially all assets used or held for use in connection with the business and operations of the Stations as currently conducted. (t) No Dispositions. Since the Balance Sheet Date, there has not occurred any sale, lease, transfer, assignment, abandonment or other disposition of any of the assets of any Station other than any disposition of (i) obsolete property,(ii) property in connection with the acquisition of replacement property of equal value, or (iii) assets having, in the aggregate, a value of less than $50,000 disposed of in the ordinary course of business and consistent with past practices. (u) No Knowledge of Buyer's Breach. Seller has no Knowledge of any breach of representation or warranty by Buyer or of any other condition or circumstance that would excuse Seller from its timely performance of its obligations hereunder. Seller shall notify Buyer as promptly as practicable if any such information comes to its attention prior to the Closing Date. 3.2. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller as follows (with the understanding that Seller is relying on such representations and warranties in entering into and performing this Agreement): (a) Organization Standing and Power. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware 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) Authority. Buyer has all requisite corporate power and authority to enter into the Transaction Documents to which it will be a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of such Transaction Documents by Buyer and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Buyer. The Transaction Documents 25 31 to which Buyer will be a party have been, or upon execution and delivery will be, duly executed and delivered and constitute the valid and binding obligations of Buyer, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (c) No Conflict; Required Filings and Consents. The execution and delivery of the Transaction Documents to which Buyer will be a party do not and the performance by Buyer of the transactions contemplated hereby or thereby will not, subject to obtaining the consents, approvals, authorizations, and permits and making the filings described in this Section 3.2(c), (A) violate, conflict with, or result in any breach of any provisions of Buyer's Articles of Incorporation and Bylaws, (B) violate, conflict with, or result in a violation or breach of, or constitute a default (with or without due notice or lapse of time or both) under, or permit the termination of, or result in the acceleration of, or entitle any party to accelerate (whether as a result of a change of control of Buyer or otherwise) any obligation, or result in the loss of any benefit, or give any person the right to require any security to be repurchased, or give rise to the creation of any lien, charge, security interest, or encumbrance upon any of the Assets under any of the terms, conditions, or provisions of any loan or credit agreement, note, bond, mortgage, indenture, or deed of trust, or any license, lease, agreement, or other instrument or obligation to which Buyer is a party or by which it or any of the Assets may be bound or subjected, or (C) violate any order, writ, judgment, injunction, decree, statute, law, rule or regulation, of any Governmental Entity applicable to Buyer or by which or to which any of the Assets is bound or subject. No Consent of any Governmental Entity is required by or with respect to Buyer in connection with the execution and delivery of any Transaction Documents by Buyer or the consummation by it of the transactions contemplated hereby or thereby, except for (A) the filing of a premerger notification report under the HSR Act and (B) the FCC Consents (as contemplated by Section 7.1) (d) Litigation. As of the date hereof, there is no action, suit, inquiry, judicial or administrative proceeding pending or, to the Knowledge of Buyer, threatened against it relating to the transactions contemplated by this Agreement. (e) FCC Matters. There are no facts relating to Buyer under the Communications Act or otherwise that reasonably may be expected to disqualify it from qualifying as an assignee of the Station Licenses or that would prevent it from consummating the transactions contemplated by this Agreement. Buyer hereby represents and warrants that it is able to certify on an FCC Form 314 that it is financially qualified. (f) No Knowledge of Seller's Breach. Buyer has no Knowledge of any breach of representation or warranty by Seller or of any other condition or circumstance that would excuse Buyer from its timely performance of its obligations hereunder. Buyer shall notify Seller as promptly as practicable if any such information comes to its attention prior to the Closing Date. 26 32 (g) No Assurance. Buyer is relying solely on the express representations, warranties and covenants of Seller contained in this Agreement and Transaction Documents, and upon no other representations or statements of Seller or any of its Affiliates or their respective directors, officers, employees, agents or representatives, and acknowledges and agrees that nothing in this Agreement or the Transaction Documents shall be deemed to create any additional implied duty, disclosure obligation or responsibility on the part of Seller or its Affiliates. ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS 4.1. COVENANTS OF SELLER. Except as contemplated by this Agreement or to the extent that Buyer shall otherwise consent in writing, from the date of this Agreement until the Closing, Seller covenants and agrees that Seller shall not: (a) conduct its business in any manner except in the ordinary course consistent with past practice, including, without limitation, with respect to Trade Deals and other barter arrangements; or (b) fail to use commercially reasonable efforts to preserve intact Seller's business organization substantially as in effect as of this date and to preserve its relationships with customers, suppliers and others having business dealings with it substantially as in effect as of this date; or (c) fail to use commercially reasonable efforts to maintain the Assets in their current condition except for ordinary wear and tear and damage by casualty governed by Section 7.6; or (d) fail to use all commercially reasonable efforts to maintain the present programming of the Stations consistent with past practices; or (e) except for amendments, terminations (without payment of penalty or damages), renewals, or failures to renew (without payment of penalty or damages) of employment agreements with over-the-air personnel in the ordinary course of business and consistent with past practice (subject to prior consultation with Buyer reasonably in advance thereof), materially amend or terminate (i.e., a contract or agreement of the type required to be described in Schedule 3.1(o)), or default in any material respect (or take or omit to take any action that, with or without the giving notice or passage of time, would constitute a material default) under any material Contract; or (f) merge or consolidate with or into any other legal entity, dissolve, or liquidate; or (g) except as required by the terms and provisions of written contracts between Seller and an employee thereof as in existence on March 31, 1997 or in connection with any 27 33 reasonable amendments required by the provider or underwriter of any Employee Benefit Plan in connection with the annual renewal of such Employee Benefit Plans, adopt or amend any Employee Benefit Plan or collective bargaining agreement; or (h) except as set forth in Schedule 4.1(h), sell (whether by merger, consolidation, or the sale of an equity interest or assets), lease, or dispose of any Assets except in the ordinary course of business and consistent with past practice or, even if in the ordinary course of business and consistent with past practices (other than sales of surplus or obsolete equipment), whether in one or more transactions, in no event involving an Asset or Assets having an aggregate fair market value in excess of $50,000; or (i) mortgage, pledge, or subject to any material Lien which will not be removed or released at or prior to Closing, other than Permitted Encumbrances, any of the Assets; or (j) except as required by GAAP, applicable law, or circumstances which did not exist as of the Balance Sheet Date, change any of the material accounting principles or practices used by it; or (k) change in any material respect its existing practices and procedures with respect to the collection of accounts receivable of the Stations and, except with respect to good faith attempts consistent with past practice to obtain payment of a past due receivable, or except in accordance with existing practices, a contested receivable, offer to discount the amount of any outstanding receivable or extend any other incentive (whether to the account debtor or any employee or third party responsible for the collection of receivables) to accelerate the collection thereof; or (l) change any Station's advertising rates or policies, procedures or methods in connection with the sale of advertising time in a manner expected to accelerate the receipt of cash payments or fail to incur annual advertising and promotional department expenses in cash and trade other than as budgeted for 1997 (as such budget previously has been delivered to Buyer); or (m) enter into, or enter into negotiations or discussions with any person other than Buyer with respect to any local marketing agreement or any other similar agreement; or (n) agree to or make any commitment, orally or in writing, to take any actions prohibited by this Agreement. 4.2. ENVIRONMENTAL SITE ASSESSMENTS. If Buyer or its lenders or other financing sources require Phase I or Phase II ESAs, Seller covenants and agrees that, upon written notice from Buyer to Seller identifying the locations at which such ESAs are required, Seller shall cooperate and permit Buyer to cause to be performed by a nationally recognized and duly qualified environmental consultant selected by Buyer, with the consent of Seller (which consent shall not be unreasonably withheld), an ESA at each identified transmission site owned, operated, or leased by Seller and at such other identified real properties and facilities owned, operated, or leased by Seller. The ESAs 28 34 which are to be conducted for the benefit of Buyer shall be performed in a manner that at a minimum satisfies the requirements of ASTM Practice E 1527-94. The cost of any ESAs shall be borne by Buyer. Any site visits made by Buyer's consultants shall be performed in collaboration with Seller's designees in accordance with a schedule mutually agreed upon in advance. Buyer and/or its contractors will be accompanied by the Seller's representatives at all times, and no notification or discussions of environmental matters shall be initiated with governmental agencies or third parties without the prior notice to and agreement by Seller. If Buyer, based upon the conclusions in any Phase I report, desires to perform intrusive testing, Buyer shall present such request and the supporting written justification to Seller and both parties shall use reasonable best efforts to mutually agree upon the scope and nature of any such intrusive investigation. Any intrusive investigation shall be under the supervision of Seller and all results of any intrusive investigation shall be immediately shared with Seller. 4.3. BROADCAST TRANSMISSION INTERRUPTION. Seller shall give prompt written notice to Buyer if before the Closing the regular broadcast transmission of any of the Stations in the normal and usual manner is interrupted for a period of two consecutive hours or more, excluding interruptions for normal and routine maintenance. ARTICLE V ADDITIONAL AGREEMENTS OF SELLER 5.1. NO SOLICITATION OF TRANSACTIONS. Seller shall not, directly or indirectly, through any officer, director, stockholder, employee, agent, financial advisor, banker or other representative, or otherwise, solicit, initiate, or encourage the submission of any proposal or offer from any person relating to any acquisition or purchase of all or any material portion of the Assets or any equity interest in Seller or any merger, consolidation, share exchange, business combination, or other similar transaction with Seller or participate in any negotiations regarding, or furnish to any other person any information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate, or encourage, any effort or attempt by any other person to do or seek any of the foregoing. Seller shall immediately communicate to Buyer the material terms of any such proposal (and the identity of the party making such proposal) which it may receive and, if such proposal is in writing, the Seller shall promptly deliver a copy of such proposal to Buyer. Seller agrees not to release any third party from, or waive any provision of, any confidentiality or standstill agreement to which Seller is a party. Seller immediately shall cease and cause to be terminated all existing discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. 5.2. ACCESS AND INFORMATION. (a) Until the Closing, subject only to applicable rules and regulations of the FCC, Seller shall afford to Steven R. Hicks, William S. Banowsky, Jr., Paul Stone, Buyer's chief engineer, and other employees and representatives of Buyer upon Buyer's reasonable request(including accountants and counsel) full access, during normal business hours, upon reasonable notice and in such manner as will not unreasonably interfere with the conduct of the 29 35 business of Seller, to all properties, books, records, and Tax Returns of Seller and all other information reasonably requested with respect to its business, together with the opportunity to make copies of such books, records, and other documents and to discuss the business of Seller with such officers, directors, station managerial personnel (including the Station Management of each Station), accountants, consultants, and counsel for Seller as Buyer deems reasonably necessary or appropriate for the purposes of familiarizing itself with Seller and the Stations, including the right to visit the Stations. In furtherance of the foregoing, Seller shall authorize and instruct its independent public accountants to meet with Buyer and its representatives, including Buyer's independent public accountants in Boston, Massachusetts, to discuss the business and accounts of Seller and to make available (with the opportunity to make copies) to Buyer and its representatives, including its independent public accountants, all the work papers of its accountants related to their audit of the consolidated financial statements and Tax Returns of Seller. (b) Within 30 days after the end of each calendar month, Seller shall deliver to Buyer, for each of the Stations, and for Seller as a whole, monthly operating statements (in a form consistent with the monthly operating statements previously supplied to Buyer) prepared in the ordinary course of business for internal purposes. In addition, within 45 days after the end of each calendar quarter, Seller shall deliver to Buyer, for each of the Stations, quarterly statements prepared in the ordinary course for internal purposes. Seller shall deliver to Buyer the rating books and such other ratings information subscribed to by Seller including, without limitation, Arbitrends, Accuratings or any other written information reflective of the quantitative or qualitative nature of the audiences of the Stations for each of the Stations within ten days of receipt of the same by any officer or director of Seller. Seller shall instruct the Station Management of each Station to provide such information and reports to Buyer's corporate officers promptly upon receipt by such Station Management. In addition, as soon as the same are distributed to Seller's officers or directors by each Station, Seller will provide Buyer with copies of each Station's monthly sales pacing reports. (c) Without duplication of Section 5.2(b), at such time as Seller provides the same to its lenders, Seller shall provide Buyer with copies of the financial statements and other information delivered by Seller to such lenders. 5.3. ASSISTANCE. If Buyer requests, Seller will cooperate, and will cause its accountants to cooperate, in all reasonable respects with any financing efforts of Buyer or its Affiliates (including providing assistance in the preparation of one or more registration statements or other offering documents relating to debt and/or equity financing) and any other filings that may be made by Buyer or its Affiliates with the SEC, all at the sole expense of Buyer. Seller (a) shall furnish to its independent accountants (or, if requested by Buyer to Buyer's independent public accountants), such customary management representation letters as its accountants may require of Seller as a condition to its execution of any required accountants' consents necessary in connection with the delivery of any "comfort" letters requested by financing sources of Buyer or its Affiliates and (b) shall furnish to Buyer all financial statements (audited and unaudited) and other information in the possession of Seller or its representatives or agents as Buyer shall reasonably determine is necessary or appropriate in connection with such financing. Buyer will indemnify and hold harmless Seller and its, officers, 30 36 directors, and controlling persons against any and all claims, losses, liabilities, damages, costs, or expenses (including reasonable attorneys' fees and expenses) that may arise out of or with respect to the financing efforts by Buyer or its Affiliates, including any registration statement, prospectus, offering documents, and other filings related thereto; provided, however, that subject to the limitations and provisions of this Agreement, nothing herein shall prevent Buyer from asserting any claim for breach of representation or warranty under this Agreement. 5.4. COMPLIANCE WITH STATION LICENSES. Seller shall cause the Stations to be operated in material accordance with the Station Licenses and all applicable rules and regulations of the FCC and in material compliance with all other applicable laws, regulations, rules, and orders. Seller shall use all commercially reasonable efforts not to cause or permit any of the Station Licenses to expire or be surrendered, adversely modified, or terminated. Seller shall file or cause to be filed with the FCC all applications (including license renewals) or other documents required to be filed in connection with the operation of the Stations. In addition, if requested by Buyer and at Buyer's sole expense, Seller shall file or cause to be filed with the FCC modification applications that may be useful in connection with the operation of the Stations. Should the FCC institute any proceedings for the suspension, revocation or adverse modification of any of the Station Licenses or any forfeiture proceedings, Seller will use all commercially reasonable efforts to promptly contest such proceedings and to seek to have such proceedings terminated in a manner that is favorable to the Stations. Seller will use all commercially reasonable efforts to maintain the FCC construction permits (if any) listed in Schedule 3.1(f) in effect until the applicable construction projects are timely completed and to diligently prosecute all pending FCC applications listed in Schedule 3.1(f). If Seller (or its FCC counsel) receives an administrative or other order or notification relating to any violation or claimed violation of the rules and regulations of the FCC, or of any other Governmental Entity, or should Seller (or its FCC counsel) become aware of any fact relating to the qualifications of Buyer that reasonably could be expected to cause the FCC to withhold its consent to the assignment of the Station Licenses, Seller shall promptly notify Buyer in writing and use its commercially reasonable efforts to take such steps as may be necessary to remove any such impediment to the transactions contemplated by this Agreement. 5.5. NOTIFICATION OF CERTAIN MATTERS. Seller shall give prompt written notice to Buyer of (a) the occurrence, or failure to occur, of any event of which it becomes aware that has caused or that would be likely to cause any representation or warranty of Seller contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date hereof to the Closing Date, (b) the failure of Seller, or any officer, director, employee, or agent of Seller, to comply with or satisfy in any material respect any covenant, condition, or agreement to be complied with or satisfied by it hereunder, (c) the occurrence of a Station Event (as defined in Section 9.1), and (d) the occurrence of any threat made to Seller by any of Seller or any General Manager, Station Manager, General Sales Manager or Programming Director of a Station to resign or otherwise terminate their employment or independent contractor relationship with Seller. No such notification shall affect the representations or warranties of the parties or the conditions to their respective obligations hereunder. 31 37 5.6. THIRD PARTY CONSENTS. After the date hereof and prior to the Closing, Seller shall use all commercially reasonable efforts, including making any required payments, to obtain the written consent from any party to an agreement or instrument identified in Schedule 3.1(o) or any other Assumed Contract which is required to permit the consummation of the transactions contemplated hereby. ARTICLE VI COVENANTS OF BUYER 6.1. NOTIFICATION OF CERTAIN MATTERS. If Buyer (or its FCC counsel) receives an administrative or other order or notification relating to any violation or claimed violation of the rules and regulations of the FCC, or of any Governmental Entity, that could affect Buyer's ability to consummate the transactions contemplated hereby, or should Buyer (or its FCC counsel) become aware of any fact relating to the qualifications of Buyer that reasonably could be expected to cause the FCC to withhold its consent to the assignment of the Station Licenses, Buyer shall promptly notify Seller thereof and shall use its commercially reasonable efforts to take such steps as may be necessary to remove any such impediment to the assignment of the FCC Licenses or the completion of the transactions contemplated by this Agreement; provided, however, that Buyer shall not be required pursuant to this Section 6.1 to divest itself or cause any Affiliate thereof to divest itself of any media business or interest therein. In addition, Buyer shall give to Seller prompt written notice of (a) the occurrence, or failure to occur, of any event of which it becomes aware that has caused or that would be likely to cause any representation or warranty of Buyer contained in this Agreement to be untrue or inaccurate at any time from the date hereof to the Closing Date, and (b) the failure of Buyer, or any officer, director, employee, or agent thereof, to comply with or satisfy in any material respect any covenant, condition, or agreement to be complied with or satisfied by it hereunder. No such notification shall affect the representations or warranties of the parties or the conditions to their respective obligations hereunder. 6.2. EMPLOYEE MATTERS. Buyer will use its reasonable efforts to determine at least ten days prior to the Closing Date those employees of Seller whom it desires to extend offers of employment. Any offers so extended by Buyer shall be on such terms and conditions that Buyer shall determine in its sole discretion. Buyer will give Seller prompt notice of the names of any employee of Seller who Buyer has determined not to extend an offer of employment. Seller waives any claims against Buyer and any of Seller's employees who are extended an offer of employment by Buyer arising from such employment by Buyer including any claims arising under any employment agreement or non-competition agreement between such person and Seller. 6.3. CERTAIN LEGAL QUALIFICATIONS. Buyer covenants that it has not taken and, after the date of this Agreement, it shall not take any action that could reasonably be expected to prevent the parties from obtaining the FCC Consents or the consents of any other Governmental Entity necessary to consummate the transactions contemplated hereby. 32 38 6.4. SELLER'S ACCESS TO REAL PROPERTY. Seller shall have the right following the Closing Date to have reasonable access, upon five days prior written notice, to the Real Property for the purpose of complying with any obligations under Environmental Laws. ARTICLE VII MUTUAL COVENANTS 7.1. APPLICATION FOR FCC CONSENTS. By the tenth business day after the date hereof, Seller and Buyer will, and will cause all necessary persons or entities to join in one or more applications filed with the FCC requesting the FCC's written consent to the assignment of the FCC Licenses pursuant to this Agreement (the "Applications"). The parties will take all proper steps reasonably necessary (a) to diligently prosecute the Applications and (b) to obtain the FCC Consents. The failure by either party to timely file or diligently prosecute its portion of any Application shall be a material breach of this Agreement; provided, however, that Buyer shall not be required pursuant to this Section 7.1 to divest itself or cause any Affiliate thereof to divest itself of any media business or interest therein. The failure by either party to timely file or diligently prosecute its portion of any Application shall be a material breach of this Agreement. 7.2. CONTROL OF STATIONS. This Agreement shall not be consummated until after the FCC Consents with respect to the Applications referred to in Section 7.1 are granted and have become Final Orders, unless such requirement is waived pursuant to Section 8.1. Between the date of this Agreement and the Closing Date, Buyer will not directly or indirectly control, supervise or direct the operation of the Stations. Further, between the date of this Agreement and the Closing Date, Seller shall, directly or indirectly, supervise and control the operation of the Stations. Such operation shall be the sole responsibility of Seller. 7.3. OTHER GOVERNMENTAL CONSENTS. Promptly following the execution of this Agreement, the parties shall proceed to prepare and file with the appropriate Governmental Entities (other than the FCC) such requests, reports, or notifications as may be required in connection with this Agreement and shall diligently and expeditiously prosecute, and shall cooperate fully with each other in the prosecution of, such matters. Without limiting the foregoing, promptly following the execution of this Agreement, the parties shall (a) file with the Federal Trade Commission and the Antitrust Division of the Department of Justice the notifications and other information (if any) required to be filed under the HSR Act with respect to the transactions contemplated hereby and shall use their commercially reasonable efforts to cause all applicable waiting periods under the HSR Act to expire or be terminated as of the earliest possible date and (b) make all necessary filings and, thereafter, make any other required submissions with respect to the transactions contemplated hereby under the Securities Act and the rules and regulations thereunder and any other applicable federal or state securities laws. Nothing in this Section 7.3 shall require Buyer to divest itself or to cause any Affiliate thereof to divest itself of any media business or interest therein. 33 39 7.4. BROKERS OR FINDERS. Seller represents and warrants to Buyer, that no agent, broker, investment banker, or other or person engaged by Seller is or will be entitled to any broker's or finder's fee or any other commission or similar fee payable by Buyer or Seller in connection with any of the transactions contemplated by this Agreement. Except for the fee payable to Media Venture Partners, which fee shall be paid in accordance with the provisions of Section 12.7, Buyer represents and warrants to Seller that Buyer has not engaged any broker, investment banker or other person that will be entitled to any broker's or finder's fee or any other commissions or fee from Seller in connection with any of the transactions contemplated by this Agreement. 7.5. BULK SALES LAW. Buyer agrees to waive compliance by Seller with the requirements of any bulk sales or fraudulent conveyance statute, and Seller agrees to indemnify and hold Buyer harmless against any claim made against Buyer by any creditor of Seller as a result of a failure to comply with any such statute. 7.6. RISK OF LOSS. (a) The risk of any loss, damage, impairment, confiscation, or condemnation of any of the Assets from any cause whatsoever shall be borne by Seller at all times prior to the Closing. In the event of any such loss, damage, impairment, confiscation, or condemnation, whether or not covered by insurance, Seller shall promptly notify Buyer of such loss, damage, impairment, confiscation, or condemnation. (b) If Seller, at its expense, repairs, replaces, or restores such Assets to their prior condition to the reasonable satisfaction of Buyer before the Closing, Seller shall be entitled to all insurance proceeds and condemnation awards, if any, by reason of such award or loss. (c) If Seller does not or cannot restore or replace lost, damaged, impaired, confiscated or condemned Assets having a replacement cost in excess of $50,000 in the aggregate or informs Buyer that it does not intend to restore or replace such Assets, Buyer may at its option: (i) terminate this Agreement by notice forthwith without any further obligation hereunder; or (ii) proceed to the Closing of this Agreement without Seller completing the restoration and replacement of such Assets, provided that Seller shall assign all rights under applicable insurance policies and condemnation awards, if any, to Buyer; and in such event, Seller shall have no further liability with respect to the condition of the Assets directly attributable to the loss, damage, impairment, confiscation, or condemnation. (d) Buyer will notify Seller of a decision under the options described in Section 7.6(c)(i) or (ii) above within ten business days after Seller's notice to Buyer of the damage or destruction of Assets and the estimate of the costs to repair or replace; provided, however, that if Seller states that it intends to restore the damaged Assets and if Seller has not restored such damaged 34 40 Assets immediately prior to the Closing Date, notwithstanding Buyer's prior delivery of a notice to proceed pursuant to this Section 7.6(d), Buyer shall have the right to either postpone the Closing or terminate this Agreement by notice forthwith. 7.7. ADDITIONAL AGREEMENTS. Subject to the terms and conditions of this Agreement, each of the parties hereto will use its commercially reasonable efforts to do, or cause to be taken all action and to do, or cause to be done, all things necessary, proper, or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. If at any time after the Closing Date, any further action is necessary or desirable to carry out the purposes of this Agreement, the parties to this Agreement and their duly authorized representatives shall take all such action. Without limiting the generality of the foregoing, if, after the Closing Date, Buyer seeks indemnification or recovery from one or more other parties to an Assumed Contract or otherwise seeks to enforce such Assumed Contract and, in order to obtain such indemnification, recovery or enforcement, counsel to Buyer and Seller reasonably determine that it is necessary for Seller to initiate a suit, participate in any enforcement proceeding or otherwise provide assistance to Buyer, then, at the request and the sole expense of Buyer, Seller shall take such action as Buyer may reasonably request in connection with Buyer's efforts to obtain such indemnification, recovery or enforcement. 7.8. BALANCE SHEET UPDATE. Upon the execution of this Agreement, Seller agrees that it will promptly prepare and provide to Buyer revisions to the Balance Sheet for the period from the Balance Sheet Date through May 31, 1997. Failure of Buyer to raise any objection thereto prior to 5:00 p.m., Boston time on the tenth business day after receipt thereof shall constitute Buyer's agreement that, from the period commencing on the Balance Sheet Date and ending upon the date of execution of this Agreement, there has not occurred, and Seller has not incurred or suffered, any event, circumstance or fact that could result in a Material Adverse Effect. ARTICLE VIII CONDITIONS PRECEDENT 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION. The respective obligations of Buyer and Seller to effect the transactions contemplated hereby are subject to the satisfaction (or, in the case of the condition specified in the last sentence of Section 8.l(a), the waiver by Buyer and Seller) on or prior to the Closing Date of the following conditions: (a) Consents and Approvals. All authorizations, consents, orders, or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any Governmental Entity necessary for the consummation of the transactions contemplated by this Agreement shall have been filed, occurred, or been obtained, other than any such authorizations, consents, orders, approvals, authorizations, declarations or filings that are ministerial in nature and which the failure to obtain would not effect the transactions contemplated by this Agreement. 35 41 (b) No Injunctions or Restraints. No temporary restraining order, preliminary or permanent injunction, or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated hereby shall be in effect. (c) No Action. No action shall have been taken nor any statute, rule, or regulation shall have been enacted by any Governmental Entity that makes the consummation of the transactions contemplated hereby illegal. (d) Concurrent Transactions. The closing of the Concurrent Transactions shall occur concurrently with the Closing. 8.2. CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to effect the transactions contemplated hereby is subject to the satisfaction of the following conditions unless waived, in whole or in part, by Buyer: (a) Representations and Warranties. The representations and warranties of Seller set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (other than the representations and warranties set forth in the second and third sentences of Section 3.1(e)(iv)), and Buyer shall have received a certificate to such effect signed on behalf of Seller by the chief executive officer or by the chief financial officer of Seller. For the purposes of this Section 8.2(a), the representations and warranties of Seller shall be deemed to be true and correct in all material respects unless the aggregate effect of any breaches thereof could reasonably be expected to have a Material Adverse Effect. (b) Performance of Obligations. Seller shall have performed in all material respects all obligations required to be performed by it under this Agreement prior to the Closing Date, and Buyer shall have received a certificate to such effect signed on behalf of Seller by the chief executive officer or by the chief financial officer of Seller. (c) Consents Under Agreements. Buyer shall have been furnished with evidence reasonably satisfactory to it of the consent or approval of each person that is a party to a Contract specifically identified in Schedule 8.2(c) whose consent or approval shall be required as a condition to Buyer's obligation to effect the transactions contemplated hereby and such consent or approval shall be in form and substance satisfactory to Buyer. (d) Legal Opinions. Buyer shall have received from Hale and Dorr LLP, counsel to Seller, and Pepper & Corazzini L.L.P., FCC counsel to Seller, opinions dated the Closing Date, in substantially the forms attached as Exhibit F hereto, which opinion, if requested by Buyer, shall expressly provide that they may be relied upon by Buyer's lenders, underwriters, or other sources of financing with respect to the transactions contemplated hereby. 36 42 (e) Real Estate Title Commitment. Within 45 days after the date of this Agreement, Buyer, at its sole cost and expense, shall have obtained a preliminary report on title to the Owned Real Property (other than the Excluded Real Property) covering a date subsequent to the date of this Agreement, issued by the Title Company, which preliminary report shall contain a commitment (the "Title Commitment") of the Title Company to issue an owner's title insurance policy at Buyer's cost as Buyer may reasonably require (the "Title Policy") insuring the fee simple absolute interest of Buyer in such Owned Real Property on and after the Closing Date. The Title Commitment shall be subject only to the standard printed exceptions and: (i) liens of current state and local property taxes which are not delinquent or subject to penalty; (ii) unviolated zoning regulations and restrictive covenants and easements of record which do not detract from the value of such Owned Real Property and do not materially and adversely affect, impair or interfere with the use of any property affected thereby as heretofore used by Seller or the Stations; (iii) public utility easements of record, in customary form, to serve such Owned Real Property; and (iv) Permitted Encumbrances. The Title Policy shall be issued on the Closing Date. (f) Survey. If requested by Buyer, Seller, at Buyer's sole cost and expense, shall have obtained a survey of the Owned Real Property (other than the Excluded Real Property) as of a date subsequent to the date hereof which shall: (i) be prepared by a registered land surveyor acceptable to Buyer; (ii) be certified to the Title Company and to Buyer; and (iii) show with respect to such Owned Real Property: (A) the legal description of such Owned Real Property (which shall be the same as the Title Policy pertaining thereto); (B) all buildings, structures and improvements thereon and all restrictions of record and other restrictions that have been established by an applicable zoning or building code or ordinance and all easements or rights of way across or serving such Owned Real Property (including any off-site easements affecting or appurtenant thereto); (C) no encroachments upon such Owned Real Property or adjoining parcels by buildings, structures or improvements and no other survey defects; (D) access to such parcel from a public street; and (E) a flood certification reasonably satisfactory to Buyer to the effect that no portion of such Owned Real Property is located within a flood hazard area. (g) Closing Deliveries. All documents, instruments, certificates or other items required to be delivered by Seller pursuant to Section 9.2 shall have been delivered. 8.3. CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligation of Seller to effect the transactions contemplated hereby is subject to the satisfaction of the following conditions unless waived, in whole or in part, by Seller. (a) Representations and Warranties. The representations and warranties of Buyer set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, and Seller shall have received a certificate to such effect signed on behalf of Buyer by the chief executive officer or by the chief financial officer of Buyer. 37 43 (b) Performance of Obligations of Buyer. Buyer shall have performed in all material respects the obligations required to be performed by it under this Agreement prior to the Closing Date, and Seller shall have received a certificate to such effect signed on behalf of Buyer by the chief executive officer or by the chief financial officer of Buyer. (c) Legal Opinion. Seller shall have received from Vinson & Elkins L.L.P., counsel to Buyer, an opinion dated the Closing Date, in substantially the form attached as Exhibit G hereto. (d) Closing, Deliveries. All documents and instruments required to be delivered by Buyer pursuant to Section 9.2 shall have been delivered. ARTICLE IX CLOSING 9.1. CLOSING. (a) Subject to the satisfaction or waiver of the conditions set forth in Article VIII, or at such other place and time as Buyer and Seller may agree, the Closing will take place at the offices of Hale and Dorr LLP, Boston, Massachusetts, at 10:00 a.m., local time, on the later to occur of (i) the fifth business day after Seller delivers to Buyer its internally produced unaudited balance sheet as of December 31, 1997 and related statement of income for the 12-month period then ended, and (ii) a date selected by Buyer on five business days notice to Seller, which date shall be on the 10th business day after the day on which the FCC Consents have been granted by Final Order (the "Closing Date"). Notwithstanding the foregoing: (b) In the case of a Trading Event, a Banking Event or a Station Event (in each case as defined below), (i) if the Cessation Date (as defined below) is less than 60 days after the Event Date (as defined below), Buyer, in its discretion, may extend the Closing Date to a date not later than the 30th day after the Cessation Date, (ii) if the Cessation Date is more than 60, but less than 90, days after the Event Date, Buyer, in its discretion, may extend the Closing Date to the first to occur of the 10th business day after the Cessation Date or the 90th day (or, if not a business day, the next business day) after the Event Date. In the event of a Station Event, if the Cessation Date has not occurred by the 120th day after the Event Date, then on the 120th day (or, if not a business day, the next business day) after the Event Date Buyer, in its discretion, shall elect to close the transactions contemplated by this Agreement on the fifth business day thereafter or terminate this Agreement; (c) In the case of a Conflict Event, Buyer, in its discretion, may extend the Closing Date to a date not to exceed the 90th day after the Event Date; (d) If all of the conditions to the obligations of Buyer and Seller to effect the transactions contemplated by this Agreement have been satisfied or waived prior to the Closing Date other than the conditions specified in Section 8.2(a), with respect to Buyer, or Section 8.3(a), with 38 44 respect to Seller, and the breaching party is diligently attempting to cure any such breach as provided in Section 10.1, then the Closing Date shall be postponed for up to an additional 20 days; and (e) If the Closing does not occur within 80 days after the date of the Final Order, the parties shall request approval from the FCC to extend the Closing so that the Closing contemplated hereunder will not violate any FCC rules or regulations. For purposes of this Agreement, a "Trading Event" shall mean that trading generally in securities on the New York Stock Exchange shall have been suspended or materially limited; a "Banking Event" shall mean that a general moratorium on commercial banking activities in New York, New York shall have been declared by any federal or state authority; a "Conflict Event" shall mean the occurrence of any major armed conflict involving a substantial participation by the armed forces of the United States of America; a "Station Event" shall mean any act of nature (including fires, floods, earthquakes, and storms), calamity, casualty or condemnation or the act or omission to act of any state or federal regulatory agency having jurisdiction over the Stations that has caused one or more Stations not to be operating in a manner substantially consistent with the operations conducted before such act, omission, calamity, casualty, condemnation or agency action occurred or not in compliance with its or their respective Station License(s); an "Event Date" shall mean the date on which a Trading Event, Banking Event, Conflict Event, or a Station Event occurs; and a "Cessation Date" shall mean the date on which a Trading Event, Banking Event, Conflict Event, or a Station Event ends. Pro forma adjustments shall be made for purposes of calculating gross revenues for the 12-month period specified in the definition of "Station Event" with respect to any radio broadcast station acquired during such 12-month period, to assume that such station was acquired at the beginning of such 12-month period and include the gross revenues of such station for the full 12-month period. 9.2. ACTIONS TO OCCUR AT CLOSING. (a) At the Closing, Buyer shall deliver to Seller (or to the Escrow Agent, as indicated) the following: (i) Purchase Price. The Purchase Price (less the Holdback Amount) by wire transfer of immediately available funds; (ii) Holdback Amount. The Holdback Amount to the Escrow Agent by wire transfer of immediately available funds; (iii) Certificates. The certificates referred to in Section 8.3(a) and (b); (iv) Assumption Agreement. A counterpart of the Assumption Agreement executed by Buyer; 39 45 (v) Indemnification Escrow Agreement. A counterpart of the Indemnification Escrow Agreement executed by Buyer; (vi) Non-Competition Agreement. A counterpart of the Non-Competition Agreement executed by Buyer; (vii) Legal Opinion. The opinion of counsel referred to in Section 8.3(c); and (viii) Studio/Tower Lease. A counterpart of the Studio/Tower Lease executed by Buyer. (b) At the Closing, Seller shall deliver to Buyer the following: (i) Certificates. The certificates described in Section 8.2(a) and (b); (ii) Assumption Agreement. A counterpart of the Assumption Agreement executed by Seller; (iii) Indemnification Escrow Agreement. A counterpart of the Indemnification Escrow Agreement executed by Seller; (iv) Non-Competition Agreement. A counterpart of the Non-Competition Agreement between Buyer and Seller executed by Seller; (v) Legal Opinions. The opinions of counsel referred to in Section 8.2(d); (vi) Transfer Documents. The duly executed Bill of Sale and Assignment, together with any other assignments and other transfer documents as requested by Buyer; (vii) Consents; Acknowledgments. The original of each Consent; (viii) Estoppel Certificates. Estoppel certificates from the lessor(s) of the Leased Real Property in a form and substance satisfactory to Buyer and its lenders or other financing sources; (ix) Licenses, Contracts, Business Records, Etc. To the extent they are in the possession of Seller, copies of all Licenses, Assumed Contracts, blueprints, schematics, working drawings, plans, projections, statistics, engineering records and all files and records used by Seller in connection with a Station's business and operations, which copies shall be available at the Closing or at a Station's principal business offices; 40 46 (x) Warranty Deed. A Warranty Deed executed by Seller conveying fee simple title to the Owned Real Property to Buyer, subject only to the Permitted Encumbrances, in proper statutory form for recording together with documentary stamps affixed thereto; (xi) No-Lien Affidavit. A standard No-Lien Affidavit executed by Seller, which shall be in the recordable form and otherwise satisfactory to the Title Company in order to delete the standard printed exceptions relating to mechanics' liens and parties-in-possession; (xii) GAP Affidavit. An affidavit, if requested by the Title Company, as may be necessary to insure the gap between the effective date of the Title Commitment to and through the date of the recordation of the deed to the Owned Real Property; (xiii) Title Requirements. Such other documents as shall be reasonably required by the Title Company as called for or required under the terms of any title policy obtained or issued to Buyer; and (xiv) Studio/Tower Leases. An executed counterpart of the lease referred to at Sections 9.2(a)(viii). (c) At the Closing, Seller and Buyer shall instruct the Escrow Agent to deliver, and it shall deliver, the Deposit Letter of Credit to Buyer. (d) At the Closing, Buyer shall receive from the chief executive officer or chief financial officer of Seller a non-foreign affidavit within the meaning of section 1445(b)(2) of the Code. ARTICLE X TERMINATION, AMENDMENT AND WAIVER 10.1. TERMINATION. This Agreement may be terminated prior to the Closing: (a) by mutual consent of Buyer and Seller; (b) by either Seller or Buyer; (i) if a court of competent jurisdiction or other Governmental Entity shall have issued an order, decree, or ruling or taken any other action (which order, decree or ruling the parties hereto shall use their best efforts to lift), in each case permanently restraining, enjoining, or otherwise prohibiting the transactions contemplated by this Agreement, and such order, decree, ruling, or other action shall have become final and nonappealable; 41 47 (ii) if, for any reason, the FCC denies or dismisses any of the Applications and the time for reconsideration or court review under the Communications Act with respect to such denial or dismissal has expired and there is not pending with respect thereto a timely filed petition for reconsideration or request for review; (iii) if, for any reason, any of the Applications is designated for an evidentiary hearing by the FCC; or (iv) if the Closing shall not have occurred by the later of the first anniversary of the date on which the Form 314 applications for the FCC Consents are filed, or the date to which the Closing Date is extended pursuant to the second sentence of Section 9.1; provided, however, that the right to terminate this Agreement under this clause (iv) shall not be available to any party whose breach of this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date; or (c) by Buyer: (i) if there shall have been any breaches of the representations, warranties, covenants or agreements of Seller set forth in this Agreement (other, subject to the provisions of Section 7.8, than the representations and warranties set forth in the second and third sentences of Section 3.1(e)(iv)) the aggregate effect of which could reasonably be expected to have a Material Adverse Effect or to materially and adversely affect the ability of the parties to consummate the transactions contemplated hereby, which breaches Seller cannot reasonably be expected to cure or which Seller is not diligently attempting to cure following receipt by Seller of written notice of such breach; (ii) pursuant to the provisions of Section 7.7; (iii) with respect to a Station Event, at its option, as provided in the last sentence of Section 9.1(b); or (iv) if the FCC grants any of the Applications with any adverse conditions not generally imposed on grants of such applications and the time for reconsideration or court review under the Communications Act with respect to such adverse conditions has expired and there is not pending with respect thereto a timely filed petition for reconsideration or request for review; or (d) by Seller: (i) if there shall have been any material breach of any representation, warranty, covenant or agreement of Buyer set forth in this Agreement, which breach Buyer cannot reasonably be expected to cure or which Buyer is not diligently attempting to cure following receipt by Buyer of written notice of such breach; or 42 48 (ii) if the FCC grants any of the Applications with any adverse conditions affecting Seller that are not generally imposed on grants of such applications and the time for reconsideration or court review under the Communications Act with respect to such adverse conditions has expired and there is not pending with respect thereto a timely filed petition for reconsideration or request for review. The right of any party hereto to terminate this Agreement pursuant to this Section 10.1 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any party hereto, any person controlling any such party or any of their respective officers, directors, employees, accountants, consultants, legal counsel, agents, or other representatives whether prior to or after the execution of this Agreement. Notwithstanding anything in the foregoing to the contrary, no party that is in material breach of this Agreement shall be entitled to terminate this Agreement except with the consent of the other party. 10.2. EFFECT OF TERMINATION. (a) In the event of a termination of this Agreement by either Seller or Buyer as provided above, there shall be no liability on the part of either Buyer or Seller, except for liability arising out of a breach of this Agreement. Articles I, XI, and XII, Section 7.6, and this Article X shall survive the termination of this Agreement. If this Agreement is terminated by Seller pursuant to Section 10.1(d), the parties agree and acknowledge that Seller will suffer damages that are not practicable to ascertain. Accordingly, in such event and if within 10 business days after termination of this Agreement by Seller pursuant to Section 10.1(d), Seller delivers to Buyer a written demand for liquidated damages, subject to Buyer's receipt of a counterpart of the Release executed by Seller, Seller shall be entitled to the sum of $550,000 as liquidated damages payable by Buyer within 10 business days after receipt of Seller's written demand and payable in accordance with the provisions of the Deposit Escrow Agreement. As security for payment thereof, Buyer has, concurrently with the execution of this Agreement, entered into the Deposit Escrow Agreement with Seller and the Escrow Agent as provided in Section 2.7. The parties agree that the foregoing liquidated damages are reasonable considering all the circumstances existing as of the date hereof and constitute the parties' good faith estimate of the actual damages reasonably expected to result from the termination of this Agreement by Seller pursuant to Section 10.1(d). Seller agrees that, to the fullest extent permitted by law, Seller's right to payment of such liquidated damages as provided in this Section 10.2 shall be its sole and exclusive remedy if the Closing does not occur with respect to any damages whatsoever that Seller may suffer or allege to suffer as a result of any claim or cause of action asserted by Seller relating to or arising from breaches of the representations, warranties or covenants of Buyer contained in this Agreement and to be made or performed at or prior to the Closing. If this Agreement is terminated by Seller pursuant to Section 10.1(d), upon Buyer's receipt of a counterpart of the Release executed by Seller, Buyer and Seller shall instruct the Escrow Agent to release the Deposit Letter of Credit to Seller. If this Agreement is terminated either by Buyer or Seller pursuant to any provision of Section 10.1 other than a termination by Seller pursuant to Section 10.1(d), then, Buyer and Seller shall instruct the Escrow Agent to release the Deposit Letter of Credit to Buyer. 43 49 (b) As a condition of payment, and upon receipt of the liquidated damages under this Section 10.2, Seller hereby irrevocably and unconditionally releases, acquits, and forever discharges Buyer and its successors, assigns, officers, directors, employees, agents, stockholders, subsidiaries, parent companies and other affiliates (corporate or otherwise) (the "Released Parties") of and from any and all Released Claims, including, without limitation, all Released Claims arising out of, based upon, resulting from or relating to the negotiation, execution, performance, breach or otherwise related to or arising out of the Transaction Documents or any agreement entered into in connection therewith or related thereto. "Released Claims" as used herein shall mean any and all charges, complaints, claims, causes of action, promises, agreements, rights to payment, rights to any equitable remedy, rights to any equitable subordination, demands, debts, liabilities, express or implied contracts, obligations of payment or performance, rights of offset or recoupment, accounts, damages, costs, losses or expenses (including attorneys' and other professional fees and expenses) held by any party hereto, whether known or unknown, matured or unmatured, suspected or unsuspected, liquidated or unliquidated, absolute or contingent, direct or derivative. ARTICLE XI INDEMNIFICATION 11.1. INDEMNIFICATION OF BUYER. Subject to the provisions of this Article XI, Seller agrees to indemnify and hold harmless the Buyer Indemnified Parties from and against any and all Buyer Indemnified Costs. 11.2. INDEMNIFICATION OF SELLER. Subject to the provisions of this Article XI, Buyer agrees to indemnify and hold harmless the Seller Indemnified Parties from and against any and all Seller Indemnified Costs. 11.3. DEFENSE OF THIRD-PARTY CLAIMS. An Indemnified Party shall give prompt written notice to Indemnifying Party of the commencement or assertion of any action, proceeding, demand, or claim by a third party (collectively, a "third-party action") in respect of which such Indemnified Party shall seek indemnification hereunder and the alleged basis therefor. Any failure so to notify an Indemnifying Party shall not relieve such Indemnifying Party from any liability that it may have to such Indemnified Party under this Article XI unless the failure to give such notice materially and adversely prejudices such Indemnifying Party. The Indemnifying Party shall have the right to assume control of the defense of, settle, or otherwise dispose of such third-party action on such terms as they deem appropriate; provided, however, that: (a) The Indemnified Party shall be entitled, at its own expense, to participate in the defense of such third-party action (provided, however, that the Indemnifying Parties shall pay the attorneys' fees of one counsel to the Indemnified Party if (i) the employment of separate counsel shall have been authorized in writing by any such Indemnifying Party in connection with the defense of such third-party action, (ii) the Indemnifying Parties shall not have employed counsel reasonably satisfactory to the Indemnified Party to have charge of such third-party action, (iii) counsel to the 44 50 Indemnified Party shall have reasonably concluded that there may be defenses available to the Indemnified Party that are different from or additional to those available to the Indemnifying Party, or (iv) counsel to the Indemnified Party and the Indemnifying Party shall have advised their respective clients in writing, with a copy delivered to the other party, that there is a conflict of interest that could make it inappropriate under applicable standards of professional conduct to have common counsel); (b) The Indemnifying Party shall obtain the prior written approval of the Indemnified Party before entering into or making any settlement, compromise, admission, or acknowledgment of the validity of such third-party action or any liability in respect thereof if, pursuant to or as a result of such settlement, compromise, admission, or acknowledgment, injunctive or other equitable relief would be imposed against the Indemnified Party or if, in the opinion of the Indemnified Party, such settlement, compromise, admission, or acknowledgment could have an adverse effect on its business; which approval shall not be unreasonably withheld or delayed (it shall not be deemed unreasonable for Buyer to withhold consent to any settlement, compromise, admission or acknowledgment if the amount of Buyer Indemnified Costs resulting therefrom could reasonably be expected to exceed the remainder of the Holdback Amount then held by the Escrow Agent pursuant to the terms of the Indemnification Escrow Agreement (and not otherwise subject to pending claims); (c) No Indemnifying Party shall consent to the entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by each claimant or plaintiff to each Indemnified Party of a release from all liability in respect of such third-party action; and (d) The Indemnifying Party shall not be entitled to control (but shall be entitled to participate at its own expense in the defense of), and the Indemnified Party shall be entitled to have sole control over, the defense or settlement, compromise, admission, or acknowledgment of any third-party action (i) as to which the Indemnifying Party fails to assume the defense within a reasonable length of time or (ii) to the extent the third-party action seeks an order, injunction, or other equitable relief against the Indemnified Party which, if successful, would materially adversely affect the business, operations, assets, or financial condition of the Indemnified Party; provided, however, that the Indemnified Party shall make no settlement, compromise, admission, or acknowledgment that would give rise to liability on the part of any Indemnifying Party without the prior written consent of such Indemnifying Party. The parties hereto shall extend reasonable cooperation in connection with the defense of any third-party action pursuant to this Article XI and, in connection therewith, shall furnish such records, information, and testimony and attend such conferences, discovery proceedings, hearings, trials, and appeals as may be reasonably requested. 11.4. DIRECT CLAIMS. In any case in which an Indemnified Party seeks indemnification hereunder which is not subject to Section 11.3 because no third-party action is involved, the 45 51 Indemnified Party shall notify the Indemnifying Party in writing of any Indemnified Costs which such Indemnified Party claims are subject to indemnification under the terms hereof. Subject to the limitations set forth in Section 11.6(c), the failure of the Indemnified Party to exercise promptness in such notification shall not amount to a waiver of such claim unless the resulting delay materially prejudices the position of the Indemnifying Party with respect to such claim. 11.5. ESCROW. On the Closing Date, Buyer and Seller will enter into the Indemnification Escrow Agreement in accordance with which Buyer shall, at Closing, deposit an amount of the Purchase Price equal to $180,000 (the "Holdback Amount") with the Escrow Agent. 11.6. LIMITATIONS. Subject to Section 11.7 and Section 12.17 hereof, the following provisions of this Section 11.6 shall be applicable after the time of the Closing: (a) Minimum Loss. No Indemnifying Party shall be required to indemnify an Indemnified Party for Indemnified Representation Costs unless and until the aggregate amount of such Indemnified Representation Costs for which the Indemnified Party is otherwise entitled to indemnification pursuant to this Article XI exceeds $30,000 (the "Minimum Loss"). After the Minimum Loss is exceeded, the Indemnified Party shall be entitled to be paid the entire amount of its Indemnified Representation Costs in excess of (but not including) the Minimum Loss, subject to the limitations on recovery and recourse set forth in this Section 11.6 and in Section 11.7 below and subject to the exception contained in Section 12.17. For purposes of determining the aggregate amount of Minimum Loss suffered by an Indemnified Party, each representation and warranty contained in this Agreement for which indemnification can be or is sought hereunder shall be read (including for purposes of determining whether a breach of such representation or warranty has occurred) without regard to materiality (including Material Adverse Effect) qualifications that may be contained therein. In addition, in determining whether an Indemnifying Party shall be required to indemnify an Indemnified Party under this Article XI, once the Minimum Loss requirement set forth in this clause (a) has been satisfied, each representation and warranty contained in this Agreement for which indemnification can be or is sought hereunder shall be read (including for purposes of determining whether a breach of such representation or warranty has occurred) without regard to materiality (including Material Adverse Effect) qualifications that may be contained therein. (b) Limitation as to Time. No Indemnifying Party shall be liable for any Indemnified Representation Costs pursuant to this Article XI unless a written claim for indemnification in accordance with Section 11.3 or 11.4 is given by the Indemnified Party to the Indemnifying Party with respect thereto on or before the second anniversary of the Closing Date, except that this time limitation shall not apply to any claims contemplated by Section 12.17. (c) Recourse against Escrowed Funds. Subject to Section 12.17 hereof, a Buyer Indemnified Party shall be entitled to payment only out of the Holdback Amount pursuant to the terms of this Article XI and the Indemnification Escrow Agreement for all amounts due to a Buyer 46 52 Indemnified Party with respect to any claim by a Buyer Indemnified Party against Seller for Buyer Indemnified Representation Costs payable under this Article XI. (d) Other Indemnified Costs. The provisions of this Section 11.6 shall only be applicable to Indemnified Representation Costs and shall not be applicable to any other Indemnified Costs. 11.7. INSTRUCTIONS TO ESCROW AGENT. Seller hereby covenants and agrees that at any time Seller is or becomes obligated to indemnify a Buyer Indemnified Party for Buyer Indemnified Costs under this Article XI, Seller will execute and deliver to the Escrow Agent written instructions to release to the Buyer Indemnified Party such portion of the Holdback Amount as is necessary to indemnify the Buyer Indemnified Party for such Buyer Indemnified Costs. ARTICLE XII GENERAL PROVISIONS 12.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. Regardless of any investigation at any time made by or on behalf of any party hereto or of any information any party may have in respect thereof, each of the representations and warranties made hereunder or pursuant hereto or in connection with the transactions contemplated hereby shall survive the Closing. Except as otherwise provided in the next two sentences, the representations and warranties set forth in this Agreement shall terminate on the second anniversary of the Closing Date. Following the date of termination of a representation or warranty, no claim can be brought with respect to a breach of such representation or warranty, but such termination shall not affect any claim for a breach of a representation or warranty that was asserted before the date of termination. To the extent that such are performable after the Closing, each of the covenants and agreements contained in each of the Transaction documents shall survive the Closing indefinitely. 12.2. FURTHER ACTIONS. After the Closing Date, Seller shall execute and deliver such other certificates, agreements, conveyances, and other documents, and take such other action, as may be reasonably requested by Buyer in order to transfer and assign to, and vest in, Buyer the Assets pursuant to the terms of this Agreement. 12.3. AMENDMENT AND MODIFICATION. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. 12.4. WAIVER OF COMPLIANCE. Any failure of Buyer on the one hand, or Seller, on the other hand, to comply with any obligation, covenant, agreement, or condition contained herein may be waived only if set forth in an instrument in writing signed by the party or parties to be bound thereby, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any other failure. 47 53 12.5. SPECIFIC PERFORMANCE. The parties recognize that in the event Seller should refuse to perform under the provisions of this Agreement, monetary damages alone will not be adequate. Buyer shall therefore be entitled, in addition to any other remedies which may be available, including money damages, to obtain specific performance of the terms of this Agreement. In the event of any action to enforce this Agreement specifically, Seller hereby waives the defense that there is an adequate remedy at law. 12.6. SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of applicable law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated herein are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated herein are consummated as originally contemplated to the fullest extent possible. 12.7. EXPENSES AND OBLIGATIONS. Except as otherwise expressly provided in this Agreement or as provided by law, all costs and expenses incurred by the parties hereto in connection with the consummation of the transactions contemplated hereby shall be borne solely and entirely by the party which has incurred such expenses. Notwithstanding the foregoing, (a) the fee payable to the Escrow Agent shall be borne as provided in the Indemnification Escrow Agreement and the Deposit Escrow Agreement, (b) the brokerage fees payable to Media Venture Partners shall be borne by Buyer, (c) responsibility for sales taxes arising out of the transactions contemplated by this Agreement shall be shared equally by Seller and Buyer and (d) any filing fees payable in connection with the transfer of the FCC Licenses shall be borne by Seller. In the event of a dispute between the parties in connection with this Agreement and the transactions contemplated hereby, each of the parties hereto hereby agrees that the prevailing party shall be entitled to reimbursement by the other party of reasonable legal fees and expenses incurred in connection with any action or proceeding. 12.8. PARTIES IN INTEREST. This Agreement shall be binding upon and, except as provided below, inure solely to the benefit of each party hereto and their successors and assigns, and nothing in this Agreement, except as set forth below, express or implied, is intended to confer upon any other person (other than the Indemnified Parties as provided in Article XI) any rights or remedies of any nature whatsoever under or by reason of this Agreement. 12.9. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): 48 54 (a) If to Buyer, to Capstar Acquisition Company, Inc. 200 Crescent Court, Suite 1600 Dallas, Texas 75201 Attn: Lawrence D. Stuart, Jr. Facsimile: (214) 740-7313 with copies to Vinson & Elkins L.L.P. 3700 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 Attn: Michael D. Wortley Facsimile: (214) 220-7716 Capstar Broadcasting Partners 600 Congress Avenue, Suite 1400 Austin, Texas 78701 Attn: William S. Banowsky, Jr. Facsimile: (512) 404-6850 (b) If to Seller, to Knight Radio, Inc. 63 Bay State Road Boston, MA 02215 Attention: Norman Knight Facsimile: (617) 267-5160 with a copy to Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 Attention: Thomas E. Neely Facsimile: (617) 526-5000 12.10. COUNTERPARTS. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each 49 55 of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 12.11. ENTIRE AGREEMENT. This Agreement (which term shall be deemed to include the exhibits and schedules hereto and the other certificates, documents and instruments delivered hereunder) constitutes the entire agreement of the parties hereto and supersedes all prior agreements, letters of intent and understandings, both written and oral, among the parties with respect to the subject matter hereof. There are no representations or warranties, agreements, or covenants other than those expressly set forth in this Agreement. 12.12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE. 12.13. PUBLIC ANNOUNCEMENTS. Seller and Buyer shall consult with each other before issuing any press release or otherwise making any public statements with respect to this Agreement or the transactions contemplated hereby and shall not issue any such press release or make any such public statement prior to such consultation. Prior to the Closing, Seller will not issue any other press release or otherwise make any public statements regarding its business, except as may be required by applicable law. 12.14. ASSIGNMENT. Neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned by any of the parties hereto, whether by operation of law or otherwise; provided, however, that (a) upon notice to Seller and without releasing Buyer from any of its obligations or liabilities hereunder, Buyer may assign or delegate any or all of its rights or obligations under this Agreement to any Affiliate thereof, and (b) nothing in this Agreement shall limit Buyer's ability to make a collateral assignment of its rights under this Agreement to any institutional lender that provides funds to Buyer without the consent of Seller. Seller shall execute an acknowledgment of such assignment(s) and collateral assignments in such forms as Buyer or its institutional lenders may from time to time reasonably request; provided, however, that unless written notice is given to Seller that any such collateral assignment has been foreclosed upon, Seller shall be entitled to deal exclusively with Buyer as to any matters arising under this Agreement or any of the other agreements delivered pursuant hereto. In the event of such an assignment, the provisions of this Agreement shall inure to the benefit of and be binding on Buyer's assigns. 12.15. DIRECTOR AND OFFICER LIABILITY. Neither the directors, officers or stockholders of Buyer or Seller nor their respective Affiliates shall have any personal liability or obligation arising under this Agreement (including any claims that any party may assert). 12.16. NO REVERSIONARY INTEREST. The parties expressly agree, pursuant to Section 73.1150 of the FCC's rules, that Seller does not retain any right to reassignment of any of the FCC Licenses in the future, or to operate or use the facilities of the Stations for any period beyond the Closing Date. 50 56 12.17. NO WAIVER RELATING TO CLAIMS FOR FRAUD. The liability of any party under Article XI shall be in addition to, and not exclusive of any other liability that such party may have at law or equity based on such party's fraudulent acts or omissions. None of the provisions set forth in this Agreement, including but not limited to the provisions set forth in Section 11.6(a) (relating to Minimum Loss), 11.6(b) (relating to limitations on the period of time during which a claim for indemnification may be brought), or 11.6(c) (relating to recourse against escrowed funds), shall be deemed a waiver by any party to this Agreement of any right or remedy which such party may have at law or equity based on any other party's fraudulent acts or omissions, nor shall any such provisions limit, or be deemed to limit, (i) the amounts of recovery sought or awarded in any such claim for fraud, (ii) the time period during which a claim for fraud may be brought, or (iii) the recourse which any such party may seek against another party with respect to a claim for fraud; provided, that with respect to such rights and remedies at law or equity, the parties further acknowledge and agree that none of the provisions of this Section 12.17, nor any reference to this Section 12.17 throughout this Agreement, shall be deemed a waiver of any defenses which may be available in respect of actions or claims for fraud, including but not limited to, defenses of statutes of limitations or limitations of damages. 12.18. USE OF NAME. Notwithstanding anything contained herein to the contrary, the Seller and its stockholders shall not be prohibited from using the name "Knight Quality Stations" in the Caribbean Basin. (Remainder of this page intentionally left blank) 51 57 IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be signed, all as of the date first written above. SELLER: KNIGHT RADIO, INC. By: /S/ Norman Knight ---------------------------------------------- Name: Norman Knight Title: Chief Executive Officer BUYER: CAPSTAR ACQUISITION COMPANY, INC. By: /S/ Paul D. Stone ---------------------------------------------- Name: Paul D. Stone -------------------------------------------- Its: Vice President --------------------------------------------- 52 58 ANNEX A THE STATIONS WGIR-AM Manchester, New Hampshire WGIR-FM Manchester, New Hampshire WEZF-FM Burlington, Vermont EX-10.31.2 25 ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.31.2 ASSET PURCHASE AGREEMENT BETWEEN KNIGHT BROADCASTING OF NEW HAMPSHIRE, INC. AND CAPSTAR ACQUISITION COMPANY, INC. DATED AS OF JUNE 18, 1997 2 TABLE OF CONTENTS
Page ARTICLE I DEFINED TERMS 1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2. References and Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE II SALE AND PURCHASE OF ASSETS 2.1. Agreement to Sell and Buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.2. Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.3. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.4. Adjustments and Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.5. Assumption of Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.6. Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.7. Earnest Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1. Representations and Warranties Regarding Seller . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.2. Representations and Warranties of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS 4.1. Covenants of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 4.2. Environmental Site Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 4.3. Broadcast Transmission Interruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 ARTICLE V ADDITIONAL AGREEMENTS OF SELLER 5.1. No Solicitation of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(i) 3 5.2. Access and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 5.3. Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.4. Compliance With Station Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.5. Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.6. Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE VI COVENANTS OF BUYER 6.1. Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 6.2 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 6.3. Certain Legal Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 6.4. Seller's Access to Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE VII MUTUAL COVENANTS 7.1. Application for FCC Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 7.2. Control of Stations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 7.3. Other Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 7.4. Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 7.5. Bulk Sales Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 7.6. Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 7.7. Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 7.8. Balance Sheet Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 ARTICLE VIII CONDITIONS PRECEDENT 8.1. Conditions to Each Party's Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 8.2. Conditions to Obligation of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 8.3. Conditions to Obligations of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 ARTICLE IX CLOSING 9.1. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 9.2. Actions to Occur at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(ii) 4 ARTICLE X TERMINATION, AMENDMENT AND WAIVER 10.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 10.2. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE XI INDEMNIFICATION 11.1. Indemnification of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 11.2. Indemnification of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 11.3. Defense of Third-Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 11.4. Direct Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 11.5. Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 11.6. Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 11.7. Instructions to Escrow Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE XII GENERAL PROVISIONS 12.1. Survival of Representations, Warranties, and Covenants . . . . . . . . . . . . . . . . . . . . . . . 47 12.2. Further Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 12.3. Amendment and Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 12.4. Waiver of Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 12.5. Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 12.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 12.7. Expenses and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 12.8. Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 12.9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 12.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 12.11. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 12.12. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 12.13. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 12.14. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 12.15. Director and Officer Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 12.16. No Reversionary Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 12.17. No Waiver Relating to Claims for Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Annexes: Annex A -- The Stations (iii) 5 EXHIBITS: Exhibit A -- Deposit Escrow Agreement Exhibit B -- Form of Non-Competition Agreement Exhibit C -- Form of Bill of Sale and Assignment Exhibit D -- Form of Assumption Agreement Exhibit E -- Form of Indemnification Escrow Agreement Exhibit F -- Form of Opinions of Seller's Counsel Exhibit G -- Form of Opinion of Vinson & Elkins L.L.P. Exhibit H -- Form of Release of Claims SCHEDULES: Schedule 2.1(k) -- Choses in Action Schedule 2.2(a) -- Excluded Real Property Schedule 2.2(j) -- Excluded Personal Property Schedule 2.5(b) -- Trade Deals Schedule 2.6 -- Allocation of Purchase Price Schedule 3.1(a) -- Qualification to do Business and Good Standing Schedule 3.1(e) -- Unrecorded Liabilities and Conduct of Business Schedule 3.1(f) -- Licenses and Permits Schedule 3.1(g) -- Litigation Schedule 3.1(h) -- Insurance Schedule 3.1(i) -- Owned Real Estate Schedule 3.1(j) -- Leased Real Property Schedule 3.1(k) -- Personal Property Schedule 3.1(l) -- Liens and Encumbrances Schedule 3.1(m) -- Environmental Matters Schedule 3.1(o) -- Certain Agreements Schedule 3.1(p) -- Employee Benefit Plans; Labor Schedule 3.1(q) -- Patents, Trademarks; Etc. Schedule 3.1(r) -- Contracts with Affiliates Schedule 4.1(h) -- Sale, Lease or Disposition of Assets Schedule 8.2(c) -- Required Consents (iv) 6 ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into as of June 18, 1997, between Knight Broadcasting of New Hampshire, Inc., a New Hampshire corporation ("Seller"), and Capstar Acquisition Company, Inc., a Delaware corporation ("Buyer"). R E C I T A L S A. Seller is the licensee of and owns and operates each of the radio stations listed on Annex A hereto (each referred to individually as a "Station" and collectively, the "Stations") pursuant to licenses issued by the Federal Communications Commission ("FCC"). B. Seller desires to sell and Buyer desires to buy substantially all the assets used or held for use in the operation of each of the Stations, both tangible and intangible, excluding the Excluded Assets (as hereinafter defined), and by so doing to acquire the radio broadcast business presently conducted by each of the Stations, upon the terms and conditions hereinafter set forth. A G R E E M E N T S NOW, THEREFORE, in consideration of the respective representations, warranties, agreements, and conditions hereinafter set forth, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINED TERMS 1.1. DEFINED TERMS. The following terms shall have the following meanings in this Agreement: "Accounts Receivable" means the rights of Seller to cash payment for the sale of advertising time by the Stations and other amounts (other than entries reflecting barter transactions) that would be classified as an account receivable on the asset side of a balance sheet of the Company prepared in accordance with GAAP prior to 11:59 p.m. on the day prior to the Closing Date. "Affiliate" means, with respect to any person, any other person controlling, controlled by or under common control with such person. For purposes of this definition and this Agreement, 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. "Applicable Laws" means all laws, statutes, rules, regulations, ordinances, judgments, orders, decrees, injunctions, and writs of any Governmental Entity having jurisdiction over the Assets or the business or operations of each of the Stations, as may be in effect on or prior to the Closing. 7 "Applications" has the meaning set forth in Section 7.1. "Assets" means all the tangible and intangible assets owned, leased, or licensed by Seller that are used or held for use in connection with the business or operations of any of the Stations, whether or not reflected on the Financial Statements or Balance Sheet of Seller, but specifically excluding therefrom the Excluded Assets. "Assumed Contracts" means (a) those Contracts set forth on Schedule 3.1(o) identified as being assumed by Buyer and all other contracts of Seller entered into in the ordinary course of business prior to the date of this Agreement that relate to the Assets or the business or operation of the Assets or any part thereof, (b) all other non- trade advertising Contracts for cash entered into by Seller for any of the Stations prior to the date of this Agreement and which are terminable on not more than 30 days notice, (c) all Contracts entered into by Seller on or after the date of this Agreement and before the Closing in accordance with the applicable provisions of Section 4.1, and (d) Trade Deals described in Section 2.5(b). "Assumption Agreement" means the Assumption Agreement between Buyer and Seller substantially in the form of Exhibit D. "Balance Sheet" has the meaning set forth in Section 3.1(e). "Balance Sheet Date" has the meaning set forth in Section 3.1(e). "Banking Event" has the meaning set forth in Section 9.1. "Bill of Sale and Assignment" means the Bill of Sale and Assignment between Buyer and Seller substantially in the form of Exhibit C. "Brokerage Fee" has the meaning set forth in Section 12.7. "Business Day" means any other day than (i) a Saturday or Sunday or (ii) a day on which commercial banks in New York, New York, Dallas, Texas or Boston, Massachusetts are authorized or required to be closed. "Buyer" has the meaning set forth in the first paragraph of this Agreement, and it includes its permitted successors and assigns. "Buyer Indemnified Costs" means (a) any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) that any of the Buyer Indemnified Parties incurs and that arise out of any breach or default by Seller of any of the representations or warranties under this Agreement or any agreement or document executed in connection herewith (collectively, "Buyer Indemnified Representation Costs"); (b) any 2 8 and all losses, liabilities, or damages incurred by any of the Buyer Indemnified Parties resulting from Seller's operation or control of any of the Stations prior to the Closing Date, including any and all liabilities arising under the FCC Licenses (including any stipulations or other obligations imposed on Buyer in connection with the renewal of the Licenses in 1998) or the Assumed Contracts which relate to events occurring prior to the Closing Date; (c) any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) that any of the Buyer Indemnified Parties incurs and that arise out of any breach or default by Seller of any covenant or agreement under this Agreement or any agreement or document executed in connection herewith; (d) any and all obligations or liabilities of Seller under any contract or agreement not expressly assumed by Buyer pursuant to the terms hereof; (e) the items indemnified against pursuant to Section 7.5; and (f) any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs, and expenses, including reasonable legal fees and expenses, incident to any of the foregoing; provided, however, that insofar as the items in this clause (f) relate to the items in clause (a) above, such items shall constitute Buyer Indemnified Representation Costs; and provided further that Buyer Indemnified Costs shall consist solely of damages actually suffered or sustained and shall not include speculative damages in the nature of lost profits or diminution in value. "Buyer Indemnified Parties" means Buyer and each officer, director, employee, consultant, stockholder, and Affiliate of Buyer. "CERCLA" has the meaning set forth in the definition of Environmental Laws contained in this Section 1.1. "Choses in Action" means a right to receive or recover property, debt, or damages on a cause of action, whether pending or not and whether arising in contract, tort or otherwise. The term shall include rights to indemnification, damages for breach of warranty or any other event or circumstance, judgments, settlements, and proceeds from judgments or settlements. "Closing" means the consummation of the transactions contemplated by this Agreement in accordance with the provisions of Article IX. "Closing Date" means the date of the Closing specified in Article IX. "Code" shall mean the United States Internal Revenue Code of 1986, as amended. All references to the Code, U.S. Treasury regulations or other governmental pronouncements shall be deemed to include references to any applicable successor regulations or amending pronouncement. "Communications Act" has the meaning set forth in Section 3.1(f). "Company Reports" has the meaning set forth in Section 3.1(e). 3 9 "Concurrent Transactions" means the transactions contemplated by (a) that certain Asset Purchase Agreement of even date herewith by and between Buyer and Knight Radio, Inc., a New Hampshire corporation, and (b) that certain Asset Purchase Agreement of even date herewith by and among Buyer and Knight Communications Corp., a Massachusetts corporation. "Conflict Event" has the meaning set forth in Section 9.1. "Consents" means all governmental consents and approvals, including the FCC Consents, and all consents and approvals of third parties, in each case that are necessary in order to transfer the Assets to Buyer and otherwise to consummate the transactions contemplated hereby. "Contracts" means all agreements, contracts, or other binding commitments or arrangements, written or oral (including any amendments and other modifications thereto), to which Seller is a party or is otherwise bound and which affect or relate to the Assets or the business or operations of each of the Stations. "Deposit Escrow Agreement" means the Deposit Escrow Agreement among Seller, Knight Radio, Inc. and Knight Communications Corp., Buyer and Escrow Agent, a copy of which is attached hereto as Exhibit A. "Deposit Letter of Credit" means that certain original, irrevocable letter of credit in favor of Seller, Knight Radio, Inc. and Knight Communications Corp. and the Escrow Agent issued by Bankers Trust Company or another lender reasonably acceptable to Seller for the sum of $3,000,000 and held in accordance with the provisions of the Deposit Escrow Agreement. "Employee Benefit Plans" means any "employee benefit plan" within the meaning of Section 3(3) of ERISA and any bonus, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, vacation, severance, disability, death benefit, hospitalization or insurance plan providing benefits to any present or former employee or contractor of Seller or any member of the ERISA Group maintained by any such entity or as to which any such entity has any liability or obligation. "Employee Pension Benefit Plan" has the meaning set forth in Section 3(2) of ERISA. "Environmental Costs or Liabilities" has the meaning set forth in Section 3.1(m)(iv). "Environmental Laws" means all Applicable Laws and rules of common law pertaining to the environment, natural resources, and public or employee health and safety including the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. Section 9601 et seq.) ("CERCLA"), the Emergency Planning and Community Right to Know Act and the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Hazardous and Solid Waste Amendments Act of 1984, the Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, the Safe Drinking Water Act, the Occupational Safety and Health Act 4 10 of 1970, the Oil Pollution Act of 1990, the Hazardous Materials Transportation Act, and any similar or analogous statutes, regulations and decisional law of any Governmental Authority, as each of the foregoing may be amended and in effect on or prior to the Closing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Group" has the meaning set forth in Section 3.1(p). "ESA" means Phase I or Phase II environmental site assessments. "Escrow Agent" means U.S. Trust Company and includes its successors and assigns. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Excluded Assets" has the meaning set forth in Section 2.2. "FCC" has the meaning set forth in the first recital hereto. "FCC Consents" means actions by the FCC granting its initial consent to the assignment of the FCC Licenses for each of the Stations to Buyer as contemplated by this Agreement. "FCC Licenses" means all of the licenses, permits, and other authorizations issued by the FCC to Seller and applications of Seller, if any, to the FCC relating to or used in the business or operations of each of the Stations, including those listed on Schedule 3.1(f) and any additions thereto between the date hereof and the Closing Date. "Final Order" means written action or order issued by the FCC setting forth the FCC Consents and (a) which has not been reversed, stayed, enjoined, set aside, annulled, or suspended and (b) with respect to which (i) no requests have been filed for administrative or judicial review, reconsideration, appeal, or stay, and the time for filing any such requests and for the FCC to set aside the action on its own motion has expired or (ii) in the event of review, reconsideration, or appeal, such review, reconsideration, or appeal has been denied and the time for further review, reconsideration, or appeal has expired. "Financial Statements" has the meaning set forth in Section 3.1(e). "GAAP" means generally accepted accounting principles in the United States. "Governmental Entity" means any governmental department, commission, board, bureau, agency, court or other instrumentality of the United States or any state, county, parish or municipality, jurisdiction, or other political subdivision thereof. 5 11 "Hazardous Substances" has the meaning set forth in Section 3.1(m). "Holdback Amount" has the meaning set forth in Section 11.5. "HSR Act" has the meaning set forth in Section 3.1(d). "Indemnification Escrow Agreement" means the Indemnification Escrow Agreement among Seller, Knight Radio, Inc., Knight Communications Corp., Buyer, and Escrow Agent substantially in the form attached hereto as Exhibit E. "Indemnified Costs" means the Buyer Indemnified Costs or the Seller Indemnified Costs, as the case may be. "Indemnified Parties" means the Buyer Indemnified Parties or the Seller Indemnified Parties, as the case may be. "Indemnification Representation Costs" means the Buyer Indemnified Representation Costs or the Seller Indemnified Representation Costs, as the case may be. "Indemnifying Party" means any person who is or may be obligated to provide indemnification hereunder. "Intellectual Property" means all Trademarks, Know-how, copyrights, copyright registrations and applications for registration, Patents and all other intellectual property rights whether registered or not, licenses to or owned by Seller relating to the business or operations of any Station, including the call letters of each of the Stations and the goodwill related to the foregoing. "Know-how" means all plans, ideas, concepts and data, research records, all promotional literature, customer and supplier lists and similar data and information and all other confidential or proprietary technical and business information. "Knowledge" means, with respect to Seller, the actual knowledge of Norman Knight, N. Scott Knight, Robert A. Knight, or Randolf H. Knight, and with respect to Buyer, the actual knowledge of Steven R. Hicks, William S. Banowsky, Jr., or Paul Stone. "Leased Real Property" means all of the Seller's leasehold interests, easements, licenses, rights to access and rights-of-way which are used or held for use in the business and operations of any Station, including those interests which are identified and described in Schedule 3.1(j), as modified by any addition or permitted deletion thereto between the date hereof and the Closing Date. "Licenses" means the FCC Licenses and all Permits issued by any Governmental Entity to Seller relating to or used or held for use in the business and operations of any Station, 6 12 including those listed on Schedule 3.1(f), with any additions thereto between the date hereof and the Closing Date. "Liens" has the meaning set forth in Section 3.1(l). "Material Adverse Effect" means a material adverse effect on the business, operations, properties (taken as a whole), condition, results of operations, assets (taken as a whole), or liabilities of the Stations. "Multiemployer Plan" has the meaning set forth in Section 3(37) or Section 4001(a)(3) of ERISA. "Non-Competition Agreement" means the Non-Competition Agreement between Buyer and Seller, substantially in the form of Exhibit B. "Owned Real Property" means those parcels of real property owned in fee and used or held for use by Seller as described in Schedule 3.1(i), and all buildings, structures, improvements, and fixtures thereon, together with all rights of way, easements, privileges, and appurtenances pertaining or belonging thereto, including any right, title, and interest of Seller in and to any street or other property adjoining any portion of such property. "Patents" means all patent and patent applications (including all reissues, divisions, continuations, continuations-in-part, renewals, and extensions of the foregoing) owned by Seller. "Pension Plans" has the meaning set forth in Schedule 3.1(p). "Permits" has the meaning set forth in Section 3.1(m). "Permitted Encumbrances" means (a) statutory Liens for current Taxes not yet due and payable, (b) mechanics', carriers', workers', repairers', and other similar liens imposed by law arising or incurred in the ordinary course of business for obligations not yet due, (c) in the case of leases of vehicles, rolling stock, and other personal property, encumbrances, which do not, individually or in the aggregate, materially impair the operation of the business at the facility at which such leased equipment or other personal property is located, (d) other liens, charges or encumbrances incidental to the operation of the Stations or the ownership of the Assets which were not incurred in connection with the borrowing of money or the advance of credit and which, in the aggregate, do not materially detract from the value of the Assets or materially interfere with the use thereof or the operation of the Stations, and (e) Liens on leases of real property arising from the provisions of such leases or the actions of the lessor thereunder, including, in relation to leased real property, any agreements and/or conditions imposed on the issuance of land use permits, zoning, business licenses, use permits, or other entitlements of various types issued by any Governmental Entity, necessary or beneficial to the continued use and occupancy of the Assets or the continuation of the operation of any Station. 7 13 "Person" means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization, or other entity. "Personal Property" means all of the machinery, equipment (including the transmitter and studio equipment), computer programs, computer software, tools, motor vehicles, furniture, furnishings, leasehold improvements, office equipment, inventories, supplies, plant, spare parts, and other tangible or intangible personal property which are owned or leased by Seller for any Station and which are used or held for use in the business or operations of any Station, including the personal property which is listed on Schedule 3.1(k) hereto, together with any additions thereto between the date hereof and the Closing Date less any dispositions made in accordance with Section 4.1. The term Personal Property shall not include any of the Excluded Assets. "Purchase Price" means the consideration payable by Buyer to Seller as provided in Section 2.3 hereof. "Real Property" means the Leased Real Property and the Owned Real Property. "Release" means the Release of Claims between Buyer and Seller substantially in the form of Exhibit H. "Released Claims" has the meaning set forth in Section 10.2(b). "Released Parties" has the meaning set forth in Section 10.2(b). "Schedules" means the Schedules attached hereto. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Seller" has the meaning set forth in the first paragraph of this Agreement. "Seller Indemnified Costs" means (a) any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) that any of the Seller Indemnified Parties incurs and that arise out of any breach or default by Buyer of any of the representations, or warranties under this Agreement or any agreement or document executed in connection herewith (collectively, "Seller Indemnified Representation Costs"); (b) any and all losses, liabilities, or damages incurred by any of the Seller Indemnified Parties resulting from Buyer's operation or control of any of the Stations on and after the Closing Date, including any and all liabilities arising under the Licenses or the Assumed Contracts which relate to events occurring after the Closing Date; (c) any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) that any of the Seller 8 14 Indemnified Parties incurs and that arise out of any breach or default by Buyer of any covenant or agreement under this Agreement or any agreement or document executed in connection herewith; (d) the items indemnified against pursuant to Section 5.3; and (e) any and all actions, suits, proceedings claims, demands, assessments, judgments, costs, and expenses, including reasonable legal fees and expenses, incident to any of the foregoing; provided, however, that insofar as the items in this clause (e) relate to the items in clause (a) above, such items shall constitute Seller Indemnified Representation Costs; and provided further that Seller Indemnified Costs shall consist solely of damages actually suffered or sustained and shall not include speculative damages in the nature of lost profits or diminution in value. "Seller Indemnified Parties" means Seller and each officer, director, employee, consultant, stockholder, and Affiliate of Seller. "Seller Negative Trade Balance" has the meaning set forth in Section 4.2. "Station Event" has the meaning set forth in Section 9.1. "Station Licenses" has the meaning set forth in Section 3.1(f). "Station Management" has the meaning set forth in Section 4.1(b). "Taxes" means taxes, charges, fees, imposts, levies, interest, penalties, additions to tax or other assessments or fees of any kind, including, but not limited to, income, corporate, capital, excise, property, sales, use, turnover, value added and franchise taxes, deductions, withholdings and customs duties, imposed by any Governmental Entity and any payments with respect thereto required under any tax-sharing agreement. "Tax Returns" means any return, report, information return or other document (including any related or supporting information) filed or required to be filed with any Governmental Entity in connection with the determination, assessment, collection or administration of any Taxes or the administration of any laws, regulations or administrative requirements relating to any Taxes. "Title Commitment" means the commitment to issue an owner's title policy as provided in Section 8.2(e). "Title Company" means Republic Title Company or such other title insurance company reasonably acceptable to Buyer and Seller. "Trade Deals" means the exchanges by a Station of its advertising time for goods or services, other than in connection with the licensing of programs and programming material. "Trademarks" means (a) trademarks, service marks, trade names, trade dress, labels, logos, and all other names and slogans associated with any products or embodying the goodwill of 9 15 the business of any Station, whether or not registered, and any applications or registrations therefor and (b) any associated goodwill incident thereto owned by Seller. "Trading Event" has the meaning set forth in Section 9.1. "Transaction Documents" has the meaning set forth in Section 3.1(c). "Warranty Deed" means a special warranty deed in form and substance reasonably acceptable to the Buyer and the Title Company pursuant to which Seller conveys to Buyer the Owned Real Property at the Closing. 1.2. REFERENCES AND TITLES. All references in this Agreement to Exhibits, Schedules, Articles, Sections, subsections, and other subdivisions refer to the corresponding Exhibits, Schedules, Articles, Sections, subsections, and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any Articles, Sections, subsections, or other subdivisions of this Agreement are for convenience only, do not constitute any part of such Articles, Sections, subsections or other subdivisions, and shall be disregarded in construing the language contained therein. The words "this Agreement," "herein," "hereby," "hereunder," " and "hereof," and words of similar import, refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The words "this Section," "this subsection," and words of similar import, refer only to the Sections or subsections hereof in which such words occur. The word "or" is not exclusive, and the word "including" (in its various forms) means "including without limitation." Pronouns in masculine, feminine, or neuter genders shall be construed to state and include any other gender and words, terms, and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise expressly requires. Unless the context otherwise requires, all defined terms contained herein shall include the singular and plural and the conjunctive and disjunctive forms of such defined terms. ARTICLE II SALE AND PURCHASE OF ASSETS 2.1. AGREEMENT TO SELL AND BUY. Subject to the terms and conditions set forth in this Agreement and except for the Excluded Assets, Seller shall sell, assign, transfer and deliver to Buyer on the Closing Date, and Buyer shall purchase on the Closing Date, all of the Assets, free and clear of any Liens or liabilities (except for Permitted Encumbrances and liabilities assumed by Buyer in accordance with Section 2.5). The Assets to be assigned, transferred and delivered by Seller hereunder shall include the following: (a) All Personal Property; (b) All Leased Real Property; 10 16 (c) The Owned Real Property; (d) All Licenses and Permits; (e) All Assumed Contracts; (f) All Intellectual Property; (g) All Accounts Receivable; (h) Each of the Station's technical information and data, machinery and equipment warranties (to the extent such warranties are assignable), if any, maps, plans, diagrams, blueprints and schematics relating to such Station, if any, including filings with the FCC which relate to such Station, and goodwill relating to the foregoing; (i) All books and records relating to the business and operation of any of the Stations (excluding those described in, or relating to the assets described in, Section 2.2), including (i) executed copies of the Assumed Contracts, or if no executed agreement exists, summaries of each Assumed Contract transferred pursuant to clause (e) above and (ii) all records required by the FCC to be kept by each Station, subject to the right of Seller to request and receive copies thereof and have such books and records made reasonably available to Seller for tax and other legitimate organization purposes for a period of six years after the Closing; (j) To the extent assignable, all computer programs and software, and all rights and interests of Seller in and to computer programs and software used in connection with the business or operations of any Station; (k) Except for claims relating to Taxes and all Choses in Action described in Schedule 2.1(k), all Choses in Action of Seller; and (l) All intangible assets of Seller relating to any Station or the business or operation of any Station not specifically described above, including goodwill, and all other assets, other than the Excluded Assets, used or held for use in connection with any Station or the business of the Seller. 2.2. EXCLUDED ASSETS. The Excluded Assets shall consist of the following: (a) The Real Property described in Schedule 2.2(a); (b) In each case determined as of 11:59 p.m. on the day prior to the Closing Date, Seller's cash on hand as of the Closing Date and all other cash in any of Seller's bank or savings accounts; notes receivable, letters of credit or other similar items of Seller; any 11 17 stocks, bonds, certificates of deposit and similar investments of Seller; and any other cash equivalents of Seller; (c) Seller's books and records relating solely to internal corporate, financial and tax matters and any other books and records not related to any Station or the business or operations of any Station; (d) Any claims, rights and interest of Seller in and to any (i) refunds of Taxes or fees of any nature whatsoever or (ii) deposits or utility deposits, which, in each case, relate solely to the period prior to the Closing Date; (e) All insurance contracts, including the cash surrender value thereof, and all insurance proceeds or claims made by Seller relating to property or equipment repaired, replaced or restored by Seller prior to the Closing Date; (f) All Employee Benefit Plans and all assets or funds held in trust, or otherwise, associated with or used in connection with the Employee Benefit Plans; (g) All Choses in Action, if any, of Seller excluded from Section 2.1(k); (h) All tangible and intangible personal property disposed of or consumed in the ordinary course of business between the date of this Agreement and the Closing Date, or as otherwise permitted under the terms hereof; (i) Any collective bargaining agreement, any other Contract not included in the Assumed Contracts, and all Contracts that have terminated or expired prior to the Closing Date in the ordinary course of business and as permitted hereunder; and (j) The personal effects and other personal property identified on Schedule 2.2(j). 2.3. PURCHASE PRICE. Subject to the adjustments set forth in Section 2.4 and 2.5(b), the Purchase Price for the Assets is Ten Million ($10,000,000). 2.4. ADJUSTMENTS AND PRORATIONS. (a) All revenues arising from the operation of the Stations earned or accrued up until 11:59 p.m. on the day prior to the Closing Date, and all expenses, costs and liabilities, arising therefrom incurred, accrued or payable up until such time, including expenses arising under the Assumed Contracts, tower rentals, business and license fees, utility charges, real and personal property Taxes levied against the Assets, property and equipment rentals, applicable copyright or other fees, sales and service charges, other Taxes, wages, salaries, vacation, sick and employee compensation pay shall be prorated between Buyer and Seller in accordance with the principle that (i) Seller shall receive all revenues, refunds and deposits of Seller held by third parties, and shall be 12 18 responsible for all expenses, costs and liabilities incurred, payable or allocable to the conduct of the business and operations of each Station for the period ending at 11:59 p.m. on the day prior to the Closing Date and (ii) Buyer shall receive all revenues earned or accrued and shall be responsible for all expenses, costs and liabilities incurred, payable or allocable to the conduct of the business and operations of each Station for the period commencing on and continuing after the Closing Date. An adjustment of the Purchase Price and proration shall be made in favor of Buyer to the extent that Buyer assumes any liability under any Assumed Contract to refund (or to credit against payments otherwise due) any security deposit or similar prepayment paid to Seller by any lessee or other third party which is not otherwise credited to Buyer. Subject to Buyer's receipt of appropriate estoppel certificates, an adjustment of the Purchase Price and proration shall be made in favor of Seller to the extent that Seller has made (A) any security deposit under any Assumed Contract whether or not there is a proration under such Assumed Contract or (B) other prepayment under any Assumed Contracts for which there is a proration. The Purchase Price shall be increased by an amount equal to eighty percent of the face amount of Seller's Accounts Receivables. Seller shall be liable for all of the costs of employee compensation relating to each of the Stations properly attributable to or accruable on account of service with the Seller through 11:59 p.m. on the date prior to the Closing Date, including (1) all Taxes and related contributions, vacations and sick pay and (2) all group medical, dental or death benefits for expenses incurred, related to or arising from, events occurring on or prior to 11:59 p.m. on the date prior to the Closing Date, or death or disability occurring on or prior to 11:59 p.m. on the date prior to the Closing Date, whether reported by the Closing Date or thereafter; Buyer will be liable for all of the costs of employee compensation relating to each of the Stations, properly attributable or accruable thereafter on account of service with Buyer. Trade Deals shall not be adjusted or prorated. (b) Adjustments or prorations pursuant to this Section 2.4 will, insofar as feasible be determined and paid on the Closing Date based upon Seller's good faith calculation delivered to Buyer five days prior to the Closing Date, with final settlement and payment by the appropriate party occurring no later than 60 days after the Closing Date. Within 60 days after the Closing Date, Buyer shall submit to Seller its good faith determination of the adjustments or prorations required by this Section 2.4. Except as expressly provided in Section 2.4(a), Buyer's determination of the amount of adjustment under this Section 2.4 shall be made in accordance with GAAP, consistently applied. If Seller disagrees with the determination made by Buyer of the adjustment, Seller shall give prompt written notice thereof, but in no event later than 20 days after notice of Buyer's determination, specifying in reasonable detail the nature and extent of the disagreement, and Buyer and Seller shall have a period of 30 days in which to resolve the disagreement. If the parties are unable to resolve the disagreement within the 30-day period, the matter shall be submitted to an independent certified public accounting firm selected by Buyer and Seller, which accounting firm shall be directed to submit a final resolution within 30 days. The accounting firm's determination shall be binding on Buyer and Seller. Each party shall bear the fees and expenses of its own representatives, including its independent accountants, if any, and shall share equally the fees and expenses of any such accounting firm, if engaged, to resolve any disagreement between the parties. Within five business days following a final determination hereunder, the party obligated to make payment will make the payments determined to be due and owing in accordance with this Section 2.4. 13 19 2.5. ASSUMPTION OF LIABILITIES AND OBLIGATIONS. (a) As of the Closing Date, Buyer shall assume and undertake to pay, discharge and perform all the obligations and liabilities of Seller relating to each Station under the Licenses and the Assumed Contracts assumed by Buyer relating to the time period beginning on or arising out of events occurring on or after the Closing Date, including those incurred prior to the Closing Date and performable in accordance with their terms after the Closing Date. All other obligations and liabilities of Seller, including (i) obligations or liabilities under any contract not included in the Assumed Contracts, (ii) obligations or liabilities under any Assumed Contract for which a Consent, if required, has not been obtained as of the Closing, (iii) any obligations and liabilities arising under the Assumed Contracts that relate to the time period prior to the Closing Date or arise out of events occurring prior to the Closing Date and (iv) any forfeiture, claim or pending litigation or proceeding relating to the business or operations of any Station prior to the Closing Date (other than those to be performed in accordance with their terms after the Closing Date), shall remain and be the obligation and liability solely of Seller. Other than as specified in the first sentence of this Section 2.5, Buyer, directly or indirectly, shall assume no liabilities or obligations of Seller and shall not be liable therefor. (b) Schedule 2.5(b) contains a list of all of the Trade Deals in effect as of March 31, 1997 and correctly sets forth the balance, in dollar value, of either (i) Seller's obligations to the other party under such Trade Deals (denoted by a minus on Schedule 2.5(b)) or (ii) the amount due Seller under such Trade Deals (reflected as a positive on Schedule 2.5(b)). On the Closing Date, Buyer shall assume Seller's obligations under (i) the Trade Deals listed on Schedule 2.5(b) to the extent that the goods or services to be provided by the advertisers pursuant to such Trade Deals are solely used or useful in connection with the business or operations of any Station and (ii) all Trade Deals entered into by Seller between the date hereof and the Closing Date. The Trade Deals assumed by Buyer pursuant to the terms of this Section 2.5(b) shall be considered Assumed Contracts. 2.6. ALLOCATION. The parties hereto acknowledge that the transactions contemplated hereby must be reported in accordance with Section 1060 of the Code. Accordingly, the parties shall report such transactions for all purposes in accordance with the Purchase Price allocation set forth on Schedule 2.6 hereto. 2.7. EARNEST MONEY. (a) Concurrently with the execution of this Agreement, Buyer shall deposit the Deposit Letter of Credit with the Escrow Agent to be held in escrow in accordance with the Deposit Escrow Agreement. (b) Subject to satisfaction of the conditions to the obligations set forth in Article VIII, at the Closing, Seller shall instruct the Escrow Agent to release and return the Deposit Letter of Credit to Buyer for cancellation. (c) If this Agreement is terminated as provided in Section 10.1, Buyer and Seller shall instruct the Escrow Agent to release the Deposit Letter of Credit to Buyer or to Seller, all as provided in Section 10.2. 14 20 ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1. REPRESENTATIONS AND WARRANTIES REGARDING SELLER. Seller represents and warrants to Buyer as follows (with the understanding that Buyer is relying on such representations and warranties in entering into and performing this Agreement). (a) Organization, Good Standing, Etc. Seller is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts, has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted and is duly qualified and in good standing to do business in each state listed on Schedule 3.1(a), which states represent every jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary. Seller has delivered to Buyer true and complete copies of its Articles of Organization and Bylaws, as in effect at the date of this Agreement. Seller is not in violation of any provisions of its Articles of Organization or Bylaws. (b) Subsidiaries of Seller. Seller does not own, directly or indirectly, any equity interest in, any other corporation, partnership, or other person or have the right, pursuant to a contract or otherwise, to acquire any capital stock, equity interest or other similar investment in any corporation, partnership, or other person. (c) Authority. Seller has all requisite corporate power and authority to enter into this Agreement, the Deposit Escrow Agreement, the Bill of Sale and Assignment, the Assumption Agreement, the Indemnification Escrow Agreement, the Non-Competition Agreement and each other agreement, document, and instrument required to be executed by Seller in accordance herewith (collectively, the "Transaction Documents") and to consummate the transactions contemplated hereby or thereby. The execution and delivery of the Transaction Documents by Seller and the consummation by Seller of the transactions contemplated hereby or thereby have been duly authorized by all necessary corporate action on the part of Seller, including, without limitation, the requisite approval of the holders of the outstanding capital stock of Seller entitled to vote thereon. The Transaction Documents have been, or upon execution and delivery will be, duly executed and delivered and constitute the valid and binding obligations of Seller enforceable against it in accordance with their terms, subject as to enforceability to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (d) No Conflict; Required Filings and Consents. The execution and delivery of the Transaction Documents by Seller do not and the performance by Seller of the transactions contemplated hereby or thereby will not, subject to obtaining the consents, approvals, authorizations, and permits and making the filings described in this Section 3.1(d), (i) violate, conflict with, or result 15 21 in any breach of any provision of Seller's Articles of Organization and Bylaws, (ii) violate, conflict with, or result in a violation or breach of, or constitute a default (with or without due notice or lapse of time or both) under, or permit the termination of, or result in the acceleration of, or entitle any party to accelerate (whether as a result of a change of control of Seller or otherwise) any material obligation, or result in the loss of any material benefit, or give any person the right to require any security to be repurchased, or give rise to the creation of any material lien, charge, security interest, or encumbrance upon any of the Assets under any of the terms, conditions, or provisions of any loan or credit agreement, note, bond, mortgage, indenture, or deed of trust, or any license, lease, agreement, or other instrument or obligation to which Seller is a party or by which it or any of the Assets may be bound or subjected, or (iii) violate any order, writ, judgment, injunction, decree, statute, law, rule, or regulation, of any Governmental Entity applicable to Seller or by which or to which any material Assets are bound or subject. No Consent of any Governmental Entity is required by or with respect to the Seller in connection with the execution and delivery of any Transaction Documents by Seller or the consummation of the transactions contemplated hereby or thereby, except for (A) the filing of a premerger notification report under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and (B) the FCC Consents (as contemplated by Section 7.1 hereof). (e) Reports; Financial Statements; Absence of Certain Changes or Events. (i) Seller has filed all forms, reports, statements, and other documents required to be filed with the FCC. Seller has filed all forms, reports, statements, and other documents required to be filed with any and all other Governmental Entities. All such forms, reports, statements and other documents required to be filed with the FCC or any other Governmental Entity are referred to herein, collectively, as the "Company Reports". The Company Reports were prepared in all material respects in accordance with the requirements of applicable law. (ii) Seller has delivered to Buyer copies of (A) the reviewed balance sheets of Seller as of December 31, 1995 and December 31, 1996, together with the reviewed statements of income and cash flows of Seller for the periods then ended, and the notes thereto, accompanied by the reports thereon of Arthur Andersen LLP, independent public accountants (the "Reviewed Financial Statements"), and (B) the internally prepared balance sheet of Seller as of March 31, 1997, together with the related unaudited statements of income for the period then ended. The Reviewed Financial Statements, including the notes thereto, were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby (except to the extent disclosed therein or required by changes in GAAP) and present accurately the information purported to be presented therein as of such dates and for the periods then ended. (iii) Except as disclosed in Schedule 3.1(e), there is no material liability or obligation of any kind, whether accrued, absolute, fixed, contingent, or otherwise, of Seller that is not reflected or reserved against in the balance sheet for the period ended 16 22 March 31, 1997 (the "Balance Sheet"), other than (A) liabilities incurred in the ordinary course of business in a manner consistent with past practice since March 31, 1997 (the "Balance Sheet Date"), or (B) any such liability or obligation which would not be required to be presented in financial statements or the notes thereto prepared in conformity with GAAP applied, in a manner consistent with past practice, in the preparation of the Financial Statements. (iv) Except as disclosed in Schedule 3.1(e), since the Balance Sheet Date, Seller has conducted its business only in the ordinary course consistent with past practice and nothing has occurred that would have been prohibited by Section 4.1 if the terms of such section had been in effect as of and after the Balance Sheet Date. Since the Balance Sheet Date, there has not occurred, and Seller has not incurred or suffered, any event, circumstance, or fact that could result in a Material Adverse Effect. Additionally, since the Balance Sheet Date, there has not occurred, and Seller has not incurred or suffered, any event, circumstance, or fact that materially impairs the physical assets of any of the Stations. (f) Compliance with Applicable Laws: FCC Matters. (i) The business of Seller has been conducted in compliance in all material respects with each Applicable Law. No investigation or review by any Governmental Entity with respect to Seller is pending or, to the Knowledge of Seller, threatened. Without limiting the generality of the foregoing, Seller has complied with the Communications Act of 1934, as amended, and all material rules, regulations and written policies of the FCC thereunder (collectively, the "Communications Act"), all obligations with respect to equal employment opportunity under Applicable Law, and all material rules and regulations of the Federal Aviation Administration applicable to each of the towers used or held for use by a Station. In addition, Seller has duly filed, or caused to be so filed, with the FCC and other appropriate Governmental Entities all reports, statements, documents, registrations, filings, or submissions with respect to the operation of each Station and the ownership thereof, including, applications for renewal of authority required by Applicable Law to be filed. All such FCC filings complied in all material respects with Applicable Laws when made, and no deficiencies have been asserted with respect to any such filings. The material required by 47 C.F.R. Section 73.3526 to be kept in the public inspection files of each Station is in such files and was placed in such files at the appropriate times. (ii) Schedule 3.1(f) is a true and complete list of (A) all of the FCC Licenses, including the expiration dates thereof, as of the date of this Agreement and (B) all other material licenses, permits, or authorizations issued to Seller by any other Governmental Entities and held by it as of the date of this Agreement. Such FCC Licenses, licenses, permits, and authorizations, and all pending applications for modification, extension, or renewal thereof or for new licenses, permits, permissions, or authorizations, are collectively referred to herein as the "Station Licenses." Schedule 3.1(f) accurately lists the legally authorized holder(s) of the Station Licenses. The Station Licenses constitute all the licenses, 17 23 permits and authorizations required for the operation of each of the Stations and the business of Seller, and each of the Station Licenses is in full force and effect. Each of the Stations has been operated in all material respects in accordance with the terms of its Station Licenses and the Seller is otherwise in compliance with, and has conducted its business so as to comply with, the terms of such Station Licenses. There are no proceedings pending or, to the Knowledge of Seller, threatened with respect to Seller's ownership or operation of any Station which reasonably may be expected to result in the revocation, material adverse modification, non-renewal, or suspension of any of the Station Licenses, the denial of any pending applications for any Station Licenses, the issuance against Seller of any cease and desist order, or the imposition of any administrative actions by the FCC, including the proposed assessment of fines or penalties, or any other Governmental Entity with respect to any Station Licenses, or which reasonably may be expected to adversely affect any Station's ability to operate as currently operated or Buyer's ability to obtain control of any Station Licenses or to operate any Station. To the Knowledge of Seller, no other broadcast station or radio communications facility is causing interference to any Station's transmissions beyond that which is allowed by FCC rules and regulations and no Station is causing interference to any other broadcast station or radio communications facilities' transmissions beyond that which is allowed by the FCC rules and regulations. To the Knowledge of Seller, there is no reason to believe that the FCC will not renew any of the Station Licenses issued by the FCC in the ordinary course of business. To the Knowledge of Seller, there are no facts relating to Seller under the Communications Act that reasonably may be expected to disqualify Seller from transferring control of any of the Station Licenses pursuant to the terms of this Agreement or that would prevent the consummation by Seller of the transactions contemplated by this Agreement. (g) Absence of Litigation. Except as set forth on Schedule 3.1(g), there is no claim, action, suit, inquiry, judicial, or administrative proceeding, grievance, or arbitration pending or, to the Knowledge of Seller, threatened against Seller or any of the Assets by or before any arbitrator or Governmental Entity, nor are there any investigations relating to Seller or any of the Assets pending or, to the Knowledge of Seller, threatened by or before any arbitrator or Governmental Entity. Except as set forth in Schedule 3.1(g), there is no judgment, decree, injunction, order, determination, award, finding, or letter of deficiency of any Governmental Entity or arbitrator outstanding against Seller or any of the Assets. There is no action, suit, inquiry, judicial, or administrative proceeding pending or, to the Knowledge of Seller, threatened against Seller relating to the transactions contemplated by this Agreement. (h) Insurance. Since January 1, 1994, Seller has been insured against such risks as companies engaged in a similar business would, in accordance with good business practice, customarily be insured. Schedule 3.1(h) lists all fire, general liability, malpractice liability, theft, and other forms of insurance and all fidelity bonds held by or applicable to Seller. Except as set forth on Schedule 3.1(h), the policies of general liability, malpractice liability, fire, theft, and other insurance maintained with respect to the operations, assets, or business of Seller provide adequate coverage against loss. To the Knowledge of Seller, no event has occurred, including the failure by 18 24 Seller to give any notice or information or the delivery of any inaccurate or erroneous notice or information, which limits or impairs the rights of Seller under any such insurance policies in such a manner as could have a Material Adverse Effect. Excluding insurance policies that have expired and been replaced in the ordinary course of business, no insurance policy has been canceled within the last two years prior to the date hereof. (i) Owned Real Property. Schedule 3.1(i) contains an accurate description of all the Owned Real Property. Except as set forth on Schedule 3.1(j) and subject to any Permitted Encumbrances, Seller has good and marketable, fee simple, absolute title in and to the Owned Real Property. Seller has sufficient title to such easements, rights of way and other rights appurtenant to each of the Owned Real Properties as are necessary to permit ingress and egress to and from the Owned Real Property to a public way, and the improvements on the Owned Real Property have access to such sewer, water, gas, electric, telephone and other utilities as are necessary to allow the business of the Seller operated thereon to be operated in the ordinary course. There is no pending condemnation or similar proceeding affecting the Owned Real Property or any portion thereof, and to the Knowledge of Seller, no such action is threatened. Except as set forth on Schedule 3.1(i), the improvements located on the Owned Real Property are in sufficiently good condition (except for ordinary wear and tear) to allow the business of the Seller to be operated in the ordinary course and there has been no damage to such improvements that affects the conduct of such business in any material respect that has not been repaired or remedied. Except as set forth on Schedule 3.1(i), there are no lessees or tenants at will in possession of any portion of any of the Owned Real Property other than Seller, whether as lessees, tenants at will, trespassers or otherwise. Except as set forth on Schedule 3.1(i), no zoning, building or other federal, state or municipal law, ordinance, regulation or restriction is violated in any material respect by the continued maintenance, operation or use of the Owned Real Property or any tract or portion thereof or interest therein in its present manner. The current use of the Owned Real Property and all parts thereof does not violate any restrictive covenants of record affecting any of the Owned Real Property. All necessary Licenses by any Governmental Entity with respect to the Owned Real Property have been obtained, have been validly issued and are in full force and effect. (j) Leased Real Property. Schedule 3.1(j) contains an accurate description of all the leasehold interests relating to the business and operations of each of the Stations as now conducted. Each lease described in Schedule 3.1(j) is a valid and binding obligation of Seller and is in full force and effect without amendment other than as described in Schedule 3.1(j). Except as otherwise disclosed on Schedule 3.1(j), Seller is not, and to the Knowledge of the Seller, no other party is, in default under any lease described in Schedule 3.1(j). Subject to obtaining the Consents disclosed in Schedule 3.1(j), Seller has the full legal power and authority to assign its rights under the leases listed in Schedule 3.1(j) to Buyer. All leasehold interests listed in Schedule 3.1(j) (including the improvements thereon) are available for immediate use in the conduct of the business and operations of each of the Stations as currently conducted. (k) Personal Property. Schedule 3.1(k) contains a description of the items of Personal Property (having a replacement cost of not less than $25,000 for each item) which comprise 19 25 all Personal Property used or held for use in connection with the business and operations of each Station or which permit the operation of each Station as now conducted. Except as set forth on Schedule 3.1(k), Seller has good title to, or a valid leasehold or license interest in, all Personal Property and none of the Personal Property is subject to any Lien or other encumbrances, except for Permitted Encumbrances. Seller is not, and to the Knowledge of the Seller, no other party is, in default under any of the leases, licenses and other Contracts relating to the Personal Property. Except as otherwise disclosed in Schedule 3.1(k), the Personal Property (i) is in good operating condition and repair (ordinary wear and tear excepted), (ii) is available for immediate use in the business and operation of each of the Stations as currently conducted and (iii) permits each of the Stations to operate in accordance with the terms of their respective FCC Licenses, and the rules and regulations of the FCC, and with all other applicable federal, state and local statutes, ordinances, rules and regulations. (l) Liens and Encumbrances. All of the Assets, including leases, are free and clear of all liens, pledges, claims, security interests, restrictions, mortgages, tenancies, and other possessory interests, conditional sale or other title retention agreements, assessments, easements, rights of way, covenants, restrictions, rights of first refusal, defects in title, encroachments, and other burdens, options or encumbrances of any kind (collectively, "Liens") except (i) Permitted Encumbrances and (ii) Liens set forth on Schedule 3.1(l) (the Liens referred to in clauses (i) and (ii) being "Permitted Liens"). At the Closing, all of the Assets shall be free and clear of all Liens other than Permitted Encumbrances. (m) Environmental Matters. Except as described on Schedule 3.1(m), (i) The real property and facilities owned, operated, and leased by Seller and the operations of Seller thereon comply and have at all times complied in all material respects with all Applicable Laws and rules of common law pertaining to the environment, natural resources, and public or employee health and safety, including all Environmental Laws; (ii) No judicial proceedings are pending or, to the Knowledge of Seller, threatened against Seller alleging the violation of any Environmental Laws, and there are no administrative proceedings pending or, to the Knowledge of Seller, threatened against Seller, alleging the violation of any Environmental Laws and no notice from any Governmental Entity or any private or public person has been received by Seller claiming any violation of any Environmental Laws in connection with any real property or facility owned, operated or leased by Seller, or requiring any remediation, clean-up, modification, repairs, work, construction, alterations, or installations on or in connection with any real property or facility owned, operated or leased by Seller that are necessary to comply with any Environmental Laws and that have not been complied with or otherwise resolved to the satisfaction of the party giving notice; 20 26 (iii) All permits, registrations, licenses, authorizations, and the like ("Permits") required to be obtained or filed by Seller under any Environmental Laws in connection with Seller's operations, including those activities relating to the generation, use, storage, treatment, disposal, release, or remediation of Hazardous Substances (as such term is defined in Section 3.1(m)(iv) hereof), have been duly obtained or filed, and Seller is and has at all times been in full compliance in all material respects with the terms and conditions of all such Permits; (iv) All Hazardous Substances used or generated by Seller or any of its predecessors on, in, or under any of the owned, operated, or leased real property or facilities are and have at all times been generated, stored, used, treated, disposed of, and released by such persons or on their behalf in such manner as not to result in any material Environmental Costs or Liabilities. "Hazardous Substances" means (A) any hazardous materials, hazardous wastes, hazardous substances, toxic wastes, and toxic substances as those or similar terms are defined under any Environmental Laws; (B) any asbestos or any material which contains any hydrated mineral silicate, including chrysolite, amosite, crocidolite, tremolite, anthophylite and/or actinolite, whether friable or non-friable; (C) PCBs, or PCB-containing materials, or fluids; (D) radon; (E) any other hazardous, radioactive, toxic or noxious substance, material, pollutant, contaminant, constituent, or solid, liquid or gaseous waste; (F) any petroleum, petroleum hydrocarbons, petroleum products, crude oil and any fractions or derivatives thereof, any oil or gas exploration or production waste, and any natural gas, synthetic gas and any mixtures thereof; (G) any substance that, whether by its nature or its use, is subject to regulation under any Environmental Laws or with respect to which any Environmental Laws or Governmental Entity requires environmental investigation, monitoring or remediation; and (H) any underground storage tanks, dikes, or impoundments as defined under any Environmental Laws. "Environmental Costs or Liabilities" means any losses, liabilities, obligations, damages, fines, penalties, judgments, settlements, actions, claims, costs and expenses (including, without limitation, reasonable fees, disbursements and expenses of legal counsel, experts, engineers and consultants, and the costs of investigation or feasibility studies and performance of remedial or removal actions and cleanup activities) in connection with (1) any Environmental Laws, (2) order of, or contract of Seller with, any Governmental Entity or any private or public persons or (3) any exposure of any person or property to Hazardous Substances; (v) There are not now, nor have there been in the past, on, in or under any property or facilities when owned, leased, or operated by Seller or, to the knowledge of the Seller, when owned, leased, or operated by any of its predecessors, any Hazardous Substances that are in a condition or location that violates any Environmental Law or that reasonably could be expected to require remediation under any Environmental Laws or give rise to a claim for damages or compensation by any affected person or to any Environmental Costs or Liabilities; and 21 27 (vi) Seller has not received, and to the Knowledge of Seller, does not expect to receive, any notification from any source advising Seller that: (A) it is a potentially responsible party under CERCLA or any other Environmental Laws; (B) any real property or facility currently or previously owned, operated, or leased by it is identified or proposed for listing as a federal National Priorities List ("NPL") (or state-equivalent) site or a Comprehensive Environmental Response, Compensation and Liability Information System ("CERCLIS") list (or state-equivalent) site; and (C) any facility to which it has ever transported or otherwise arranged for the disposal of Hazardous Substances is identified or proposed for listing as an NPL (or state-equivalent) site or CERCLIS (or state-equivalent) site. (n) Taxes. Seller has filed or caused to be filed all Tax Returns affecting the Stations or the Assets which are required to be filed by Seller, all such Tax Returns which have been filed are materially accurate and complete, and Seller has timely paid all Taxes shown on such returns or on any Tax assessment received by Seller to the extent that such Taxes have become due or is contesting such Taxes or assessments. There are no Liens for Taxes upon the Stations or the Assets except for the Permitted Encumbrances. Seller has not received notice of any Tax deficiency or delinquency. No Internal Revenue Service audit of Seller is pending or, to the Knowledge of Seller, threatened, and the results of any completed audits are properly reflected in the Financial Statements. Substantially all monies required to be withheld by Seller from employees or collected from customers for Taxes and the portion of any Taxes to be paid by Seller to governmental agencies or set aside in accounts for such purposes have been so paid or set aside, or such monies have been reserved against and entered upon the books and are reflected in the Balance Sheet. There are no legal, administrative, or tax proceedings pursuant to which Seller is or could be made liable for any taxes, penalties, interest, or other charges, the liability for which could extend to Buyer as transferee of the business of the Stations. (o) Certain Agreements. (i) Schedule 3.1(o) hereto lists each (A) employment or consulting Contract which is not terminable without liability or penalty on 30 days or less notice, (B) Contract under which any party thereto remains obligated to provide goods or services having a value, or to make payments aggregating, in excess of $50,000 per year, and (C) other Contract that is material to the operation of the Stations or to the Seller's business, in any such case to which Seller is a party or Seller or the Assets is bound. Each such Contract described in Schedule 3.1(o) or required to be so described is a valid and binding obligation of Seller and is in full force and effect without amendment. Except as set forth on Schedule 3.1(o), Seller and, to the Knowledge of Seller, each other party to such Contracts, has performed in all material respects the obligations required to be performed by it under such Contracts and is not (with or without lapse of time or the giving of notice, or both) in breach or default thereunder. Schedule 3.1(o) identifies, as to each such Contract listed thereon, whether the consent of the other party thereto is required, and the extent of any payments required, in order for such Contract to continue in full force and effect upon 22 28 the consummation of the transactions contemplated hereby or whether such Contract can be canceled by the other party without liability to such other party due to the consummation of the transactions contemplated hereby. A complete copy of each written Contract and a description of each oral Contract set forth in Schedule 3.1(o) has been provided to Buyer prior to the date of this Agreement. (ii) Except as set forth on Schedule 3.1(o), Seller is not a party to any oral or written agreement, plan or arrangement with any employee or other station or broadcast personnel (whether an employee, consultant or an independent contractor) of Seller (A) the benefits of which are contingent, or the terms of which are materially altered, upon, or result from, the occurrence of a transaction involving Seller of the nature of any of the transactions contemplated by this Agreement, (B) providing severance benefits longer than forty-five days or other benefits after the termination of employment or other contractual relationship regardless of the reason for such termination and regardless of whether such termination is before or after a change of control, (C) under which any person may receive payments subject to the tax imposed by Section 4999 of the Code or (D) any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. (p) ERISA Compliance; Labor. (i) The present value of all accrued benefits (vested and unvested) under all the Employee Pension Benefit Plans, which Seller or any other trades or businesses under common control within the meaning of Section 4001(b)(1) of ERISA with Seller (collectively, the "ERISA Group") maintains, or to which Seller or any member of the ERISA Group is or has been obligated to contribute (the "Pension Plans"), did not, as of the respective last annual valuation dates for such Pension Plans, exceed the value of the assets of such Pension Plan allocable to such benefits. None of such Pension Plans subject to Title IV of ERISA or any of their related trusts has been terminated or partially terminated. Neither Seller or any member of the ERISA Group has contributed or been obligated to contribute to any Multiemployer Plan. Except as set forth on Schedule 3.1(p), neither Seller nor any member of the ERISA Group has any Employee Benefit Plans. (ii) True, correct, and complete copies of each of the Employee Benefit Plans, and related trusts, if applicable, have been furnished to Buyer, along with the most recent report filed on Form 5500 and summary plan description with respect to each Employee Benefit Plan required to file Form 5500. (iii) Seller is not a party to any collective bargaining agreement. Seller has not agreed to recognize any union or other collective bargaining representative, nor has any union or other collective bargaining representative been certified as the exclusive bargaining 23 29 representative of any of its employees. Seller (A) is, and has always been since January 1, 1995, in substantial compliance with all applicable laws regarding labor, employment and employment practices, terms and conditions of employment, equal employment opportunity, employee benefits, affirmative action, wages and hours, plant closing and mass layoff, occupational safety and health, immigration, and workers' compensation, (B) is not engaged, nor has it since January 1, 1995, engaged, in any unfair labor practices, and has no, and has not had since January 1, 1995, any, unfair labor practice charges or complaints before the National Labor Relations Board pending or, to the Knowledge of Seller threatened against it, (C) has no, and has not had since January 1, 1995, any, grievances, arbitrations, or other proceedings arising or asserted to arise under any collective bargaining agreement, pending or, to the Knowledge of Seller threatened, against it and (D) has no, and has not had since January 1, 1995, any, charges, complaints, or proceedings before the Equal Employment Opportunity Commission, Department of Labor or any other Governmental Entity responsible for regulating employment practices, pending, or, to Seller's Knowledge, threatened against it. There is no labor strike, slowdown, work stoppage or lockout pending or, to the Knowledge of Seller, threatened against or affecting Seller, and Seller has not experienced any labor strike, slowdown, work stoppage or lockout since January 1, 1995. To the Knowledge of Seller no union organizational campaign or representation petition is currently pending with respect to any of the employees of Seller. (q) Patents, Trademarks, Etc. Schedule 3.1(q) is a true and complete list of all of the Intellectual Property. Except as set forth on Schedule 3.1(q), Seller owns or has the unencumbered right to use pursuant to a valid, binding, and enforceable license agreement or other contract or arrangement all such Intellectual Property. To the Knowledge of Seller, Seller is not infringing any such Intellectual Property, and Seller is not aware of any infringement by others of any of the Intellectual Property owned by Seller. (r) Affiliate Relationships. Except as set forth on Schedule 3.1(r), there are no contracts or other arrangements involving Seller in which any member, manager, officer, director, or Affiliate of Seller has a financial interest, including indebtedness to Seller. (s) Assets. The Assets and the Excluded Assets include substantially all assets used or held for use in connection with the business and operations of the Stations as currently conducted. (t) No Dispositions. Since the Balance Sheet Date, there has not occurred any sale, lease, transfer, assignment, abandonment or other disposition of any of the assets of any Station other than any disposition of (i) obsolete property,(ii) property in connection with the acquisition of replacement property of equal value, or (iii) assets having, in the aggregate, a value of less than $50,000 disposed of in the ordinary course of business and consistent with past practices. (u) No Knowledge of Buyer's Breach. Seller has no Knowledge of any breach of representation or warranty by Buyer or of any other condition or circumstance that would excuse 24 30 Seller from its timely performance of its obligations hereunder. Seller shall notify Buyer as promptly as practicable if any such information comes to its attention prior to the Closing Date. 3.2. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller as follows (with the understanding that Seller is relying on such representations and warranties in entering into and performing this Agreement): (a) Organization Standing and Power. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware 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) Authority. Buyer has all requisite corporate power and authority to enter into the Transaction Documents to which it will be a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of such Transaction Documents by Buyer and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Buyer. The Transaction Documents to which Buyer will be a party have been, or upon execution and delivery will be, duly executed and delivered and constitute the valid and binding obligations of Buyer, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (c) No Conflict; Required Filings and Consents. The execution and delivery of the Transaction Documents to which Buyer will be a party do not and the performance by Buyer of the transactions contemplated hereby or thereby will not, subject to obtaining the consents, approvals, authorizations, and permits and making the filings described in this Section 3.2(c), (A) violate, conflict with, or result in any breach of any provisions of Buyer's Articles of Incorporation and Bylaws, (B) violate, conflict with, or result in a violation or breach of, or constitute a default (with or without due notice or lapse of time or both) under, or permit the termination of, or result in the acceleration of, or entitle any party to accelerate (whether as a result of a change of control of Buyer or otherwise) any obligation, or result in the loss of any benefit, or give any person the right to require any security to be repurchased, or give rise to the creation of any lien, charge, security interest, or encumbrance upon any of the Assets under any of the terms, conditions, or provisions of any loan or credit agreement, note, bond, mortgage, indenture, or deed of trust, or any license, lease, agreement, or other instrument or obligation to which Buyer is a party or by which it or any of the Assets may be bound or subjected, or (C) violate any order, writ, judgment, injunction, decree, statute, law, rule or regulation, of any Governmental Entity applicable to Buyer or by which or to which any of the Assets is bound or subject. No Consent of any Governmental Entity is required by or with respect to Buyer in connection with the execution and delivery of any Transaction Documents by Buyer or the consummation by it of the transactions contemplated hereby or thereby, 25 31 except for (A) the filing of a premerger notification report under the HSR Act and (B) the FCC Consents (as contemplated by Section 7.1) (d) Litigation. As of the date hereof, there is no action, suit, inquiry, judicial or administrative proceeding pending or, to the Knowledge of Buyer, threatened against it relating to the transactions contemplated by this Agreement. (e) FCC Matters. There are no facts relating to Buyer under the Communications Act or otherwise that reasonably may be expected to disqualify it from qualifying as an assignee of the Station Licenses or that would prevent it from consummating the transactions contemplated by this Agreement. Buyer hereby represents and warrants that it is able to certify on an FCC Form 314 that it is financially qualified. (f) No Knowledge of Seller's Breach. Buyer has no Knowledge of any breach of representation or warranty by Seller or of any other condition or circumstance that would excuse Buyer from its timely performance of its obligations hereunder. Buyer shall notify Seller as promptly as practicable if any such information comes to its attention prior to the Closing Date. (g) No Assurance. Buyer is relying solely on the express representations, warranties and covenants of Seller contained in this Agreement and Transaction Documents, and upon no other representations or statements of Seller or any of its Affiliates or their respective directors, officers, employees, agents or representatives, and acknowledges and agrees that nothing in this Agreement or the Transaction Documents shall be deemed to create any additional implied duty, disclosure obligation or responsibility on the part of Seller or its Affiliates. ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS 4.1. COVENANTS OF SELLER. Except as contemplated by this Agreement or to the extent that Buyer shall otherwise consent in writing, from the date of this Agreement until the Closing, Seller covenants and agrees that Seller shall not: (a) conduct its business in any manner except in the ordinary course consistent with past practice, including, without limitation, with respect to Trade Deals and other barter arrangements; or (b) fail to use commercially reasonable efforts to preserve intact Seller's business organization substantially as in effect as of this date and to preserve its relationships with customers, suppliers and others having business dealings with it substantially as in effect as of this date; or 26 32 (c) fail to use commercially reasonable efforts to maintain the Assets in their current condition except for ordinary wear and tear and damage by casualty governed by Section 7.6; or (d) fail to use all commercially reasonable efforts to maintain the present programming of the Stations consistent with past practices; or (e) except for amendments, terminations (without payment of penalty or damages), renewals, or failures to renew (without payment of penalty or damages) of employment agreements with over-the-air personnel in the ordinary course of business and consistent with past practice (subject to prior consultation with Buyer reasonably in advance thereof), materially amend or terminate (i.e., a contract or agreement of the type required to be described in Schedule 3.1(o)), or default in any material respect (or take or omit to take any action that, with or without the giving notice or passage of time, would constitute a material default) under any material Contract; or (f) merge or consolidate with or into any other legal entity, dissolve, or liquidate; or (g) except as required by the terms and provisions of written contracts between Seller and an employee thereof as in existence on March 31, 1997 or in connection with any reasonable amendments required by the provider or underwriter of any Employee Benefit Plan in connection with the annual renewal of such Employee Benefit Plans, adopt or amend any Employee Benefit Plan or collective bargaining agreement; or (h) except as set forth in Schedule 4.1(h), sell (whether by merger, consolidation, or the sale of an equity interest or assets), lease, or dispose of any Assets except in the ordinary course of business and consistent with past practice or, even if in the ordinary course of business and consistent with past practices (other than sales of surplus or obsolete equipment), whether in one or more transactions, in no event involving an Asset or Assets having an aggregate fair market value in excess of $50,000; or (i) mortgage, pledge, or subject to any material Lien which will not be removed or released at or prior to Closing, other than Permitted Encumbrances, any of the Assets; or (j) except as required by GAAP, applicable law, or circumstances which did not exist as of the Balance Sheet Date, change any of the material accounting principles or practices used by it; or (k) change in any material respect its existing practices and procedures with respect to the collection of accounts receivable of the Stations and, except with respect to good faith attempts consistent with past practice to obtain payment of a past due receivable, or except in accordance with existing practices, a contested receivable, offer to discount the amount of any 27 33 outstanding receivable or extend any other incentive (whether to the account debtor or any employee or third party responsible for the collection of receivables) to accelerate the collection thereof; or (l) change any Station's advertising rates or policies, procedures or methods in connection with the sale of advertising time in a manner expected to accelerate the receipt of cash payments or fail to incur annual advertising and promotional department expenses in cash and trade other than as budgeted for 1997 (as such budget previously has been delivered to Buyer); or (m) enter into, or enter into negotiations or discussions with any person other than Buyer with respect to any local marketing agreement or any other similar agreement; or (n) agree to or make any commitment, orally or in writing, to take any actions prohibited by this Agreement. 4.2. ENVIRONMENTAL SITE ASSESSMENTS. If Buyer or its lenders or other financing sources require Phase I or Phase II ESAs, Seller covenants and agrees that, upon written notice from Buyer to Seller identifying the locations at which such ESAs are required, Seller shall cooperate and permit Buyer to cause to be performed by a nationally recognized and duly qualified environmental consultant selected by Buyer, with the consent of Seller (which consent shall not be unreasonably withheld), an ESA at each identified transmission site owned, operated, or leased by Seller and at such other identified real properties and facilities owned, operated, or leased by Seller. The ESAs which are to be conducted for the benefit of Buyer shall be performed in a manner that at a minimum satisfies the requirements of ASTM Practice E 1527-94. The cost of any ESAs shall be borne by Buyer. Any site visits made by Buyer's consultants shall be performed in collaboration with Seller's designees in accordance with a schedule mutually agreed upon in advance. Buyer and/or its contractors will be accompanied by the Seller's representatives at all times, and no notification or discussions of environmental matters shall be initiated with governmental agencies or third parties without the prior notice to and agreement by Seller. If Buyer, based upon the conclusions in any Phase I report, desires to perform intrusive testing, Buyer shall present such request and the supporting written justification to Seller and both parties shall use reasonable best efforts to mutually agree upon the scope and nature of any such intrusive investigation. Any intrusive investigation shall be under the supervision of Seller and all results of any intrusive investigation shall be immediately shared with Seller. 4.3. BROADCAST TRANSMISSION INTERRUPTION. Seller shall give prompt written notice to Buyer if before the Closing the regular broadcast transmission of any of the Stations in the normal and usual manner is interrupted for a period of two consecutive hours or more, excluding interruptions for normal and routine maintenance. 28 34 ARTICLE V ADDITIONAL AGREEMENTS OF SELLER 5.1. NO SOLICITATION OF TRANSACTIONS. Seller shall not, directly or indirectly, through any officer, director, stockholder, employee, agent, financial advisor, banker or other representative, or otherwise, solicit, initiate, or encourage the submission of any proposal or offer from any person relating to any acquisition or purchase of all or any material portion of the Assets or any equity interest in Seller or any merger, consolidation, share exchange, business combination, or other similar transaction with Seller or participate in any negotiations regarding, or furnish to any other person any information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate, or encourage, any effort or attempt by any other person to do or seek any of the foregoing. Seller shall immediately communicate to Buyer the material terms of any such proposal (and the identity of the party making such proposal) which it may receive and, if such proposal is in writing, the Seller shall promptly deliver a copy of such proposal to Buyer. Seller agrees not to release any third party from, or waive any provision of, any confidentiality or standstill agreement to which Seller is a party. Seller immediately shall cease and cause to be terminated all existing discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. 5.2. ACCESS AND INFORMATION. (a) Until the Closing, subject only to applicable rules and regulations of the FCC, Seller shall afford to Steven R. Hicks, William S. Banowsky, Jr., Paul Stone, Buyer's chief engineer, and other employees and representatives of Buyer upon Buyer's reasonable request(including accountants and counsel) full access, during normal business hours, upon reasonable notice and in such manner as will not unreasonably interfere with the conduct of the business of Seller, to all properties, books, records, and Tax Returns of Seller and all other information reasonably requested with respect to its business, together with the opportunity to make copies of such books, records, and other documents and to discuss the business of Seller with such officers, directors, station managerial personnel (including the Station Management of each Station), accountants, consultants, and counsel for Seller as Buyer deems reasonably necessary or appropriate for the purposes of familiarizing itself with Seller and the Stations, including the right to visit the Stations. In furtherance of the foregoing, Seller shall authorize and instruct its independent public accountants to meet with Buyer and its representatives, including Buyer's independent public accountants in Boston, Massachusetts, to discuss the business and accounts of Seller and to make available (with the opportunity to make copies) to Buyer and its representatives, including its independent public accountants, all the work papers of its accountants related to their audit of the consolidated financial statements and Tax Returns of Seller. (b) Within 30 days after the end of each calendar month, Seller shall deliver to Buyer, for each of the Stations, and for Seller as a whole, monthly operating statements (in a form consistent with the monthly operating statements previously supplied to Buyer) prepared in the ordinary course of business for internal purposes. In addition, within 45 days after the end of each calendar quarter, Seller shall deliver to Buyer, for each of the Stations, quarterly statements prepared 29 35 in the ordinary course for internal purposes. Seller shall deliver to Buyer the rating books and such other ratings information subscribed to by Seller including, without limitation, Arbitrends, Accuratings or any other written information reflective of the quantitative or qualitative nature of the audiences of the Stations for each of the Stations within ten days of receipt of the same by any officer or director of Seller. Seller shall instruct the Station Management of each Station to provide such information and reports to Buyer's corporate officers promptly upon receipt by such Station Management. In addition, as soon as the same are distributed to Seller's officers or directors by each Station, Seller will provide Buyer with copies of each Station's monthly sales pacing reports. (c) Without duplication of Section 5.2(b), at such time as Seller provides the same to its lenders, Seller shall provide Buyer with copies of the financial statements and other information delivered by Seller to such lenders. 5.3. ASSISTANCE. If Buyer requests, Seller will cooperate, and will cause its accountants to cooperate, in all reasonable respects with any financing efforts of Buyer or its Affiliates (including providing assistance in the preparation of one or more registration statements or other offering documents relating to debt and/or equity financing) and any other filings that may be made by Buyer or its Affiliates with the SEC, all at the sole expense of Buyer. Seller (a) shall furnish to its independent accountants (or, if requested by Buyer to Buyer's independent public accountants), such customary management representation letters as its accountants may require of Seller as a condition to its execution of any required accountants' consents necessary in connection with the delivery of any "comfort" letters requested by financing sources of Buyer or its Affiliates and (b) shall furnish to Buyer all financial statements (audited and unaudited) and other information in the possession of Seller or its representatives or agents as Buyer shall reasonably determine is necessary or appropriate in connection with such financing. Buyer will indemnify and hold harmless Seller and its, officers, directors, and controlling persons against any and all claims, losses, liabilities, damages, costs, or expenses (including reasonable attorneys' fees and expenses) that may arise out of or with respect to the financing efforts by Buyer or its Affiliates, including any registration statement, prospectus, offering documents, and other filings related thereto; provided, however, that subject to the limitations and provisions of this Agreement, nothing herein shall prevent Buyer from asserting any claim for breach of representation or warranty under this Agreement. 5.4. COMPLIANCE WITH STATION LICENSES. Seller shall cause the Stations to be operated in material accordance with the Station Licenses and all applicable rules and regulations of the FCC and in material compliance with all other applicable laws, regulations, rules, and orders. Seller shall use all commercially reasonable efforts not to cause or permit any of the Station Licenses to expire or be surrendered, adversely modified, or terminated. Seller shall file or cause to be filed with the FCC all applications (including license renewals) or other documents required to be filed in connection with the operation of the Stations. In addition, if requested by Buyer and at Buyer's sole expense, Seller shall file or cause to be filed with the FCC modification applications that may be useful in connection with the operation of the Stations. Should the FCC institute any proceedings for the suspension, revocation or adverse modification of any of the Station Licenses or any forfeiture proceedings, Seller will use all commercially reasonable efforts to promptly contest such 30 36 proceedings and to seek to have such proceedings terminated in a manner that is favorable to the Stations. Seller will use all commercially reasonable efforts to maintain the FCC construction permits (if any) listed in Schedule 3.1(f) in effect until the applicable construction projects are timely completed and to diligently prosecute all pending FCC applications listed in Schedule 3.1(f). If Seller (or its FCC counsel) receives an administrative or other order or notification relating to any violation or claimed violation of the rules and regulations of the FCC, or of any other Governmental Entity, or should Seller (or its FCC counsel) become aware of any fact relating to the qualifications of Buyer that reasonably could be expected to cause the FCC to withhold its consent to the assignment of the Station Licenses, Seller shall promptly notify Buyer in writing and use its commercially reasonable efforts to take such steps as may be necessary to remove any such impediment to the transactions contemplated by this Agreement. 5.5. NOTIFICATION OF CERTAIN MATTERS. Seller shall give prompt written notice to Buyer of (a) the occurrence, or failure to occur, of any event of which it becomes aware that has caused or that would be likely to cause any representation or warranty of Seller contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date hereof to the Closing Date, (b) the failure of Seller, or any officer, director, employee, or agent of Seller, to comply with or satisfy in any material respect any covenant, condition, or agreement to be complied with or satisfied by it hereunder, (c) the occurrence of a Station Event (as defined in Section 9.1), and (d) the occurrence of any threat made to Seller by any of Seller or any General Manager, Station Manager, General Sales Manager or Programming Director of a Station to resign or otherwise terminate their employment or independent contractor relationship with Seller. No such notification shall affect the representations or warranties of the parties or the conditions to their respective obligations hereunder. 5.6. THIRD PARTY CONSENTS. After the date hereof and prior to the Closing, Seller shall use all commercially reasonable efforts, including making any required payments, to obtain the written consent from any party to an agreement or instrument identified in Schedule 3.1(o) or any other Assumed Contract which is required to permit the consummation of the transactions contemplated hereby. ARTICLE VI COVENANTS OF BUYER 6.1. NOTIFICATION OF CERTAIN MATTERS. If Buyer (or its FCC counsel) receives an administrative or other order or notification relating to any violation or claimed violation of the rules and regulations of the FCC, or of any Governmental Entity, that could affect Buyer's ability to consummate the transactions contemplated hereby, or should Buyer (or its FCC counsel) become aware of any fact relating to the qualifications of Buyer that reasonably could be expected to cause the FCC to withhold its consent to the assignment of the Station Licenses, Buyer shall promptly notify Seller thereof and shall use its commercially reasonable efforts to take such steps as may be necessary to remove any such impediment to the assignment of the FCC Licenses or the completion 31 37 of the transactions contemplated by this Agreement; provided, however, that Buyer shall not be required pursuant to this Section 6.1 to divest itself or cause any Affiliate thereof to divest itself of any media business or interest therein. In addition, Buyer shall give to Seller prompt written notice of (a) the occurrence, or failure to occur, of any event of which it becomes aware that has caused or that would be likely to cause any representation or warranty of Buyer contained in this Agreement to be untrue or inaccurate at any time from the date hereof to the Closing Date, and (b) the failure of Buyer, or any officer, director, employee, or agent thereof, to comply with or satisfy in any material respect any covenant, condition, or agreement to be complied with or satisfied by it hereunder. No such notification shall affect the representations or warranties of the parties or the conditions to their respective obligations hereunder. 6.2. EMPLOYEE MATTERS. Buyer will use its reasonable efforts to determine at least ten days prior to the Closing Date those employees of Seller whom it desires to extend offers of employment. Any offers so extended by Buyer shall be on such terms and conditions that Buyer shall determine in its sole discretion. Buyer will give Seller prompt notice of the names of any employee of Seller who Buyer has determined not to extend an offer of employment. Seller waives any claims against Buyer and any of Seller's employees who are extended an offer of employment by Buyer arising from such employment by Buyer including any claims arising under any employment agreement or non-competition agreement between such person and Seller. 6.3. CERTAIN LEGAL QUALIFICATIONS. Buyer covenants that it has not taken and, after the date of this Agreement, it shall not take any action that could reasonably be expected to prevent the parties from obtaining the FCC Consents or the consents of any other Governmental Entity necessary to consummate the transactions contemplated hereby. 6.4. SELLER'S ACCESS TO REAL PROPERTY. Seller shall have the right following the Closing Date to have reasonable access, upon five days prior written notice, to the Real Property for the purpose of complying with any obligations under Environmental Laws. ARTICLE VII MUTUAL COVENANTS 7.1. APPLICATION FOR FCC CONSENTS. By the tenth business day after the date hereof, Seller and Buyer will, and will cause all necessary persons or entities to join in one or more applications filed with the FCC requesting the FCC's written consent to the assignment of the FCC Licenses pursuant to this Agreement (the "Applications"). The parties will take all proper steps reasonably necessary (a) to diligently prosecute the Applications and (b) to obtain the FCC Consents. The failure by either party to timely file or diligently prosecute its portion of any Application shall be a material breach of this Agreement; provided, however, that Buyer shall not be required pursuant to this Section 7.1 to divest itself or cause any Affiliate thereof to divest itself of any media business 32 38 or interest therein. The failure by either party to timely file or diligently prosecute its portion of any Application shall be a material breach of this Agreement. 7.2. CONTROL OF STATIONS. This Agreement shall not be consummated until after the FCC Consents with respect to the Applications referred to in Section 7.1 are granted and have become Final Orders, unless such requirement is waived pursuant to Section 8.1. Between the date of this Agreement and the Closing Date, Buyer will not directly or indirectly control, supervise or direct the operation of the Stations. Further, between the date of this Agreement and the Closing Date, Seller shall, directly or indirectly, supervise and control the operation of the Stations. Such operation shall be the sole responsibility of Seller. 7.3. OTHER GOVERNMENTAL CONSENTS. Promptly following the execution of this Agreement, the parties shall proceed to prepare and file with the appropriate Governmental Entities (other than the FCC) such requests, reports, or notifications as may be required in connection with this Agreement and shall diligently and expeditiously prosecute, and shall cooperate fully with each other in the prosecution of, such matters. Without limiting the foregoing, promptly following the execution of this Agreement, the parties shall (a) file with the Federal Trade Commission and the Antitrust Division of the Department of Justice the notifications and other information (if any) required to be filed under the HSR Act with respect to the transactions contemplated hereby and shall use their commercially reasonable efforts to cause all applicable waiting periods under the HSR Act to expire or be terminated as of the earliest possible date and (b) make all necessary filings and, thereafter, make any other required submissions with respect to the transactions contemplated hereby under the Securities Act and the rules and regulations thereunder and any other applicable federal or state securities laws. Nothing in this Section 7.3 shall require Buyer to divest itself or to cause any Affiliate thereof to divest itself of any media business or interest therein. 7.4. BROKERS OR FINDERS. Seller represents and warrants to Buyer, that no agent, broker, investment banker, or other or person engaged by Seller is or will be entitled to any broker's or finder's fee or any other commission or similar fee payable by Buyer or Seller in connection with any of the transactions contemplated by this Agreement. Except for the fee payable to Media Venture Partners, which fee shall be paid in accordance with the provisions of Section 12.7, Buyer represents and warrants to Seller that Buyer has not engaged any broker, investment banker or other person that will be entitled to any broker's or finder's fee or any other commissions or fee from Seller in connection with any of the transactions contemplated by this Agreement. 7.5. BULK SALES LAW. Buyer agrees to waive compliance by Seller with the requirements of any bulk sales or fraudulent conveyance statute, and Seller agrees to indemnify and hold Buyer harmless against any claim made against Buyer by any creditor of Seller as a result of a failure to comply with any such statute. 33 39 7.6. RISK OF LOSS. (a) The risk of any loss, damage, impairment, confiscation, or condemnation of any of the Assets from any cause whatsoever shall be borne by Seller at all times prior to the Closing. In the event of any such loss, damage, impairment, confiscation, or condemnation, whether or not covered by insurance, Seller shall promptly notify Buyer of such loss, damage, impairment, confiscation, or condemnation. (b) If Seller, at its expense, repairs, replaces, or restores such Assets to their prior condition to the reasonable satisfaction of Buyer before the Closing, Seller shall be entitled to all insurance proceeds and condemnation awards, if any, by reason of such award or loss. (c) If Seller does not or cannot restore or replace lost, damaged, impaired, confiscated or condemned Assets having a replacement cost in excess of $50,000 in the aggregate or informs Buyer that it does not intend to restore or replace such Assets, Buyer may at its option: (i) terminate this Agreement by notice forthwith without any further obligation hereunder; or (ii) proceed to the Closing of this Agreement without Seller completing the restoration and replacement of such Assets, provided that Seller shall assign all rights under applicable insurance policies and condemnation awards, if any, to Buyer; and in such event, Seller shall have no further liability with respect to the condition of the Assets directly attributable to the loss, damage, impairment, confiscation, or condemnation. (d) Buyer will notify Seller of a decision under the options described in Section 7.6(c)(i) or (ii) above within ten business days after Seller's notice to Buyer of the damage or destruction of Assets and the estimate of the costs to repair or replace; provided, however, that if Seller states that it intends to restore the damaged Assets and if Seller has not restored such damaged Assets immediately prior to the Closing Date, notwithstanding Buyer's prior delivery of a notice to proceed pursuant to this Section 7.6(d), Buyer shall have the right to either postpone the Closing or terminate this Agreement by notice forthwith. 7.7. ADDITIONAL AGREEMENTS. Subject to the terms and conditions of this Agreement, each of the parties hereto will use its commercially reasonable efforts to do, or cause to be taken all action and to do, or cause to be done, all things necessary, proper, or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. If at any time after the Closing Date, any further action is necessary or desirable to carry out the purposes of this Agreement, the parties to this Agreement and their duly authorized representatives shall take all such action. Without limiting the generality of the foregoing, if, after the Closing Date, Buyer seeks indemnification or recovery from one or more other parties to an Assumed Contract or otherwise seeks to enforce such Assumed Contract and, in order to obtain such indemnification, recovery or enforcement, counsel to Buyer and Seller reasonably determine that it is necessary for 34 40 Seller to initiate a suit, participate in any enforcement proceeding or otherwise provide assistance to Buyer, then, at the request and the sole expense of Buyer, Seller shall take such action as Buyer may reasonably request in connection with Buyer's efforts to obtain such indemnification, recovery or enforcement. 7.8. BALANCE SHEET UPDATE. Upon the execution of this Agreement, Seller agrees that it will promptly prepare and provide to Buyer revisions to the Balance Sheet for the period from the Balance Sheet Date through May 31, 1997. Failure of Buyer to raise any objection thereto prior to 5:00 p.m., Boston time on the tenth business day after receipt thereof shall constitute Buyer's agreement that, from the period commencing on the Balance Sheet Date and ending upon the date of execution of this Agreement, there has not occurred, and Seller has not incurred or suffered, any event, circumstance or fact that could result in a Material Adverse Effect. ARTICLE VIII CONDITIONS PRECEDENT 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION. The respective obligations of Buyer and Seller to effect the transactions contemplated hereby are subject to the satisfaction (or, in the case of the condition specified in the last sentence of Section 8.l(a), the waiver by Buyer and Seller) on or prior to the Closing Date of the following conditions: (a) Consents and Approvals. All authorizations, consents, orders, or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any Governmental Entity necessary for the consummation of the transactions contemplated by this Agreement shall have been filed, occurred, or been obtained, other than any such authorizations, consents, orders, approvals, authorizations, declarations or filings that are ministerial in nature and which the failure to obtain would not effect the transactions contemplated by this Agreement. (b) No Injunctions or Restraints. No temporary restraining order, preliminary or permanent injunction, or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated hereby shall be in effect. (c) No Action. No action shall have been taken nor any statute, rule, or regulation shall have been enacted by any Governmental Entity that makes the consummation of the transactions contemplated hereby illegal. (d) Concurrent Transactions. The closing of the Concurrent Transactions shall occur concurrently with the Closing. 35 41 8.2. CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to effect the transactions contemplated hereby is subject to the satisfaction of the following conditions unless waived, in whole or in part, by Buyer: (a) Representations and Warranties. The representations and warranties of Seller set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (other than the representations and warranties set forth in the second and third sentences of Section 3.1(e)(iv)), and Buyer shall have received a certificate to such effect signed on behalf of Seller by the chief executive officer or by the chief financial officer of Seller. For the purposes of this Section 8.2(a), the representations and warranties of Seller shall be deemed to be true and correct in all material respects unless the aggregate effect of any breaches thereof could reasonably be expected to have a Material Adverse Effect. (b) Performance of Obligations. Seller shall have performed in all material respects all obligations required to be performed by it under this Agreement prior to the Closing Date, and Buyer shall have received a certificate to such effect signed on behalf of Seller by the chief executive officer or by the chief financial officer of Seller. (c) Consents Under Agreements. Buyer shall have been furnished with evidence reasonably satisfactory to it of the consent or approval of each person that is a party to a Contract specifically identified in Schedule 8.2(c) whose consent or approval shall be required as a condition to Buyer's obligation to effect the transactions contemplated hereby and such consent or approval shall be in form and substance satisfactory to Buyer. (d) Legal Opinions. Buyer shall have received from Hale and Dorr LLP, counsel to Seller, and Pepper & Corazzini L.L.P., FCC counsel to Seller, opinions dated the Closing Date, in substantially the forms attached as Exhibit F hereto, which opinion, if requested by Buyer, shall expressly provide that they may be relied upon by Buyer's lenders, underwriters, or other sources of financing with respect to the transactions contemplated hereby. (e) Real Estate Title Commitment. Within 45 days after the date of this Agreement, Buyer, at its sole cost and expense, shall have obtained a preliminary report on title to the Owned Real Property covering a date subsequent to the date of this Agreement, issued by the Title Company, which preliminary report shall contain a commitment (the "Title Commitment") of the Title Company to issue an owner's title insurance policy at Buyer's cost as Buyer may reasonably require (the "Title Policy") insuring the fee simple absolute interest of Buyer in such Owned Real Property on and after the Closing Date. The Title Commitment shall be subject only to the standard printed exceptions and: (i) liens of current state and local property taxes which are not delinquent or subject to penalty; (ii) unviolated zoning regulations and restrictive covenants and easements of record which do not detract from the value of such Owned Real Property and do not materially and adversely affect, impair or interfere with the use of any property affected thereby as heretofore used by Seller or the Stations; (iii) public utility easements of record, in customary form, to serve such 36 42 Owned Real Property; and (iv) Permitted Encumbrances. The Title Policy shall be issued on the Closing Date. (f) Survey. If requested by Buyer, Seller, at Buyer's sole cost and expense, shall have obtained a survey of the Owned Real Property as of a date subsequent to the date hereof which shall: (i) be prepared by a registered land surveyor acceptable to Buyer; (ii) be certified to the Title Company and to Buyer; and (iii) show with respect to such Owned Real Property: (A) the legal description of such Owned Real Property (which shall be the same as the Title Policy pertaining thereto); (B) all buildings, structures and improvements thereon and all restrictions of record and other restrictions that have been established by an applicable zoning or building code or ordinance and all easements or rights of way across or serving such Owned Real Property (including any off-site easements affecting or appurtenant thereto); (C) no encroachments upon such Owned Real Property or adjoining parcels by buildings, structures or improvements and no other survey defects; (D) access to such parcel from a public street; and (E) a flood certification reasonably satisfactory to Buyer to the effect that no portion of such Owned Real Property is located within a flood hazard area. (g) Closing Deliveries. All documents, instruments, certificates or other items required to be delivered by Seller pursuant to Section 9.2 shall have been delivered. 8.3. CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligation of Seller to effect the transactions contemplated hereby is subject to the satisfaction of the following conditions unless waived, in whole or in part, by Seller. (a) Representations and Warranties. The representations and warranties of Buyer set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, and Seller shall have received a certificate to such effect signed on behalf of Buyer by the chief executive officer or by the chief financial officer of Buyer. (b) Performance of Obligations of Buyer. Buyer shall have performed in all material respects the obligations required to be performed by it under this Agreement prior to the Closing Date, and Seller shall have received a certificate to such effect signed on behalf of Buyer by the chief executive officer or by the chief financial officer of Buyer. (c) Legal Opinion. Seller shall have received from Vinson & Elkins L.L.P., counsel to Buyer, an opinion dated the Closing Date, in substantially the form attached as Exhibit G hereto. (d) Closing, Deliveries. All documents and instruments required to be delivered by Buyer pursuant to Section 9.2 shall have been delivered. 37 43 ARTICLE IX CLOSING 9.1. CLOSING. (a) Subject to the satisfaction or waiver of the conditions set forth in Article VIII, or at such other place and time as Buyer and Seller may agree, the Closing will take place at the offices of Hale and Dorr LLP, Boston, Massachusetts, at 10:00 a.m., local time, on the later to occur of (i) the fifth business day after Seller delivers to Buyer its internally produced unaudited balance sheet as of December 31, 1997 and related statement of income for the 12-month period then ended, and (ii) a date selected by Buyer on five business days notice to Seller, which date shall be on the 10th business day after the day on which the FCC Consents have been granted by Final Order (the "Closing Date"). Notwithstanding the foregoing: (b) In the case of a Trading Event, a Banking Event or a Station Event (in each case as defined below), (i) if the Cessation Date (as defined below) is less than 60 days after the Event Date (as defined below), Buyer, in its discretion, may extend the Closing Date to a date not later than the 30th day after the Cessation Date, (ii) if the Cessation Date is more than 60, but less than 90, days after the Event Date, Buyer, in its discretion, may extend the Closing Date to the first to occur of the 10th business day after the Cessation Date or the 90th day (or, if not a business day, the next business day) after the Event Date. In the event of a Station Event, if the Cessation Date has not occurred by the 120th day after the Event Date, then on the 120th day (or, if not a business day, the next business day) after the Event Date Buyer, in its discretion, shall elect to close the transactions contemplated by this Agreement on the fifth business day thereafter or terminate this Agreement; (c) In the case of a Conflict Event, Buyer, in its discretion, may extend the Closing Date to a date not to exceed the 90th day after the Event Date; (d) If all of the conditions to the obligations of Buyer and Seller to effect the transactions contemplated by this Agreement have been satisfied or waived prior to the Closing Date other than the conditions specified in Section 8.2(a), with respect to Buyer, or Section 8.3(a), with respect to Seller, and the breaching party is diligently attempting to cure any such breach as provided in Section 10.1, then the Closing Date shall be postponed for up to an additional 20 days; and (e) If the Closing does not occur within 80 days after the date of the Final Order, the parties shall request approval from the FCC to extend the Closing so that the Closing contemplated hereunder will not violate any FCC rules or regulations. For purposes of this Agreement, a "Trading Event" shall mean that trading generally in securities on the New York Stock Exchange shall have been suspended or materially limited; a "Banking Event" shall mean that a general moratorium on commercial banking activities in New York, New York shall have been declared by any federal or state authority; a "Conflict Event" shall mean the occurrence of any major armed conflict involving a substantial participation by the armed 38 44 forces of the United States of America; a "Station Event" shall mean any act of nature (including fires, floods, earthquakes, and storms), calamity, casualty or condemnation or the act or omission to act of any state or federal regulatory agency having jurisdiction over the Stations that has caused one or more Stations not to be operating in a manner substantially consistent with the operations conducted before such act, omission, calamity, casualty, condemnation or agency action occurred or not in compliance with its or their respective Station License(s); an "Event Date" shall mean the date on which a Trading Event, Banking Event, Conflict Event, or a Station Event occurs; and a "Cessation Date" shall mean the date on which a Trading Event, Banking Event, Conflict Event, or a Station Event ends. Pro forma adjustments shall be made for purposes of calculating gross revenues for the 12-month period specified in the definition of "Station Event" with respect to any radio broadcast station acquired during such 12-month period, to assume that such station was acquired at the beginning of such 12-month period and include the gross revenues of such station for the full 12-month period. 9.2. ACTIONS TO OCCUR AT CLOSING. (a) At the Closing, Buyer shall deliver to Seller (or to the Escrow Agent, as indicated) the following: (i) Purchase Price. The Purchase Price (less the Holdback Amount) by wire transfer of immediately available funds; (ii) Holdback Amount. The Holdback Amount to the Escrow Agent by wire transfer of immediately available funds; (iii) Certificates. The certificates referred to in Section 8.3(a) and (b); (iv) Assumption Agreement. A counterpart of the Assumption Agreement executed by Buyer; (v) Indemnification Escrow Agreement. A counterpart of the Indemnification Escrow Agreement executed by Buyer; (vi) Non-Competition Agreement. A counterpart of the Non-Competition Agreement executed by Buyer; and (vii) Legal Opinion. The opinion of counsel referred to in Section 8.3(c). (b) At the Closing, Seller shall deliver to Buyer the following: (i) Certificates. The certificates described in Section 8.2(a) and (b); 39 45 (ii) Assumption Agreement. A counterpart of the Assumption Agreement executed by Seller; (iii) Indemnification Escrow Agreement. A counterpart of the Indemnification Escrow Agreement executed by Seller; (iv) Non-Competition Agreement. A counterpart of the Non-Competition Agreement executed by Seller; (v) Legal Opinions. The opinions of counsel referred to in Section 8.2(d); (vi) Transfer Documents. The duly executed Bill of Sale and Assignment, together with any other assignments and other transfer documents as requested by Buyer; (vii) Consents; Acknowledgments. The original of each Consent; (viii) Estoppel Certificates. Estoppel certificates from the lessor(s) of the Leased Real Property in a form and substance satisfactory to Buyer and its lenders or other financing sources; (ix) Licenses, Contracts, Business Records, Etc. To the extent they are in the possession of Seller, copies of all Licenses, Assumed Contracts, blueprints, schematics, working drawings, plans, projections, statistics, engineering records and all files and records used by Seller in connection with a Station's business and operations, which copies shall be available at the Closing or at a Station's principal business offices; (x) Warranty Deed. A Warranty Deed executed by Seller conveying fee simple title to the Owned Real Property to Buyer, subject only to the Permitted Encumbrances, in proper statutory form for recording together with documentary stamps affixed thereto; (xi) No-Lien Affidavit. A standard No-Lien Affidavit executed by Seller, which shall be in the recordable form and otherwise satisfactory to the Title Company in order to delete the standard printed exceptions relating to mechanics' liens and parties-in-possession; (xii) GAP Affidavit. An affidavit, if requested by the Title Company, as may be necessary to insure the gap between the effective date of the Title Commitment to and through the date of the recordation of the deed to the Owned Real Property; and (xiii) Title Requirements. Such other documents as shall be reasonably required by the Title Company as called for or required under the terms of any title policy obtained or issued to Buyer. 40 46 (c) At the Closing, Seller and Buyer shall instruct the Escrow Agent to deliver, and it shall deliver, the Deposit Letter of Credit to Buyer. (d) At the Closing, Buyer shall receive from the chief executive officer or chief financial officer of Seller a non-foreign affidavit within the meaning of section 1445(b)(2) of the Code. ARTICLE X TERMINATION, AMENDMENT AND WAIVER 10.1. TERMINATION. This Agreement may be terminated prior to the Closing: (a) by mutual consent of Buyer and Seller; (b) by either Seller or Buyer; (i) if a court of competent jurisdiction or other Governmental Entity shall have issued an order, decree, or ruling or taken any other action (which order, decree or ruling the parties hereto shall use their best efforts to lift), in each case permanently restraining, enjoining, or otherwise prohibiting the transactions contemplated by this Agreement, and such order, decree, ruling, or other action shall have become final and nonappealable; (ii) if, for any reason, the FCC denies or dismisses any of the Applications and the time for reconsideration or court review under the Communications Act with respect to such denial or dismissal has expired and there is not pending with respect thereto a timely filed petition for reconsideration or request for review; (iii) if, for any reason, any of the Applications is designated for an evidentiary hearing by the FCC; or (iv) if the Closing shall not have occurred by the later of the first anniversary of the date on which the Form 314 applications for the FCC Consents are filed, or the date to which the Closing Date is extended pursuant to the second sentence of Section 9.1; provided, however, that the right to terminate this Agreement under this clause (iv) shall not be available to any party whose breach of this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date; or 41 47 (c) by Buyer: (i) if there shall have been any breaches of the representations, warranties, covenants or agreements of Seller set forth in this Agreement (other, subject to the provisions of Section 7.8, than the representations and warranties set forth in the second and third sentences of Section 3.1(e)(iv)) the aggregate effect of which could reasonably be expected to have a Material Adverse Effect or to materially and adversely effect the ability of the parties to consummate the transactions contemplated hereby, which breaches Seller cannot reasonably be expected to cure or which Seller is not diligently attempting to cure following receipt by Seller of written notice of such breach; (ii) pursuant to the provisions of Section 7.7; (iii) with respect to a Station Event, at its option, as provided in the last sentence of Section 9.1(b); or (iv) if the FCC grants any of the Applications with any adverse conditions not generally imposed on grants of such applications and the time for reconsideration or court review under the Communications Act with respect to such adverse conditions has expired and there is not pending with respect thereto a timely filed petition for reconsideration or request for review; or (d) by Seller: (i) if there shall have been any material breach of any representation, warranty, covenant or agreement of Buyer set forth in this Agreement, which breach Buyer cannot reasonably be expected to cure or which Buyer is not diligently attempting to cure following receipt by Buyer of written notice of such breach; or (ii) if the FCC grants any of the Applications with any adverse conditions affecting Seller that are not generally imposed on grants of such applications and the time for reconsideration or court review under the Communications Act with respect to such adverse conditions has expired and there is not pending with respect thereto a timely filed petition for reconsideration or request for review. The right of any party hereto to terminate this Agreement pursuant to this Section 10.1 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any party hereto, any person controlling any such party or any of their respective officers, directors, employees, accountants, consultants, legal counsel, agents, or other representatives whether prior to or after the execution of this Agreement. Notwithstanding anything in the foregoing to the contrary, no party that is in material breach of this Agreement shall be entitled to terminate this Agreement except with the consent of the other party. 42 48 10.2. EFFECT OF TERMINATION. (a) In the event of a termination of this Agreement by either Seller or Buyer as provided above, there shall be no liability on the part of either Buyer or Seller, except for liability arising out of a breach of this Agreement. Articles I, XI, and XII, Section 7.6, and this Article X shall survive the termination of this Agreement. If this Agreement is terminated by Seller pursuant to Section 10.1(d), the parties agree and acknowledge that Seller will suffer damages that are not practicable to ascertain. Accordingly, in such event and if within 10 business days after termination of this Agreement by Seller pursuant to Section 10.1(d), Seller delivers to Buyer a written demand for liquidated damages, subject to Buyer's receipt of a counterpart of the Release executed by Seller, Seller shall be entitled to the sum of $550,000 as liquidated damages payable by Buyer within 10 business days after receipt of Seller's written demand and payable in accordance with the provisions of the Deposit Escrow Agreement. As security for payment thereof, Buyer has, concurrently with the execution of this Agreement, entered into the Deposit Escrow Agreement with Seller and the Escrow Agent as provided in Section 2.7. The parties agree that the foregoing liquidated damages are reasonable considering all the circumstances existing as of the date hereof and constitute the parties' good faith estimate of the actual damages reasonably expected to result from the termination of this Agreement by Seller pursuant to Section 10.1(d). Seller agrees that, to the fullest extent permitted by law, Seller's right to payment of such liquidated damages as provided in this Section 10.2 shall be its sole and exclusive remedy if the Closing does not occur with respect to any damages whatsoever that Seller may suffer or allege to suffer as a result of any claim or cause of action asserted by Seller relating to or arising from breaches of the representations, warranties or covenants of Buyer contained in this Agreement and to be made or performed at or prior to the Closing. If this Agreement is terminated by Seller pursuant to Section 10.1(d), upon Buyer's receipt of a counterpart of the Release executed by Seller, Buyer and Seller shall instruct the Escrow Agent to release the Deposit Letter of Credit to Seller. If this Agreement is terminated either by Buyer or Seller pursuant to any provision of Section 10.1 other than a termination by Seller pursuant to Section 10.1(d), then, Buyer and Seller shall instruct the Escrow Agent to release the Deposit Letter of Credit to Buyer. (b) As a condition of payment, and upon receipt of the liquidated damages under this Section 10.2, Seller hereby irrevocably and unconditionally releases, acquits, and forever discharges Buyer and its successors, assigns, officers, directors, employees, agents, stockholders, subsidiaries, parent companies and other affiliates (corporate or otherwise) (the "Released Parties") of and from any and all Released Claims, including, without limitation, all Released Claims arising out of, based upon, resulting from or relating to the negotiation, execution, performance, breach or otherwise related to or arising out of the Transaction Documents or any agreement entered into in connection therewith or related thereto. "Released Claims" as used herein shall mean any and all charges, complaints, claims, causes of action, promises, agreements, rights to payment, rights to any equitable remedy, rights to any equitable subordination, demands, debts, liabilities, express or implied contracts, obligations of payment or performance, rights of offset or recoupment, accounts, damages, costs, losses or expenses (including attorneys' and other professional fees and expenses) held by any party hereto, whether known or unknown, matured or unmatured, suspected or unsuspected, liquidated or unliquidated, absolute or contingent, direct or derivative. 43 49 ARTICLE XI INDEMNIFICATION 11.1. INDEMNIFICATION OF BUYER. Subject to the provisions of this Article XI, Seller agrees to indemnify and hold harmless the Buyer Indemnified Parties from and against any and all Buyer Indemnified Costs. 11.2. INDEMNIFICATION OF SELLER. Subject to the provisions of this Article XI, Buyer agrees to indemnify and hold harmless the Seller Indemnified Parties from and against any and all Seller Indemnified Costs. 11.3. DEFENSE OF THIRD-PARTY CLAIMS. An Indemnified Party shall give prompt written notice to Indemnifying Party of the commencement or assertion of any action, proceeding, demand, or claim by a third party (collectively, a "third-party action") in respect of which such Indemnified Party shall seek indemnification hereunder and the alleged basis therefor. Any failure so to notify an Indemnifying Party shall not relieve such Indemnifying Party from any liability that it may have to such Indemnified Party under this Article XI unless the failure to give such notice materially and adversely prejudices such Indemnifying Party. The Indemnifying Party shall have the right to assume control of the defense of, settle, or otherwise dispose of such third-party action on such terms as they deem appropriate; provided, however, that: (a) The Indemnified Party shall be entitled, at its own expense, to participate in the defense of such third-party action (provided, however, that the Indemnifying Parties shall pay the attorneys' fees of one counsel to the Indemnified Party if (i) the employment of separate counsel shall have been authorized in writing by any such Indemnifying Party in connection with the defense of such third-party action, (ii) the Indemnifying Parties shall not have employed counsel reasonably satisfactory to the Indemnified Party to have charge of such third-party action, (iii) counsel to the Indemnified Party shall have reasonably concluded that there may be defenses available to the Indemnified Party that are different from or additional to those available to the Indemnifying Party, or (iv) counsel to the Indemnified Party and the Indemnifying Party shall have advised their respective clients in writing, with a copy delivered to the other party, that there is a conflict of interest that could make it inappropriate under applicable standards of professional conduct to have common counsel); (b) The Indemnifying Party shall obtain the prior written approval of the Indemnified Party before entering into or making any settlement, compromise, admission, or acknowledgment of the validity of such third-party action or any liability in respect thereof if, pursuant to or as a result of such settlement, compromise, admission, or acknowledgment, injunctive or other equitable relief would be imposed against the Indemnified Party or if, in the opinion of the Indemnified Party, such settlement, compromise, admission, or acknowledgment could have an adverse effect on its business; which approval shall not be unreasonably withheld or delayed (it shall not be deemed unreasonable for Buyer to withhold consent to any settlement, compromise, 44 50 admission or acknowledgment if the amount of Buyer Indemnified Costs resulting therefrom could reasonably be expected to exceed the remainder of the Holdback Amount then held by the Escrow Agent pursuant to the terms of the Indemnification Escrow Agreement (and not otherwise subject to pending claims); (c) No Indemnifying Party shall consent to the entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by each claimant or plaintiff to each Indemnified Party of a release from all liability in respect of such third-party action; and (d) The Indemnifying Party shall not be entitled to control (but shall be entitled to participate at its own expense in the defense of), and the Indemnified Party shall be entitled to have sole control over, the defense or settlement, compromise, admission, or acknowledgment of any third-party action (i) as to which the Indemnifying Party fails to assume the defense within a reasonable length of time or (ii) to the extent the third-party action seeks an order, injunction, or other equitable relief against the Indemnified Party which, if successful, would materially adversely affect the business, operations, assets, or financial condition of the Indemnified Party; provided, however, that the Indemnified Party shall make no settlement, compromise, admission, or acknowledgment that would give rise to liability on the part of any Indemnifying Party without the prior written consent of such Indemnifying Party. The parties hereto shall extend reasonable cooperation in connection with the defense of any third-party action pursuant to this Article XI and, in connection therewith, shall furnish such records, information, and testimony and attend such conferences, discovery proceedings, hearings, trials, and appeals as may be reasonably requested. 11.4. DIRECT CLAIMS. In any case in which an Indemnified Party seeks indemnification hereunder which is not subject to Section 11.3 because no third-party action is involved, the Indemnified Party shall notify the Indemnifying Party in writing of any Indemnified Costs which such Indemnified Party claims are subject to indemnification under the terms hereof. Subject to the limitations set forth in Section 11.6(c), the failure of the Indemnified Party to exercise promptness in such notification shall not amount to a waiver of such claim unless the resulting delay materially prejudices the position of the Indemnifying Party with respect to such claim. 11.5. ESCROW. On the Closing Date, Buyer and Seller will enter into the Indemnification Escrow Agreement in accordance with which Buyer shall, at Closing, deposit an amount of the Purchase Price equal to $180,000 (the "Holdback Amount") with the Escrow Agent. 11.6. LIMITATIONS. Subject to Section 11.7 and Section 12.17 hereof, the following provisions of this Section 11.6 shall be applicable after the time of the Closing: (a) Minimum Loss. No Indemnifying Party shall be required to indemnify an Indemnified Party for Indemnified Representation Costs unless and until the aggregate amount of 45 51 such Indemnified Representation Costs for which the Indemnified Party is otherwise entitled to indemnification pursuant to this Article XI exceeds $30,000 (the "Minimum Loss"). After the Minimum Loss is exceeded, the Indemnified Party shall be entitled to be paid the entire amount of its Indemnified Representation Costs in excess of (but not including) the Minimum Loss, subject to the limitations on recovery and recourse set forth in this Section 11.6 and in Section 11.7 below and subject to the exception contained in Section 12.17. For purposes of determining the aggregate amount of Minimum Loss suffered by an Indemnified Party, each representation and warranty contained in this Agreement for which indemnification can be or is sought hereunder shall be read (including for purposes of determining whether a breach of such representation or warranty has occurred) without regard to materiality (including Material Adverse Effect) qualifications that may be contained therein. In addition, in determining whether an Indemnifying Party shall be required to indemnify an Indemnified Party under this Article XI, once the Minimum Loss requirement set forth in this clause (a) has been satisfied, each representation and warranty contained in this Agreement for which indemnification can be or is sought hereunder shall be read (including for purposes of determining whether a breach of such representation or warranty has occurred) without regard to materiality (including Material Adverse Effect) qualifications that may be contained therein. (b) Limitation as to Time. No Indemnifying Party shall be liable for any Indemnified Representation Costs pursuant to this Article XI unless a written claim for indemnification in accordance with Section 11.3 or 11.4 is given by the Indemnified Party to the Indemnifying Party with respect thereto on or before the second anniversary of the Closing Date, except that this time limitation shall not apply to any claims contemplated by Section 12.17. (c) Recourse against Escrowed Funds. Subject to Section 12.17 hereof, a Buyer Indemnified Party shall be entitled to payment only out of the Holdback Amount pursuant to the terms of this Article XI and the Indemnification Escrow Agreement for all amounts due to a Buyer Indemnified Party with respect to any claim by a Buyer Indemnified Party against Seller for Buyer Indemnified Representation Costs payable under this Article XI. (d) Other Indemnified Costs. The provisions of this Section 11.6 shall only be applicable to Indemnified Representation Costs and shall not be applicable to any other Indemnified Costs. 11.7. INSTRUCTIONS TO ESCROW AGENT. Seller hereby covenants and agrees that at any time Seller is or becomes obligated to indemnify a Buyer Indemnified Party for Buyer Indemnified Costs under this Article XI, Seller will execute and deliver to the Escrow Agent written instructions to release to the Buyer Indemnified Party such portion of the Holdback Amount as is necessary to indemnify the Buyer Indemnified Party for such Buyer Indemnified Costs. 46 52 ARTICLE XII GENERAL PROVISIONS 12.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. Regardless of any investigation at any time made by or on behalf of any party hereto or of any information any party may have in respect thereof, each of the representations and warranties made hereunder or pursuant hereto or in connection with the transactions contemplated hereby shall survive the Closing. Except as otherwise provided in the next two sentences, the representations and warranties set forth in this Agreement shall terminate on the second anniversary of the Closing Date. Following the date of termination of a representation or warranty, no claim can be brought with respect to a breach of such representation or warranty, but such termination shall not affect any claim for a breach of a representation or warranty that was asserted before the date of termination. To the extent that such are performable after the Closing, each of the covenants and agreements contained in each of the Transaction documents shall survive the Closing indefinitely. 12.2. FURTHER ACTIONS. After the Closing Date, Seller shall execute and deliver such other certificates, agreements, conveyances, and other documents, and take such other action, as may be reasonably requested by Buyer in order to transfer and assign to, and vest in, Buyer the Assets pursuant to the terms of this Agreement. 12.3. AMENDMENT AND MODIFICATION. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. 12.4. WAIVER OF COMPLIANCE. Any failure of Buyer on the one hand, or Seller, on the other hand, to comply with any obligation, covenant, agreement, or condition contained herein may be waived only if set forth in an instrument in writing signed by the party or parties to be bound thereby, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any other failure. 12.5. SPECIFIC PERFORMANCE. The parties recognize that in the event Seller should refuse to perform under the provisions of this Agreement, monetary damages alone will not be adequate. Buyer shall therefore be entitled, in addition to any other remedies which may be available, including money damages, to obtain specific performance of the terms of this Agreement. In the event of any action to enforce this Agreement specifically, Seller hereby waives the defense that there is an adequate remedy at law. 12.6. SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of applicable law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated herein are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this 47 53 Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated herein are consummated as originally contemplated to the fullest extent possible. 12.7. EXPENSES AND OBLIGATIONS. Except as otherwise expressly provided in this Agreement or as provided by law, all costs and expenses incurred by the parties hereto in connection with the consummation of the transactions contemplated hereby shall be borne solely and entirely by the party which has incurred such expenses. Notwithstanding the foregoing, (a) the fee payable to the Escrow Agent shall be borne as provided in the Indemnification Escrow Agreement and the Deposit Escrow Agreement, (b) the brokerage fees payable to Media Venture Partners shall be borne by Buyer, (c) responsibility for sales taxes arising out of the transactions contemplated by this Agreement shall be shared equally by Seller and Buyer and (d) any filing fees payable in connection with the transfer of the FCC Licenses shall be borne by Seller. In the event of a dispute between the parties in connection with this Agreement and the transactions contemplated hereby, each of the parties hereto hereby agrees that the prevailing party shall be entitled to reimbursement by the other party of reasonable legal fees and expenses incurred in connection with any action or proceeding. 12.8. PARTIES IN INTEREST. This Agreement shall be binding upon and, except as provided below, inure solely to the benefit of each party hereto and their successors and assigns, and nothing in this Agreement, except as set forth below, express or implied, is intended to confer upon any other person (other than the Indemnified Parties as provided in Article XI) any rights or remedies of any nature whatsoever under or by reason of this Agreement. 12.9. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) If to Buyer, to Capstar Acquisition Company, Inc. 200 Crescent Court, Suite 1600 Dallas, Texas 75201 Attn: Lawrence D. Stuart, Jr. Facsimile: (214) 740-7313 with copies to 48 54 Vinson & Elkins L.L.P. 3700 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 Attn: Michael D. Wortley Facsimile: (214) 220-7716 Capstar Broadcasting Partners 600 Congress Avenue, Suite 1400 Austin, Texas 78701 Attn: William S. Banowsky, Jr. Facsimile: (512) 404-6850 (b) If to Seller, to Knight Broadcasting Corporation of New Hampshire, Inc. 63 Bay State Road Boston, MA 02215 Attention: Norman Knight Facsimile: (617) 267-5160 with a copy to Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 Attention: Thomas E. Neely Facsimile: (617) 526-5000 12.10. COUNTERPARTS. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 12.11. ENTIRE AGREEMENT. This Agreement (which term shall be deemed to include the exhibits and schedules hereto and the other certificates, documents and instruments delivered hereunder) constitutes the entire agreement of the parties hereto and supersedes all prior agreements, letters of intent and understandings, both written and oral, among the parties with respect to the subject matter hereof. There are no representations or warranties, agreements, or covenants other than those expressly set forth in this Agreement. 49 55 12.12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE. 12.13. PUBLIC ANNOUNCEMENTS. Seller and Buyer shall consult with each other before issuing any press release or otherwise making any public statements with respect to this Agreement or the transactions contemplated hereby and shall not issue any such press release or make any such public statement prior to such consultation. Prior to the Closing, Seller will not issue any other press release or otherwise make any public statements regarding its business, except as may be required by applicable law. 12.14. ASSIGNMENT. Neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned by any of the parties hereto, whether by operation of law or otherwise; provided, however, that (a) upon notice to Seller and without releasing Buyer from any of its obligations or liabilities hereunder, Buyer may assign or delegate any or all of its rights or obligations under this Agreement to any Affiliate thereof, and (b) nothing in this Agreement shall limit Buyer's ability to make a collateral assignment of its rights under this Agreement to any institutional lender that provides funds to Buyer without the consent of Seller. Seller shall execute an acknowledgment of such assignment(s) and collateral assignments in such forms as Buyer or its institutional lenders may from time to time reasonably request; provided, however, that unless written notice is given to Seller that any such collateral assignment has been foreclosed upon, Seller shall be entitled to deal exclusively with Buyer as to any matters arising under this Agreement or any of the other agreements delivered pursuant hereto. In the event of such an assignment, the provisions of this Agreement shall inure to the benefit of and be binding on Buyer's assigns. 12.15. DIRECTOR AND OFFICER LIABILITY. Neither the directors, officers or stockholders of Buyer or Seller nor their respective Affiliates shall have any personal liability or obligation arising under this Agreement (including any claims that any party may assert). 12.16. NO REVERSIONARY INTEREST. The parties expressly agree, pursuant to Section 73.1150 of the FCC's rules, that Seller does not retain any right to reassignment of any of the FCC Licenses in the future, or to operate or use the facilities of the Stations for any period beyond the Closing Date. 12.17. NO WAIVER RELATING TO CLAIMS FOR FRAUD. The liability of any party under Article XI shall be in addition to, and not exclusive of any other liability that such party may have at law or equity based on such party's fraudulent acts or omissions. None of the provisions set forth in this Agreement, including but not limited to the provisions set forth in Section 11.6(a) (relating to Minimum Loss), 11.6(b) (relating to limitations on the period of time during which a claim for indemnification may be brought), or 11.6(c) (relating to recourse against escrowed funds), shall be deemed a waiver by any party to this Agreement of any right or remedy which such party may have at law or equity based on any other party's fraudulent acts or omissions, nor shall any such provisions limit, or be deemed to limit, (i) the amounts of recovery sought or awarded in any such claim for fraud, (ii) the time period during which a claim for fraud may be brought, or (iii) the recourse which 50 56 any such party may seek against another party with respect to a claim for fraud; provided, that with respect to such rights and remedies at law or equity, the parties further acknowledge and agree that none of the provisions of this Section 12.17, nor any reference to this Section 12.17 throughout this Agreement, shall be deemed a waiver of any defenses which may be available in respect of actions or claims for fraud, including but not limited to, defenses of statutes of limitations or limitations of damages. 12.18. Use of Name. Notwithstanding anything contained herein to the contrary, the Seller and its stockholders shall not be prohibited from using the name "Knight Quality Stations" in the Caribbean Basin. 51 57 IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be signed, all as of the date first written above. SELLER: KNIGHT BROADCASTING OF NEW HAMPSHIRE, INC. By: /S/ Norman Knight -------------------------------------------- Name: Norman Knight Title: Chief Executive Officer BUYER: CAPSTAR ACQUISITION COMPANY, INC. By: /S/ Paul D. Stone -------------------------------------------- Name: Paul D. Stone Its: Vice President 52 58 ANNEX A THE STATIONS WHEB-FM Portsmouth, New Hampshire WTMN-AM Portsmouth, New Hampshire WXHT-FM York Center, Maine EX-10.31.3 26 ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.31.3 ASSET PURCHASE AGREEMENT BETWEEN KNIGHT COMMUNICATIONS CORP. AND CAPSTAR ACQUISITION COMPANY, INC. DATED AS OF JUNE 18, 1997 2
TABLE OF CONTENTS Page ARTICLE I DEFINED TERMS 1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2. References and Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE II SALE AND PURCHASE OF ASSETS 2.1. Agreement to Sell and Buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.2. Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.3. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.4. Adjustments and Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.5. Assumption of Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.6. Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.7. Earnest Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1. Representations and Warranties Regarding Seller . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.2. Representations and Warranties of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS 4.1. Covenants of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.2. Environmental Site Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 4.3. Broadcast Transmission Interruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE V ADDITIONAL AGREEMENTS OF SELLER 5.1. No Solicitation of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 5.2. Access and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 5.3. Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(i) 3 5.4. Compliance With Station Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.5. Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.6. Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.7. Consulting and Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 5.8. Noncompetition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE VI COVENANTS OF BUYER 6.1. Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 6.2. Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 6.3. Certain Legal Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 6.4. Seller's Access to Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE VII MUTUAL COVENANTS 7.1. Application for FCC Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 7.2. Control of Stations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 7.3. Other Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 7.4. Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 7.5. Bulk Sales Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 7.6. Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 7.7. Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 7.8. Balance Sheet Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 ARTICLE VIII CONDITIONS PRECEDENT 8.1. Conditions to Each Party's Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 8.2. Conditions to Obligation of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 8.3. Conditions to Obligations of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 ARTICLE IX CLOSING 9.1. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 9.2. Actions to Occur at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(ii) 4 ARTICLE X TERMINATION, AMENDMENT AND WAIVER 10.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 10.2. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 ARTICLE XI INDEMNIFICATION 11.1. Indemnification of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 11.2. Indemnification of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 11.3. Defense of Third-Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 11.4. Direct Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 11.5. Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 11.6. Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 11.7. Instructions to Escrow Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 ARTICLE XII GENERAL PROVISIONS 12.1. Survival of Representations, Warranties, and Covenants . . . . . . . . . . . . . . . . . . . . . . . 48 12.2. Further Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 12.3. Amendment and Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 12.4. Waiver of Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 12.5. Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 12.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 12.7. Expenses and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 12.8. Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 12.9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 12.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 12.11. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 12.12. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 12.13. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 12.14. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 12.15. Director and Officer Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 12.16. No Reversionary Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 12.17. No Waiver Relating to Claims for Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Annexes: Annex A --- The Stations
(iii) 5 EXHIBITS: - -------- Exhibit A -- Deposit Escrow Agreement Exhibit B -- Form of Non-Competition Agreements Exhibit C -- Form of Bill of Sale and Assignment Exhibit D -- Form of Assumption Agreement Exhibit E -- Form of Indemnification Escrow Agreement Exhibit F -- Form of Opinions of Seller's Counsel Exhibit G -- Form of Opinion of Vinson & Elkins L.L.P. Exhibit H -- Form of Release of Claims Exhibit I -- Form of Consulting Agreements Exhibit J -- Form of Studio/Tower Lease SCHEDULES: - --------- Schedule 2.1(k) -- Choses in Action Schedule 2.2(a) -- Excluded Real Property Schedule 2.2(j) -- Excluded Personal Property Schedule 2.5(b) -- Trade Deals Schedule 2.6 -- Allocation of Purchase Price Schedule 3.1(a) -- Qualification to do Business and Good Standing Schedule 3.1(e) -- Unrecorded Liabilities and Conduct of Business Schedule 3.1(f) -- Licenses and Permits Schedule 3.1(g) -- Litigation Schedule 3.1(h) -- Insurance Schedule 3.1(i) -- Owned Real Estate Schedule 3.1(j) -- Leased Real Property Schedule 3.1(k) -- Personal Property Schedule 3.1(l) -- Liens and Encumbrances Schedule 3.1(m) -- Environmental Matters Schedule 3.1(o) -- Certain Agreements Schedule 3.1(p) -- Employee Benefit Plans; Labor Schedule 3.1(q) -- Patents, Trademarks; Etc. Schedule 3.1(r) -- Contracts with Affiliates Schedule 4.1(h) -- Sale, Lease or Disposition of Assets Schedule 8.2(c) -- Required Consents
(iv) 6 ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into as of June 18, 1997, between Knight Communications Corp., a Massachusetts corporation ("Seller"), and Capstar Acquisition Company, Inc., a Delaware corporation ("Buyer"). R E C I T A L S A. Seller is the licensee of and owns and operates each of the radio stations listed on Annex A hereto (each referred to individually as a "Station" and collectively, the "Stations") pursuant to licenses issued by the Federal Communications Commission ("FCC"). B. Seller desires to sell and Buyer desires to buy substantially all the assets used or held for use in the operation of each of the Stations, both tangible and intangible, excluding the Excluded Assets (as hereinafter defined), and by so doing to acquire the radio broadcast business presently conducted by each of the Stations, upon the terms and conditions hereinafter set forth. A G R E E M E N T S NOW, THEREFORE, in consideration of the respective representations, warranties, agreements, and conditions hereinafter set forth, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINED TERMS 1.1. DEFINED TERMS. The following terms shall have the following meanings in this Agreement: "Accounts Receivable" means the rights of Seller to cash payment for the sale of advertising time by the Stations and other amounts (other than entries reflecting barter transactions) that would be classified as an account receivable on the asset side of a balance sheet of the Company prepared in accordance with GAAP prior to 11:59 p.m. on the day prior to the Closing Date. "Affiliate" means, with respect to any person, any other person controlling, controlled by or under common control with such person. For purposes of this definition and this Agreement, 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. "Applicable Laws" means all laws, statutes, rules, regulations, ordinances, judgments, orders, decrees, injunctions, and writs of any Governmental Entity having jurisdiction over the Assets or the business or operations of each of the Stations, as may be in effect on or prior to the Closing. 7 "Applications" has the meaning set forth in Section 7.1. "Assets" means all the tangible and intangible assets owned, leased, or licensed by Seller that are used or held for use in connection with the business or operations of any of the Stations, whether or not reflected on the Financial Statements or Balance Sheet of Seller, but specifically excluding therefrom the Excluded Assets. "Assumed Contracts" means (a) those Contracts set forth on Schedule 3.1(o) identified as being assumed by Buyer and all other contracts of Seller entered into in the ordinary course of business prior to the date of this Agreement that relate to the Assets or the business or operation of the Assets or any part thereof, (b) all other non- trade advertising Contracts for cash entered into by Seller for any of the Stations prior to the date of this Agreement and which are terminable on not more than 30 days notice, (c) all Contracts entered into by Seller on or after the date of this Agreement and before the Closing in accordance with the applicable provisions of Section 4.1, and (d) Trade Deals described in Section 2.5(b). "Assumption Agreement" means the Assumption Agreement between Buyer and Seller substantially in the form of Exhibit D. "Balance Sheet" has the meaning set forth in Section 3.1(e). "Balance Sheet Date" has the meaning set forth in Section 3.1(e). "Banking Event" has the meaning set forth in Section 9.1. "Bill of Sale and Assignment" means the Bill of Sale and Assignment between Buyer and Seller substantially in the form of Exhibit C. "Brokerage Fee" has the meaning set forth in Section 12.7. "Business Day" means any other day than (i) a Saturday or Sunday or (ii) a day on which commercial banks in New York, New York, Dallas, Texas or Boston, Massachusetts are authorized or required to be closed. "Buyer" has the meaning set forth in the first paragraph of this Agreement, and it includes its permitted successors and assigns. "Buyer Indemnified Costs" means (a) any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) that any of the Buyer Indemnified Parties incurs and that arise out of any breach or default by Seller of any of the representations or warranties under this Agreement or any agreement or document executed in connection herewith (collectively, "Buyer Indemnified Representation Costs"); (b)any 2 8 and all losses, liabilities, or damages incurred by any of the Buyer Indemnified Parties resulting from Seller's operation or control of any of the Stations prior to the Closing Date, including any and all liabilities arising under the FCC Licenses (including any stipulations or other obligations imposed on Buyer in connection with the renewal of the Licenses in 1998) or the Assumed Contracts which relate to events occurring prior to the Closing Date; (c) any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) that any of the Buyer Indemnified Parties incurs and that arise out of any breach or default by Seller of any covenant or agreement under this Agreement or any agreement or document executed in connection herewith; (d) any and all obligations or liabilities of Seller under any contract or agreement not expressly assumed by Buyer pursuant to the terms hereof; (e) the items indemnified against pursuant to Section 7.5; and (f) any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs, and expenses, including reasonable legal fees and expenses, incident to any of the foregoing; provided, however, that insofar as the items in this clause (f) relate to the items in clause (a) above, such items shall constitute Buyer Indemnified Representation Costs; and provided further that Buyer Indemnified Costs shall consist solely of damages actually suffered or sustained and shall not include speculative damages in the nature of lost profits or diminution in value. "Buyer Indemnified Parties" means Buyer and each officer, director, employee, consultant, stockholder, and Affiliate of Buyer. "CERCLA" has the meaning set forth in the definition of Environmental Laws contained in this Section 1.1. "Choses in Action" means a right to receive or recover property, debt, or damages on a cause of action, whether pending or not and whether arising in contract, tort or otherwise. The term shall include rights to indemnification, damages for breach of warranty or any other event or circumstance, judgments, settlements, and proceeds from judgments or settlements. "Closing" means the consummation of the transactions contemplated by this Agreement in accordance with the provisions of Article IX. "Closing Date" means the date of the Closing specified in Article IX. "Code" shall mean the United States Internal Revenue Code of 1986, as amended. All references to the Code, U.S. Treasury regulations or other governmental pronouncements shall be deemed to include references to any applicable successor regulations or amending pronouncement. "Communications Act" has the meaning set forth in Section 3.1(f). "Company Reports" has the meaning set forth in Section 3.1(e). 3 9 "Concurrent Transactions" means the transactions contemplated by (a) that certain Asset Purchase Agreement of even date herewith by and between Buyer and Knight Radio, Inc., a New Hampshire corporation, and (b) that certain Asset Purchase Agreement of even date herewith by and among Buyer and Knight Broadcasting of New Hampshire, Inc., a New Hampshire corporation. "Conflict Event" has the meaning set forth in Section 9.1. "Consents" means all governmental consents and approvals, including the FCC Consents, and all consents and approvals of third parties, in each case that are necessary in order to transfer the Assets to Buyer and otherwise to consummate the transactions contemplated hereby. "Consulting Agreements" means the Consulting Agreements to be entered into between Buyer and each of Norman Knight, Randolf H. Knight, N. Scott Knight, Robert A. Knight, substantially in the form attached hereto as Exhibits I-1 through I-4. "Contracts" means all agreements, contracts, or other binding commitments or arrangements, written or oral (including any amendments and other modifications thereto), to which Seller is a party or is otherwise bound and which affect or relate to the Assets or the business or operations of each of the Stations. "Deposit Escrow Agreement" means the Deposit Escrow Agreement among Seller, Knight Radio, Inc. and Knight Broadcasting of New Hampshire, Inc., Buyer and Escrow Agent, a copy of which is attached hereto as Exhibit A. "Deposit Letter of Credit" means that certain original, irrevocable letter of credit in favor of Seller, Knight Radio, Inc. and Knight Broadcasting of New Hampshire, Inc. and the Escrow Agent issued by Bankers Trust Company or another lender reasonably acceptable to Seller for the sum of $3,000,000 and held in accordance with the provisions of the Deposit Escrow Agreement. "Employee Benefit Plans" means any "employee benefit plan" within the meaning of Section 3(3) of ERISA and any bonus, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, vacation, severance, disability, death benefit, hospitalization or insurance plan providing benefits to any present or former employee or contractor of Seller or any member of the ERISA Group maintained by any such entity or as to which any such entity has any liability or obligation. "Employee Pension Benefit Plan" has the meaning set forth in Section 3(2) of ERISA. "Environmental Costs or Liabilities" has the meaning set forth in Section 3.1(m)(iv). "Environmental Laws" means all Applicable Laws and rules of common law pertaining to the environment, natural resources, and public or employee health and safety including 4 10 the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. Section 9601 et seq.) ("CERCLA"), the Emergency Planning and Community Right to Know Act and the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Hazardous and Solid Waste Amendments Act of 1984, the Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, the Safe Drinking Water Act, the Occupational Safety and Health Act of 1970, the Oil Pollution Act of 1990, the Hazardous Materials Transportation Act, and any similar or analogous statutes, regulations and decisional law of any Governmental Authority, as each of the foregoing may be amended and in effect on or prior to the Closing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Group" has the meaning set forth in Section 3.1(p). "ESA" means Phase I or Phase II environmental site assessments. "Escrow Agent" means U.S. Trust Company and includes its successors and assigns. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Excluded Assets" has the meaning set forth in Section 2.2. "Excluded Real Property" means the Owned Real Property set forth on Schedule 2.2(a). "FCC" has the meaning set forth in the first recital hereto. "FCC Consents" means actions by the FCC granting its initial consent to the assignment of the FCC Licenses for each of the Stations to Buyer as contemplated by this Agreement. "FCC Licenses" means all of the licenses, permits, and other authorizations issued by the FCC to Seller and applications of Seller, if any, to the FCC relating to or used in the business or operations of each of the Stations, including those listed on Schedule 3.1(f) and any additions thereto between the date hereof and the Closing Date. "Final Order" means written action or order issued by the FCC setting forth the FCC Consents and (a) which has not been reversed, stayed, enjoined, set aside, annulled, or suspended and (b) with respect to which (i) no requests have been filed for administrative or judicial review, reconsideration, appeal, or stay, and the time for filing any such requests and for the FCC to set aside the action on its own motion has expired or (ii) in the event of review, reconsideration, or appeal, such review, reconsideration, or appeal has been denied and the time for further review, reconsideration, or appeal has expired. 5 11 "Financial Statements"has the meaning set forth in Section 3.1(e). "GAAP" means generally accepted accounting principles in the United States. "Governmental Entity" means any governmental department, commission, board, bureau, agency, court or other instrumentality of the United States or any state, county, parish or municipality, jurisdiction, or other political subdivision thereof. "Hazardous Substances" has the meaning set forth in Section 3.1(m). "Holdback Amount" has the meaning set forth in Section 11.5. "HSR Act" has the meaning set forth in Section 3.1(d). "Indemnification Escrow Agreement" means the Indemnification Escrow Agreement among Seller, Knight Radio, Inc., Knight Broadcasting of New Hampshire, Inc., Buyer, and Escrow Agent substantially in the form attached hereto as Exhibit E. "Indemnified Costs" means the Buyer Indemnified Costs or the Seller Indemnified Costs, as the case may be. "Indemnified Parties" means the Buyer Indemnified Parties or the Seller Indemnified Parties, as the case may be. "Indemnification Representation Costs" means the Buyer Indemnified Representation Costs or the Seller Indemnified Representation Costs, as the case may be. "Indemnifying Party" means any person who is or may be obligated to provide indemnification hereunder. "Intellectual Property" means all Trademarks, Know-how, copyrights, copyright registrations and applications for registration, Patents and all other intellectual property rights whether registered or not, licenses to or owned by Seller relating to the business or operations of any Station, including the call letters of each of the Stations and the goodwill related to the foregoing. "Know-how" means all plans, ideas, concepts and data, research records, all promotional literature, customer and supplier lists and similar data and information and all other confidential or proprietary technical and business information. "Knowledge" means, with respect to Seller, the actual knowledge of Norman Knight, N. Scott Knight, Robert A. Knight, or Randolf H. Knight, and with respect to Buyer, the actual knowledge of Steven R. Hicks, William S. Banowsky, Jr., or Paul Stone. 6 12 "Leased Real Property" means all of the Seller's leasehold interests, easements, licenses, rights to access and rights-of-way which are used or held for use in the business and operations of any Station, including those interests which are identified and described in Schedule 3.1(j), as modified by any addition or permitted deletion thereto between the date hereof and the Closing Date. "Licenses" means the FCC Licenses and all Permits issued by any Governmental Entity to Seller relating to or used or held for use in the business and operations of any Station, including those listed on Schedule 3.1(f), with any additions thereto between the date hereof and the Closing Date. "Liens" has the meaning set forth in Section 3.1(l). "Material Adverse Effect" means a material adverse effect on the business, operations, properties (taken as a whole), condition, results of operations, assets (taken as a whole), or liabilities of the Stations. "Multiemployer Plan" has the meaning set forth in Section 3(37) or Section 4001(a)(3) of ERISA. "Non-Competition Agreement" means the Non-Competition Agreements between Buyer and Seller, and Buyer and each of Norman Knight, Randolf H. Knight, N. Scott Knight and Robert A. Knight, substantially in the form of Exhibits B-1 and B-2, respectively. "Owned Real Property" means those parcels of real property owned in fee and used or held for use by Seller as described in Schedule 3.1(i), and all buildings, structures, improvements, and fixtures thereon, together with all rights of way, easements, privileges, and appurtenances pertaining or belonging thereto, including any right, title, and interest of Seller in and to any street or other property adjoining any portion of such property. "Patents" means all patent and patent applications (including all reissues, divisions, continuations, continuations-in-part, renewals, and extensions of the foregoing) owned by Seller. "Pension Plans" has the meaning set forth in Schedule 3.1(p). "Permits" has the meaning set forth in Section 3.1(m). "Permitted Encumbrances" means (a) statutory Liens for current Taxes not yet due and payable, (b) mechanics', carriers', workers', repairers', and other similar liens imposed by law arising or incurred in the ordinary course of business for obligations not yet due, (c) in the case of leases of vehicles, rolling stock, and other personal property, encumbrances, which do not, individually or in the aggregate, materially impair the operation of the business at the facility at which such leased equipment or other personal property is located, (d) other liens, charges or 7 13 encumbrances incidental to the operation of the Stations or the ownership of the Assets which were not incurred in connection with the borrowing of money or the advance of credit and which, in the aggregate, do not materially detract from the value of the Assets or materially interfere with the use thereof or the operation of the Stations, and (e) Liens on leases of real property arising from the provisions of such leases or the actions of the lessor thereunder, including, in relation to leased real property, any agreements and/or conditions imposed on the issuance of land use permits, zoning, business licenses, use permits, or other entitlements of various types issued by any Governmental Entity, necessary or beneficial to the continued use and occupancy of the Assets or the continuation of the operation of any Station. "Person" means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization, or other entity. "Personal Property" means all of the machinery, equipment (including the transmitter and studio equipment), computer programs, computer software, tools, motor vehicles, furniture, furnishings, leasehold improvements, office equipment, inventories, supplies, plant, spare parts, and other tangible or intangible personal property which are owned or leased by Seller for any Station and which are used or held for use in the business or operations of any Station, including the personal property which is listed on Schedule 3.1(k) hereto, together with any additions thereto between the date hereof and the Closing Date less any dispositions made in accordance with Section 4.1. The term Personal Property shall not include any of the Excluded Assets. "Purchase Price" means the consideration payable by Buyer to Seller as provided in Section 2.3 hereof. "Real Property" means the Leased Real Property and the Owned Real Property. "Release" means the Release of Claims between Buyer and Seller substantially in the form of Exhibit H. "Released Claims" has the meaning set forth in Section 10.2(b). "Released Parties" has the meaning set forth in Section 10.2(b). "Schedules" means the Schedules attached hereto. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Seller" has the meaning set forth in the first paragraph of this Agreement. "Seller Indemnified Costs" means (a) any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and reasonable 8 14 attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) that any of the Seller Indemnified Parties incurs and that arise out of any breach or default by Buyer of any of the representations, or warranties under this Agreement or any agreement or document executed in connection herewith (collectively, "Seller Indemnified Representation Costs"); (b) any and all losses, liabilities, or damages incurred by any of the Seller Indemnified Parties resulting from Buyer's operation or control of any of the Stations on and after the Closing Date, including any and all liabilities arising under the Licenses or the Assumed Contracts which relate to events occurring after the Closing Date; (c) any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) that any of the Seller Indemnified Parties incurs and that arise out of any breach or default by Buyer of any covenant or agreement under this Agreement or any agreement or document executed in connection herewith; (d) the items indemnified against pursuant to Section 5.3; and (e) any and all actions, suits, proceedings claims, demands, assessments, judgments, costs, and expenses, including reasonable legal fees and expenses, incident to any of the foregoing; provided, however, that insofar as the items in this clause (e) relate to the items in clause (a) above, such items shall constitute Seller Indemnified Representation Costs; and provided further that Seller Indemnified Costs shall consist solely of damages actually suffered or sustained and shall not include speculative damages in the nature of lost profits or diminution in value. "Seller Indemnified Parties" means Seller and each officer, director, employee, consultant, stockholder, and Affiliate of Seller. "Seller Negative Trade Balance" has the meaning set forth in Section 4.2. "Station Event" has the meaning set forth in Section 9.1. "Station Licenses" has the meaning set forth in Section 3.1(f). "Station Management" has the meaning set forth in Section 4.1(b). "Studio/Tower Lease" means the real property lease substantially in the form of Exhibit J to be entered into between Buyer and Seller. "Taxes" means taxes, charges, fees, imposts, levies, interest, penalties, additions to tax or other assessments or fees of any kind, including, but not limited to, income, corporate, capital, excise, property, sales, use, turnover, value added and franchise taxes, deductions, withholdings and customs duties, imposed by any Governmental Entity and any payments with respect thereto required under any tax-sharing agreement. "Tax Returns" means any return, report, information return or other document (including any related or supporting information) filed or required to be filed with any Governmental 9 15 Entity in connection with the determination, assessment, collection or administration of any Taxes or the administration of any laws, regulations or administrative requirements relating to any Taxes. "Title Commitment" means the commitment to issue an owner's title policy as provided in Section 8.2(e). "Title Company" means Republic Title Company or such other title insurance company reasonably acceptable to Buyer and Seller. "Trade Deals" means the exchanges by a Station of its advertising time for goods or services, other than in connection with the licensing of programs and programming material. "Trademarks" means (a) trademarks, service marks, trade names, trade dress, labels, logos, and all other names and slogans associated with any products or embodying the goodwill of the business of any Station, whether or not registered, and any applications or registrations therefor and (b) any associated goodwill incident thereto owned by Seller. "Trading Event" has the meaning set forth in Section 9.1. "Transaction Documents" has the meaning set forth in Section 3.1(c). "Warranty Deed" means a special warranty deed in form and substance reasonably acceptable to the Buyer and the Title Company pursuant to which Seller conveys to Buyer the Owned Real Property (other than the Excluded Real Property) at the Closing. 1.2. REFERENCES AND TITLES. All references in this Agreement to Exhibits, Schedules, Articles, Sections, subsections, and other subdivisions refer to the corresponding Exhibits, Schedules, Articles, Sections, subsections, and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any Articles, Sections, subsections, or other subdivisions of this Agreement are for convenience only, do not constitute any part of such Articles, Sections, subsections or other subdivisions, and shall be disregarded in construing the language contained therein. The words "this Agreement," "herein," "hereby," "hereunder," " and "hereof," and words of similar import, refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The words "this Section," "this subsection," and words of similar import, refer only to the Sections or subsections hereof in which such words occur. The word "or" is not exclusive, and the word "including" (in its various forms) means "including without limitation." Pronouns in masculine, feminine, or neuter genders shall be construed to state and include any other gender and words, terms, and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise expressly requires. Unless the context otherwise requires, all defined terms contained herein shall include the singular and plural and the conjunctive and disjunctive forms of such defined terms. 10 16 ARTICLE II SALE AND PURCHASE OF ASSETS 2.1. AGREEMENT TO SELL AND BUY. Subject to the terms and conditions set forth in this Agreement and except for the Excluded Assets, Seller shall sell, assign, transfer and deliver to Buyer on the Closing Date, and Buyer shall purchase on the Closing Date, all of the Assets, free and clear of any Liens or liabilities (except for Permitted Encumbrances and liabilities assumed by Buyer in accordance with Section 2.5). The Assets to be assigned, transferred and delivered by Seller hereunder shall include the following: (a) All Personal Property; (b) All Leased Real Property; (c) The Owned Real Property (other than the Excluded Real Property); (d) All Licenses and Permits; (e) All Assumed Contracts; (f) All Intellectual Property; (g) All Accounts Receivable; (h) Each of the Station's technical information and data, machinery and equipment warranties (to the extent such warranties are assignable), if any, maps, plans, diagrams, blueprints and schematics relating to such Station, if any, including filings with the FCC which relate to such Station, and goodwill relating to the foregoing; (i) All books and records relating to the business and operation of any of the Stations (excluding those described in, or relating to the assets described in, Section 2.2), including (i) executed copies of the Assumed Contracts, or if no executed agreement exists, summaries of each Assumed Contract transferred pursuant to clause (e) above and (ii) all records required by the FCC to be kept by each Station, subject to the right of Seller to request and receive copies thereof and have such books and records made reasonably available to Seller for tax and other legitimate organization purposes for a period of six years after the Closing; (j) To the extent assignable, all computer programs and software, and all rights and interests of Seller in and to computer programs and software used in connection with the business or operations of any Station; 11 17 (k) Except for claims relating to Taxes and all Choses in Action described in Schedule 2.1(k), all Choses in Action of Seller; and (l) All intangible assets of Seller relating to any Station or the business or operation of any Station not specifically described above, including goodwill, and all other assets, other than the Excluded Assets, used or held for use in connection with any Station or the business of the Seller. 2.2. EXCLUDED ASSETS. The Excluded Assets shall consist of the following: (a) The Excluded Real Property described in Schedule 2.2(a); (b) In each case determined as of 11:59 p.m. on the day prior to the Closing Date, Seller's cash on hand as of the Closing Date and all other cash in any of Seller's bank or savings accounts; notes receivable, letters of credit or other similar items of Seller; any stocks, bonds, certificates of deposit and similar investments of Seller; and any other cash equivalents of Seller; (c) Seller's books and records relating solely to internal corporate, financial and tax matters and any other books and records not related to any Station or the business or operations of any Station; (d) Any claims, rights and interest of Seller in and to any (i) refunds of Taxes or fees of any nature whatsoever or (ii) deposits or utility deposits, which, in each case, relate solely to the period prior to the Closing Date; (e) All insurance contracts, including the cash surrender value thereof, and all insurance proceeds or claims made by Seller relating to property or equipment repaired, replaced or restored by Seller prior to the Closing Date; (f) All Employee Benefit Plans and all assets or funds held in trust, or otherwise, associated with or used in connection with the Employee Benefit Plans; (g) All Choses in Action, if any, of Seller excluded from Section 2.1(k); (h) All tangible and intangible personal property disposed of or consumed in the ordinary course of business between the date of this Agreement and the Closing Date, or as otherwise permitted under the terms hereof; (i) Any collective bargaining agreement, any other Contract not included in the Assumed Contracts, and all Contracts that have terminated or expired prior to the Closing Date in the ordinary course of business and as permitted hereunder; and 12 18 (j) The personal effects and other personal property identified on Schedule 2.2(j). 2.3. PURCHASE PRICE. Subject to the adjustments set forth in Section 2.4 and 2.5(b), the Purchase Price for the Assets is Thirty-Five Million Dollars ($35,000,000). 2.4. ADJUSTMENTS AND PRORATIONS. (a) All revenues arising from the operation of the Stations earned or accrued up until 11:59 p.m. on the day prior to the Closing Date, and all expenses, costs and liabilities, arising therefrom incurred, accrued or payable up until such time, including expenses arising under the Assumed Contracts, tower rentals, business and license fees, utility charges, real and personal property Taxes levied against the Assets, property and equipment rentals, applicable copyright or other fees, sales and service charges, other Taxes, wages, salaries, vacation, sick and employee compensation pay shall be prorated between Buyer and Seller in accordance with the principle that (i) Seller shall receive all revenues, refunds and deposits of Seller held by third parties, and shall be responsible for all expenses, costs and liabilities incurred, payable or allocable to the conduct of the business and operations of each Station for the period ending at 11:59 p.m. on the day prior to the Closing Date and (ii) Buyer shall receive all revenues earned or accrued and shall be responsible for all expenses, costs and liabilities incurred, payable or allocable to the conduct of the business and operations of each Station for the period commencing on and continuing after the Closing Date. An adjustment of the Purchase Price and proration shall be made in favor of Buyer to the extent that Buyer assumes any liability under any Assumed Contract to refund (or to credit against payments otherwise due) any security deposit or similar prepayment paid to Seller by any lessee or other third party which is not otherwise credited to Buyer. Subject to Buyer's receipt of appropriate estoppel certificates, an adjustment of the Purchase Price and proration shall be made in favor of Seller to the extent that Seller has made (A) any security deposit under any Assumed Contract whether or not there is a proration under such Assumed Contract or (B) other prepayment under any Assumed Contracts for which there is a proration. The Purchase Price shall be increased by an amount equal to eighty percent of the face amount of Seller's Accounts Receivables. Seller shall be liable for all of the costs of employee compensation relating to each of the Stations properly attributable to or accruable on account of service with the Seller through 11:59 p.m. on the date prior to the Closing Date, including (1) all Taxes and related contributions, vacations and sick pay and (2) all group medical, dental or death benefits for expenses incurred, related to or arising from, events occurring on or prior to 11:59 p.m. on the date prior to the Closing Date, or death or disability occurring on or prior to 11:59 p.m. on the date prior to the Closing Date, whether reported by the Closing Date or thereafter; Buyer will be liable for all of the costs of employee compensation relating to each of the Stations, properly attributable or accruable thereafter on account of service with Buyer. Trade Deals shall not be adjusted or prorated. (b) Adjustments or prorations pursuant to this Section 2.4 will, insofar as feasible be determined and paid on the Closing Date based upon Seller's good faith calculation delivered to Buyer five days prior to the Closing Date, with final settlement and payment by the appropriate party occurring no later than 60 days after the Closing Date. Within 60 days after the Closing Date, Buyer 13 19 shall submit to Seller its good faith determination of the adjustments or prorations required by this Section 2.4. Except as expressly provided in Section 2.4(a), Buyer's determination of the amount of adjustment under this Section 2.4 shall be made in accordance with GAAP, consistently applied. If Seller disagrees with the determination made by Buyer of the adjustment, Seller shall give prompt written notice thereof, but in no event later than 20 days after notice of Buyer's determination, specifying in reasonable detail the nature and extent of the disagreement, and Buyer and Seller shall have a period of 30 days in which to resolve the disagreement. If the parties are unable to resolve the disagreement within the 30-day period, the matter shall be submitted to an independent certified public accounting firm selected by Buyer and Seller, which accounting firm shall be directed to submit a final resolution within 30 days. The accounting firm's determination shall be binding on Buyer and Seller. Each party shall bear the fees and expenses of its own representatives, including its independent accountants, if any, and shall share equally the fees and expenses of any such accounting firm, if engaged, to resolve any disagreement between the parties. Within five business days following a final determination hereunder, the party obligated to make payment will make the payments determined to be due and owing in accordance with this Section 2.4. 2.5. ASSUMPTION OF LIABILITIES AND OBLIGATIONS. (a) As of the Closing Date, Buyer shall assume and undertake to pay, discharge and perform all the obligations and liabilities of Seller relating to each Station under the Licenses and the Assumed Contracts assumed by Buyer relating to the time period beginning on or arising out of events occurring on or after the Closing Date, including those incurred prior to the Closing Date and performable in accordance with their terms after the Closing Date. All other obligations and liabilities of Seller, including (i) obligations or liabilities under any contract not included in the Assumed Contracts, (ii) obligations or liabilities under any Assumed Contract for which a Consent, if required, has not been obtained as of the Closing, (iii) any obligations and liabilities arising under the Assumed Contracts that relate to the time period prior to the Closing Date or arise out of events occurring prior to the Closing Date and (iv) any forfeiture, claim or pending litigation or proceeding relating to the business or operations of any Station prior to the Closing Date (other than those to be performed in accordance with their terms after the Closing Date), shall remain and be the obligation and liability solely of Seller. Other than as specified in the first sentence of this Section 2.5, Buyer, directly or indirectly, shall assume no liabilities or obligations of Seller and shall not be liable therefor. (b) Schedule 2.5(b) contains a list of all of the Trade Deals in effect as of March 31, 1997 and correctly sets forth the balance, in dollar value, of either (i) Seller's obligations to the other party under such Trade Deals (denoted by a minus on Schedule 2.5(b)) or (ii) the amount due Seller under such Trade Deals (reflected as a positive on Schedule 2.5(b)). On the Closing Date, Buyer shall assume Seller's obligations under (i) the Trade Deals listed on Schedule 2.5(b) to the extent that the goods or services to be provided by the advertisers pursuant to such Trade Deals are solely used or useful in connection with the business or operations of any Station and (ii) all Trade Deals entered into by Seller between the date hereof and the Closing Date. The Trade Deals assumed by Buyer pursuant to the terms of this Section 2.5(b) shall be considered Assumed Contracts. 14 20 2.6. ALLOCATION. The parties hereto acknowledge that the transactions contemplated hereby must be reported in accordance with Section 1060 of the Code. Accordingly, the parties shall report such transactions for all purposes in accordance with the Purchase Price allocation set forth on Schedule 2.6 hereto. 2.7. EARNEST MONEY. (a) Concurrently with the execution of this Agreement, Buyer shall deposit the Deposit Letter of Credit with the Escrow Agent to be held in escrow in accordance with the Deposit Escrow Agreement. (b) Subject to satisfaction of the conditions to the obligations set forth in Article VIII, at the Closing, Seller shall instruct the Escrow Agent to release and return the Deposit Letter of Credit to Buyer for cancellation. (c) If this Agreement is terminated as provided in Section 10.1, Buyer and Seller shall instruct the Escrow Agent to release the Deposit Letter of Credit to Buyer or to Seller, all as provided in Section 10.2. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1. REPRESENTATIONS AND WARRANTIES REGARDING SELLER. Seller represents and warrants to Buyer as follows (with the understanding that Buyer is relying on such representations and warranties in entering into and performing this Agreement). (a) Organization, Good Standing, Etc. Seller is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts, has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted and is duly qualified and in good standing to do business in each state listed on Schedule 3.1(a), which states represent every jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary. Seller has delivered to Buyer true and complete copies of its Articles of Organization and Bylaws, as in effect at the date of this Agreement. Seller is not in violation of any provisions of its Articles of Organization or Bylaws. (b) Subsidiaries of Seller. Seller does not own, directly or indirectly, any equity interest in, any other corporation, partnership, or other person or have the right, pursuant to a contract or otherwise, to acquire any capital stock, equity interest or other similar investment in any corporation, partnership, or other person. (c) Authority. Seller has all requisite corporate power and authority to enter into this Agreement, the Deposit Escrow Agreement, the Bill of Sale and Assignment, the Assumption Agreement, the Indemnification Escrow Agreement, the Non-Competition Agreement and each other 15 21 agreement, document, and instrument required to be executed by Seller in accordance herewith (collectively, the "Transaction Documents") and to consummate the transactions contemplated hereby or thereby. The execution and delivery of the Transaction Documents by Seller and the consummation by Seller of the transactions contemplated hereby or thereby have been duly authorized by all necessary corporate action on the part of Seller, including, without limitation, the requisite approval of the holders of the outstanding capital stock of Seller entitled to vote thereon. The Transaction Documents have been, or upon execution and delivery will be, duly executed and delivered and constitute the valid and binding obligations of Seller enforceable against it in accordance with their terms, subject as to enforceability to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (d) No Conflict; Required Filings and Consents. The execution and delivery of the Transaction Documents by Seller do not and the performance by Seller of the transactions contemplated hereby or thereby will not, subject to obtaining the consents, approvals, authorizations, and permits and making the filings described in this Section 3.1(d), (i) violate, conflict with, or result in any breach of any provision of Seller's Articles of Organization and Bylaws, (ii) violate, conflict with, or result in a violation or breach of, or constitute a default (with or without due notice or lapse of time or both) under, or permit the termination of, or result in the acceleration of, or entitle any party to accelerate (whether as a result of a change of control of Seller or otherwise) any material obligation, or result in the loss of any material benefit, or give any person the right to require any security to be repurchased, or give rise to the creation of any material lien, charge, security interest, or encumbrance upon any of the Assets under any of the terms, conditions, or provisions of any loan or credit agreement, note, bond, mortgage, indenture, or deed of trust, or any license, lease, agreement, or other instrument or obligation to which Seller is a party or by which it or any of the Assets may be bound or subjected, or (iii) violate any order, writ, judgment, injunction, decree, statute, law, rule, or regulation, of any Governmental Entity applicable to Seller or by which or to which any material Assets are bound or subject. No Consent of any Governmental Entity is required by or with respect to the Seller in connection with the execution and delivery of any Transaction Documents by Seller or the consummation of the transactions contemplated hereby or thereby, except for (A) the filing of a premerger notification report under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and (B) the FCC Consents (as contemplated by Section 7.1 hereof). (e) Reports; Financial Statements; Absence of Certain Changes or Events. (i) Seller has filed all forms, reports, statements, and other documents required to be filed with the FCC. Seller has filed all forms, reports, statements, and other documents required to be filed with any and all other Governmental Entities. All such forms, reports, statements and other documents required to be filed with the FCC or any other Governmental Entity are referred to herein, collectively, as the "Company Reports". The 16 22 Company Reports were prepared in all material respects in accordance with the requirements of applicable law. (ii) Seller has delivered to Buyer copies of (A) the reviewed balance sheets of Seller as of December 31, 1995 and December 31, 1996, together with the reviewed statements of income and cash flows of Seller for the periods then ended, and the notes thereto, accompanied by the reports thereon of Arthur Andersen LLP, independent public accountants (the "Reviewed Financial Statements"), and (B) the internally prepared balance sheet of Seller as of March 31, 1997, together with the related unaudited statements of income for the period then ended. The Reviewed Financial Statements, including the notes thereto, were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby (except to the extent disclosed therein or required by changes in GAAP) and present accurately the information purported to be presented therein as of such dates and for the periods then ended. (iii) Except as disclosed in Schedule 3.1(e), there is no material liability or obligation of any kind, whether accrued, absolute, fixed, contingent, or otherwise, of Seller that is not reflected or reserved against in the balance sheet for the period ended March 31, 1997 (the "Balance Sheet"), other than (A) liabilities incurred in the ordinary course of business in a manner consistent with past practice since March 31, 1997 (the "Balance Sheet Date"), or (B) any such liability or obligation which would not be required to be presented in financial statements or the notes thereto prepared in conformity with GAAP applied, in a manner consistent with past practice, in the preparation of the Financial Statements. (iv) Except as disclosed in Schedule 3.1(e), since the Balance Sheet Date, Seller has conducted its business only in the ordinary course consistent with past practice and nothing has occurred that would have been prohibited by Section 4.1 if the terms of such section had been in effect as of and after the Balance Sheet Date. Since the Balance Sheet Date, there has not occurred, and Seller has not incurred or suffered, any event, circumstance, or fact that could result in a Material Adverse Effect. Additionally, since the Balance Sheet Date, there has not occurred, and Seller has not incurred or suffered, any event, circumstance, or fact that materially impairs the physical assets of any of the Stations. (f) Compliance with Applicable Laws: FCC Matters. (i) The business of Seller has been conducted in compliance in all material respects with each Applicable Law. No investigation or review by any Governmental Entity with respect to Seller is pending or, to the Knowledge of Seller, threatened. Without limiting the generality of the foregoing, Seller has complied with the Communications Act of 1934, as amended, and all material rules, regulations and written policies of the FCC thereunder (collectively, the "Communications Act"), all obligations with respect to equal employment opportunity under Applicable Law, and all material rules 17 23 and regulations of the Federal Aviation Administration applicable to each of the towers used or held for use by a Station. In addition, Seller has duly filed, or caused to be so filed, with the FCC and other appropriate Governmental Entities all reports, statements, documents, registrations, filings, or submissions with respect to the operation of each Station and the ownership thereof, including, applications for renewal of authority required by Applicable Law to be filed. All such FCC filings complied in all material respects with Applicable Laws when made, and no deficiencies have been asserted with respect to any such filings. The material required by 47 C.F.R. Section 73.3526 to be kept in the public inspection files of each Station is in such files and was placed in such files at the appropriate times. (ii) Schedule 3.1(f) is a true and complete list of (A) all of the FCC Licenses, including the expiration dates thereof, as of the date of this Agreement and (B) all other material licenses, permits, or authorizations issued to Seller by any other Governmental Entities and held by it as of the date of this Agreement. Such FCC Licenses, licenses, permits, and authorizations, and all pending applications for modification, extension, or renewal thereof or for new licenses, permits, permissions, or authorizations, are collectively referred to herein as the "Station Licenses." Schedule 3.1(f) accurately lists the legally authorized holder(s) of the Station Licenses. The Station Licenses constitute all the licenses, permits and authorizations required for the operation of each of the Stations and the business of Seller, and each of the Station Licenses is in full force and effect. Each of the Stations has been operated in all material respects in accordance with the terms of its Station Licenses and the Seller is otherwise in compliance with, and has conducted its business so as to comply with, the terms of such Station Licenses. There are no proceedings pending or, to the Knowledge of Seller, threatened with respect to Seller's ownership or operation of any Station which reasonably may be expected to result in the revocation, material adverse modification, non- renewal, or suspension of any of the Station Licenses, the denial of any pending applications for any Station Licenses, the issuance against Seller of any cease and desist order, or the imposition of any administrative actions by the FCC, including the proposed assessment of fines or penalties, or any other Governmental Entity with respect to any Station Licenses, or which reasonably may be expected to adversely affect any Station's ability to operate as currently operated or Buyer's ability to obtain control of any Station Licenses or to operate any Station. To the Knowledge of Seller, no other broadcast station or radio communications facility is causing interference to any Station's transmissions beyond that which is allowed by FCC rules and regulations and no Station is causing interference to any other broadcast station or radio communications facilities' transmissions beyond that which is allowed by the FCC rules and regulations. To the Knowledge of Seller, there is no reason to believe that the FCC will not renew any of the Station Licenses issued by the FCC in the ordinary course of business. To the Knowledge of Seller, there are no facts relating to Seller under the Communications Act that reasonably may be expected to disqualify Seller from transferring control of any of the Station Licenses pursuant to the terms of this Agreement or that would prevent the consummation by Seller of the transactions contemplated by this Agreement. 18 24 (g) Absence of Litigation. Except as set forth on Schedule 3.1(g), there is no claim, action, suit, inquiry, judicial, or administrative proceeding, grievance, or arbitration pending or, to the Knowledge of Seller, threatened against Seller or any of the Assets by or before any arbitrator or Governmental Entity, nor are there any investigations relating to Seller or any of the Assets pending or, to the Knowledge of Seller, threatened by or before any arbitrator or Governmental Entity. Except as set forth in Schedule 3.1(g), there is no judgment, decree, injunction, order, determination, award, finding, or letter of deficiency of any Governmental Entity or arbitrator outstanding against Seller or any of the Assets. There is no action, suit, inquiry, judicial, or administrative proceeding pending or, to the Knowledge of Seller, threatened against Seller relating to the transactions contemplated by this Agreement. (h) Insurance. Since January 1, 1994, Seller has been insured against such risks as companies engaged in a similar business would, in accordance with good business practice, customarily be insured. Schedule 3.1(h) lists all fire, general liability, malpractice liability, theft, and other forms of insurance and all fidelity bonds held by or applicable to Seller. Except as set forth on Schedule 3.1(h), the policies of general liability, malpractice liability, fire, theft, and other insurance maintained with respect to the operations, assets, or business of Seller provide adequate coverage against loss. To the Knowledge of Seller, no event has occurred, including the failure by Seller to give any notice or information or the delivery of any inaccurate or erroneous notice or information, which limits or impairs the rights of Seller under any such insurance policies in such a manner as could have a Material Adverse Effect. Excluding insurance policies that have expired and been replaced in the ordinary course of business, no insurance policy has been canceled within the last two years prior to the date hereof. (i) Owned Real Property. Schedule 3.1(i) contains an accurate description of all the Owned Real Property. Except as set forth on Schedule 3.1(j) and subject to any Permitted Encumbrances, Seller has good and marketable, fee simple, absolute title in and to the Owned Real Property. Seller has sufficient title to such easements, rights of way and other rights appurtenant to each of the Owned Real Properties as are necessary to permit ingress and egress to and from the Owned Real Property to a public way, and the improvements on the Owned Real Property have access to such sewer, water, gas, electric, telephone and other utilities as are necessary to allow the business of the Seller operated thereon to be operated in the ordinary course. There is no pending condemnation or similar proceeding affecting the Owned Real Property or any portion thereof, and to the Knowledge of Seller, no such action is threatened. Except as set forth on Schedule 3.1(i), the improvements located on the Owned Real Property are in sufficiently good condition (except for ordinary wear and tear) to allow the business of the Seller to be operated in the ordinary course and there has been no damage to such improvements that affects the conduct of such business in any material respect that has not been repaired or remedied. Except as set forth on Schedule 3.1(i), there are no lessees or tenants at will in possession of any portion of any of the Owned Real Property other than Seller, whether as lessees, tenants at will, trespassers or otherwise. Except as set forth on Schedule 3.1(i), no zoning, building or other federal, state or municipal law, ordinance, regulation or restriction is violated in any material respect by the continued maintenance, operation or use of the Owned Real Property or any tract or portion thereof or interest therein in its present manner. The 19 25 current use of the Owned Real Property and all parts thereof does not violate any restrictive covenants of record affecting any of the Owned Real Property. All necessary Licenses by any Governmental Entity with respect to the Owned Real Property have been obtained, have been validly issued and are in full force and effect. (j) Leased Real Property. Schedule 3.1(j) contains an accurate description of all the leasehold interests relating to the business and operations of each of the Stations as now conducted. Each lease described in Schedule 3.1(j) is a valid and binding obligation of Seller and is in full force and effect without amendment other than as described in Schedule 3.1(j). Except as otherwise disclosed on Schedule 3.1(j), Seller is not, and to the Knowledge of the Seller, no other party is, in default under any lease described in Schedule 3.1(j). Subject to obtaining the Consents disclosed in Schedule 3.1(j), Seller has the full legal power and authority to assign its rights under the leases listed in Schedule 3.1(j) to Buyer. All leasehold interests listed in Schedule 3.1(j) (including the improvements thereon) are available for immediate use in the conduct of the business and operations of each of the Stations as currently conducted. (k) Personal Property. Schedule 3.1(k) contains a description of the items of Personal Property (having a replacement cost of not less than $25,000 for each item) which comprise all Personal Property used or held for use in connection with the business and operations of each Station or which permit the operation of each Station as now conducted. Except as set forth on Schedule 3.1(k), Seller has good title to, or a valid leasehold or license interest in, all Personal Property and none of the Personal Property is subject to any Lien or other encumbrances, except for Permitted Encumbrances. Seller is not, and to the Knowledge of the Seller, no other party is, in default under any of the leases, licenses and other Contracts relating to the Personal Property. Except as otherwise disclosed in Schedule 3.1(k), the Personal Property (i) is in good operating condition and repair (ordinary wear and tear excepted), (ii) is available for immediate use in the business and operation of each of the Stations as currently conducted and (iii) permits each of the Stations to operate in accordance with the terms of their respective FCC Licenses, and the rules and regulations of the FCC, and with all other applicable federal, state and local statutes, ordinances, rules and regulations. (l) Liens and Encumbrances. All of the Assets, including leases, are free and clear of all liens, pledges, claims, security interests, restrictions, mortgages, tenancies, and other possessory interests, conditional sale or other title retention agreements, assessments, easements, rights of way, covenants, restrictions, rights of first refusal, defects in title, encroachments, and other burdens, options or encumbrances of any kind (collectively, "Liens") except (i) Permitted Encumbrances and (ii) Liens set forth on Schedule 3.1(l) (the Liens referred to in clauses (i) and (ii) being "Permitted Liens"). At the Closing, all of the Assets shall be free and clear of all Liens other than Permitted Encumbrances. (m) Environmental Matters. Except as described on Schedule 3.1(m), 20 26 (i) The real property and facilities owned, operated, and leased by Seller and the operations of Seller thereon comply and have at all times complied in all material respects with all Applicable Laws and rules of common law pertaining to the environment, natural resources, and public or employee health and safety, including all Environmental Laws; (ii) No judicial proceedings are pending or, to the Knowledge of Seller, threatened against Seller alleging the violation of any Environmental Laws, and there are no administrative proceedings pending or, to the Knowledge of Seller, threatened against Seller, alleging the violation of any Environmental Laws and no notice from any Governmental Entity or any private or public person has been received by Seller claiming any violation of any Environmental Laws in connection with any real property or facility owned, operated or leased by Seller, or requiring any remediation, clean-up, modification, repairs, work, construction, alterations, or installations on or in connection with any real property or facility owned, operated or leased by Seller that are necessary to comply with any Environmental Laws and that have not been complied with or otherwise resolved to the satisfaction of the party giving notice; (iii) All permits, registrations, licenses, authorizations, and the like ("Permits") required to be obtained or filed by Seller under any Environmental Laws in connection with Seller's operations, including those activities relating to the generation, use, storage, treatment, disposal, release, or remediation of Hazardous Substances (as such term is defined in Section 3.1(m)(iv) hereof), have been duly obtained or filed, and Seller is and has at all times been in full compliance in all material respects with the terms and conditions of all such Permits; (iv) All Hazardous Substances used or generated by Seller or any of its predecessors on, in, or under any of the owned, operated, or leased real property or facilities are and have at all times been generated, stored, used, treated, disposed of, and released by such persons or on their behalf in such manner as not to result in any material Environmental Costs or Liabilities. "Hazardous Substances" means (A) any hazardous materials, hazardous wastes, hazardous substances, toxic wastes, and toxic substances as those or similar terms are defined under any Environmental Laws; (B) any asbestos or any material which contains any hydrated mineral silicate, including chrysolite, amosite, crocidolite, tremolite, anthophylite and/or actinolite, whether friable or non-friable; (C) PCBs, or PCB-containing materials, or fluids; (D) radon; (E) any other hazardous, radioactive, toxic or noxious substance, material, pollutant, contaminant, constituent, or solid, liquid or gaseous waste; (F) any petroleum, petroleum hydrocarbons, petroleum products, crude oil and any fractions or derivatives thereof, any oil or gas exploration or production waste, and any natural gas, synthetic gas and any mixtures thereof; (G) any substance that, whether by its nature or its use, is subject to regulation under any Environmental Laws or with respect to which any Environmental Laws or Governmental Entity requires environmental investigation, monitoring or remediation; and (H) any underground storage tanks, dikes, or impoundments 21 27 as defined under any Environmental Laws. "Environmental Costs or Liabilities" means any losses, liabilities, obligations, damages, fines, penalties, judgments, settlements, actions, claims, costs and expenses (including, without limitation, reasonable fees, disbursements and expenses of legal counsel, experts, engineers and consultants, and the costs of investigation or feasibility studies and performance of remedial or removal actions and cleanup activities) in connection with (1) any Environmental Laws, (2) order of, or contract of Seller with, any Governmental Entity or any private or public persons or (3) any exposure of any person or property to Hazardous Substances; (v) There are not now, nor have there been in the past, on, in or under any property or facilities when owned, leased, or operated by Seller or, to the knowledge of the Seller, when owned, leased, or operated by any of its predecessors, any Hazardous Substances that are in a condition or location that violates any Environmental Law or that reasonably could be expected to require remediation under any Environmental Laws or give rise to a claim for damages or compensation by any affected person or to any Environmental Costs or Liabilities; and (vi) Seller has not received, and to the Knowledge of Seller, does not expect to receive, any notification from any source advising Seller that: (A) it is a potentially responsible party under CERCLA or any other Environmental Laws; (B) any real property or facility currently or previously owned, operated, or leased by it is identified or proposed for listing as a federal National Priorities List ("NPL") (or state- equivalent) site or a Comprehensive Environmental Response, Compensation and Liability Information System ("CERCLIS") list (or state-equivalent) site; and (C) any facility to which it has ever transported or otherwise arranged for the disposal of Hazardous Substances is identified or proposed for listing as an NPL (or state- equivalent) site or CERCLIS (or state-equivalent) site. (n) Taxes. Seller has filed or caused to be filed all Tax Returns affecting the Stations or the Assets which are required to be filed by Seller, all such Tax Returns which have been filed are materially accurate and complete, and Seller has timely paid all Taxes shown on such returns or on any Tax assessment received by Seller to the extent that such Taxes have become due or is contesting such Taxes or assessments. There are no Liens for Taxes upon the Stations or the Assets except for the Permitted Encumbrances. Seller has not received notice of any Tax deficiency or delinquency. No Internal Revenue Service audit of Seller is pending or, to the Knowledge of Seller, threatened, and the results of any completed audits are properly reflected in the Financial Statements. Substantially all monies required to be withheld by Seller from employees or collected from customers for Taxes and the portion of any Taxes to be paid by Seller to governmental agencies or set aside in accounts for such purposes have been so paid or set aside, or such monies have been reserved against and entered upon the books and are reflected in the Balance Sheet. There are no legal, administrative, or tax proceedings pursuant to which Seller is or could be made liable for any taxes, penalties, interest, or other charges, the liability for which could extend to Buyer as transferee of the business of the Stations. 22 28 (o) Certain Agreements. (i) Schedule 3.1(o) hereto lists each (A) employment or consulting Contract which is not terminable without liability or penalty on 30 days or less notice, (B) Contract under which any party thereto remains obligated to provide goods or services having a value, or to make payments aggregating, in excess of $50,000 per year, and (C) other Contract that is material to the operation of the Stations or to the Seller's business, in any such case to which Seller is a party or Seller or the Assets is bound. Each such Contract described in Schedule 3.1(o) or required to be so described is a valid and binding obligation of Seller and is in full force and effect without amendment. Except as set forth on Schedule 3.1(o), Seller and, to the Knowledge of Seller, each other party to such Contracts, has performed in all material respects the obligations required to be performed by it under such Contracts and is not (with or without lapse of time or the giving of notice, or both) in breach or default thereunder. Schedule 3.1(o) identifies, as to each such Contract listed thereon, whether the consent of the other party thereto is required, and the extent of any payments required, in order for such Contract to continue in full force and effect upon the consummation of the transactions contemplated hereby or whether such Contract can be canceled by the other party without liability to such other party due to the consummation of the transactions contemplated hereby. A complete copy of each written Contract and a description of each oral Contract set forth in Schedule 3.1(o) has been provided to Buyer prior to the date of this Agreement. (ii) Except as set forth on Schedule 3.1(o), Seller is not a party to any oral or written agreement, plan or arrangement with any employee or other station or broadcast personnel (whether an employee, consultant or an independent contractor) of Seller (A) the benefits of which are contingent, or the terms of which are materially altered, upon, or result from, the occurrence of a transaction involving Seller of the nature of any of the transactions contemplated by this Agreement, (B) providing severance benefits longer than forty-five days or other benefits after the termination of employment or other contractual relationship regardless of the reason for such termination and regardless of whether such termination is before or after a change of control, (C) under which any person may receive payments subject to the tax imposed by Section 4999 of the Code or (D) any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. (p) ERISA Compliance; Labor. (i) The present value of all accrued benefits (vested and unvested) under all the Employee Pension Benefit Plans, which Seller or any other trades or businesses under common control within the meaning of Section 4001(b)(1) of ERISA with Seller (collectively, the "ERISA Group") maintains, or to which Seller or any member of the 23 29 ERISA Group is or has been obligated to contribute (the "Pension Plans"), did not, as of the respective last annual valuation dates for such Pension Plans, exceed the value of the assets of such Pension Plan allocable to such benefits. None of such Pension Plans subject to Title IV of ERISA or any of their related trusts has been terminated or partially terminated. Neither Seller or any member of the ERISA Group has contributed or been obligated to contribute to any Multiemployer Plan. Except as set forth on Schedule 3.1(p), neither Seller nor any member of the ERISA Group has any Employee Benefit Plans. (ii) True, correct, and complete copies of each of the Employee Benefit Plans, and related trusts, if applicable, have been furnished to Buyer, along with the most recent report filed on Form 5500 and summary plan description with respect to each Employee Benefit Plan required to file Form 5500. (iii) Seller is not a party to any collective bargaining agreement. Seller has not agreed to recognize any union or other collective bargaining representative, nor has any union or other collective bargaining representative been certified as the exclusive bargaining representative of any of its employees. Seller (A) is, and has always been since January 1, 1995, in substantial compliance with all applicable laws regarding labor, employment and employment practices, terms and conditions of employment, equal employment opportunity, employee benefits, affirmative action, wages and hours, plant closing and mass layoff, occupational safety and health, immigration, and workers' compensation, (B) is not engaged, nor has it since January 1, 1995, engaged, in any unfair labor practices, and has no, and has not had since January 1, 1995, any, unfair labor practice charges or complaints before the National Labor Relations Board pending or, to the Knowledge of Seller threatened against it, (C) has no, and has not had since January 1, 1995, any, grievances, arbitrations, or other proceedings arising or asserted to arise under any collective bargaining agreement, pending or, to the Knowledge of Seller threatened, against it and (D) has no, and has not had since January 1, 1995, any, charges, complaints, or proceedings before the Equal Employment Opportunity Commission, Department of Labor or any other Governmental Entity responsible for regulating employment practices, pending, or, to Seller's Knowledge, threatened against it. There is no labor strike, slowdown, work stoppage or lockout pending or, to the Knowledge of Seller, threatened against or affecting Seller, and Seller has not experienced any labor strike, slowdown, work stoppage or lockout since January 1, 1995. To the Knowledge of Seller no union organizational campaign or representation petition is currently pending with respect to any of the employees of Seller. (q) Patents, Trademarks, Etc. Schedule 3.1(q) is a true and complete list of all of the Intellectual Property. Except as set forth on Schedule 3.1(q), Seller owns or has the unencumbered right to use pursuant to a valid, binding, and enforceable license agreement or other contract or arrangement all such Intellectual Property. To the Knowledge of Seller, Seller is not infringing any such Intellectual Property, and Seller is not aware of any infringement by others of any of the Intellectual Property owned by Seller. 24 30 (r) Affiliate Relationships. Except as set forth on Schedule 3.1(r), there are no contracts or other arrangements involving Seller in which any member, manager, officer, director, or Affiliate of Seller has a financial interest, including indebtedness to Seller. (s) Assets. The Assets and the Excluded Assets include substantially all assets used or held for use in connection with the business and operations of the Stations as currently conducted. (t) No Dispositions. Since the Balance Sheet Date, there has not occurred any sale, lease, transfer, assignment, abandonment or other disposition of any of the assets of any Station other than any disposition of (i) obsolete property,(ii) property in connection with the acquisition of replacement property of equal value, or (iii) assets having, in the aggregate, a value of less than $50,000 disposed of in the ordinary course of business and consistent with past practices. (u) No Knowledge of Buyer's Breach. Seller has no Knowledge of any breach of representation or warranty by Buyer or of any other condition or circumstance that would excuse Seller from its timely performance of its obligations hereunder. Seller shall notify Buyer as promptly as practicable if any such information comes to its attention prior to the Closing Date. 3.2. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller as follows (with the understanding that Seller is relying on such representations and warranties in entering into and performing this Agreement): (a) Organization Standing and Power. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware 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) Authority. Buyer has all requisite corporate power and authority to enter into the Transaction Documents to which it will be a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of such Transaction Documents by Buyer and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Buyer. The Transaction Documents to which Buyer will be a party have been, or upon execution and delivery will be, duly executed and delivered and constitute the valid and binding obligations of Buyer, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (c) No Conflict; Required Filings and Consents. The execution and delivery of the Transaction Documents to which Buyer will be a party do not and the performance by Buyer of the transactions contemplated hereby or thereby will not, subject to obtaining the consents, 25 31 approvals, authorizations, and permits and making the filings described in this Section 3.2(c), (A) violate, conflict with, or result in any breach of any provisions of Buyer's Articles of Incorporation and Bylaws, (B) violate, conflict with, or result in a violation or breach of, or constitute a default (with or without due notice or lapse of time or both) under, or permit the termination of, or result in the acceleration of, or entitle any party to accelerate (whether as a result of a change of control of Buyer or otherwise) any obligation, or result in the loss of any benefit, or give any person the right to require any security to be repurchased, or give rise to the creation of any lien, charge, security interest, or encumbrance upon any of the Assets under any of the terms, conditions, or provisions of any loan or credit agreement, note, bond, mortgage, indenture, or deed of trust, or any license, lease, agreement, or other instrument or obligation to which Buyer is a party or by which it or any of the Assets may be bound or subjected, or (C) violate any order, writ, judgment, injunction, decree, statute, law, rule or regulation, of any Governmental Entity applicable to Buyer or by which or to which any of the Assets is bound or subject. No Consent of any Governmental Entity is required by or with respect to Buyer in connection with the execution and delivery of any Transaction Documents by Buyer or the consummation by it of the transactions contemplated hereby or thereby, except for (A) the filing of a premerger notification report under the HSR Act and (B) the FCC Consents (as contemplated by Section 7.1) (d) Litigation. As of the date hereof, there is no action, suit, inquiry, judicial or administrative proceeding pending or, to the Knowledge of Buyer, threatened against it relating to the transactions contemplated by this Agreement. (e) FCC Matters. There are no facts relating to Buyer under the Communications Act or otherwise that reasonably may be expected to disqualify it from qualifying as an assignee of the Station Licenses or that would prevent it from consummating the transactions contemplated by this Agreement. Buyer hereby represents and warrants that it is able to certify on an FCC Form 314 that it is financially qualified. (f) No Knowledge of Seller's Breach. Buyer has no Knowledge of any breach of representation or warranty by Seller or of any other condition or circumstance that would excuse Buyer from its timely performance of its obligations hereunder. Buyer shall notify Seller as promptly as practicable if any such information comes to its attention prior to the Closing Date. (g) No Assurance. Buyer is relying solely on the express representations, warranties and covenants of Seller contained in this Agreement and Transaction Documents, and upon no other representations or statements of Seller or any of its Affiliates or their respective directors, officers, employees, agents or representatives, and acknowledges and agrees that nothing in this Agreement or the Transaction Documents shall be deemed to create any additional implied duty, disclosure obligation or responsibility on the part of Seller or its Affiliates. 26 32 ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS 4.1. COVENANTS OF SELLER. Except as contemplated by this Agreement or to the extent that Buyer shall otherwise consent in writing, from the date of this Agreement until the Closing, Seller covenants and agrees that Seller shall not: (a) conduct its business in any manner except in the ordinary course consistent with past practice, including, without limitation, with respect to Trade Deals and other barter arrangements; or (b) fail to use commercially reasonable efforts to preserve intact Seller's business organization substantially as in effect as of this date and to preserve its relationships with customers, suppliers and others having business dealings with it substantially as in effect as of this date; or (c) fail to use commercially reasonable efforts to maintain the Assets in their current condition except for ordinary wear and tear and damage by casualty governed by Section 7.6; or (d) fail to use all commercially reasonable efforts to maintain the present programming of the Stations consistent with past practices; or (e) except for amendments, terminations (without payment of penalty or damages), renewals, or failures to renew (without payment of penalty or damages) of employment agreements with over-the-air personnel in the ordinary course of business and consistent with past practice (subject to prior consultation with Buyer reasonably in advance thereof), materially amend or terminate (i.e., a contract or agreement of the type required to be described in Schedule 3.1(o)), or default in any material respect (or take or omit to take any action that, with or without the giving notice or passage of time, would constitute a material default) under any material Contract; or (f) merge or consolidate with or into any other legal entity, dissolve, or liquidate; or (g) except as required by the terms and provisions of written contracts between Seller and an employee thereof as in existence on March 31, 1997 or in connection with any reasonable amendments required by the provider or underwriter of any Employee Benefit Plan in connection with the annual renewal of such Employee Benefit Plans, adopt or amend any Employee Benefit Plan or collective bargaining agreement; or (h) except as set forth in Schedule 4.1(h), sell (whether by merger, consolidation, or the sale of an equity interest or assets), lease, or dispose of any Assets except in the ordinary course of business and consistent with past practice or, even if in the ordinary course of business and 27 33 consistent with past practices (other than sales of surplus or obsolete equipment), whether in one or more transactions, in no event involving an Asset or Assets having an aggregate fair market value in excess of $50,000; or (i) mortgage, pledge, or subject to any material Lien which will not be removed or released at or prior to Closing, other than Permitted Encumbrances, any of the Assets; or (j) except as required by GAAP, applicable law, or circumstances which did not exist as of the Balance Sheet Date, change any of the material accounting principles or practices used by it; or (k) change in any material respect its existing practices and procedures with respect to the collection of accounts receivable of the Stations and, except with respect to good faith attempts consistent with past practice to obtain payment of a past due receivable, or except in accordance with existing practices, a contested receivable, offer to discount the amount of any outstanding receivable or extend any other incentive (whether to the account debtor or any employee or third party responsible for the collection of receivables) to accelerate the collection thereof; or (l) change any Station's advertising rates or policies, procedures or methods in connection with the sale of advertising time in a manner expected to accelerate the receipt of cash payments or fail to incur annual advertising and promotional department expenses in cash and trade other than as budgeted for 1997 (as such budget previously has been delivered to Buyer); or (m) enter into, or enter into negotiations or discussions with any person other than Buyer with respect to any local marketing agreement or any other similar agreement; or (n) agree to or make any commitment, orally or in writing, to take any actions prohibited by this Agreement. 4.2. ENVIRONMENTAL SITE ASSESSMENTS. If Buyer or its lenders or other financing sources require Phase I or Phase II ESAs, Seller covenants and agrees that, upon written notice from Buyer to Seller identifying the locations at which such ESAs are required, Seller shall cooperate and permit Buyer to cause to be performed by a nationally recognized and duly qualified environmental consultant selected by Buyer, with the consent of Seller (which consent shall not be unreasonably withheld), an ESA at each identified transmission site owned, operated, or leased by Seller and at such other identified real properties and facilities owned, operated, or leased by Seller. The ESAs which are to be conducted for the benefit of Buyer shall be performed in a manner that at a minimum satisfies the requirements of ASTM Practice E 1527-94. The cost of any ESAs shall be borne by Buyer. Any site visits made by Buyer's consultants shall be performed in collaboration with Seller's designees in accordance with a schedule mutually agreed upon in advance. Buyer and/or its contractors will be accompanied by the Seller's representatives at all times, and no notification or discussions of environmental matters shall be initiated with governmental agencies or third parties without the prior notice to and agreement by Seller. If Buyer, based upon the conclusions in any 28 34 Phase I report, desires to perform intrusive testing, Buyer shall present such request and the supporting written justification to Seller and both parties shall use reasonable best efforts to mutually agree upon the scope and nature of any such intrusive investigation. Any intrusive investigation shall be under the supervision of Seller and all results of any intrusive investigation shall be immediately shared with Seller. 4.3. BROADCAST TRANSMISSION INTERRUPTION. Seller shall give prompt written notice to Buyer if before the Closing the regular broadcast transmission of any of the Stations in the normal and usual manner is interrupted for a period of two consecutive hours or more, excluding interruptions for normal and routine maintenance. ARTICLE V ADDITIONAL AGREEMENTS OF SELLER 5.1. NO SOLICITATION OF TRANSACTIONS. Seller shall not, directly or indirectly, through any officer, director, stockholder, employee, agent, financial advisor, banker or other representative, or otherwise, solicit, initiate, or encourage the submission of any proposal or offer from any person relating to any acquisition or purchase of all or any material portion of the Assets or any equity interest in Seller or any merger, consolidation, share exchange, business combination, or other similar transaction with Seller or participate in any negotiations regarding, or furnish to any other person any information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate, or encourage, any effort or attempt by any other person to do or seek any of the foregoing. Seller shall immediately communicate to Buyer the material terms of any such proposal (and the identity of the party making such proposal) which it may receive and, if such proposal is in writing, the Seller shall promptly deliver a copy of such proposal to Buyer. Seller agrees not to release any third party from, or waive any provision of, any confidentiality or standstill agreement to which Seller is a party. Seller immediately shall cease and cause to be terminated all existing discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. 5.2. ACCESS AND INFORMATION. (a) Until the Closing, subject only to applicable rules and regulations of the FCC, Seller shall afford to Steven R. Hicks, William S. Banowsky, Jr., Paul Stone, Buyer's chief engineer, and other employees and representatives of Buyer upon Buyer's reasonable request(including accountants and counsel) full access, during normal business hours, upon reasonable notice and in such manner as will not unreasonably interfere with the conduct of the business of Seller, to all properties, books, records, and Tax Returns of Seller and all other information reasonably requested with respect to its business, together with the opportunity to make copies of such books, records, and other documents and to discuss the business of Seller with such officers, directors, station managerial personnel (including the Station Management of each Station), accountants, consultants, and counsel for Seller as Buyer deems reasonably necessary or appropriate for the purposes of familiarizing itself with Seller and the Stations, including the right to visit the Stations. In furtherance of the foregoing, Seller shall authorize and instruct its independent public accountants to meet with Buyer and its representatives, including Buyer's independent public 29 35 accountants in Boston, Massachusetts, to discuss the business and accounts of Seller and to make available (with the opportunity to make copies) to Buyer and its representatives, including its independent public accountants, all the work papers of its accountants related to their audit of the consolidated financial statements and Tax Returns of Seller. (b) Within 30 days after the end of each calendar month, Seller shall deliver to Buyer, for each of the Stations, and for Seller as a whole, monthly operating statements (in a form consistent with the monthly operating statements previously supplied to Buyer) prepared in the ordinary course of business for internal purposes. In addition, within 45 days after the end of each calendar quarter, Seller shall deliver to Buyer, for each of the Stations, quarterly statements prepared in the ordinary course for internal purposes. Seller shall deliver to Buyer the rating books and such other ratings information subscribed to by Seller including, without limitation, Arbitrends, Accuratings or any other written information reflective of the quantitative or qualitative nature of the audiences of the Stations for each of the Stations within ten days of receipt of the same by any officer or director of Seller. Seller shall instruct the Station Management of each Station to provide such information and reports to Buyer's corporate officers promptly upon receipt by such Station Management. In addition, as soon as the same are distributed to Seller's officers or directors by each Station, Seller will provide Buyer with copies of each Station's monthly sales pacing reports. (c) Without duplication of Section 5.2(b), at such time as Seller provides the same to its lenders, Seller shall provide Buyer with copies of the financial statements and other information delivered by Seller to such lenders. 5.3. ASSISTANCE. If Buyer requests, Seller will cooperate, and will cause its accountants to cooperate, in all reasonable respects with any financing efforts of Buyer or its Affiliates (including providing assistance in the preparation of one or more registration statements or other offering documents relating to debt and/or equity financing) and any other filings that may be made by Buyer or its Affiliates with the SEC, all at the sole expense of Buyer. Seller (a) shall furnish to its independent accountants (or, if requested by Buyer to Buyer's independent public accountants), such customary management representation letters as its accountants may require of Seller as a condition to its execution of any required accountants' consents necessary in connection with the delivery of any "comfort" letters requested by financing sources of Buyer or its Affiliates and (b) shall furnish to Buyer all financial statements (audited and unaudited) and other information in the possession of Seller or its representatives or agents as Buyer shall reasonably determine is necessary or appropriate in connection with such financing. Buyer will indemnify and hold harmless Seller and its, officers, directors, and controlling persons against any and all claims, losses, liabilities, damages, costs, or expenses (including reasonable attorneys' fees and expenses) that may arise out of or with respect to the financing efforts by Buyer or its Affiliates, including any registration statement, prospectus, offering documents, and other filings related thereto; provided, however, that subject to the limitations and provisions of this Agreement, nothing herein shall prevent Buyer from asserting any claim for breach of representation or warranty under this Agreement. 30 36 5.4. COMPLIANCE WITH STATION LICENSES. Seller shall cause the Stations to be operated in material accordance with the Station Licenses and all applicable rules and regulations of the FCC and in material compliance with all other applicable laws, regulations, rules, and orders. Seller shall use all commercially reasonable efforts not to cause or permit any of the Station Licenses to expire or be surrendered, adversely modified, or terminated. Seller shall file or cause to be filed with the FCC all applications (including license renewals) or other documents required to be filed in connection with the operation of the Stations. In addition, if requested by Buyer and at Buyer's sole expense, Seller shall file or cause to be filed with the FCC modification applications that may be useful in connection with the operation of the Stations. Should the FCC institute any proceedings for the suspension, revocation or adverse modification of any of the Station Licenses or any forfeiture proceedings, Seller will use all commercially reasonable efforts to promptly contest such proceedings and to seek to have such proceedings terminated in a manner that is favorable to the Stations. Seller will use all commercially reasonable efforts to maintain the FCC construction permits (if any) listed in Schedule 3.1(f) in effect until the applicable construction projects are timely completed and to diligently prosecute all pending FCC applications listed in Schedule 3.1(f). If Seller (or its FCC counsel) receives an administrative or other order or notification relating to any violation or claimed violation of the rules and regulations of the FCC, or of any other Governmental Entity, or should Seller (or its FCC counsel) become aware of any fact relating to the qualifications of Buyer that reasonably could be expected to cause the FCC to withhold its consent to the assignment of the Station Licenses, Seller shall promptly notify Buyer in writing and use its commercially reasonable efforts to take such steps as may be necessary to remove any such impediment to the transactions contemplated by this Agreement. 5.5. NOTIFICATION OF CERTAIN MATTERS. Seller shall give prompt written notice to Buyer of (a) the occurrence, or failure to occur, of any event of which it becomes aware that has caused or that would be likely to cause any representation or warranty of Seller contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date hereof to the Closing Date, (b) the failure of Seller, or any officer, director, employee, or agent of Seller, to comply with or satisfy in any material respect any covenant, condition, or agreement to be complied with or satisfied by it hereunder, (c) the occurrence of a Station Event (as defined in Section 9.1), and (d) the occurrence of any threat made to Seller by any of Seller or any General Manager, Station Manager, General Sales Manager or Programming Director of a Station to resign or otherwise terminate their employment or independent contractor relationship with Seller. No such notification shall affect the representations or warranties of the parties or the conditions to their respective obligations hereunder. 5.6. THIRD PARTY CONSENTS. After the date hereof and prior to the Closing, Seller shall use all commercially reasonable efforts, including making any required payments, to obtain the written consent from any party to an agreement or instrument identified in Schedule 3.1(o) or any other Assumed Contract which is required to permit the consummation of the transactions contemplated hereby. 31 37 5.7. CONSULTING AND EMPLOYMENT AGREEMENTS. At the Closing, Buyer shall, and Seller shall cause each of Norman Knight, Randolf H. Knight, N. Scott Knight and Robert A. Knight to, execute and deliver their respective Consulting Agreements. 5.8. NONCOMPETITION AGREEMENTS. At Closing, Buyer shall, and Seller shall cause each of Norman Knight, Randolf H. Knight, N. Scott Knight and Robert A. Knight to, execute and deliver their respective Noncompetition Agreements. ARTICLE VI COVENANTS OF BUYER 6.1. NOTIFICATION OF CERTAIN MATTERS. If Buyer (or its FCC counsel) receives an administrative or other order or notification relating to any violation or claimed violation of the rules and regulations of the FCC, or of any Governmental Entity, that could affect Buyer's ability to consummate the transactions contemplated hereby, or should Buyer (or its FCC counsel) become aware of any fact relating to the qualifications of Buyer that reasonably could be expected to cause the FCC to withhold its consent to the assignment of the Station Licenses, Buyer shall promptly notify Seller thereof and shall use its commercially reasonable efforts to take such steps as may be necessary to remove any such impediment to the assignment of the FCC Licenses or the completion of the transactions contemplated by this Agreement; provided, however, that Buyer shall not be required pursuant to this Section 6.1 to divest itself or cause any Affiliate thereof to divest itself of any media business or interest therein. In addition, Buyer shall give to Seller prompt written notice of (a) the occurrence, or failure to occur, of any event of which it becomes aware that has caused or that would be likely to cause any representation or warranty of Buyer contained in this Agreement to be untrue or inaccurate at any time from the date hereof to the Closing Date, and (b) the failure of Buyer, or any officer, director, employee, or agent thereof, to comply with or satisfy in any material respect any covenant, condition, or agreement to be complied with or satisfied by it hereunder. No such notification shall affect the representations or warranties of the parties or the conditions to their respective obligations hereunder. 6.2. EMPLOYEE MATTERS. Buyer will use its reasonable efforts to determine at least ten days prior to the Closing Date those employees of Seller whom it desires to extend offers of employment. Any offers so extended by Buyer shall be on such terms and conditions that Buyer shall determine in its sole discretion. Buyer will give Seller prompt notice of the names of any employee of Seller who Buyer has determined not to extend an offer of employment. Seller waives any claims against Buyer and any of Seller's employees who are extended an offer of employment by Buyer arising from such employment by Buyer including any claims arising under any employment agreement or non-competition agreement between such person and Seller. 6.3. CERTAIN LEGAL QUALIFICATIONS. Buyer covenants that it has not taken and, after the date of this Agreement, it shall not take any action that could reasonably be expected to prevent the 32 38 parties from obtaining the FCC Consents or the consents of any other Governmental Entity necessary to consummate the transactions contemplated hereby. 6.4. SELLER'S ACCESS TO REAL PROPERTY. Seller shall have the right following the Closing Date to have reasonable access, upon five days prior written notice, to the Real Property for the purpose of complying with any obligations under Environmental Laws. ARTICLE VII MUTUAL COVENANTS 7.1. APPLICATION FOR FCC CONSENTS. By the tenth business day after the date hereof, Seller and Buyer will, and will cause all necessary persons or entities to join in one or more applications filed with the FCC requesting the FCC's written consent to the assignment of the FCC Licenses pursuant to this Agreement (the "Applications"). The parties will take all proper steps reasonably necessary (a) to diligently prosecute the Applications and (b) to obtain the FCC Consents. The failure by either party to timely file or diligently prosecute its portion of any Application shall be a material breach of this Agreement; provided, however, that Buyer shall not be required pursuant to this Section 7.1 to divest itself or cause any Affiliate thereof to divest itself of any media business or interest therein. The failure by either party to timely file or diligently prosecute its portion of any Application shall be a material breach of this Agreement. 7.2. CONTROL OF STATIONS. This Agreement shall not be consummated until after the FCC Consents with respect to the Applications referred to in Section 7.1 are granted and have become Final Orders, unless such requirement is waived pursuant to Section 8.1. Between the date of this Agreement and the Closing Date, Buyer will not directly or indirectly control, supervise or direct the operation of the Stations. Further, between the date of this Agreement and the Closing Date, Seller shall, directly or indirectly, supervise and control the operation of the Stations. Such operation shall be the sole responsibility of Seller. 7.3. OTHER GOVERNMENTAL CONSENTS. Promptly following the execution of this Agreement, the parties shall proceed to prepare and file with the appropriate Governmental Entities (other than the FCC) such requests, reports, or notifications as may be required in connection with this Agreement and shall diligently and expeditiously prosecute, and shall cooperate fully with each other in the prosecution of, such matters. Without limiting the foregoing, promptly following the execution of this Agreement, the parties shall (a) file with the Federal Trade Commission and the Antitrust Division of the Department of Justice the notifications and other information (if any) required to be filed under the HSR Act with respect to the transactions contemplated hereby and shall use their commercially reasonable efforts to cause all applicable waiting periods under the HSR Act to expire or be terminated as of the earliest possible date and (b) make all necessary filings and, thereafter, make any other required submissions with respect to the transactions contemplated hereby under the Securities Act and the rules and regulations thereunder and any other applicable federal 33 39 or state securities laws. Nothing in this Section 7.3 shall require Buyer to divest itself or to cause any Affiliate thereof to divest itself of any media business or interest therein. 7.4. BROKERS OR FINDERS. Seller represents and warrants to Buyer, that no agent, broker, investment banker, or other or person engaged by Seller is or will be entitled to any broker's or finder's fee or any other commission or similar fee payable by Buyer or Seller in connection with any of the transactions contemplated by this Agreement. Except for the fee payable to Media Venture Partners, which fee shall be paid in accordance with the provisions of Section 12.7, Buyer represents and warrants to Seller that Buyer has not engaged any broker, investment banker or other person that will be entitled to any broker's or finder's fee or any other commissions or fee from Seller in connection with any of the transactions contemplated by this Agreement. 7.5. BULK SALES LAW. Buyer agrees to waive compliance by Seller with the requirements of any bulk sales or fraudulent conveyance statute, and Seller agrees to indemnify and hold Buyer harmless against any claim made against Buyer by any creditor of Seller as a result of a failure to comply with any such statute. 7.6. RISK OF LOSS. (a) The risk of any loss, damage, impairment, confiscation, or condemnation of any of the Assets from any cause whatsoever shall be borne by Seller at all times prior to the Closing. In the event of any such loss, damage, impairment, confiscation, or condemnation, whether or not covered by insurance, Seller shall promptly notify Buyer of such loss, damage, impairment, confiscation, or condemnation. (b) If Seller, at its expense, repairs, replaces, or restores such Assets to their prior condition to the reasonable satisfaction of Buyer before the Closing, Seller shall be entitled to all insurance proceeds and condemnation awards, if any, by reason of such award or loss. (c) If Seller does not or cannot restore or replace lost, damaged, impaired, confiscated or condemned Assets having a replacement cost in excess of $50,000 in the aggregate or informs Buyer that it does not intend to restore or replace such Assets, Buyer may at its option: (i) terminate this Agreement by notice forthwith without any further obligation hereunder; or (ii) proceed to the Closing of this Agreement without Seller completing the restoration and replacement of such Assets, provided that Seller shall assign all rights under applicable insurance policies and condemnation awards, if any, to Buyer; and in such event, Seller shall have no further liability with respect to the condition of the Assets directly attributable to the loss, damage, impairment, confiscation, or condemnation. 34 40 (d) Buyer will notify Seller of a decision under the options described in Section 7.6(c)(i) or (ii) above within ten business days after Seller's notice to Buyer of the damage or destruction of Assets and the estimate of the costs to repair or replace; provided, however, that if Seller states that it intends to restore the damaged Assets and if Seller has not restored such damaged Assets immediately prior to the Closing Date, notwithstanding Buyer's prior delivery of a notice to proceed pursuant to this Section 7.6(d), Buyer shall have the right to either postpone the Closing or terminate this Agreement by notice forthwith. 7.7. ADDITIONAL AGREEMENTS. (a) Subject to the terms and conditions of this Agreement, each of the parties hereto will use its commercially reasonable efforts to do, or cause to be taken all action and to do, or cause to be done, all things necessary, proper, or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. If at any time after the Closing Date, any further action is necessary or desirable to carry out the purposes of this Agreement, the parties to this Agreement and their duly authorized representatives shall take all such action. Without limiting the generality of the foregoing, if, after the Closing Date, Buyer seeks indemnification or recovery from one or more other parties to an Assumed Contract or otherwise seeks to enforce such Assumed Contract and, in order to obtain such indemnification, recovery or enforcement, counsel to Buyer and Seller reasonably determine that it is necessary for Seller to initiate a suit, participate in any enforcement proceeding or otherwise provide assistance to Buyer, then, at the request and the sole expense of Buyer, Seller shall take such action as Buyer may reasonably request in connection with Buyer's efforts to obtain such indemnification, recovery or enforcement. (b) Buyer agrees to make available to Seller the services of the members of Buyer's accounting staff responsible for the Assets upon reasonable notice during normal business hours for a period of six months following the Closing for the purposes of providing assistance to Seller in connection with its 1997 financial statements and tax returns and personal financial matters of the Knight family in accordance with past practice. (c) Buyer agrees to make available to Seller the services of its engineering personnel as reasonably requested by Seller on an as available basis at an hourly rate equal to the product of (i) (A) such personnel's then-effective annual base salary multiplied by (B) 1.2, divided by (ii) 2,000, plus reimbursement of any out of pocket expenses. 7.8. BALANCE SHEET UPDATE. Upon the execution of this Agreement, Seller agrees that it will promptly prepare and provide to Buyer revisions to the Balance Sheet for the period from the Balance Sheet Date through May 31, 1997. Failure of Buyer to raise any objection thereto prior to 5:00 p.m., Boston time on the tenth business day after receipt thereof shall constitute Buyer's agreement that, from the period commencing on the Balance Sheet Date and ending upon the date of execution of this Agreement, there has not occurred, and Seller has not incurred or suffered, any event, circumstance or fact that could result in a Material Adverse Effect. 35 41 ARTICLE VIII CONDITIONS PRECEDENT 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION. The respective obligations of Buyer and Seller to effect the transactions contemplated hereby are subject to the satisfaction (or, in the case of the condition specified in the last sentence of Section 8.l(a), the waiver by Buyer and Seller) on or prior to the Closing Date of the following conditions: (a) Consents and Approvals. All authorizations, consents, orders, or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any Governmental Entity necessary for the consummation of the transactions contemplated by this Agreement shall have been filed, occurred, or been obtained, other than any such authorizations, consents, orders, approvals, authorizations, declarations or filings that are ministerial in nature and which the failure to obtain would not effect the transactions contemplated by this Agreement. (b) No Injunctions or Restraints. No temporary restraining order, preliminary or permanent injunction, or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated hereby shall be in effect. (c) No Action. No action shall have been taken nor any statute, rule, or regulation shall have been enacted by any Governmental Entity that makes the consummation of the transactions contemplated hereby illegal. (d) Concurrent Transactions. The closing of the Concurrent Transactions shall occur concurrently with the Closing. 8.2. CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to effect the transactions contemplated hereby is subject to the satisfaction of the following conditions unless waived, in whole or in part, by Buyer: (a) Representations and Warranties. The representations and warranties of Seller set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (other than the representations and warranties set forth in the second and third sentences of Section 3.1(e)(iv)), and Buyer shall have received a certificate to such effect signed on behalf of Seller by the chief executive officer or by the chief financial officer of Seller. For the purposes of this Section 8.2(a), the representations and warranties of Seller shall be deemed to be true and correct in all material respects unless the aggregate effect of any breaches thereof could reasonably be expected to have a Material Adverse Effect. 36 42 (b) Performance of Obligations. Seller shall have performed in all material respects all obligations required to be performed by it under this Agreement prior to the Closing Date, and Buyer shall have received a certificate to such effect signed on behalf of Seller by the chief executive officer or by the chief financial officer of Seller. (c) Consents Under Agreements. Buyer shall have been furnished with evidence reasonably satisfactory to it of the consent or approval of each person that is a party to a Contract specifically identified in Schedule 8.2(c) whose consent or approval shall be required as a condition to Buyer's obligation to effect the transactions contemplated hereby and such consent or approval shall be in form and substance satisfactory to Buyer. (d) Legal Opinions. Buyer shall have received from Hale and Dorr LLP, counsel to Seller, and Pepper & Corazzini L.L.P., FCC counsel to Seller, opinions dated the Closing Date, in substantially the forms attached as Exhibit F hereto, which opinion, if requested by Buyer, shall expressly provide that they may be relied upon by Buyer's lenders, underwriters, or other sources of financing with respect to the transactions contemplated hereby. (e) Real Estate Title Commitment. Within 45 days after the date of this Agreement, Buyer, at its sole cost and expense, shall have obtained a preliminary report on title to the Owned Real Property (other than the Excluded Real Property) covering a date subsequent to the date of this Agreement, issued by the Title Company, which preliminary report shall contain a commitment (the "Title Commitment") of the Title Company to issue an owner's title insurance policy at Buyer's cost as Buyer may reasonably require (the "Title Policy") insuring the fee simple absolute interest of Buyer in such Owned Real Property on and after the Closing Date. The Title Commitment shall be subject only to the standard printed exceptions and: (i) liens of current state and local property taxes which are not delinquent or subject to penalty; (ii) unviolated zoning regulations and restrictive covenants and easements of record which do not detract from the value of such Owned Real Property and do not materially and adversely affect, impair or interfere with the use of any property affected thereby as heretofore used by Seller or the Stations; (iii) public utility easements of record, in customary form, to serve such Owned Real Property; and (iv) Permitted Encumbrances. The Title Policy shall be issued on the Closing Date. (f) Survey. If requested by Buyer, Seller, at Buyer's sole cost and expense, shall have obtained a survey of the Owned Real Property (other than the Excluded Real Property) as of a date subsequent to the date hereof which shall: (i) be prepared by a registered land surveyor acceptable to Buyer; (ii) be certified to the Title Company and to Buyer; and (iii) show with respect to such Owned Real Property: (A) the legal description of such Owned Real Property (which shall be the same as the Title Policy pertaining thereto); (B) all buildings, structures and improvements thereon and all restrictions of record and other restrictions that have been established by an applicable zoning or building code or ordinance and all easements or rights of way across or serving such Owned Real Property (including any off-site easements affecting or appurtenant thereto); (C) no encroachments upon such Owned Real Property or adjoining parcels by buildings, structures or improvements and no other survey defects; (D) access to such parcel from a public street; and 37 43 (E) a flood certification reasonably satisfactory to Buyer to the effect that no portion of such Owned Real Property is located within a flood hazard area. (g) Closing Deliveries. All documents, instruments, certificates or other items required to be delivered by Seller pursuant to Section 9.2 shall have been delivered. 8.3. CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligation of Seller to effect the transactions contemplated hereby is subject to the satisfaction of the following conditions unless waived, in whole or in part, by Seller. (a) Representations and Warranties. The representations and warranties of Buyer set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, and Seller shall have received a certificate to such effect signed on behalf of Buyer by the chief executive officer or by the chief financial officer of Buyer. (b) Performance of Obligations of Buyer. Buyer shall have performed in all material respects the obligations required to be performed by it under this Agreement prior to the Closing Date, and Seller shall have received a certificate to such effect signed on behalf of Buyer by the chief executive officer or by the chief financial officer of Buyer. (c) Legal Opinion. Seller shall have received from Vinson & Elkins L.L.P., counsel to Buyer, an opinion dated the Closing Date, in substantially the form attached as Exhibit G hereto. (d) Closing, Deliveries. All documents and instruments required to be delivered by Buyer pursuant to Section 9.2 shall have been delivered. ARTICLE IX CLOSING 9.1. CLOSING. (a) Subject to the satisfaction or waiver of the conditions set forth in Article VIII, or at such other place and time as Buyer and Seller may agree, the Closing will take place at the offices of Hale and Dorr LLP, Boston, Massachusetts, at 10:00 a.m., local time, on the later to occur of (i) the fifth business day after Seller delivers to Buyer its internally produced unaudited balance sheet as of December 31, 1997 and related statement of income for the 12 month period then ended, and (ii) a date selected by Buyer on five business days notice to Seller, which date shall be on the 10th business day after the day on which the FCC Consents have been granted by Final Order (the "Closing Date"). Notwithstanding the foregoing: (b) In the case of a Trading Event, a Banking Event or a Station Event (in each case as defined below), (i) if the Cessation Date (as defined below) is less than 60 days after the 38 44 Event Date (as defined below), Buyer, in its discretion, may extend the Closing Date to a date not later than the 30th day after the Cessation Date, (ii) if the Cessation Date is more than 60, but less than 90, days after the Event Date, Buyer, in its discretion, may extend the Closing Date to the first to occur of the 10th business day after the Cessation Date or the 90th day (or, if not a business day, the next business day) after the Event Date. In the event of a Station Event, if the Cessation Date has not occurred by the 120th day after the Event Date, then on the 120th day (or, if not a business day, the next business day) after the Event Date Buyer, in its discretion, shall elect to close the transactions contemplated by this Agreement on the fifth business day thereafter or terminate this Agreement; (c) In the case of a Conflict Event, Buyer, in its discretion, may extend the Closing Date to a date not to exceed the 90th day after the Event Date; (d) If all of the conditions to the obligations of Buyer and Seller to effect the transactions contemplated by this Agreement have been satisfied or waived prior to the Closing Date other than the conditions specified in Section 8.2(a), with respect to Buyer, or Section 8.3(a), with respect to Seller, and the breaching party is diligently attempting to cure any such breach as provided in Section 10.1, then the Closing Date shall be postponed for up to an additional 20 days; and (e) If the Closing does not occur within 80 days after the date of the Final Order, the parties shall request approval from the FCC to extend the Closing so that the Closing contemplated hereunder will not violate any FCC rules or regulations. For purposes of this Agreement, a "Trading Event" shall mean that trading generally in securities on the New York Stock Exchange shall have been suspended or materially limited; a "Banking Event" shall mean that a general moratorium on commercial banking activities in New York, New York shall have been declared by any federal or state authority; a "Conflict Event" shall mean the occurrence of any major armed conflict involving a substantial participation by the armed forces of the United States of America; a "Station Event" shall mean any act of nature (including fires, floods, earthquakes, and storms), calamity, casualty or condemnation or the act or omission to act of any state or federal regulatory agency having jurisdiction over the Stations that has caused one or more Stations not to be operating in a manner substantially consistent with the operations conducted before such act, omission, calamity, casualty, condemnation or agency action occurred or not in compliance with its or their respective Station License(s); an "Event Date" shall mean the date on which a Trading Event, Banking Event, Conflict Event, or a Station Event occurs; and a "Cessation Date" shall mean the date on which a Trading Event, Banking Event, Conflict Event, or a Station Event ends. Pro forma adjustments shall be made for purposes of calculating gross revenues for the 12-month period specified in the definition of "Station Event" with respect to any radio broadcast station acquired during such 12-month period, to assume that such station was acquired at the beginning of such 12-month period and include the gross revenues of such station for the full 12-month period. 39 45 9.2. ACTIONS TO OCCUR AT CLOSING. (a) At the Closing, Buyer shall deliver to Seller (or to the Escrow Agent, as indicated) the following: (i) Purchase Price. The Purchase Price (less the Holdback Amount) by wire transfer of immediately available funds; (ii) Holdback Amount. The Holdback Amount to the Escrow Agent by wire transfer of immediately available funds; (iii) Certificates. The certificates referred to in Section 8.3(a) and (b); (iv) Assumption Agreement. A counterpart of the Assumption Agreement executed by Buyer; (v) Indemnification Escrow Agreement. A counterpart of the Indemnification Escrow Agreement executed by Buyer; (vi) Non-Competition Agreement. A counterpart of each of the Non-Competition Agreements executed by Buyer and the payment of any consideration required thereby; (vii) Legal Opinion. The opinion of counsel referred to in Section 8.3(c); (viii) Knight House Lease. A counterpart of a lease having a six (6) month term for the third and fourth floors of Knight House, together with Buyer's right to use in reasonable conjunction with Seller, the common areas on the first floor, the basement, the roof and the second floor conference room at Knight House, at a rental rate of $1,000 per month plus all operating expenses on a fully net basis; said lease may be terminated by Buyer at any time upon 90 days prior written notice; (ix) Vendome Lease. A counterpart of a lease having a six (6) month term for condominium units number 204 and 205 in The Vendome for sales, promotional and administrative use with bookings to be made through Seller on a first-come, first-serve basis; said lease may be terminated Buyer at any time upon 90 days prior written notice; and said lease shall provide that no additional consideration shall be payable by Buyer in excess of that payable pursuant to the Knight House lease described above; (x) Studio/Tower Lease. A counterpart of the Studio/Tower Lease executed by Buyer. (b) At the Closing, Seller shall deliver to Buyer the following: 40 46 (i) Certificates. The certificates described in Section 8.2(a) and (b); (ii) Assumption Agreement. A counterpart of the Assumption Agreement executed by Seller; (iii) Indemnification Escrow Agreement. A counterpart of the Indemnification Escrow Agreement executed by Seller; (iv) Non-Competition Agreements. A counterpart of the Non-Competition Agreement between Buyer and Seller executed by Seller; (v) Legal Opinions. The opinions of counsel referred to in Section 8.2(d); (vi) Transfer Documents. The duly executed Bill of Sale and Assignment, together with any other assignments and other transfer documents as requested by Buyer; (vii) Consents; Acknowledgments. The original of each Consent; (viii) Estoppel Certificates. Estoppel certificates from the lessor(s) of the Leased Real Property in a form and substance satisfactory to Buyer and its lenders or other financing sources; (ix) Licenses, Contracts, Business Records, Etc. To the extent they are in the possession of Seller, copies of all Licenses, Assumed Contracts, blueprints, schematics, working drawings, plans, projections, statistics, engineering records and all files and records used by Seller in connection with a Station's business and operations, which copies shall be available at the Closing or at a Station's principal business offices; (x) Warranty Deed. A Warranty Deed executed by Seller conveying fee simple title to the Owned Real Property to Buyer, subject only to the Permitted Encumbrances, in proper statutory form for recording together with documentary stamps affixed thereto; (xi) No-Lien Affidavit. A standard No-Lien Affidavit executed by Seller, which shall be in the recordable form and otherwise satisfactory to the Title Company in order to delete the standard printed exceptions relating to mechanics' liens and parties-in-possession; (xii) GAP Affidavit. An affidavit, if requested by the Title Company, as may be necessary to insure the gap between the effective date of the Title Commitment to and through the date of the recordation of the deed to the Owned Real Property; (xiii) Title Requirements. Such other documents as shall be reasonably required by the Title Company as called for or required under the terms of any title policy obtained or issued to Buyer; and 41 47 (xiv) Leases. Executed counterparts of the leases referred to at Sections 9.2(a)(viii), (ix) and (x). (c) At the Closing, Seller and Buyer shall instruct the Escrow Agent to deliver, and it shall deliver, the Deposit Letter of Credit to Buyer. (d) At the Closing, Buyer shall receive from the chief executive officer or chief financial officer of Seller a non-foreign affidavit within the meaning of section 1445(b)(2) of the Code. (e) At the Closing, each of Norman Knight, Randolf H. Knight, N. Scott Knight and Robert A. Knight shall deliver a fully-executed counterpart of their respective Noncompetition and Consulting Agreements. ARTICLE X TERMINATION, AMENDMENT AND WAIVER 10.1. TERMINATION. This Agreement may be terminated prior to the Closing: (a) by mutual consent of Buyer and Seller; (b) by either Seller or Buyer; (i) if a court of competent jurisdiction or other Governmental Entity shall have issued an order, decree, or ruling or taken any other action (which order, decree or ruling the parties hereto shall use their best efforts to lift), in each case permanently restraining, enjoining, or otherwise prohibiting the transactions contemplated by this Agreement, and such order, decree, ruling, or other action shall have become final and nonappealable; (ii) if, for any reason, the FCC denies or dismisses any of the Applications and the time for reconsideration or court review under the Communications Act with respect to such denial or dismissal has expired and there is not pending with respect thereto a timely filed petition for reconsideration or request for review; (iii) if, for any reason, any of the Applications is designated for an evidentiary hearing by the FCC; or (iv) if the Closing shall not have occurred by the later of the first anniversary of the date on which the Form 314 applications for the FCC Consents are filed, or the date to which the Closing Date is extended pursuant to the second sentence of Section 9.1; provided, however, that the right to terminate this Agreement under this clause (iv) shall not be available to 42 48 any party whose breach of this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date; or (c) by Buyer: (i) if there shall have been any breaches of the representations, warranties, covenants or agreements of Seller set forth in this Agreement (other, subject to the provisions of Section 7.8, than the representations and warranties set forth in the second and third sentences of Section 3.1(e)(iv)) the aggregate effect of which could reasonably be expected to have a Material Adverse Effect or to materially and adversely affect the ability of the parties to consummate the transactions contemplated hereby, which breaches Seller cannot reasonably be expected to cure or which Seller is not diligently attempting to cure following receipt by Seller of written notice of such breach; (ii) pursuant to the provisions of Section 7.7; (iii) with respect to a Station Event, at its option, as provided in the last sentence of Section 9.1(b); or (iv) if the FCC grants any of the Applications with any adverse conditions not generally imposed on grants of such applications and the time for reconsideration or court review under the Communications Act with respect to such adverse conditions has expired and there is not pending with respect thereto a timely filed petition for reconsideration or request for review; or (d) by Seller: (i) if there shall have been any material breach of any representation, warranty, covenant or agreement of Buyer set forth in this Agreement, which breach Buyer cannot reasonably be expected to cure or which Buyer is not diligently attempting to cure following receipt by Buyer of written notice of such breach; or (ii) if the FCC grants any of the Applications with any adverse conditions affecting Seller that are not generally imposed on grants of such applications and the time for reconsideration or court review under the Communications Act with respect to such adverse conditions has expired and there is not pending with respect thereto a timely filed petition for reconsideration or request for review. The right of any party hereto to terminate this Agreement pursuant to this Section 10.1 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any party hereto, any person controlling any such party or any of their respective officers, directors, employees, accountants, consultants, legal counsel, agents, or other representatives whether prior to or after the execution of this Agreement. Notwithstanding anything in the foregoing 43 49 to the contrary, no party that is in material breach of this Agreement shall be entitled to terminate this Agreement except with the consent of the other party. 10.2. EFFECT OF TERMINATION. (a) In the event of a termination of this Agreement by either Seller or Buyer as provided above, there shall be no liability on the part of either Buyer or Seller, except for liability arising out of a breach of this Agreement. Articles I, XI, and XII, Section 7.6, and this Article X shall survive the termination of this Agreement. If this Agreement is terminated by Seller pursuant to Section 10.1(d), the parties agree and acknowledge that Seller will suffer damages that are not practicable to ascertain. Accordingly, in such event and if within 10 business days after termination of this Agreement by Seller pursuant to Section 10.1(d), Seller delivers to Buyer a written demand for liquidated damages, subject to Buyer's receipt of a counterpart of the Release executed by Seller, Seller shall be entitled to the sum of $1,900,000 as liquidated damages payable by Buyer within 10 business days after receipt of Seller's written demand and payable in accordance with the provisions of the Deposit Escrow Agreement. As security for payment thereof, Buyer has, concurrently with the execution of this Agreement, entered into the Deposit Escrow Agreement with Seller and the Escrow Agent as provided in Section 2.7. The parties agree that the foregoing liquidated damages are reasonable considering all the circumstances existing as of the date hereof and constitute the parties' good faith estimate of the actual damages reasonably expected to result from the termination of this Agreement by Seller pursuant to Section 10.1(d). Seller agrees that, to the fullest extent permitted by law, Seller's right to payment of such liquidated damages as provided in this Section 10.2 shall be its sole and exclusive remedy if the Closing does not occur with respect to any damages whatsoever that Seller may suffer or allege to suffer as a result of any claim or cause of action asserted by Seller relating to or arising from breaches of the representations, warranties or covenants of Buyer contained in this Agreement and to be made or performed at or prior to the Closing. If this Agreement is terminated by Seller pursuant to Section 10.1(d), upon Buyer's receipt of a counterpart of the Release executed by Seller, Buyer and Seller shall instruct the Escrow Agent to release the Deposit Letter of Credit to Seller. If this Agreement is terminated either by Buyer or Seller pursuant to any provision of Section 10.1 other than a termination by Seller pursuant to Section 10.1(d), then, Buyer and Seller shall instruct the Escrow Agent to release the Deposit Letter of Credit to Buyer. (b) As a condition of payment, and upon receipt of the liquidated damages under this Section 10.2, Seller hereby irrevocably and unconditionally releases, acquits, and forever discharges Buyer and its successors, assigns, officers, directors, employees, agents, stockholders, subsidiaries, parent companies and other affiliates (corporate or otherwise) (the "Released Parties") of and from any and all Released Claims, including, without limitation, all Released Claims arising out of, based upon, resulting from or relating to the negotiation, execution, performance, breach or otherwise related to or arising out of the Transaction Documents or any agreement entered into in connection therewith or related thereto. "Released Claims" as used herein shall mean any and all charges, complaints, claims, causes of action, promises, agreements, rights to payment, rights to any equitable remedy, rights to any equitable subordination, demands, debts, liabilities, express or implied contracts, obligations of payment or performance, rights of offset or recoupment, accounts, 44 50 damages, costs, losses or expenses (including attorneys' and other professional fees and expenses) held by any party hereto, whether known or unknown, matured or unmatured, suspected or unsuspected, liquidated or unliquidated, absolute or contingent, direct or derivative. ARTICLE XI INDEMNIFICATION 11.1. INDEMNIFICATION OF BUYER. Subject to the provisions of this Article XI, Seller agrees to indemnify and hold harmless the Buyer Indemnified Parties from and against any and all Buyer Indemnified Costs. 11.2. INDEMNIFICATION OF SELLER. Subject to the provisions of this Article XI, Buyer agrees to indemnify and hold harmless the Seller Indemnified Parties from and against any and all Seller Indemnified Costs. 11.3. DEFENSE OF THIRD-PARTY CLAIMS. An Indemnified Party shall give prompt written notice to Indemnifying Party of the commencement or assertion of any action, proceeding, demand, or claim by a third party (collectively, a "third-party action") in respect of which such Indemnified Party shall seek indemnification hereunder and the alleged basis therefor. Any failure so to notify an Indemnifying Party shall not relieve such Indemnifying Party from any liability that it may have to such Indemnified Party under this Article XI unless the failure to give such notice materially and adversely prejudices such Indemnifying Party. The Indemnifying Party shall have the right to assume control of the defense of, settle, or otherwise dispose of such third-party action on such terms as they deem appropriate; provided, however, that: (a) The Indemnified Party shall be entitled, at its own expense, to participate in the defense of such third-party action (provided, however, that the Indemnifying Parties shall pay the attorneys' fees of one counsel to the Indemnified Party if (i) the employment of separate counsel shall have been authorized in writing by any such Indemnifying Party in connection with the defense of such third-party action, (ii) the Indemnifying Parties shall not have employed counsel reasonably satisfactory to the Indemnified Party to have charge of such third-party action, (iii) counsel to the Indemnified Party shall have reasonably concluded that there may be defenses available to the Indemnified Party that are different from or additional to those available to the Indemnifying Party, or (iv) counsel to the Indemnified Party and the Indemnifying Party shall have advised their respective clients in writing, with a copy delivered to the other party, that there is a conflict of interest that could make it inappropriate under applicable standards of professional conduct to have common counsel); (b) The Indemnifying Party shall obtain the prior written approval of the Indemnified Party before entering into or making any settlement, compromise, admission, or acknowledgment of the validity of such third-party action or any liability in respect thereof if, pursuant to or as a result of such settlement, compromise, admission, or acknowledgment, injunctive 45 51 or other equitable relief would be imposed against the Indemnified Party or if, in the opinion of the Indemnified Party, such settlement, compromise, admission, or acknowledgment could have an adverse effect on its business; which approval shall not be unreasonably withheld or delayed (it shall not be deemed unreasonable for Buyer to withhold consent to any settlement, compromise, admission or acknowledgment if the amount of Buyer Indemnified Costs resulting therefrom could reasonably be expected to exceed the remainder of the Holdback Amount then held by the Escrow Agent pursuant to the terms of the Indemnification Escrow Agreement (and not otherwise subject to pending claims); (c) No Indemnifying Party shall consent to the entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by each claimant or plaintiff to each Indemnified Party of a release from all liability in respect of such third-party action; and (d) The Indemnifying Party shall not be entitled to control (but shall be entitled to participate at its own expense in the defense of), and the Indemnified Party shall be entitled to have sole control over, the defense or settlement, compromise, admission, or acknowledgment of any third-party action (i) as to which the Indemnifying Party fails to assume the defense within a reasonable length of time or (ii) to the extent the third-party action seeks an order, injunction, or other equitable relief against the Indemnified Party which, if successful, would materially adversely affect the business, operations, assets, or financial condition of the Indemnified Party; provided, however, that the Indemnified Party shall make no settlement, compromise, admission, or acknowledgment that would give rise to liability on the part of any Indemnifying Party without the prior written consent of such Indemnifying Party. The parties hereto shall extend reasonable cooperation in connection with the defense of any third-party action pursuant to this Article XI and, in connection therewith, shall furnish such records, information, and testimony and attend such conferences, discovery proceedings, hearings, trials, and appeals as may be reasonably requested. 11.4. DIRECT CLAIMS. In any case in which an Indemnified Party seeks indemnification hereunder which is not subject to Section 11.3 because no third-party action is involved, the Indemnified Party shall notify the Indemnifying Party in writing of any Indemnified Costs which such Indemnified Party claims are subject to indemnification under the terms hereof. Subject to the limitations set forth in Section 11.6(c), the failure of the Indemnified Party to exercise promptness in such notification shall not amount to a waiver of such claim unless the resulting delay materially prejudices the position of the Indemnifying Party with respect to such claim. 11.5. ESCROW. On the Closing Date, Buyer and Seller will enter into the Indemnification Escrow Agreement in accordance with which Buyer shall, at Closing, deposit an amount of the Purchase Price equal to $640,000 (the "Holdback Amount") with the Escrow Agent. 46 52 11.6. LIMITATIONS. Subject to Section 11.7 and Section 12.17 hereof, the following provisions of this Section 11.6 shall be applicable after the time of the Closing: (a) Minimum Loss. No Indemnifying Party shall be required to indemnify an Indemnified Party for Indemnified Representation Costs unless and until the aggregate amount of such Indemnified Representation Costs for which the Indemnified Party is otherwise entitled to indemnification pursuant to this Article XI exceeds $30,000 (the "Minimum Loss"). After the Minimum Loss is exceeded, the Indemnified Party shall be entitled to be paid the entire amount of its Indemnified Representation Costs in excess of (but not including) the Minimum Loss, subject to the limitations on recovery and recourse set forth in this Section 11.6 and in Section 11.7 below and subject to the exception contained in Section 12.17. For purposes of determining the aggregate amount of Minimum Loss suffered by an Indemnified Party, each representation and warranty contained in this Agreement for which indemnification can be or is sought hereunder shall be read (including for purposes of determining whether a breach of such representation or warranty has occurred) without regard to materiality (including Material Adverse Effect) qualifications that may be contained therein. In addition, in determining whether an Indemnifying Party shall be required to indemnify an Indemnified Party under this Article XI, once the Minimum Loss requirement set forth in this clause (a) has been satisfied, each representation and warranty contained in this Agreement for which indemnification can be or is sought hereunder shall be read (including for purposes of determining whether a breach of such representation or warranty has occurred) without regard to materiality (including Material Adverse Effect) qualifications that may be contained therein. (b) Limitation as to Time. No Indemnifying Party shall be liable for any Indemnified Representation Costs pursuant to this Article XI unless a written claim for indemnification in accordance with Section 11.3 or 11.4 is given by the Indemnified Party to the Indemnifying Party with respect thereto on or before the second anniversary of the Closing Date, except that this time limitation shall not apply to any claims contemplated by Section 12.17. (c) Recourse against Escrowed Funds. Subject to Section 12.17 hereof, a Buyer Indemnified Party shall be entitled to payment only out of the Holdback Amount pursuant to the terms of this Article XI and the Indemnification Escrow Agreement for all amounts due to a Buyer Indemnified Party with respect to any claim by a Buyer Indemnified Party against Seller for Buyer Indemnified Representation Costs payable under this Article XI. (d) Other Indemnified Costs. The provisions of this Section 11.6 shall only be applicable to Indemnified Representation Costs and shall not be applicable to any other Indemnified Costs. 11.7. INSTRUCTIONS TO ESCROW AGENT. Seller hereby covenants and agrees that at any time Seller is or becomes obligated to indemnify a Buyer Indemnified Party for Buyer Indemnified Costs under this Article XI, Seller will execute and deliver to the Escrow Agent written instructions to 47 53 release to the Buyer Indemnified Party such portion of the Holdback Amount as is necessary to indemnify the Buyer Indemnified Party for such Buyer Indemnified Costs. ARTICLE XII GENERAL PROVISIONS 12.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. Regardless of any investigation at any time made by or on behalf of any party hereto or of any information any party may have in respect thereof, each of the representations and warranties made hereunder or pursuant hereto or in connection with the transactions contemplated hereby shall survive the Closing. Except as otherwise provided in the next two sentences, the representations and warranties set forth in this Agreement shall terminate on the second anniversary of the Closing Date. Following the date of termination of a representation or warranty, no claim can be brought with respect to a breach of such representation or warranty, but such termination shall not affect any claim for a breach of a representation or warranty that was asserted before the date of termination. To the extent that such are performable after the Closing, each of the covenants and agreements contained in each of the Transaction documents shall survive the Closing indefinitely. 12.2. FURTHER ACTIONS. After the Closing Date, Seller shall execute and deliver such other certificates, agreements, conveyances, and other documents, and take such other action, as may be reasonably requested by Buyer in order to transfer and assign to, and vest in, Buyer the Assets pursuant to the terms of this Agreement. 12.3. AMENDMENT AND MODIFICATION. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. 12.4. WAIVER OF COMPLIANCE. Any failure of Buyer on the one hand, or Seller, on the other hand, to comply with any obligation, covenant, agreement, or condition contained herein may be waived only if set forth in an instrument in writing signed by the party or parties to be bound thereby, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any other failure. 12.5. SPECIFIC PERFORMANCE. The parties recognize that in the event Seller should refuse to perform under the provisions of this Agreement, monetary damages alone will not be adequate. Buyer shall therefore be entitled, in addition to any other remedies which may be available, including money damages, to obtain specific performance of the terms of this Agreement. In the event of any action to enforce this Agreement specifically, Seller hereby waives the defense that there is an adequate remedy at law. 12.6. SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of applicable law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the 48 54 economic or legal substance of the transactions contemplated herein are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated herein are consummated as originally contemplated to the fullest extent possible. 12.7. EXPENSES AND OBLIGATIONS. Except as otherwise expressly provided in this Agreement or as provided by law, all costs and expenses incurred by the parties hereto in connection with the consummation of the transactions contemplated hereby shall be borne solely and entirely by the party which has incurred such expenses. Notwithstanding the foregoing, (a) the fee payable to the Escrow Agent shall be borne as provided in the Indemnification Escrow Agreement and the Deposit Escrow Agreement, (b) the brokerage fees payable to Media Venture Partners shall be borne by Buyer, (c) responsibility for sales taxes arising out of the transactions contemplated by this Agreement shall be shared equally by Seller and Buyer and (d) any filing fees payable in connection with the transfer of the FCC Licenses shall be borne by Seller. In the event of a dispute between the parties in connection with this Agreement and the transactions contemplated hereby, each of the parties hereto hereby agrees that the prevailing party shall be entitled to reimbursement by the other party of reasonable legal fees and expenses incurred in connection with any action or proceeding. 12.8. PARTIES IN INTEREST. This Agreement shall be binding upon and, except as provided below, inure solely to the benefit of each party hereto and their successors and assigns, and nothing in this Agreement, except as set forth below, express or implied, is intended to confer upon any other person (other than the Indemnified Parties as provided in Article XI) any rights or remedies of any nature whatsoever under or by reason of this Agreement. 12.9. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) If to Buyer, to Capstar Acquisition Company, Inc. 200 Crescent Court, Suite 1600 Dallas, Texas 75201 Attn: Lawrence D. Stuart, Jr. Facsimile: (214) 740-7313 49 55 with copies to Vinson & Elkins L.L.P. 3700 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 Attn: Michael D. Wortley Facsimile: (214) 220-7716 Capstar Broadcasting Partners 600 Congress Avenue, Suite 1400 Austin, Texas 78701 Attn: William S. Banowsky, Jr. Facsimile: (512) 404-6850 (b) If to Seller, to Knight Communications Corp. 63 Bay State Road Boston, MA 02215 Attention: Norman Knight Facsimile: (617) 267-5160 with a copy to Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 Attention: Thomas E. Neely Facsimile: (617) 526-5000 12.10. COUNTERPARTS. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 12.11. ENTIRE AGREEMENT. This Agreement (which term shall be deemed to include the exhibits and schedules hereto and the other certificates, documents and instruments delivered hereunder) constitutes the entire agreement of the parties hereto and supersedes all prior agreements, letters of intent and understandings, both written and oral, among the parties with respect to the subject matter hereof. There are no representations or warranties, agreements, or covenants other than those expressly set forth in this Agreement. 50 56 12.12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE. 12.13. PUBLIC ANNOUNCEMENTS. Seller and Buyer shall consult with each other before issuing any press release or otherwise making any public statements with respect to this Agreement or the transactions contemplated hereby and shall not issue any such press release or make any such public statement prior to such consultation. Prior to the Closing, Seller will not issue any other press release or otherwise make any public statements regarding its business, except as may be required by applicable law. 12.14. ASSIGNMENT. Neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned by any of the parties hereto, whether by operation of law or otherwise; provided, however, that (a) upon notice to Seller and without releasing Buyer from any of its obligations or liabilities hereunder, Buyer may assign or delegate any or all of its rights or obligations under this Agreement to any Affiliate thereof, and (b) nothing in this Agreement shall limit Buyer's ability to make a collateral assignment of its rights under this Agreement to any institutional lender that provides funds to Buyer without the consent of Seller. Seller shall execute an acknowledgment of such assignment(s) and collateral assignments in such forms as Buyer or its institutional lenders may from time to time reasonably request; provided, however, that unless written notice is given to Seller that any such collateral assignment has been foreclosed upon, Seller shall be entitled to deal exclusively with Buyer as to any matters arising under this Agreement or any of the other agreements delivered pursuant hereto. In the event of such an assignment, the provisions of this Agreement shall inure to the benefit of and be binding on Buyer's assigns. 12.15. DIRECTOR AND OFFICER LIABILITY. Neither the directors, officers or stockholders of Buyer or Seller nor their respective Affiliates shall have any personal liability or obligation arising under this Agreement (including any claims that any party may assert). 12.16. NO REVERSIONARY INTEREST. The parties expressly agree, pursuant to Section 73.1150 of the FCC's rules, that Seller does not retain any right to reassignment of any of the FCC Licenses in the future, or to operate or use the facilities of the Stations for any period beyond the Closing Date. 12.17. NO WAIVER RELATING TO CLAIMS FOR FRAUD. The liability of any party under Article XI shall be in addition to, and not exclusive of any other liability that such party may have at law or equity based on such party's fraudulent acts or omissions. None of the provisions set forth in this Agreement, including but not limited to the provisions set forth in Section 11.6(a) (relating to Minimum Loss), 11.6(b) (relating to limitations on the period of time during which a claim for indemnification may be brought), or 11.6(c) (relating to recourse against escrowed funds), shall be deemed a waiver by any party to this Agreement of any right or remedy which such party may have at law or equity based on any other party's fraudulent acts or omissions, nor shall any such provisions limit, or be deemed to limit, (i) the amounts of recovery sought or awarded in any such claim for fraud, (ii) the time period during which a claim for fraud may be brought, or (iii) the recourse which 51 57 any such party may seek against another party with respect to a claim for fraud; provided, that with respect to such rights and remedies at law or equity, the parties further acknowledge and agree that none of the provisions of this Section 12.17, nor any reference to this Section 12.17 throughout this Agreement, shall be deemed a waiver of any defenses which may be available in respect of actions or claims for fraud, including but not limited to, defenses of statutes of limitations or limitations of damages. 12.18. USE OF NAME. Notwithstanding anything contained herein to the contrary, the Seller and its stockholders shall not be prohibited from using the name "Knight Quality Stations" in the Caribbean Basin. (Remainder of this page intentionally left blank) 52 58 IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be signed, all as of the date first written above. SELLER: KNIGHT COMMUNICATIONS CORP. By: /S/ Norman Knight ------------------------------ Name: Norman Knight Title: Chief Executive Officer BUYER: CAPSTAR ACQUISITION COMPANY, INC. By: /S/ Paul D. Stone ------------------------------ Name: Paul D. Stone ---------------------------- Its: Vice President ----------------------------- 53 59 ANNEX A THE STATIONS WSRS-FM Worcester, MA WTAG-AM Worcester, MA EX-10.32 27 EXCHANGE AGREEMENT 1 EXHIBIT 10.32 EXCHANGE AGREEMENT BETWEEN SFX BROADCASTING, INC. SFX BROADCASTING OF KANSAS, INC., SFXKS LIMITED PARTNERSHIP, SFX BROADCASTING OF FLORIDA, INC., AND SOUTHERN STARR LIMITED PARTNERSHIP (COLLECTIVELY, THE "SFX PARTIES") AND CAPSTAR ACQUISITION COMPANY, INC. DATED AS OF MAY 23, 1997 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINED TERMS 1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . 2 1.2. References and Titles . . . . . . . . . . . . . . . . . . . 13 1.3. Schedules . . . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE II EXCHANGE AND OTHER ACTIONS 2.1. Agreement to Exchange . . . . . . . . . . . . . . . . . . . 14 2.2. SFX Assets . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.3. SFX Excluded Assets . . . . . . . . . . . . . . . . . . . . 15 2.4. Capstar Assets . . . . . . . . . . . . . . . . . . . . . . . 16 2.5. Capstar Excluded Assets . . . . . . . . . . . . . . . . . . 17 2.6. [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.7. Adjustments and Prorations . . . . . . . . . . . . . . . . . 18 2.8. Assumption of Liabilities and Obligations . . . . . . . . . 20 2.9. Amendment to Hicks Agreement . . . . . . . . . . . . . . . . 22 ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1. Representations and Warranties Regarding the SFX Parties. . 22 -- 3.2. Representations and Warranties Regarding Capstar . . . . . . 32 ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS 4.1. Conduct of Business by the SFX Parties and Capstar . . . . . 42 4.2. Negative Trade Balance . . . . . . . . . . . . . . . . . . . 44 4.3. Environmental Site Assessments . . . . . . . . . . . . . . . 45 4.4. Broadcast Transmission Interruption . . . . . . . . . . . . 45 ARTICLE V COVENANTS OF THE SFX PARTIES 5.1. No Solicitation of Transactions . . . . . . . . . . . . . . 46
(i) 3
PAGE ---- 5.2. Assistance . . . . . . . . . . . . . . . . . . . . . . . . . 46 5.3. Compliance With Station Licenses . . . . . . . . . . . . . . 46 5.4. Third Party Consents . . . . . . . . . . . . . . . . . . . . 47 5.5. Employee Matters . . . . . . . . . . . . . . . . . . . . . . 47 ARTICLE VI COVENANTS OF CAPSTAR 6.1. No Solicitation of Transactions . . . . . . . . . . . . . . 47 6.2. Assistance . . . . . . . . . . . . . . . . . . . . . . . . . 48 6.3. Compliance With Station Licenses . . . . . . . . . . . . . . 48 6.4. Third Party Consents . . . . . . . . . . . . . . . . . . . . 49 6.5. Employee Matters . . . . . . . . . . . . . . . . . . . . . . 49 6.6. Benchmark Acquisition Indemnification . . . . . . . . . . . 49 ARTICLE VII MUTUAL COVENANTS 7.1. Access and Information . . . . . . . . . . . . . . . . . . . 49 7.2. Notification of Certain Matters . . . . . . . . . . . . . . 51 7.3. Application for FCC Consents . . . . . . . . . . . . . . . . 51 7.4. Control of Stations . . . . . . . . . . . . . . . . . . . . 52 7.5. Other Governmental Consents . . . . . . . . . . . . . . . . 52 7.6. Brokers or Finders . . . . . . . . . . . . . . . . . . . . . 52 7.7. Bulk Sales Law . . . . . . . . . . . . . . . . . . . . . . . 52 7.8. Risk of Loss - SFX Assets . . . . . . . . . . . . . . . . . 53 7.9. Risk of Loss - Capstar Assets . . . . . . . . . . . . . . . 53 7.10. Additional Agreements . . . . . . . . . . . . . . . . . . . 54 7.11. Accounts Receivable . . . . . . . . . . . . . . . . . . . . 55 ARTICLE VIII CONDITIONS PRECEDENT 8.1. Conditions to Each Party's Obligation . . . . . . . . . . . 56 8.2. Conditions to Obligation of Capstar . . . . . . . . . . . . 57 8.3. Conditions to Obligation of the SFX Parties . . . . . . . . 58 ARTICLE IX CLOSING 9.1. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 60 9.2. Actions to Occur at Closing . . . . . . . . . . . . . . . . 61
(ii) 4
PAGE ---- ARTICLE X TERMINATION, AMENDMENT AND WAIVER 10.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . 64 10.2. Effect of Termination . . . . . . . . . . . . . . . . . . . 66 ARTICLE XI INDEMNIFICATION 11.1. Indemnification of Capstar . . . . . . . . . . . . . . . . . 67 11.2. Indemnification of the SFX Parties . . . . . . . . . . . . . 67 11.3. Defense of Third-Party Claims . . . . . . . . . . . . . . . 67 11.4. Direct Claims . . . . . . . . . . . . . . . . . . . . . . . 68 11.5. Limitations . . . . . . . . . . . . . . . . . . . . . . . . 68 ARTICLE XII GENERAL PROVISIONS 12.1. Survival of Representations, Warranties, and Covenants . . . 69 12.2. Further Actions . . . . . . . . . . . . . . . . . . . . . . 70 12.3. Amendment and Modification . . . . . . . . . . . . . . . . . 70 12.4. Waiver of Compliance . . . . . . . . . . . . . . . . . . . . 70 12.5. Specific Performance . . . . . . . . . . . . . . . . . . . . 70 12.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . 70 12.7. Expenses and Obligations . . . . . . . . . . . . . . . . . . 70 12.8. Parties in Interest . . . . . . . . . . . . . . . . . . . . 70 12.9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 71 12.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 72 12.11. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 72 12.12. Governing Law . . . . . . . . . . . . . . . . . . . . . . . 72 12.13. Public Announcements . . . . . . . . . . . . . . . . . . . . 72 12.14. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 72 12.15. Director and Officer Liability . . . . . . . . . . . . . . . 73 12.16. No Reversionary Interest . . . . . . . . . . . . . . . . . . 73 12.17. No Waiver Relating to Claims for Fraud . . . . . . . . . . . 73
(iii) 5 Annexes: Annex A -- The SFX Stations Annex B -- The Capstar Stations EXHIBITS: Exhibit A -- Form of SFX Bill of Sale and Assignment Exhibit B -- Form of Capstar Bill of Sale and Assignment Exhibit C -- Form of SFX Assumption Agreement Exhibit D -- Form of Capstar Assumption Agreement Exhibit E -- Form of Opinion of Vinson & Elkins L.L.P. Exhibit F -- Form of Opinion of Leibowitz & Associates, P.A. Exhibit G -- Form of Opinion of SFX Broadcasting, Inc. Exhibit H -- Form of Opinion of Fisher, Wayland, Cooper, Leader & Zaragoza L.L.P. Exhibit I -- Form of Release of Claims SFX SCHEDULES: Schedule 2.2(j) -- SFX Choses in Action Schedule 2.3(a) -- Excluded SFX Real Property Schedule 2.3(i) -- Excluded SFX Personal Property Schedule 2.8(c) -- SFX Trade Deals Schedule 3.1(a) -- Qualification to do Business and Good Standing Schedule 3.1(e) -- SFX Unrecorded Liabilities and Conduct of Business Schedule 3.1(f) -- SFX Licenses and Permits Schedule 3.1(g) -- SFX Litigation Schedule 3.1(h) -- SFX Insurance Schedule 3.1(i) -- SFX Owned Real Estate Schedule 3.1(j) -- SFX Leased Real Property Schedule 3.1(k) -- SFX Personal Property Schedule 3.1(l) -- SFX Liens and Encumbrances Schedule 3.1(o) -- Certain SFX Agreements Schedule 3.1(p) -- SFX Employee Benefit Plans; Labor Schedule 3.1(q) -- SFX Patents, Trademarks, Etc. Schedule 8.3(e) -- SFX Real Estate Title Commitment CAPSTAR SCHEDULES: Schedule 2.4(j) -- Capstar Choses in Action Schedule 2.5(a) -- Excluded Capstar Real Property Schedule 2.5(i) -- Excluded Capstar Personal Property Schedule 2.8(d) -- Capstar Trade Deals Schedule 3.2(a) -- Qualification to do Business and Good Standing Schedule 3.2(e) -- Capstar Unrecorded Liabilities and Conduct of Business Schedule 3.2(f) -- Capstar Licenses, Capstar Permits and Investigations Schedule 3.2(g) -- Capstar Litigation Schedule 3.2(h) -- Capstar Insurance Schedule 3.2(i) -- Capstar Owned Real Estate (iv) 6 Schedule 3.2(j) -- Capstar Leased Real Property Schedule 3.2(k) -- Capstar Personal Property Schedule 3.2(l) -- Capstar Liens and Encumbrances Schedule 3.2(o) -- Certain Capstar Agreements Schedule 3.2(p) -- Capstar Employee Benefit Plans; Labor Schedule 3.2(q) -- Capstar Patents, Trademarks, Etc. Schedule 8.2(e) -- Capstar Real Estate Title Commitment (v) 7 EXCHANGE AGREEMENT This EXCHANGE AGREEMENT (this "Agreement") is made and entered into as of May 23, 1997, between SFX Broadcasting, Inc., a Delaware corporation, SFX Broadcasting of Kansas, Inc., a Delaware corporation, SFXKS Limited Partnership, a Delaware limited partnership, SFX Broadcasting of Florida, Inc., a Delaware corporation, Southern Starr Limited Partnership, a Delaware limited partnership (each referred to individually as a "SFX Party" and collectively, the "SFX Parties"), and Capstar Acquisition Company, Inc., a Delaware corporation ("Capstar"). R E C I T A L S A. The SFX Parties are the licensees of and own and operate the radio stations as listed on Annex A hereto (each referred to individually as a "SFX Station" and collectively, the "SFX Stations") pursuant to licenses issued by the Federal Communications Commission ("FCC"). B. Upon completion of the Benchmark Acquisition (as hereinafter defined), Capstar will be the licensee, owner and operator of each of the radio stations listed on Annex B hereto (each referred to individually as a "Capstar Station" and collectively, the "Capstar Stations") pursuant to licenses issued by the FCC. C. Each SFX Party desires to exchange substantially all the assets used or held by it for use in the operation of its SFX Stations, both tangible and intangible, excluding the SFX Excluded Assets (as hereinafter defined), for substantially all the assets used or held for use in the operation of each of the Capstar Stations, both tangible and intangible, excluding the Capstar Excluded Assets (as hereinafter defined), and by so doing to acquire the radio broadcast business presently conducted by the Capstar Stations, upon the terms and conditions hereinafter set forth. D. Capstar desires to exchange substantially all the assets to be used or held for use in the operation of each of the Capstar Stations, both tangible and intangible, excluding the Capstar Excluded Assets, for substantially all the assets used or held for use in the operation of each of the SFX Stations, both tangible and intangible, excluding the SFX Excluded Assets, and by so doing to acquire the radio broadcast business presently conducted by the SFX Stations, upon the terms and conditions hereinafter set forth. 8 A G R E E M E N T S NOW, THEREFORE, in consideration of the respective representations, warranties, agreements, and conditions hereinafter set forth, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINED TERMS 1.1. DEFINED TERMS. The following terms shall have the following meanings in this Agreement: "Affiliate" means, with respect to any person, any other person controlling, controlled by or under common control with such person. For purposes of this definition and this Agreement, 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. "Applicable Laws" means all laws, statutes, rules, regulations, ordinances, judgments, orders, decrees, injunctions, and writs of any Governmental Entity having jurisdiction over the SFX Assets or Capstar Assets, as applicable, or the business or operations of each of the SFX Stations or the Capstar Stations, as applicable, as may be in effect on or prior to the Closing . "Benchmark" means Benchmark Communications Radio Limited Partnership and its Affiliates. "Benchmark Agreement" means that certain Agreement and Plan of Merger, as amended, dated December 9, 1996, by and among Benchmark Communications 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, Joseph L. Mathias IV, Bruce R. Spector, Capstar Broadcasting Partners, Inc., and BCR Holding, Inc. "Benchmark Acquisition" means the transactions contemplated by the Benchmark Agreement. "business day" means any other day than (i) a Saturday or Sunday or (ii) a day on which commercial banks in New York, New York or Dallas, Texas are authorized or required to be closed. "Capstar" means Capstar Acquisition Company, Inc. and its permitted successors and assigns. After an assignment pursuant to Section 12.14, Capstar shall mean the Affiliate to which this Agreement has been assigned and Capstar shall no longer mean Capstar Acquisition Company, Inc. 2 9 "Capstar Accounts Receivable" means the rights of Capstar to cash payment for the sale of advertising time by the Capstar Stations prior to 11:59 p.m. on the day prior to the Closing Date. "Capstar Applications" has the meaning set forth in Section 7.3 "Capstar Assets" means all the tangible and intangible assets owned, leased, or licensed by Capstar that are used or held for use in connection with the business or operations of any of the Capstar Stations, but specifically excluding therefrom the Capstar Excluded Assets. "Capstar Assumed Contracts" means (a) those Capstar Contracts set forth on Schedule 3.1(o) identified as being assumed by the SFX Parties and all other contracts of Capstar entered into by Benchmark or Capstar in the ordinary course of business that relate to the Capstar Assets or the business or operation of the Capstar Assets or any part thereof, (b) all other non- trade advertising Capstar Contracts for cash entered into by Benchmark or Capstar for any of the Capstar Stations and which are terminable on not more than 30 days notice, (c) all Capstar Contracts entered into by Benchmark or Capstar on or after the date of this Agreement and before the Closing in accordance with the applicable provisions of Section 4.1, and (d) Capstar Trade Deals described in Section 2.8. "Capstar Assumption Agreement" means the Capstar Assumption Agreement between Capstar and each SFX Party substantially in the form of Exhibit D. "Capstar Bill of Sale and Assignment" means the Capstar Bill of Sale and Assignment between Capstar and each SFX Party substantially in the form of Exhibit B. "Capstar Company Reports" has the meaning set forth in Section 3.2(e). "Capstar Contracts" means any agreement, contract, or other binding commitment or arrangement, written or oral (including any amendments and other modifications thereto), to which Capstar is a party or is otherwise bound and which affect or relate to the Capstar Assets or the business or operations of each of the Capstar Stations. "Capstar Date" means the date of the closing of the Benchmark Acquisition. "Capstar Employee Benefit Plan" means an "employee benefit plan" of Capstar within the meaning of Section 3(3) of ERISA and any bonus, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, vacation, severance, disability, death benefit, hospitalization or insurance plan providing benefits to any present or former employee or contractor of Capstar or any member of the Capstar ERISA Group maintained by any such entity or as to which any such entity has any liability or obligation. "Capstar ERISA Group" has the meaning set forth in Section 3.2(p). "Capstar Excluded Assets" has the meaning set forth in Section 2.5. 3 10 "Capstar FCC Consents" means actions by the FCC granting its initial consent to the assignment of the Capstar FCC Licenses for each of the Capstar Stations to the SFX Parties as contemplated by this Agreement. "Capstar FCC Licenses" means all of the licenses, permits, and other authorizations issued by the FCC to Capstar and applications of Capstar, if any, to the FCC relating to or used in the business or operations of each of the Capstar Stations, including those listed on Schedule 3.2(f), and any additions thereto between the date hereof and the Closing Date. "Capstar Final Order" means written action or order issued by the FCC setting forth the Capstar FCC Consents (without the inclusion of any adverse conditions affecting the SFX Parties' operation or ownership of any Capstar Station) and (a) which has not been reversed, stayed, enjoined, set aside, annulled, or suspended and (b) with respect to which (i) no requests have been filed for administrative or judicial review, reconsideration, appeal, or stay, and the time for filing any such requests and for the FCC to set aside the action on its own motion has expired or (ii) in the event of review, reconsideration, or appeal, such review, reconsideration, or appeal has been denied and the time for further review, reconsideration, or appeal has expired. "Capstar Indemnified Costs" means (a) any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) that any of the Capstar Indemnified Parties incurs and that arise out of any breach or default by any SFX Party of any of the representations or warranties under this Agreement or any agreement or document executed in connection herewith; (b) any and all losses, liabilities, or damages incurred by any of the Capstar Indemnified Parties resulting from any SFX Party's operation or control of any of the SFX Stations prior to the Closing Date, including any and all liabilities arising under the SFX Licenses or the SFX Assumed Contracts which relate to events occurring prior to the Closing Date (the items in clauses (a) and (b) being "Capstar Indemnified Representation Costs"); (c) any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) that any of the Capstar Indemnified Parties incurs and that arise out of any breach or default by any SFX Party of any covenant or agreement under this Agreement or any agreement or document executed in connection herewith; (d) any and all obligations or liabilities of any SFX Party under any contract or agreement not expressly assumed by Capstar pursuant to the terms hereof; (e) the items indemnified against pursuant to Sections 6.2 and 7.7(a); and (f) any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs, and expenses, including reasonable legal fees and expenses, incident to any of the foregoing; provided, however, that insofar as the items in this clause (f) relate to the items in clause (a) or (b) above, such items shall constitute Capstar Indemnified Representation Costs. "Capstar Indemnified Parties" means Capstar and each officer, director, employee, consultant, stockholder, and Affiliate of Capstar. "Capstar Intellectual Property" means all Trademarks, Know- how, copyrights, copyright registrations and applications for registration, Patents and all other intellectual property 4 11 rights whether registered or not, licensed to or owned by Capstar relating to the business or operations of any Capstar Station, including the call letters of each of the Capstar Stations, and the goodwill related to the foregoing. "Capstar Leased Real Property" means all of the Capstar's leasehold interests, easements, licenses, rights to access and rights-of-way which are used or held for use in the business and operations of any Capstar Station, including those interests which are identified and described in Schedule 3.2(j), as modified by any addition or permitted deletion thereto between the date hereof and the Closing Date. "Capstar Licenses" means the Capstar FCC Licenses and all Capstar Permits issued by any Governmental Entity to Capstar relating to or used or held for use in the business and operations of any Capstar Station, including those listed on Schedule 3.2(f), with any additions thereto between the date hereof and the Closing Date. "Capstar Liens" has the meaning set forth in Section 3.2(l). "Capstar Negative Trade Balance" has the meaning set forth in Section 4.2. "Capstar Owned Real Property" means those parcels of real property owned in fee and used or held for use by Capstar as described in Schedule 3.2(i), and all buildings, structures, improvements, and fixtures thereon, together with all rights of way, easements, privileges, and appurtenances pertaining or belonging thereto, including any right, title, and interest of Capstar in and to any street or other property adjoining any portion of such property. "Capstar Pension Plans" has the meaning set forth in Section 3.2(p). "Capstar Permits" has the meaning set forth in Section 3.2(m)(iii). "Capstar Permitted Encumbrances" means (a) statutory Capstar Liens for current Taxes not yet due and payable, (b) mechanics', carriers', workers', repairers', and other similar liens imposed by law arising or incurred in the ordinary course of business for obligations not yet due, (c) in the case of leases of vehicles, rolling stock, and other personal property, encumbrances, which do not, individually or in the aggregate, materially impair the operation of the business at the facility at which such leased equipment or other personal property is located, (d) other liens, charges or encumbrances incidental to the operation of the Capstar Stations or the ownership of the Capstar Assets which were not incurred in connection with the borrowing of money or the advance of credit and which, in the aggregate, do not materially detract from the value of the Capstar Assets or materially interfere with the use thereof or the operation of the Capstar Stations, and (e) Capstar Liens on leases of real property arising from the provisions of such leases, including, in relation to leased real property, any agreements and/or conditions imposed on the issuance of land use permits, zoning, business licenses, use permits, or other entitlements of various types issued by any Governmental Entity, necessary or beneficial to the continued use and occupancy of the Capstar Assets or the continuation of the operation of any Capstar Station. 5 12 "Capstar Personal Property" means all of the machinery, equipment (including the transmitter and studio equipment), computer programs, computer software, tools, motor vehicles, furniture, furnishings, leasehold improvements, office equipment, inventories, supplies, plant, spare parts, and other tangible or intangible personal property which are owned or leased by Capstar for any Capstar Station and which are used or held for use in the business or operations of any Capstar Station, including the personal property which is listed on Schedule 3.2(k) hereto, together with any additions thereto between the date hereof and the Closing Date less any dispositions made in accordance with Section 4.1. The term Capstar Personal Property shall not include any of the Capstar Excluded Assets. "Capstar Real Property" means the Capstar Leased Real Property and the Capstar Owned Real Property. "Capstar Station Event" has the meaning set forth in Section 9.1. "Capstar Station Licenses" has the meaning set forth in Section 3.2(f). "Capstar Title Commitment" means the commitment to issue an owner's title policy as provided in Section 8.3(e). "Capstar Trade Deals" means the exchanges by a Capstar Station of its advertising time for goods or services, other than in connection with the licensing of programs and programming material. "Capstar Transaction Documents" has the meaning set forth in Section 3.2(c). "Capstar Warranty Deed" means a South Carolina general warranty deed in form and substance reasonably acceptable to each SFX Party and the Title Company pursuant to which Capstar conveys to the SFX Parties the Capstar Owned Real Property at the Closing. "CERCLA" has the meaning set forth in the definition of Environmental Laws contained in this Section 1.1. "Choses in Action" means a right to receive or recover property, debt, or damages on a cause of action, whether pending or not and whether arising in contract, tort or otherwise. The term shall include rights to indemnification, damages for breach of warranty or any other event or circumstance, judgments, settlements, and proceeds from judgments or settlements. "Closing" means the consummation of the transactions contemplated by this Agreement in accordance with the provisions of Article IX. "Closing Date" means the date of the Closing specified in Article IX. "Code" shall mean the United States Internal Revenue Code of 1986, as amended. All references to the Code, U.S. Treasury regulations or other governmental pronouncements shall 6 13 be deemed to include references to any applicable successor regulations or amending pronouncement. "Communications Act" has the meaning set forth in Section 3.1(f). "Consents" means all governmental consents and approvals, including the Capstar FCC Consents and the SFX FCC Consents, as appropriate, and all consents and approvals of third parties, in each case that are necessary in to consummate the transactions contemplated hereby. "Employee Pension Benefit Plan" has the meaning set forth in Section 3(2) of ERISA. "Environmental Costs or Liabilities" has the meaning set forth in Section 3.1(m)(iv). "Environmental Laws" means all Applicable Laws and rules of common law pertaining to the environment, natural resources, and public or employee health and safety including the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. Section 9601 et seq.) ("CERCLA"), the Emergency Planning and Community Right to Know Act and the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Hazardous and Solid Waste Amendments Act of 1984, the Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, the Safe Drinking Water Act, the Occupational Safety and Health Act of 1970, the Oil Pollution Act of 1990, the Hazardous Materials Transportation Act, and any similar or analogous statutes, regulations and decisional law of any Governmental Authority, as each of the foregoing may be amended and in effect on or prior to the Closing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ESA" means Phase I or Phase II environmental site assessments. "Exchange Act" means the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder. "Existing Capstar ESAs" means environmental site assessments with respect to the Capstar Real Property. "Existing SFX ESAs" means environmental site assessments with respect to the SFX Real Property. "FCC" has the meaning set forth in the first recital hereto. "GAAP" means generally accepted accounting principles in the United States. "Governmental Entity" means any governmental department, commission, board, bureau, agency, court or other instrumentality of the United States or any state, county, parish or municipality, jurisdiction, or other political subdivision thereof. 7 14 "Hazardous Substances" has the meaning set forth in Section 3.1(m)(iv). "Hicks Agreement" means that certain Amended and Restated Agreement, dated June 19, 1996, between SFX Broadcasting, Inc. and R. Steven Hicks. "HSR Act" has the meaning set forth in Section 3.1(d). "Indemnification Representation Costs" means the Capstar Indemnified Representation Costs or the SFX Indemnified Representation Costs, as the case may be. "Indemnified Costs" means the Capstar Indemnified Costs or the SFX Indemnified Costs, as the case may be. "Indemnified Parties" means the Capstar Indemnified Parties or the SFX Indemnified Parties, as the case may be. "Indemnifying Party" means any person who is obligated to provide indemnification hereunder. "Know-how" means all plans, ideas, concepts and data, research records, all promotional literature, customer and supplier lists and similar data and information and all other confidential or proprietary technical and business information. "Knowledge" means, with respect to a specified party hereto, the actual knowledge of such party and all Station Management, station engineers, consulting engineers, corporate counsel, and FCC counsel, together with such additional knowledge as would be acquired by a reasonable person upon conducting reasonable and diligent inquiry concerning the subject matter in question. "Material Adverse Effect" means a material adverse effect on the business, operations, properties (taken as a whole), condition (financial or otherwise), results of operations, assets (taken as a whole), liabilities, or prospects of the Capstar Stations or the SFX Stations, as applicable. "Multiemployer Plan" has the meaning set forth in Section 3(37) or Section 4001(a)(3) of ERISA. "Patents" means all patent and patent applications (including all reissues, divisions, continuations, continuations-in-part, renewals, and extensions of the foregoing). "person" means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization, or other entity. "Release" means a Release of Claims between Capstar and each SFX Party substantially in the form of Exhibit I. "Schedules" means the Schedules attached hereto. 8 15 "Securities Act" means the Securities Act of 1933 and the rules and regulations promulgated thereunder. "SFX Accounts Receivable" means the rights of an SFX Party to cash payment for the sale of advertising time by the SFX Stations prior to 11:59 p.m. on the day prior to the Closing Date. "SFX Applications" has the meaning set forth in Section 7.3 "SFX Assets" means all the tangible and intangible assets owned, leased, or licensed by each SFX Party that are used or held for use in connection with the business or operations of any of the SFX Stations, whether or not reflected on the SFX Financial Statements or SFX Balance Sheets, but specifically excluding therefrom the SFX Excluded Assets. "SFX Assumed Contracts" means (a) those SFX Contracts set forth on Schedule 3.1(o) identified as being assumed by Capstar and all other contracts of a SFX Party entered into in the ordinary course of business prior to the date of this Agreement that relate to the SFX Assets or the business or operation of the SFX Assets or any part thereof, (b) all other non-trade advertising SFX Contracts for cash entered into by a SFX Party for any of the SFX Stations prior to the date of this Agreement and which are terminable on not more than 30 days notice, (c) all SFX Contracts entered into by a SFX Party on or after the date of this Agreement and before the Closing in accordance with the applicable provisions of Section 4.1, and (d) SFX Trade Deals described in Section 2.8. "SFX Assumption Agreement" means the SFX Assumption Agreement between Capstar and each SFX Party substantially in the form of Exhibit C. "SFX Balance Sheets" has the meaning set forth in Section 3.1(e). "SFX Balance Sheet Date" has the meaning set forth in Section 3.1(e). "SFX Bill of Sale and Assignment" means the SFX Bill of Sale and Assignment between Capstar and each SFX Party substantially in the form of Exhibit A. "SFX Company Reports" has the meaning set forth in Section 3.1(e). "SFX Contracts" means all agreements, contracts, or other binding commitments or arrangements, written or oral (including any amendments and other modifications thereto), to which any SFX Party is a party or is otherwise bound and which affect or relate to the SFX Assets or the business or operations of each of the SFX Stations. "SFX Employee Benefit Plans" means any "employee benefit plan" of each SFX Party within the meaning of Section 3(3) of ERISA and any bonus, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, vacation, severance, disability, death benefit, hospitalization or insurance plan providing benefits to any present or former 9 16 employee or contractor of any SFX Party or any member of the SFX ERISA Group maintained by any such entity or as to which any such entity has any liability or obligation. "SFX ERISA Group" has the meaning set forth in Section 3.1(p). "SFX Excluded Assets" has the meaning set forth in Section 2.3. "SFX FCC Consents" means actions by the FCC granting its initial consent to the assignment of the SFX FCC Licenses for each of the SFX Stations to Capstar as contemplated by this Agreement. "SFX FCC Licenses" means all of the licenses, permits, and other authorizations issued by the FCC to each SFX Party and applications of each SFX Party, if any, to the FCC relating to or used in the business or operations of each of the SFX Stations, including those listed on Schedule 3.1(f), and any additions thereto between the date hereof and the Closing Date. "SFX Final Order" means written action or order issued by the FCC setting forth the SFX FCC Consents (without the inclusion of any adverse conditions affecting Capstar's operation or ownership of any SFX Party's SFX Station) and (a) which has not been reversed, stayed, enjoined, set aside, annulled, or suspended and (b) with respect to which (i) no requests have been filed for administrative or judicial review, reconsideration, appeal, or stay, and the time for filing any such requests and for the FCC to set aside the action on its own motion has expired or (ii) in the event of review, reconsideration, or appeal, such review, reconsideration, or appeal has been denied and the time for further review, reconsideration, or appeal has expired. "SFX Financial Statements" has the meaning set forth in Section 3.1(e). "SFX Indemnified Costs" means (a) any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) that any of the SFX Indemnified Parties incurs and that arise out of any breach or default by Capstar of any of the representations, or warranties under this Agreement or any agreement or document executed in connection herewith; (b) any and all losses, liabilities, or damages incurred by any of the SFX Indemnified Parties resulting from Capstar's operation or control of any of the Capstar Stations prior to the Closing Date, including any and all liabilities arising under the Capstar Licenses or the Capstar Assumed Contracts which relate to events occurring prior to the Closing Date (the items in clause (a) and (b) being "SFX Indemnified Representation Costs"); (c) any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and reasonable attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) that any of the SFX Indemnified Parties incurs and that arise out of any breach or default by Capstar of any covenant or agreement under this Agreement or any agreement or document executed in connection herewith; (d) any and all obligations or liabilities of Capstar under any contract or agreement not expressly assumed by any SFX Party pursuant to the terms hereof ; (e) the items indemnified against pursuant to Sections 5.2 and 7.7(b); and (f) any and all actions, suits, proceedings claims, demands, assessments, judgments, costs, and expenses, including 10 17 reasonable legal fees and expenses, incident to any of the foregoing; provided, however, that insofar as the items in this clause (f) relate to the items in clause (a) or (b) above, such items shall constitute SFX Indemnified Representation Costs. "SFX Indemnified Parties" means each SFX Party and each officer, director, employee, consultant, stockholder, and Affiliate thereof. "SFX Intellectual Property" means all Trademarks, Know-how, copyrights, copyright registrations and applications for registration, Patents and all other intellectual property rights whether registered or not, licensed to or owned by any SFX Party relating to the business or operations of any SFX Station, including the call letters of each of the SFX Stations and the goodwill related to the foregoing. "SFX Leased Real Property" means all of each SFX Party's leasehold interests, easements, licenses, rights to access and rights-of-way which are used or held for use in the business and operations of any SFX Station, including those interests which are identified and described in Schedule 3.1(j), as modified by any addition or permitted deletion thereto between the date hereof and the Closing Date. "SFX Licenses" means the SFX FCC Licenses and all SFX Permits issued by any Governmental Entity to each SFX Party relating to or used or held for use in the business and operations of any SFX Station, including those listed on Schedule 3.1(f), with any additions thereto between the date hereof and the Closing Date. "SFX Liens" has the meaning set forth in Section 3.1(l). "SFX Negative Trade Balance" has the meaning set forth in Section 4.2. "SFX Owned Real Property" means those parcels of real property owned in fee and used or held for use by each SFX Party as described in Schedule 3.1(i), and all buildings, structures, improvements, and fixtures thereon, together with all rights of way, easements, privileges, and appurtenances pertaining or belonging thereto, including any right, title, and interest of such SFX Party in and to any street or other property adjoining any portion of such property. "SFX Parties" and "SFX Party" have the meaning set forth in the first paragraph of this Agreement, and it includes their permitted successors and assigns. After an assignment pursuant to Section 12.14, SFX Parties and SFX Party shall mean the Affiliate to which this Agreement has been assigned and SFX Parties and SFX Party shall no longer have the meaning as set forth in the first paragraph of this Agreement. "SFX Pension Plans" has the meaning set forth in Schedule 3.1(p). "SFX Permits" has the meaning set forth in Section 3.1(m)(iii). 11 18 "SFX Permitted Encumbrances" means (a) statutory SFX Liens for current Taxes not yet due and payable, (b) mechanics', carriers', workers', repairers', and other similar liens imposed by law arising or incurred in the ordinary course of business for obligations not yet due, (c) in the case of leases of vehicles, rolling stock, and other personal property, encumbrances, which do not, individually or in the aggregate, materially impair the operation of the business at the facility at which such leased equipment or other personal property is located, (d) other liens, charges or encumbrances incidental to the operation of any SFX Station or the ownership of the SFX Assets which were not incurred in connection with the borrowing of money or the advance of credit and which, in the aggregate, do not materially detract from the value of the SFX Assets or materially interfere with the use thereof or the operation of any SFX Station, and (e) SFX Liens on leases of real property arising from the provisions of such leases, including, in relation to leased real property, any agreements and/or conditions imposed on the issuance of land use permits, zoning, business licenses, use permits, or other entitlements of various types issued by any Governmental Entity, necessary or beneficial to the continued use and occupancy of the SFX Assets or the continuation of the operation of any SFX Station. "SFX Personal Property" means all of the machinery, equipment (including the transmitter and studio equipment), computer programs, computer software, tools, motor vehicles, furniture, furnishings, leasehold improvements, office equipment, inventories, supplies, plant, spare parts, and other tangible or intangible personal property which are owned or leased by each SFX Party for any SFX Station and which are used or held for use in the business or operations of any SFX Station, including the personal property which is listed on Schedule 3.1(k) hereto, together with any additions thereto between the date hereof and the Closing Date less any dispositions made in accordance with Section 4.1. The term SFX Personal Property shall not include any of the SFX Excluded Assets. "SFX Real Property" means the SFX Leased Real Property and the SFX Owned Real Property. "SFX Station Event" has the meaning set forth in Section 9.1. "SFX Station Licenses" has the meaning set forth in Section 3.1(f). "SFX Title Commitment" means the commitment to issue an owner's title policy as provided in Section 8.2(e). "SFX Trade Deals" means the exchanges by a SFX Station of its advertising time for goods or services, other than in connection with the licensing of programs and programming material. "SFX Transaction Documents" has the meaning set forth in Section 3.1(c). "SFX Warranty Deed" means a Kansas or Florida general warranty deed in form and substance reasonably acceptable to Capstar and the Title Company pursuant to which each SFX Party conveys to Capstar the SFX Owned Real Property at the Closing. 12 19 "Station Management" has the meaning set forth in Section 4.1(b). "Tax Returns" means any return, report, information return or other document (including any related or supporting information) filed or required to be filed with any Governmental Entity in connection with the determination, assessment, collection or administration of any Taxes or the administration of any laws, regulations or administrative requirements relating to any Taxes. "Taxes" means taxes, charges, fees, imposts, levies, interest, penalties, additions to tax or other assessments or fees of any kind, including, but not limited to, income, corporate, capital, excise, property, sales, use, turnover, value added and franchise taxes, deductions, withholdings and customs duties, imposed by any Governmental Entity and any payments with respect thereto required under any tax-sharing agreement. "Title Company" means Republic Title of Texas, Inc., 300 Crescent Court, Suite 100, Dallas, Texas 75201. "Trademarks" means (a) trademarks, service marks, trade names, trade dress, labels, logos, and all other names and slogans associated with any products or embodying the goodwill of the business of any Capstar Station or SFX Station, as applicable, whether or not registered, and any applications or registrations therefor and (b) any associated goodwill incident thereto. 1.2. REFERENCES AND TITLES. All references in this Agreement to Exhibits, Schedules, Articles, Sections, subsections, and other subdivisions refer to the corresponding Exhibits, Schedules, Articles, Sections, subsections, and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any Articles, Sections, subsections, or other subdivisions of this Agreement are for convenience only, do not constitute any part of such Articles, Sections, subsections or other subdivisions, and shall be disregarded in construing the language contained therein. The words "this Agreement," "herein," "hereby," "hereunder," " and "hereof," and words of similar import, refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The words "this Section," "this subsection," and words of similar import, refer only to the Sections or subsections hereof in which such words occur. The word "or" is not exclusive, and the word "including" (in its various forms) means "including without limitation." Pronouns in masculine, feminine, or neuter genders shall be construed to state and include any other gender and words, terms, and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise expressly requires. Unless the context otherwise requires, all defined terms contained herein shall include the singular and plural and the conjunctive and disjunctive forms of such defined terms. 1.3. SCHEDULES. (a) Any Schedule provided by Capstar under this Agreement shall be delivered on or before 30 days after the Capstar Date. The information provided in such Schedules shall be as of the Capstar Date. In addition, Capstar shall deliver the Existing Capstar ESAs on or before 30 days after the Capstar Date. 13 20 (b) Any schedule provided by the SFX Parties under this Agreement shall be delivered on or before 30 days after the date of this Agreement. The information provided in such schedules shall be as of the date of this Agreement. In addition, the SFX Parties shall deliver the existing SFX ESAs on or before 30 days after the date of this Agreement. ARTICLE II EXCHANGE AND OTHER ACTIONS 2.1. AGREEMENT TO EXCHANGE. Subject to the terms and conditions set forth in this Agreement and except for the SFX Excluded Assets, each of the SFX Parties hereby agrees that it shall assign, transfer and deliver to Capstar on the Closing Date, all of the SFX Assets owned or otherwise held by such SFX Party, free and clear of any SFX Liens or liabilities (except for the SFX Permitted Encumbrances and liabilities assumed by Capstar in accordance with Section 2.8) and except for the Capstar Excluded Assets, Capstar hereby agrees that it shall assign, transfer and deliver to the SFX Parties on the Closing Date, all of the Capstar Assets, free and clear of any Capstar Liens or liabilities (except for the Capstar Permitted Encumbrances and liabilities assumed by the SFX Parties in accordance with Section 2.8) 2.2. SFX ASSETS. The SFX Assets to be assigned, transferred and delivered by the SFX Parties hereunder shall include the following: (a) All SFX Personal Property; (b) All SFX Leased Real Property; (c) All SFX Owned Real Property; (d) All SFX Licenses and SFX Permits; (e) All SFX Assumed Contracts; (f) All SFX Intellectual Property; (g) Each of the SFX Station's technical information and data, machinery and equipment warranties (to the extent such warranties are assignable), if any, maps, plans, diagrams, blueprints and schematics relating to such SFX Station, if any, including filings with the FCC which relate to such SFX Station, and goodwill relating to the foregoing; (h) All books and records relating to the business and operation of any SFX Station (excluding those described in, or relating to the assets described in, Section 2.3), including (i) executed copies of the SFX Assumed Contracts, or if no executed agreement exists, summaries of each SFX Assumed Contract transferred pursuant to clause (e) above and (ii) all records required by the FCC to be kept by each SFX Station, subject to the right of each SFX Party to copy and have such books and records made reasonably available to 14 21 such SFX Party for tax and other legitimate organization purposes for a period of six years after the Closing Date; (i) To the extent assignable, all computer programs and software, and all rights and interests of each SFX Party in and to computer programs and software used in connection with the business or operations of any SFX Station; (j) Except for claims relating to Taxes and all of each SFX Party's Choses in Action described in Schedule 2.2(j), all of each SFX Party's Choses in Action; and (k) All intangible assets of each SFX Party relating to any SFX Station or the business or operation of any SFX Station not specifically described above, including goodwill, and all other assets, other than the SFX Excluded Assets, used or held for use in connection with any SFX Station or the business of such SFX Party. 2.3. SFX EXCLUDED ASSETS. The SFX Excluded Assets shall consist of the following: (a) The SFX Real Property described in Schedule 2.3(a); (b) Each SFX Party's books and records relating solely to internal corporate matters and any other books and records not related to any SFX Station or the business or operations of any SFX Station; (c) Any claims, rights and interest of each SFX Party in and to any (i) refunds of Taxes or fees of any nature whatsoever or (ii) deposits or utility deposits, which, in each case, relate solely to the period prior to the Closing Date; (d) All insurance contracts, including the cash surrender value thereof, and all insurance proceeds or claims made by each SFX Party relating to property or equipment repaired, replaced or restored by such SFX Party prior to the Closing Date; (e) All of the SFX Employee Benefit Plans and all assets or funds held in trust, or otherwise, associated with or used in connection with the SFX Employee Benefit Plans; (f) All of each SFX Party's Choses in Action, if any, excluded from Section 2.2(j); (g) All tangible and intangible personal property disposed of or consumed in the ordinary course of business between the date of this Agreement and the Closing Date, or as otherwise permitted under the terms hereof; (h) Any collective bargaining agreement, any other SFX Contract not included in the SFX Assumed Contracts, and all SFX Contracts that have terminated or expired prior to the Closing Date in the ordinary course of business and as permitted hereunder; 15 22 (i) The personal effects and other personal property, if any, identified on Schedule 2.3(i); (j) In each case determined as of 11:59 p.m. on the day prior to the Closing Date, each SFX Party's cash on hand as of the Closing Date and all other cash in any of such SFX Party's bank or savings accounts; notes receivable, letters of credit or other similar items of each SFX Party; any stocks, bonds, certificates of deposit and similar investments of each SFX Party; and any other cash equivalents of each SFX Party; and (k) All of the SFX Accounts Receivable. 2.4. CAPSTAR ASSETS. The Capstar Assets to be assigned, transferred and delivered by Capstar hereunder shall include the following: (a) All Capstar Personal Property; (b) All Capstar Leased Real Property; (c) All Capstar Owned Real Property; (d) All Capstar Licenses and Capstar Permits; (e) All Capstar Assumed Contracts; (f) All Capstar Intellectual Property; (g) Each of the Capstar Station's technical information and data, machinery and equipment warranties (to the extent such warranties are assignable), if any, maps, plans, diagrams, blueprints and schematics relating to such Capstar Station, if any, including filings with the FCC which relate to such Capstar Station, and goodwill relating to the foregoing; (h) All books and records relating to the business and operation of any of the Capstar Stations (excluding those described in, or relating to the assets described in, Section 2.5), including (i) executed copies of the Capstar Assumed Contracts, or if no executed agreement exists, summaries of each Capstar Assumed Contract transferred pursuant to clause (e) above and (ii) all records required by the FCC to be kept by each Capstar Station, subject to the right of Capstar to copy and have such books and records made reasonably available to Capstar for tax and other legitimate organization purposes for a period of six years after the Closing Date; (i) To the extent assignable, all computer programs and software, and all rights and interests of Capstar in and to computer programs and software used in connection with the business or operations of any Capstar Station; 16 23 (j) Except for claims relating to Taxes and all Capstar's Choses in Action described in Schedule 2.4(j), all Capstar's Choses in Action; and (k) All intangible assets of Capstar relating to any Capstar Station or the business or operation of any Capstar Station not specifically described above, including goodwill, and all other assets, other than the Capstar Excluded Assets, used or held for use in connection with any Capstar Station or the business of Capstar. 2.5. CAPSTAR EXCLUDED ASSETS. The Capstar Excluded Assets shall consist of the following: (a) The Capstar Real Property described in Schedule 2.5(a); (b) Capstar's books and records relating solely to internal corporate matters and any other books and records not related to any Capstar Station or the business or operations of any Capstar Station; (c) Any claims, rights and interest of Capstar in and to any (i) refunds of Taxes or fees of any nature whatsoever or (ii) deposits or utility deposits, which, in each case, relate solely to the period prior to the Closing Date; (d) All insurance contracts, including the cash surrender value thereof, and all insurance proceeds or claims made by Capstar relating to property or equipment repaired, replaced or restored by Capstar prior to the Closing Date; (e) All of Capstar Employee Benefit Plans and all assets or funds held in trust, or otherwise, associated with or used in connection with Capstar Employee Benefit Plans; (f) All Capstar's Choses in Action, if any, excluded from Section 2.4(j); (g) All tangible and intangible personal property disposed of or consumed in the ordinary course of business between the date of this Agreement and the Closing Date, or as otherwise permitted under the terms hereof; (h) Any collective bargaining agreement, any other Capstar Contract not included in the Capstar Assumed Contracts, and all Capstar Contracts that have terminated or expired prior to the Closing Date in the ordinary course of business and as permitted hereunder; (i) The personal effects and other personal property, if any, identified on Schedule 2.5(i); (j) In each case determined as of 11:59 p.m. on the day prior to the Closing Date, Capstar's cash on hand as of the Closing Date and all other cash in any of Capstar's bank or savings accounts; notes receivable, letters of credit or other similar items of Capstar; any 17 24 stocks, bonds, certificates of deposit and similar investments of Capstar; and any other cash equivalents of Capstar; and (k) All of the Capstar Accounts Receivable. 2.6. [RESERVED] 2.7. ADJUSTMENTS AND PRORATIONS. (a) All revenues arising from the operation of the SFX Stations earned or accrued up until 11:59 p.m. on the day prior to the Closing Date, and all expenses, costs and liabilities, arising therefrom incurred, accrued or payable up until such time, including expenses arising under the SFX Assumed Contracts, tower rentals, business and license fees, utility charges, real and personal property taxes levied against the SFX Assets, property and equipment rentals, applicable copyright or other fees, sales and service charges, other Taxes, wages, salaries, vacation, sick and employee compensation pay shall be prorated between the SFX Parties and Capstar in accordance with the principle that (i) each SFX Party shall receive all revenues, refunds and deposits of such SFX Party held by third parties, and shall be responsible for all expenses, costs and liabilities incurred, payable or allocable to the conduct of the business and operations of such SFX Party's SFX Station for the period ending at 11:59 p.m. on the day prior to the Closing Date and (ii) Capstar shall receive all revenues earned or accrued and shall be responsible for all expenses, costs and liabilities incurred, payable or allocable to the conduct of the business and operations of each SFX Station for the period commencing on and continuing after the Closing Date. An adjustment and proration shall be made in favor of Capstar to the extent that Capstar assumes any liability under any SFX Assumed Contract to refund (or to credit against payments otherwise due) any security deposit or similar prepayment paid to each SFX Party by any lessee or other third party which is not otherwise credited to Capstar. Subject to Capstar's receipt of appropriate estoppel certificates, an adjustment and proration shall be made in favor of the SFX Parties to the extent that any SFX Party has made (A) any security deposit under any SFX Assumed Contract whether or not there is a proration under such SFX Assumed Contract or (B) other prepayment under any SFX Assumed Contracts for which there is a proration. Each SFX Party shall be liable for all of the costs of employee compensation relating to each of the SFX Stations properly attributable to or accruable on account of service with such SFX Party through 11:59 p.m. on the date prior to the Closing Date, including (1) all Taxes and related contributions, vacations and sick pay and (2) all group medical, dental or death benefits for expenses incurred, related to or arising from, events occurring on or prior to 11:59 p.m. on the date prior to the Closing Date, or death or disability occurring on or prior to 11:59 p.m. on the date prior to the Closing Date, whether reported by the Closing Date or thereafter; Capstar will be liable for all of the costs of employee compensation relating to each of the SFX Stations, properly attributable or accruable thereafter on account of service with Capstar. Except as provided in Section 2.8(c), SFX Trade Deals shall not be adjusted or prorated. Adjustments or prorations pursuant to this Section 2.7(a) will, insofar as feasible, be determined and paid in accordance with Section 2.7(c) on the Closing Date based upon each SFX Party's good faith calculation delivered to Capstar five days prior to the Closing Date and reasonably approved by Capstar, with final settlement and payment by the appropriate party occurring pursuant to Section 2.7(d). 18 25 (b) All revenues arising from the operation of the Capstar Stations earned or accrued up until 11:59 p.m. on the day prior to the Closing Date, and all expenses, costs and liabilities, arising therefrom incurred, accrued or payable up until such time, including expenses arising under the Capstar Assumed Contracts, tower rentals, business and license fees, utility charges, real and personal property taxes levied against the Capstar Assets, property and equipment rentals, applicable copyright or other fees, sales and service charges, other Taxes, wages, salaries, vacation, sick and employee compensation pay shall be prorated between the SFX Parties and Capstar in accordance with the principle that (i) Capstar shall receive all revenues, refunds and deposits of Capstar held by third parties, and shall be responsible for all expenses, costs and liabilities incurred, payable or allocable to the conduct of the business and operations of each Capstar Station for the period ending at 11:59 p.m. on the day prior to the Closing Date and (ii) the SFX Parties shall receive all revenues earned or accrued and shall be responsible for all expenses, costs and liabilities incurred, payable or allocable to the conduct of the business and operations of each Capstar Station for the period commencing on and continuing after the Closing Date. An adjustment and proration shall be made in favor of the SFX Parties to the extent that a SFX Party assumes any liability under any Capstar Assumed Contract to refund (or to credit against payments otherwise due) any security deposit or similar prepayment paid to Capstar by any lessee or other third party which is not otherwise credited to such SFX Party. Subject to a SFX Party's receipt of appropriate estoppel certificates, an adjustment and proration shall be made in favor of Capstar to the extent that Capstar has made (A) any security deposit under any Capstar Assumed Contract whether or not there is a proration under such Capstar Assumed Contract or (B) other prepayment under any Capstar Assumed Contracts for which there is a proration. Capstar shall be liable for all of the costs of employee compensation relating to each of the Capstar Stations properly attributable to or accruable on account of service with the Capstar through 11:59 p.m. on the date prior to the Closing Date, including (1) all Taxes and related contributions, vacations and sick pay and (2) all group medical, dental or death benefits for expenses incurred, related to or arising from, events occurring on or prior to 11:59 p.m. on the date prior to the Closing Date, or death or disability occurring on or prior to 11:59 p.m. on the date prior to the Closing Date, whether reported by the Closing Date or thereafter; the SFX Parties will be liable for all of the costs of employee compensation relating to each of the Capstar Stations, properly attributable or accruable thereafter on account of service with any SFX Party. Except as provided in Section 2.8(d), Capstar Trade Deals shall not be adjusted or prorated. Adjustments or prorations pursuant to this Section 2.7(b) will, insofar as feasible, be determined and paid in accordance with Section 2.7(c) on the Closing Date based upon Capstar's good faith calculation delivered to each SFX Party five days prior to the Closing Date and reasonably approved by each SFX Party, with final settlement and payment by the appropriate party occurring pursuant to Section 2.7(d). (c) Based on the initial determination of the adjustments and prorations in Sections 2.7(a) and 2.7(b), the parties shall: (i) In the event that the initial determination of the net adjustments and prorations favors Capstar, the SFX Parties shall pay to Capstar the excess via wire transfer of immediately available funds. 19 26 (ii) In the event that the initial determination of the net adjustments and prorations favors the SFX Parties, Capstar shall pay to the SFX Parties the excess via wire transfer of immediately available funds. (d) (i) Within 60 days after the Closing Date, each of Capstar and the SFX Parties shall submit to each other a good faith actual determination of the adjustments or prorations required by Section 2.7(a) or 2.7(b), as applicable. (ii) (A) In the event that the actual net adjustments and prorations favors Capstar, the SFX Parties shall pay the excess less the amount previously paid to Capstar under Section 2.7(c)(i), if any, to Capstar via wire transfer of immediately available funds. (B) In the event that the actual net adjustments and prorations favors the SFX Parties, Capstar shall pay the excess less the amount previously paid to the SFX Parties under Section 2.7(c)(ii), if any, to the SFX Parties via wire transfer of immediately available funds. (iii) Each SFX Party's and Capstar's determination of the amount of adjustments under this Section 2.7(d) shall be made in accordance with GAAP, consistently applied. Each of Capstar and the SFX Parties shall request their respective accountants, Coopers & Lybrand LLP and Ernst & Young LLP, to consult with each other regarding preparation of the actual adjustment amounts in this Section 2.7(d). If any SFX Party or Capstar disagrees with the determination made by the other of any adjustment in this Section 2.7(d), such party shall give prompt written notice thereof, but in no event later than 20 days after notice of such determination, specifying in reasonable detail the nature and extent of the disagreement, and the SFX Parties and Capstar shall have a period of 30 days in which to resolve the disagreement. If the parties are unable to resolve the disagreement within the 30-day period, the matter shall be submitted to Arthur Andersen LLP, an independent certified public accounting firm, which accounting firm shall be directed to submit a final resolution within 30 days. The accounting firm's determination shall be binding on each SFX Party and Capstar. Each party shall bear the fees and expenses of its own representatives, including its independent accountants, if any, and shall share equally the fees and expenses of Arthur Andersen LLP, if engaged, to resolve any disagreement between the parties. Within five business days following a final determination hereunder, the party obligated to make payment will make the payments determined to be due and owing in accordance with this Section 2.7(d) via wire transfer of immediately available funds. 2.8. ASSUMPTION OF LIABILITIES AND OBLIGATIONS. (a) As of the Closing Date, Capstar shall assume and undertake to pay, discharge and perform all the obligations and liabilities of the SFX Parties relating to each SFX Station under the SFX Licenses and the SFX Assumed Contracts assumed by Capstar relating to the time period beginning on or arising out of events occurring on or after the Closing Date. All other obligations and liabilities of each SFX Party, including (i) obligations or liabilities under any contract not included in the SFX Assumed Contracts, (ii) obligations or liabilities under any SFX Assumed Contract for which a Consent, if required, has 20 27 not been obtained as of the Closing Date, (iii) any obligations and liabilities arising under the SFX Assumed Contracts that relate to the time period prior to the Closing Date or arise out of events occurring prior to the Closing Date and (iv) any forfeiture, claim or pending litigation or proceeding relating to the business or operations of any SFX Station prior to the Closing Date, shall remain and be the obligation and liability solely of such SFX Party. Other than as specified in the first sentence of this Section 2.8(a), Capstar, directly or indirectly, shall assume no liabilities or obligations of each SFX Party and shall not be liable therefor. (b) As of the Closing Date, the SFX Parties shall assume and undertake to pay, discharge and perform all the obligations and liabilities of Capstar relating to each Capstar Station under the Capstar Licenses and the Capstar Assumed Contracts assumed by the SFX Parties relating to the time period beginning on or arising out of events occurring on or after the Closing Date. All other obligations and liabilities of Capstar, including (i) obligations or liabilities under any contract not included in the Capstar Assumed Contracts, (ii) obligations or liabilities under any Capstar Assumed Contract for which a Consent, if required, has not been obtained as of the Closing Date, (iii) any obligations and liabilities arising under the Capstar Assumed Contracts that relate to the time period prior to the Closing Date or arise out of events occurring prior to the Closing Date and (iv) any forfeiture, claim or pending litigation or proceeding relating to the business or operations of any Capstar Station prior to the Closing Date, shall remain and be the obligation and liability solely of Capstar. Other than as specified in the first sentence of this Section 2.8(b), each SFX Party, directly or indirectly, shall assume no liabilities or obligations of Capstar and shall not be liable therefor. (c) Schedule 2.8(c) contains a list of all of the SFX Trade Deals in effect as of the date hereof and correctly sets forth the balance, in dollar value, of either (i) each SFX Party's obligations to the other party under such SFX Trade Deals (denoted by a minus on Schedule 2.8(c)) or (ii) the amount due to each SFX Party under such SFX Trade Deals (reflected as a positive on Schedule 2.8(c)). On the Closing Date, Capstar shall assume each SFX Party's obligations under (i) the SFX Trade Deals listed on Schedule 2.8(c) to the extent that the goods or services to be provided by the advertisers pursuant to such SFX Trade Deals are solely used or useful in connection with the business or operations of any SFX Station and (ii) all SFX Trade Deals entered into by each SFX Party between the date hereof and the Closing Date with the consent of Capstar. The SFX Trade Deals assumed by Capstar pursuant to the terms of this Section 2.8(c) shall be considered SFX Assumed Contracts. (d) Schedule 2.8(d) contains a list of all of the Capstar Trade Deals in effect as of the Capstar Date and correctly sets forth the balance, in dollar value, of either (i) Capstar's obligations to the other party under such Capstar Trade Deals (denoted by a minus on Schedule 2.8(d)) or (ii) the amount due Capstar under such Capstar Trade Deals (reflected as a positive on Schedule 2.8(d)). On the Closing Date, the SFX Parties shall assume Capstar's obligations under (i) the Capstar Trade Deals listed on Schedule 2.8(d) to the extent that the goods or services to be provided by the advertisers pursuant to such Capstar Trade Deals are solely used or useful in connection with the business or operations of any Capstar Station, (ii) all Capstar Trade Deals entered into by Benchmark between the date hereof and the Capstar Date with the consent of the SFX Parties, and (iii) all Capstar Trade Deals entered into by Capstar between the Capstar Date and 21 28 the Closing Date with the consent of the SFX Parties. The Capstar Trade Deals assumed by the SFX Parties pursuant to the terms of this Section 2.8(d) shall be considered Capstar Assumed Contracts. 2.9. AMENDMENT TO HICKS AGREEMENT Concurrently with the execution of this Agreement, the SFX Parties shall cause SFX Broadcasting, Inc. to deliver an executed amendment (with the understanding that such amendment is a material inducement to Capstar entering into this Agreement) to that certain Amended and Restated Agreement, dated June 19, 1996, between SFX Broadcasting, Inc. and R. Steven Hicks (the "Hicks Agreement"). The amendment shall delete Section 3(i) of the Hicks Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1. REPRESENTATIONS AND WARRANTIES REGARDING THE SFX PARTIES. Each SFX Party, jointly and severally, represents and warrants to Capstar as follows (with the understanding that Capstar is relying on such representations and warranties in entering into and performing this Agreement). (a) Organization, Good Standing, Etc. (i) Each SFX Party that is a corporation is duly organized, validly existing and in good standing under the laws of the State of Delaware, has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted and is duly qualified and in good standing to do business in each state listed on Schedule 3.1(a), which states represent every jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary. No SFX Party that is a corporation is in violation of any provisions of its Articles of Incorporation or Bylaws. (ii) Each SFX Party that is a limited partnership is duly formed and validly existing as a limited partnership under the laws of the State of Delaware, has all requisite power and authority to own, lease and operate its properties and to carry out its business as now being conducted and is duly qualified and in good standing to do business in each state listed on Schedule 3.1(a), which states represent every jurisdiction in which the nature of its business or the ownership or leasing of its properties make such qualification necessary. No SFX Party that is a limited partnership is in violation of any provisions of its certificate of limited partnership or limited partnership agreement. (b) Subsidiaries of the SFX Parties. Each SFX Party does not own, directly or indirectly, any equity interest in any other corporation, partnership, or other person or have the right, pursuant to a contract or otherwise, to acquire any capital stock, equity interest or other similar investment in any corporation, partnership, or other person. 22 29 (c) Authority. Each SFX Party has full power and authority to enter into this Agreement, the SFX Bill of Sale and Assignment, the SFX Assumption Agreement, and each other agreement, document, and instrument required to be executed by such SFX Party in accordance herewith (collectively, the "SFX Transaction Documents") and to consummate the transactions contemplated hereby or thereby. The execution and delivery of the SFX Transaction Documents by each SFX Party and the consummation by such SFX Party of the transactions contemplated hereby or thereby has been duly authorized by all necessary action on the part of such SFX Party, including, without limitation, the requisite approval of the holders of the outstanding capital stock of such SFX Party entitled to vote thereon or the requisite approval of the partners of such SFX Party entitled to vote thereon, as applicable. The SFX Transaction Documents have been, or upon execution and delivery will be, duly executed and delivered and constitute the valid and binding obligations of each SFX Party enforceable, jointly and severally, against each of them in accordance with their terms, subject as to enforceability to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (d) No Conflict; Required Filings and Consents. The execution and delivery of the SFX Transaction Documents by each SFX Party does not and the performance by each SFX Party of the transactions contemplated hereby or thereby will not, subject to obtaining the consents, approvals, authorizations, and permits and making the filings described in this Section 3.1(d) or on Schedule 3.1(o), (A) violate, conflict with, or result in any breach of any provision of such SFX Party's Articles of Incorporation and Bylaws or certificate of limited partnership and limited partnership agreement, as applicable, (B) violate, conflict with, or result in a violation or breach of, or constitute a default (with or without due notice or lapse of time or both) under, or permit the termination of, or result in the acceleration of, or entitle any party to accelerate (whether as a result of a change of control of such SFX Party or otherwise) any obligation, or result in the loss of any benefit, or give any person the right to require any security to be repurchased, or give rise to the creation of any lien, charge, security interest, or encumbrance upon any of the SFX Assets under any of the terms, conditions, or provisions of any loan or credit agreement, note, bond, mortgage, indenture, or deed of trust, or any license, lease, agreement, or other instrument or obligation to which such SFX Party is a party or by which it or any of the SFX Assets may be bound or subjected, or (C) violate any order, writ, judgment, injunction, decree, statute, law, rule, or regulation, of any Governmental Entity applicable to such SFX Party or by which or to which any of the SFX Assets is bound or subject. No Consent of any Governmental Entity is required by or with respect to any SFX Party or Affiliate thereof in connection with the execution and delivery of any SFX Transaction Documents by any SFX Party or Affiliate thereof or the consummation of the transactions contemplated hereby or thereby, except for (1) the filing of a premerger notification report under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and (2) the SFX FCC Consents (as contemplated by Section 7.3 hereof). (e) Reports; Financial Statements; Absence of Certain Changes or Events. (i) Each SFX Party has timely filed all forms, reports, statements, and other documents required to be filed with the FCC. Each SFX Party has filed all forms, 23 30 reports, statements, and other documents required to be filed with any and all other Governmental Entities. (All such forms, reports, statements and other documents required to be filed with the FCC or any other Governmental Entity are referred to herein, collectively, as the "SFX Company Reports"). The SFX Company Reports were prepared in all material respects in accordance with the requirements of applicable law. (ii) The SFX Parties have delivered to Capstar copies of (A) the audited balance sheets of SFX Broadcasting, Inc. as of December 31, 1995 and December 31, 1996, together with the audited statements of income and cash flows of SFX Broadcasting, Inc. for the periods then ended, and the notes thereto, accompanied by the reports thereon of Ernst & Young LLP, independent public accountants, and (B) the unaudited balance sheet of SFX Broadcasting, Inc. as of March 31, 1997, together with the related unaudited statements of income for the periods then ended (such audited and unaudited financial statements collectively being referred to as the "SFX Financial Statements"). The SFX Financial Statements, including the notes thereto, were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby (except to the extent disclosed therein or required by changes in GAAP) and present accurately the information purported to be presented therein as of such dates and for the periods then ended. (iii) Except as disclosed in Schedule 3.1(e), there is no liability or obligation of any kind, whether accrued, absolute, fixed, contingent, or otherwise, of each SFX Party that is not reflected or reserved against in the SFX Broadcasting, Inc. balance sheet for the period ended March 31, 1997 (the "SFX Balance Sheets"), other than (A) liabilities incurred in the ordinary course of business in a manner consistent with past practice since March 31, 1997 (the "SFX Balance Sheet Date"), or (B) any such liability or obligation which would not be required to be presented in financial statements or the notes thereto prepared in conformity with GAAP applied, in a manner consistent with past practice, in the preparation of the SFX Financial Statements. (iv) Except as disclosed in Schedule 3.1(e), since the SFX Balance Sheet Date, each SFX Party has conducted its business only in the ordinary course consistent with past practice and nothing has occurred that would have been prohibited by Section 4.1 if the terms of such section had been in effect as of and after the SFX Balance Sheet Date. Since the SFX Balance Sheet Date, there has not occurred, and each SFX Party has not incurred or suffered, any event, circumstance, or fact that could result in a Material Adverse Effect. Additionally, since the SFX Balance Sheet Date, there has not occurred, and each SFX Party has not incurred or suffered, any event, circumstance, or fact that materially impairs the physical assets of any of the SFX Stations. (f) Compliance with Applicable Laws: FCC Matters. (i) The business of each SFX Party has been conducted in compliance in all material respects with each Applicable Law. Except as disclosed in Schedule 3.1(f), no investigation or review by any Governmental Entity with respect to each SFX Party is pending or, to the Knowledge of such SFX Party, threatened. Without limiting the generality 24 31 of the foregoing, the each SFX Party has complied with the Communications Act of 1934, as amended, and all material rules, regulations and written policies of the FCC thereunder (collectively, the "Communications Act"), all obligations with respect to equal employment opportunity under Applicable Law, and all material rules and regulations of the Federal Aviation Administration applicable to each of the towers used or held for use by a SFX Station. In addition, each SFX Party has duly and timely filed, or caused to be so filed, with the FCC and other appropriate Governmental Entities all reports, statements, documents, registrations, filings, or submissions with respect to the operation of each SFX Station and the ownership thereof, including, applications for renewal of authority required by Applicable Law to be filed. All such FCC filings complied in all material respects with Applicable Laws when made, and no deficiencies have been asserted with respect to any such filings. The material required by 47 C.F.R. Section 73.3526 to be kept in the public inspection files of each SFX Station is in such files. (ii) Schedule 3.1(f) is a true and complete list of (A) all of the SFX FCC Licenses, including the expiration dates thereof, as of the date of this Agreement and (B) all other material licenses, permits, or authorizations issued to each SFX Party by any other Governmental Entities and held by them as of the date of this Agreement. Such SFX FCC Licenses, licenses, permits, and authorizations, and all pending applications for modification, extension, or renewal thereof or for new licenses, permits, permissions, or authorizations, are collectively referred to herein as the "SFX Station Licenses." Schedule 3.1(f) accurately lists the legally authorized holder(s) of the SFX Station Licenses. The SFX Station Licenses constitute all the licenses, permits and authorizations required for the operation of each of the SFX Stations and the business of each SFX Party, and each of the SFX Station Licenses is in full force and effect. Each SFX Station has been operated in all material respects in accordance with the terms of its station licenses and each SFX Party is otherwise in compliance with, and have conducted its business so as to comply with, the terms of such SFX Station Licenses. There are no proceedings pending or, to the Knowledge of each SFX Party, threatened with respect to such SFX Party's ownership or operation of any SFX Station which reasonably may be expected to result in the revocation, material adverse modification, non-renewal, or suspension of any of the SFX Station Licenses, the denial of any pending applications for any SFX Station Licenses, the issuance against such SFX Party of any cease and desist order, or the imposition of any administrative actions, including the proposed assessment of fines or penalties, by the FCC or any other Governmental Entity with respect to any SFX Station Licenses, or which reasonably may be expected to adversely affect any SFX Station's ability to operate as currently operated or Capstar's ability to obtain control of any SFX Station Licenses or to operate any SFX Station. To the Knowledge of each SFX Party, no other broadcast station or radio communications facility is causing interference to any SFX Station's transmissions beyond that which is allowed by FCC rules and regulations and no SFX Station is causing interference to any other broadcast station or radio communications facilities' transmissions beyond that which is allowed by the FCC rules and regulations. To the knowledge of each SFX Party, there is no reason to believe that the FCC will not renew any of the SFX Station Licenses issued by the FCC in the ordinary course of business. 25 32 (iii) Each SFX Party is able to certify on an FCC Form 314 that it is financially qualified. (g) Absence of Litigation. Except as set forth on Schedule 3.1(g), there is no claim, action, suit, inquiry, judicial, or administrative proceeding, grievance, or arbitration pending or, to the Knowledge of each SFX Party, threatened against such SFX Party or any of the SFX Assets by or before any arbitrator or Governmental Entity, nor are there any investigations relating to such SFX Party or any of the SFX Assets pending or, to the Knowledge of each SFX Party, threatened by or before any arbitrator or Governmental Entity. Except as set forth in Schedule 3.1(g), there is no judgment, decree, injunction, order, determination, award, finding, or letter of deficiency of any Governmental Entity or arbitrator outstanding against any each SFX Party or any of the SFX Assets. There is no action, suit, inquiry, judicial, or administrative proceeding pending or, to the Knowledge of each SFX Party, threatened against any of the SFX Parties relating to the transactions contemplated by this Agreement. (h) Insurance. Since May 1, 1995, each SFX Party or its predecessor has been insured against such risks as companies engaged in a similar business would, in accordance with good business practice, customarily be insured. Schedule 3.1(h) sets forth an accurate summary of all fire, general liability, malpractice liability, theft, and other forms of insurance and all fidelity bonds held by or applicable each SFX Party. Except as set forth on Schedule 3.1(h), the policies of general liability, malpractice liability, fire, theft, and other insurance maintained with respect to the operations, assets, or business of each SFX Party provide adequate coverage against loss. To the Knowledge of each SFX Party, no event has occurred, including the failure by such SFX Party to give any notice or information or the delivery of any inaccurate or erroneous notice or information, which limits or impairs the rights of such SFX Party under any such insurance policies in such a manner as could have a Material Adverse Effect. Excluding insurance policies that have expired and been replaced in the ordinary course of business, no insurance policy has been canceled within the last two years prior to the date hereof. (i) SFX Owned Real Property. Schedule 3.1(i) contains an accurate description of all the SFX Owned Real Property. Each SFX Party has good and marketable, fee simple, absolute title in and to its SFX Owned Real Property. Each SFX Party has sufficient title to such easements, rights of way and other rights appurtenant to its SFX Owned Real Properties as are necessary to permit ingress and egress to and from its SFX Owned Real Property to a public way, and the improvements on its SFX Owned Real Property have access to such sewer, water, gas, electric, telephone and other utilities as are necessary to allow the business of such SFX Party operated thereon to be operated in the ordinary course. There is no pending condemnation or similar proceeding affecting the SFX Owned Real Property or any portion thereof, and to the Knowledge of each SFX Party, no such action is threatened. Except as set forth on Schedule 3.1(i), the improvements located on the SFX Owned Real Property are in sufficiently good condition (except for ordinary wear and tear) to allow the business of each SFX Party to be operated in the ordinary course and there has been no damage to such improvements that affects the conduct of such business in any material respect that has not been repaired or remedied. Except as set forth on Schedule 3.1(i), there are no lessees or tenants at will in possession of any portion of any of the SFX Owned Real Property other than the SFX Parties, whether as lessees, tenants at will, trespassers or 26 33 otherwise. Except as set forth on Schedule 3.1(i), no zoning, building or other federal, state or municipal law, ordinance, regulation or restriction is violated in any material respect by the continued maintenance, operation or use of the SFX Owned Real Property or any tract or portion thereof or interest therein in its present manner. The current use of the SFX Owned Real Property and all parts thereof does not violate any restrictive covenants of record affecting any of the SFX Owned Real Property. All necessary SFX Licenses by any Governmental Entity with respect to the SFX Owned Real Property have been obtained, have been validly issued and are in full force and effect. (j) SFX Leased Real Property. Schedule 3.1(j) contains an accurate description of all the leasehold interests relating to the business and operations of each of the SFX Stations as now conducted. Each lease described in Schedule 3.1(j) is a valid and binding obligation of the applicable SFX Party and is in full force and effect without amendment other than as described in Schedule 3.1(j). Except as otherwise disclosed on Schedule 3.1(j), each SFX Party is not, and to the Knowledge of such SFX Party, no other party is, in default under any lease described in Schedule 3.1(j). Subject to obtaining the Consents disclosed in Schedule 3.1(j), each SFX Party has the full legal power and authority to assign its rights under the applicable leases listed in Schedule 3.1(j) to Capstar. All leasehold interests listed in Schedule 3.1(j) (including the improvements thereon) are available for immediate use in the conduct of the business and operations of each of the SFX Stations as currently conducted. (k) SFX Personal Property. Schedule 3.1(k) contains a description of the items of SFX Personal Property (having a replacement cost of not less than $5,000 for each item) which comprise all SFX Personal Property used or held for use in connection with the business and operations of each SFX Station or which permit the operation of each SFX Station as now conducted. Except as set forth on Schedule 3.1(k), each SFX Party has good title to, or a valid leasehold or license interest in, all such SFX Party's SFX Personal Property and none of the SFX Personal Property is subject to any SFX Lien or other encumbrances, except for SFX Permitted Encumbrances. Each SFX Party is not, and to the Knowledge of such SFX Party, no other party is, in default under any of the leases, licenses and other SFX Contracts relating to the SFX Personal Property. Except as otherwise disclosed in Schedule 3.1(k), the SFX Personal Property (i) is in good operating condition and repair (ordinary wear and tear excepted), (ii) is available for immediate use in the business and operation of each of the SFX Stations as currently conducted and (iii) permits each of the SFX Stations to operate in accordance with the terms of their respective SFX FCC Licenses, and the rules and regulations of the FCC, and with all other applicable federal, state and local statutes, ordinances, rules and regulations. (l) SFX Liens and Encumbrances. All of the SFX Assets, including leases, are free and clear of all liens, pledges, claims, security interests, restrictions, mortgages, tenancies, and other possessory interests, conditional sale or other title retention agreements, assessments, easements, rights of way, covenants, restrictions, rights of first refusal, defects in title, encroachments, and other burdens, options or encumbrances of any kind (collectively, the "SFX Liens") except (i) SFX Permitted Encumbrances and (ii) SFX Liens set forth on Schedule 3.1(l) (the SFX Liens referred to in clauses (i) and (ii) being "SFX Permitted Liens"). At the Closing, all of the SFX Assets shall be free and clear of all SFX Liens other than SFX Permitted Encumbrances. 27 34 (m) Environmental Matters. Except as expressly disclosed in the Existing SFX ESAs: (i) The real property and facilities owned, operated, and leased by each SFX Party and the operations of such SFX Party thereon comply and have at all times complied in all material respects with all Applicable Laws and rules of common law pertaining to the environment, natural resources, and public or employee health and safety, including all Environmental Laws; (ii) No judicial proceedings are pending or, to the Knowledge of each SFX Party, threatened against such SFX Party alleging the violation of any Environmental Laws, and there are no administrative proceedings pending or, to the Knowledge of each SFX Party, threatened against such SFX Party, alleging the violation of any Environmental Laws and no notice from any Governmental Entity or any private or public person has been received by each SFX Party claiming any violation of any Environmental Laws in connection with any real property or facility owned, operated or leased by such SFX Party, or requiring any remediation, clean-up, modification, repairs, work, construction, alterations, or installations on or in connection with any real property or facility owned, operated or leased by such SFX Party that are necessary to comply with any Environmental Laws and that have not been complied with or otherwise resolved to the satisfaction of the party giving notice; (iii) All permits, registrations, licenses, authorizations, and the like ("SFX Permits") required to be obtained or filed by each SFX Party under any Environmental Laws in connection with such SFX Party's operations, including those activities relating to the generation, use, storage, treatment, disposal, release, or remediation of Hazardous Substances (as such term is defined in Section 3.1(m)(iv) hereof), have been duly obtained or filed, and such SFX Party is and has at all times been in full compliance in all material respects with the terms and conditions of all such SFX Permits; (iv) All Hazardous Substances used or generated by each SFX Party or any of its predecessors on, in, or under any of the owned, operated, or leased real property or facilities are and have at all times been generated, stored, used, treated, disposed of, and released by such persons or on their behalf in such manner as not to result in any Environmental Costs or Liabilities. "Hazardous Substances" means (A) any hazardous materials, hazardous wastes, hazardous substances, toxic wastes, and toxic substances as those or similar terms are defined under any Environmental Laws; (B) any asbestos or any material which contains any hydrated mineral silicate, including chrysolite, amosite, crocidolite, tremolite, anthophylite and/or actinolite, whether friable or non-friable; (C) PCBs, or PCB- containing materials, or fluids; (D) radon; (E) any other hazardous, radioactive, toxic or noxious substance, material, pollutant, contaminant, constituent, or solid, liquid or gaseous waste; (F) any petroleum, petroleum hydrocarbons, petroleum products, crude oil and any fractions or derivatives thereof, any oil or gas exploration or production waste, and any natural gas, synthetic gas and any mixtures thereof; (G) any substance that, whether by its nature or its use, is subject to regulation under any Environmental Laws or with respect to which any Environmental Laws or Governmental 28 35 Entity requires environmental investigation, monitoring or remediation; and (H) any underground storage tanks, dikes, or impoundments as defined under any Environmental Laws. "Environmental Costs or Liabilities" means any losses, liabilities, obligations, damages, fines, penalties, judgments, settlements, actions, claims, costs and expenses (including, without limitation, reasonable fees, disbursements and expenses of legal counsel, experts, engineers and consultants, and the costs of investigation or feasibility studies and performance of remedial or removal actions and cleanup activities) in connection with (1) any Environmental Laws, (2) order of, or contract of such SFX Party with, any Governmental Entity or any private or public persons or (3) any exposure of any person or property to Hazardous Substances; (v) There are not now, nor have there been in the past, on, in or under any property or facilities when owned, leased, or operated by each SFX Party or when owned, leased, or operated by any of its predecessors, any Hazardous Substances that are in a condition or location that violates any Environmental Law or that reasonably could be expected to require remediation under any Environmental Laws or give rise to a claim for damages or compensation by any affected person or to any Environmental Costs or Liabilities; and (vi) Each SFX Party has not received, and to the Knowledge of such SFX Party, does not expect to receive, any notification from any source advising such SFX Party that: (A) it is a potentially responsible party under CERCLA or any other Environmental Laws; (B) any real property or facility currently or previously owned, operated, or leased by it is identified or proposed for listing as a federal National Priorities List ("NPL") (or state-equivalent) site or a Comprehensive Environmental Response, Compensation and Liability Information System ("CERCLIS") list (or state-equivalent) site; and (C) any facility to which it has ever transported or otherwise arranged for the disposal of Hazardous Substances is identified or proposed for listing as an NPL (or state-equivalent) site or CERCLIS (or state- equivalent) site. (n) Taxes. Each SFX Party has filed or caused to be filed all Tax Returns affecting the SFX Stations or the SFX Assets which are required to be filed by such SFX Party, all such Tax Returns which have been filed are accurate and complete, and such SFX Party has timely paid all Taxes shown on such returns or on any Tax assessment received by such SFX Party to the extent that such Taxes have become due. There are no SFX Liens for Taxes upon the SFX Stations or the SFX Assets except for the SFX Permitted Encumbrances. Each SFX Party has not received notice of any Tax deficiency or delinquency. No Internal Revenue Service audit of any of the SFX Parties is pending or, to the Knowledge of each SFX Party, threatened, and the results of any completed audits are properly reflected in the SFX Financial Statements. All monies required to be withheld by each SFX Party from employees or collected from customers for Taxes and the portion of any Taxes to be paid by each SFX Party to governmental agencies or set aside in accounts for such purposes have been so paid or set aside, or such monies have been reserved against and entered upon the books and are reflected in the SFX Balance Sheet. There are no legal, administrative, or tax proceedings pursuant to which any of the SFX Parties is or could be made liable for any taxes, 29 36 penalties, interest, or other charges, the liability for which could extend to Capstar as transferee of the business of the SFX Stations. (o) Certain Agreements. (i) Schedule 3.1(o) hereto lists each (A) employment or consulting SFX Contract which is not terminable without liability or penalty on 30 days or less notice, (B) SFX Contract under which any party thereto remains obligated to provide goods or services having a value, or to make payments aggregating, in excess of $50,000 per year, and (C) other SFX Contract that is material to the operation of the SFX Stations or to each SFX Party's business, in any such case to which such SFX Party is a party or such SFX Party or the SFX Assets are bound. Each such SFX Contract described in Schedule 3.1(o) or required to be so described is a valid and binding obligation of the applicable SFX Party and is in full force and effect without amendment. Each SFX Party and, to the Knowledge of such SFX Party, each other party to such SFX Contracts, has performed in all material respects the obligations required to be performed by it under such SFX Contracts and is not (with or without lapse of time or the giving of notice, or both) in breach or default thereunder. Schedule 3.1(o) identifies, as to each such SFX Contract listed thereon, whether the consent of the other party thereto is required, and the amount of any payments required, in order for such SFX Contract to continue in full force and effect upon the consummation of the transactions contemplated hereby or whether such SFX Contract can be canceled by the other party without liability to such other party due to the consummation of the transactions contemplated hereby. A complete copy of each written SFX Contract and a description of each oral SFX Contract set forth in Schedule 3.1(o) has been provided to Capstar prior to the date of this Agreement. (ii) Each SFX Party is not a party to any oral or written agreement, plan or arrangement with any employee or other station or broadcast personnel (whether an employee, consultant or an independent contractor) of such SFX Party (A) the benefits of which are contingent, or the terms of which are materially altered, upon, or result from, the occurrence of a transaction involving such SFX Party of the nature of any of the transactions contemplated by this Agreement, (B) providing severance benefits longer than forty-five days or other benefits after the termination of employment or other contractual relationship regardless of the reason for such termination and regardless of whether such termination is before or after a change of control, (C) under which any person may receive payments subject to the tax imposed by Section 4999 of the Code or (D) any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. 30 37 (p) ERISA Compliance; Labor. (i) The present value of all accrued benefits (vested and unvested) under all the SFX Employee Pension Benefit Plans, which any of the SFX Parties or any other trades or businesses under common control within the meaning of Section 4001(b)(1) of ERISA with each SFX Party (collectively, the "SFX ERISA Group") maintains, or to which each SFX Party or any member of the SFX ERISA Group is or has been obligated to contribute (the "SFX Pension Plans"), did not, as of the respective last annual valuation dates for such SFX Pension Plans, exceed the value of the assets of such SFX Pension Plan allocable to such benefits. None of such SFX Pension Plans subject to Title IV of ERISA or any of their related trusts has been terminated or partially terminated. Neither any SFX Party nor any member of the SFX ERISA Group has contributed or been obligated to contribute to any Multiemployer Plan. Except as set forth on Schedule 3.1(p), neither any SFX Party nor any member of the SFX ERISA Group has any SFX Employee Benefit Plans. With respect to the SFX Employee Benefit Plans, no event has occurred and, to the Knowledge of each SFX Party, there exists no condition or set of circumstances in connection with which any SFX Party or any member of the SFX ERISA Group could be subject to any liability under the terms of such SFX Employee Benefit Plans or Applicable Laws, other than any condition or set of circumstances that could not reasonably be expected to have a Material Adverse Effect. (ii) True, correct, and complete copies of each of the SFX Employee Benefit Plans, and related trusts, if applicable, have been furnished to Capstar, along with the most recent report filed on Form 5500 and summary plan description with respect to each SFX Employee Benefit Plan required to file Form 5500. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not (i) require any SFX Party to make a larger contribution or pay greater benefits under any SFX Employee Benefit Plan or employment agreement or (ii) create or give rise to any additional vested rights or service credits under any SFX Employee Benefit Plan. (iii) None of the SFX Parties is a party to any collective bargaining agreement. No SFX Party has agreed to recognize any union or other collective bargaining representative, nor has any union or other collective bargaining representative been certified as the exclusive bargaining representative of any of its employees. Each SFX Party (A) is, and has always been since January 1, 1995, in substantial compliance with all applicable laws regarding labor, employment and employment practices, terms and conditions of employment, equal employment opportunity, employee benefits, affirmative action, wages and hours, plant closing and mass layoff, occupational safety and health, immigration, and workers' compensation, (B) is not engaged, nor has it since January 1, 1995, engaged, in any unfair labor practices, and has no, and has not had since January 1, 1995, any, unfair labor practice charges or complaints before the National Labor Relations Board pending or, to the Knowledge of such SFX Party, threatened against it, (C) has no, and has not had since January 1, 1995, any, grievances, arbitrations, or other proceedings arising or asserted to arise under any collective bargaining agreement, pending or, to the Knowledge of such SFX Party, threatened, against it and (D) has no, and has not had since January 1, 1995, any, charges, 31 38 complaints, or proceedings before the Equal Employment Opportunity Commission, Department of Labor or any other Governmental Entity responsible for regulating employment practices, pending, or, to the Knowledge of such SFX Party, threatened against it. There is no labor strike, slowdown, work stoppage or lockout pending or, to the Knowledge of each SFX Party, threatened against or affecting such SFX Party, and none of the SFX Parties has experienced any labor strike, slowdown, work stoppage or lockout since January 1, 1995. To the Knowledge of each SFX Party no union organizational campaign or representation petition is currently pending with respect to any of the employees of each SFX Party. (q) Patents, Trademarks, Etc. Schedule 3.1(q) is a true and complete list of all of the SFX Intellectual Property. Except as set forth on Schedule 3.1(q), each SFX Party owns or has the unencumbered right to use pursuant to a valid, binding, and enforceable license agreement or other contract or arrangement all such SFX Party's SFX Intellectual Property. To the Knowledge of each SFX Party, such SFX Party is not infringing any such SFX Intellectual Property, and such SFX Party is not aware of any infringement by others of any of the SFX Intellectual Property owned by such SFX Party. (r) SFX Assets. The SFX Assets and the SFX Excluded Assets include all assets used or held for use in connection with the business and operations of the SFX Stations as currently conducted. (s) No Dispositions. Since the SFX Balance Sheet Date, there has not occurred any sale, lease, transfer, assignment, abandonment or other disposition of any of the assets of any SFX Station other than any disposition of (i) obsolete property, (ii) property in connection with the acquisition of replacement property of equal value, or (iii) assets having, in the aggregate, a value of less than $5,000 disposed of in the ordinary course of business and consistent with past practices. (t) Disclosure. No representation or warranty by each SFX Party contained in this Agreement or in any certificate furnished pursuant to this Agreement contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact necessary, in light of the circumstances under which it was or will be made, in order to make the statements herein or therein not misleading. 3.2. REPRESENTATIONS AND WARRANTIES REGARDING CAPSTAR. Capstar represents and warrants to each SFX Party as follows (with the understanding that (i) the representations and warranties contained in Sections 3.2(a), 3.2(b), 3.2(c), and 3.2(d) are made as of the date of this Agreement, (ii) the representations and warranties contained in Sections 3.2(e) through 3.2(u) are made as of the Capstar Date, and (iii) each SFX Party is relying on such representations and warranties in entering into and performing this Agreement), provided, however, that for purposes of this Section 3.2, any representations or warranties given pursuant to Sections 3.2(e) through 3.2(u) shall be deemed made with respect to events, acts or omissions occurring or conditions coming into existence on or after the Capstar Date. 32 39 (a) Organization, Good Standing, Etc. Capstar is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted and is duly qualified and in good standing to do business in each state listed on Schedule 3.2(a), which states represent every jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary. Capstar is not in violation of any provisions of its Articles of Incorporation or Bylaws. (b) Subsidiaries of Capstar. Capstar does not own, directly or indirectly, any equity interest in any other corporation, partnership, or other person or have the right, pursuant to a contract or otherwise, to acquire any capital stock, equity interest or other similar investment in any corporation, partnership, or other person. (c) Authority. Capstar has all requisite corporate power and authority to enter into this Agreement, the Capstar Bill of Sale and Assignment, the Capstar Assumption Agreement, and each other agreement, document, and instrument required to be executed by Capstar in accordance herewith (collectively, the "Capstar Transaction Documents") and to consummate the transactions contemplated hereby or thereby. The execution and delivery of the Capstar Transaction Documents by Capstar and the consummation by Capstar of the transactions contemplated hereby or thereby have been duly authorized by all necessary action on the part of Capstar, including, without limitation, the requisite approval of the holders of the outstanding capital stock of Capstar entitled to vote thereon. The Capstar Transaction Documents have been, or upon execution and delivery will be, duly executed and delivered and constitute the valid and binding obligations of Capstar enforceable against it in accordance with their terms, subject as to enforceability to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (d) No Conflict; Required Filings and Consents. The execution and delivery of the Capstar Transaction Documents by Capstar do not and the performance by Capstar of the transactions contemplated hereby or thereby will not, subject to obtaining the consents, approvals, authorizations, fairness opinions and permits and making the filings described in this Section 3.2(d) or on Schedule 3.2(o), (A) violate, conflict with, or result in any breach of any provision of Capstar's Articles of Incorporation and Bylaws, (B) violate, conflict with, or result in a violation or breach of, or constitute a default (with or without due notice or lapse of time or both) under, or permit the termination of, or result in the acceleration of, or entitle any party to accelerate (whether as a result of a change of control of Capstar or otherwise) any obligation, or result in the loss of any benefit, or give any person the right to require any security to be repurchased, or give rise to the creation of any lien, charge, security interest, or encumbrance upon any of the Capstar Assets under any of the terms, conditions, or provisions of any loan or credit agreement, note, bond, mortgage, indenture, or deed of trust, or any license, lease, agreement, or other instrument or obligation to which Capstar is a party or by which it or any of the Capstar Assets may be bound or subjected, or (C) violate any order, writ, judgment, injunction, decree, statute, law, rule, or regulation, of any Governmental Entity applicable to Capstar or by which or to which any of the Capstar Assets is bound or subject. No Consent of any Governmental Entity is required by or with respect to Capstar or Affiliate thereof in connection with 33 40 the execution and delivery of any Capstar Transaction Documents by Capstar or Affiliate thereof or the consummation of the transactions contemplated hereby or thereby, except for (1) the filing of a premerger notification report under the HSR Act and (2) the Capstar FCC Consents (as contemplated by Section 7.3 hereof). 34 41 (e) Reports; Absence of Certain Changes or Events. (i) Capstar has timely filed all forms, reports, statements, and other documents required to be filed with the FCC. Capstar has filed all forms, reports, statements, and other documents required to be filed with any and all other Governmental Entities. (All such forms, reports, statements and other documents required to be filed with the FCC or any other Governmental Entity are referred to herein, collectively, as the "Capstar Company Reports"). The Company Reports were prepared in all material respects in accordance with the requirements of applicable law. (ii) Except as disclosed in Schedule 3.2(e), since the Capstar Date, Capstar has conducted its business only in the ordinary course consistent with past practice and nothing has occurred that would have been prohibited by Section 4.1 if the terms of such section had been in effect as of and after the Capstar Date. Since the Capstar Date, there has not occurred, and Capstar has not incurred or suffered, any event, circumstance, or fact that could result in a Material Adverse Effect. Additionally, since the Capstar Date, there has not occurred, and Capstar has not incurred or suffered, any event, circumstance, or fact that materially impairs the physical assets of any of the Capstar Stations. (f) Compliance with Applicable Laws: FCC Matters. (i) The business of Capstar has been conducted in compliance in all material respects with each Applicable Law. Except as disclosed in Schedule 3.2(f), no investigation or review by any Governmental Entity with respect to Capstar is pending or, to the Knowledge of Capstar, threatened. Without limiting the generality of the foregoing, Capstar has complied with the Communications Act, all obligations with respect to equal employment opportunity under Applicable Law, and all material rules and regulations of the Federal Aviation Administration applicable to each of the towers used or held for use by a Capstar Station. In addition, Capstar has duly and timely filed, or caused to be so filed, with the FCC and other appropriate Governmental Entities all reports, statements, documents, registrations, filings, or submissions with respect to the operation of each Capstar Station and the ownership thereof, including, applications for renewal of authority required by Applicable Law to be filed. All such FCC filings complied in all material respects with Applicable Laws when made, and no deficiencies have been asserted with respect to any such filings. The material required by 47 C.F.R. Section 73.3526 to be kept in the public inspection files of each Capstar Station is in such files. (ii) Schedule 3.2(f) is a true and complete list of (A) all of the Capstar FCC Licenses, including the expiration dates thereof, as of the Capstar Date and (B) all other material licenses, permits, or authorizations issued to Capstar by any other Governmental Entities and held by it as of the Capstar Date. Such Capstar FCC Licenses, licenses, permits, and authorizations, and all pending applications for modification, extension, or renewal thereof or for new licenses, permits, permissions, or authorizations, are collectively referred to herein as the "Capstar Station Licenses." Schedule 3.2(f) accurately lists the legally authorized holder(s) of the Capstar Station Licenses. The Capstar Station Licenses constitute 35 42 all the licenses, permits and authorizations required for the operation of each of the Capstar Stations and the business of Capstar, and each of the Capstar Station Licenses is in full force and effect. Each of the Capstar Stations has been operated in all material respects in accordance with the terms of its Capstar Station Licenses and Capstar is otherwise in compliance with, and has conducted its business so as to comply with, the terms of such Capstar Station Licenses. There are no proceedings pending or, to the Knowledge of Capstar, threatened with respect to Capstar's ownership or operation of any Capstar Station which reasonably may be expected to result in the revocation, material adverse modification, non-renewal, or suspension of any of the Capstar Station Licenses, the denial of any pending applications for any Capstar Station Licenses, the issuance against Capstar of any cease and desist order, or the imposition of any administrative actions, including the proposed assessment of fines or penalties, by the FCC or any other Governmental Entity with respect to any Capstar Station Licenses, or which reasonably may be expected to adversely affect any Capstar Station's ability to operate as currently operated or any of the SFX Parties' ability to obtain control of any Capstar Station Licenses or to operate any Capstar Station. To the Knowledge of Capstar, no other broadcast station or radio communications facility is causing interference to any Capstar Station's transmissions beyond that which is allowed by FCC rules and regulations and no Capstar Station is causing interference to any other broadcast station or radio communications facilities' transmissions beyond that which is allowed by the FCC rules and regulations. To the knowledge of Capstar, there is no reason to believe that the FCC will not renew any of the Capstar Station Licenses issued by the FCC in the ordinary course of business. (iii) Capstar is able to certify on an FCC Form 314 that it is financially qualified. (g) Absence of Litigation. Except as set forth on Schedule 3.2(g), as of the Capstar Date there is no claim, action, suit, inquiry, judicial, or administrative proceeding, grievance, or arbitration pending or, to the Knowledge of Capstar, threatened against Capstar or any of the Capstar Assets by or before any arbitrator or Governmental Entity, nor are there any investigations relating to Capstar or any of the Capstar Assets pending or, to the Knowledge of Capstar, threatened by or before any arbitrator or Governmental Entity. Except as set forth in Schedule 3.2(g), there is no judgment, decree, injunction, order, determination, award, finding, or letter of deficiency of any Governmental Entity or arbitrator outstanding against Capstar or any of the Capstar Assets. There is no action, suit, inquiry, judicial, or administrative proceeding pending or, to the Knowledge of Capstar, threatened against Capstar relating to the transactions contemplated by this Agreement. (h) Insurance. Since the Capstar Date, Capstar has been insured against such risks as companies engaged in a similar business would, in accordance with good business practice, customarily be insured. Schedule 3.2(h) sets forth an accurate summary of all fire, general liability, malpractice liability, theft, and other forms of insurance and all fidelity bonds held by or applicable to Capstar. Except as set forth on Schedule 3.2(h), the policies of general liability, malpractice liability, fire, theft, and other insurance maintained with respect to the operations, assets, or business of Capstar provide adequate coverage against loss. To the Knowledge of Capstar, no event has occurred, including the failure by Capstar to give any notice or information or the delivery of any 36 43 inaccurate or erroneous notice or information, which limits or impairs the rights of Capstar under any such insurance policies in such a manner as could have a Material Adverse Effect. Excluding insurance policies that have expired and been replaced in the ordinary course of business, no insurance policy has been canceled within the last two years prior to the date hereof. (i) Capstar Owned Real Property. Schedule 3.2(i) contains an accurate description of all the Capstar Owned Real Property. Capstar has good and marketable, fee simple, absolute title in and to the Capstar Owned Real Property. Capstar has sufficient title to such easements, rights of way and other rights appurtenant to each of the Capstar Owned Real Properties as are necessary to permit ingress and egress to and from the Capstar Owned Real Property to a public way, and the improvements on the Capstar Owned Real Property have access to such sewer, water, gas, electric, telephone and other utilities as are necessary to allow the business of Capstar operated thereon to be operated in the ordinary course. There is no pending condemnation or similar proceeding affecting the Capstar Owned Real Property or any portion thereof, and to the Knowledge of Capstar, no such action is threatened. Except as set forth on Schedule 3.2(i), the improvements located on the Capstar Owned Real Property are in sufficiently good condition (except for ordinary wear and tear) to allow the business of Capstar to be operated in the ordinary course and there has been no damage to such improvements that affects the conduct of such business in any material respect that has not been repaired or remedied. Except as set forth on Schedule 3.2(i), there are no lessees or tenants at will in possession of any portion of any of the Capstar Owned Real Property other than Capstar, whether as lessees, tenants at will, trespassers or otherwise. Except as set forth on Schedule 3.2(i), no zoning, building or other federal, state or municipal law, ordinance, regulation or restriction is violated in any material respect by the continued maintenance, operation or use of the Capstar Owned Real Property or any tract or portion thereof or interest therein in its present manner. The current use of the Capstar Owned Real Property and all parts thereof does not violate any restrictive covenants of record affecting any of the Capstar Owned Real Property. All necessary Capstar Licenses by any Governmental Entity with respect to the Capstar Owned Real Property have been obtained, have been validly issued and are in full force and effect. (j) Capstar Leased Real Property. Schedule 3.2(j) contains an accurate description of all the leasehold interests relating to the business and operations of each of the Capstar Stations as now conducted. Each lease described in Schedule 3.2(j) is a valid and binding obligation of Capstar and is in full force and effect without amendment other than as described in Schedule 3.2(j). Except as otherwise disclosed on Schedule 3.2(j), Capstar is not, and to the Knowledge of Capstar, no other party is, in default under any lease described in Schedule 3.2(j). Subject to obtaining the Consents disclosed in Schedule 3.2(j), Capstar has the full legal power and authority to assign its rights under the leases listed in Schedule 3.2(j) to the SFX Parties. All leasehold interests listed in Schedule 3.2(j) (including the improvements thereon) are available for immediate use in the conduct of the business and operations of each of the Capstar Stations as currently conducted. (k) Capstar Personal Property. Schedule 3.2(k) contains a description of the items of Capstar Personal Property (having a replacement cost of not less than $5,000 for each item) which comprise all Capstar Personal Property used or held for use in connection with the business and operations of each Capstar Station or which permit the operation of each Capstar Station as now 37 44 conducted. Except as set forth on Schedule 3.2(k), Capstar has good title to, or a valid leasehold or license interest in, all Capstar Personal Property and none of the Capstar Personal Property is subject to any Capstar Lien or other encumbrances, except for Capstar Permitted Encumbrances. Capstar is not, and to the Knowledge of Capstar, no other party is, in default under any of the leases, licenses and other Capstar Contracts relating to the Capstar Personal Property. Except as otherwise disclosed in Schedule 3.2(k), the Capstar Personal Property (i) is in good operating condition and repair (ordinary wear and tear excepted), (ii) is available for immediate use in the business and operation of each of the Capstar Stations as currently conducted and (iii) permits each of the Capstar Stations to operate in accordance with the terms of their respective Capstar FCC Licenses, and the rules and regulations of the FCC, and with all other applicable federal, state and local statutes, ordinances, rules and regulations. (l) Liens and Encumbrances. All of the Capstar Assets, including leases, are free and clear of all liens, pledges, claims, security interests, restrictions, mortgages, tenancies, and other possessory interests, conditional sale or other title retention agreements, assessments, easements, rights of way, covenants, restrictions, rights of first refusal, defects in title, encroachments, and other burdens, options or encumbrances of any kind (collectively, the "Capstar Liens") except (i) Capstar Permitted Encumbrances and (ii) Capstar Liens set forth on Schedule 3.2(l) (the Capstar Liens referred to in clauses (i) and (ii) being "Capstar Permitted Liens"). At the Closing, all of the Capstar Assets shall be free and clear of all Capstar Liens other than Capstar Permitted Encumbrances. (m) Environmental Matters. Except as expressly disclosed in the Existing Capstar ESAs: (i) The real property and facilities owned, operated, and leased by Capstar and the operations of Capstar thereon comply and have at all times complied in all material respects with all Applicable Laws and rules of common law pertaining to the environment, natural resources, and public or employee health and safety, including all Environmental Laws; (ii) No judicial proceedings are pending or, to the Knowledge of Capstar, threatened against Capstar alleging the violation of any Environmental Laws, and there are no administrative proceedings pending or, to the Knowledge of Capstar, threatened against Capstar, alleging the violation of any Environmental Laws and no notice from any Governmental Entity or any private or public person has been received by Capstar claiming any violation of any Environmental Laws in connection with any real property or facility owned, operated or leased by Capstar, or requiring any remediation, clean-up, modification, repairs, work, construction, alterations, or installations on or in connection with any real property or facility owned, operated or leased by Capstar that are necessary to comply with any Environmental Laws and that have not been complied with or otherwise resolved to the satisfaction of the party giving notice; (iii) All permits, registrations, licenses, authorizations, and the like ("Capstar Permits") required to be obtained or filed by Capstar under any Environmental Laws in connection with Capstar's operations, including those activities relating to the 38 45 generation, use, storage, treatment, disposal, release, or remediation of Hazardous Substances have been duly obtained or filed, and Capstar is and has at all times been in full compliance in all material respects with the terms and conditions of all such Permits; (iv) All Hazardous Substances used or generated by Capstar or any of its predecessors on, in, or under any of the owned, operated, or leased real property or facilities are and have at all times been generated, stored, used, treated, disposed of, and released by such persons or on their behalf in such manner as not to result in any Environmental Costs or Liabilities; (v) There are not now, nor have there been in the past, on, in or under any property or facilities when owned, leased, or operated by Capstar or when owned, leased, or operated by any of its predecessors, any Hazardous Substances that are in a condition or location that violates any Environmental Law or that reasonably could be expected to require remediation under any Environmental Laws or give rise to a claim for damages or compensation by any affected person or to any Environmental Costs or Liabilities; and (vi) Capstar has not received, and to the Knowledge of Capstar, does not expect to receive, any notification from any source advising Capstar that: (A) it is a potentially responsible party under CERCLA or any other Environmental Laws; (B) any real property or facility currently or previously owned, operated, or leased by it is identified or proposed for listing as a federal NPL (or state- equivalent) site or a CERCLIS list (or state-equivalent) site; and (C) any facility to which it has ever transported or otherwise arranged for the disposal of Hazardous Substances is identified or proposed for listing as an NPL (or state-equivalent) site or CERCLIS (or state- equivalent) site. (n) Taxes. Capstar has filed or caused to be filed all Tax Returns affecting the Capstar Stations or the Capstar Assets which are required to be filed by Capstar, all such Tax Returns which have been filed are accurate and complete, and Capstar has timely paid all Taxes shown on such returns or on any Tax assessment received by Capstar to the extent that such Taxes have become due. There are no Capstar Liens for Taxes upon the Capstar Stations or the Capstar Assets except for the Capstar Permitted Encumbrances. Capstar has not received notice of any Tax deficiency or delinquency. No Internal Revenue Service audit of Capstar is pending or, to the Knowledge of Capstar, threatened. All monies required to be withheld by Capstar from employees or collected from customers for Taxes and the portion of any Taxes to be paid by Capstar to governmental agencies or set aside in accounts for such purposes have been so paid or set aside, or such monies have been reserved against. There are no legal, administrative, or tax proceedings pursuant to which Capstar is or could be made liable for any taxes, penalties, interest, or other charges, the liability for which could extend to the SFX Parties as transferee of the business of the Capstar Stations. (o) Certain Agreements. (i) Schedule 3.2(o) hereto lists each (A) employment or consulting Capstar Contract which is not terminable without liability or penalty on 30 days or less 39 46 notice, (B) Capstar Contract under which any party thereto remains obligated to provide goods or services having a value, or to make payments aggregating, in excess of $50,000 per year, and (C) other Capstar Contract that is material to the operation of the Capstar Stations or to Capstar's business, in any such case to which Capstar is a party or Capstar or the Capstar Assets are bound. Each such Capstar Contract described in Schedule 3.2(o) or required to be so described is a valid and binding obligation of Capstar and is in full force and effect without amendment. Capstar and, to the Knowledge of Capstar, each other party to such Capstar Contracts, has performed in all material respects the obligations required to be performed by it under such Capstar Contracts and is not (with or without lapse of time or the giving of notice, or both) in breach or default thereunder. Schedule 3.2(o) identifies, as to each such Capstar Contract listed thereon, whether the consent of the other party thereto is required, and the amounts of any payment required, in order for such Capstar Contract to continue in full force and effect upon the consummation of the transactions contemplated hereby or whether such Capstar Contract can be canceled by the other party without liability to such other party due to the consummation of the transactions contemplated hereby. A complete copy of each written Capstar Contract and a description of each oral Capstar Contract set forth in Schedule 3.2(o) shall be provided to the SFX Parties within 30 days of the Capstar Date. (ii) Capstar is not a party to any oral or written agreement, plan or arrangement with any employee or other station or broadcast personnel (whether an employee, consultant or an independent contractor) of Capstar (A) the benefits of which are contingent, or the terms of which are materially altered, upon, or result from, the occurrence of a transaction involving Capstar of the nature of any of the transactions contemplated by this Agreement, (B) providing severance benefits longer than forty-five days or other benefits after the termination of employment or other contractual relationship regardless of the reason for such termination and regardless of whether such termination is before or after a change of control, (C) under which any person may receive payments subject to the tax imposed by Section 4999 of the Code or (D) any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. (p) ERISA Compliance; Labor. (i) The present value of all accrued benefits (vested and unvested) under all the Capstar Employee Pension Benefit Plans, which Capstar or any other trades or businesses under common control within the meaning of Section 4001(b)(1) of ERISA with Capstar (collectively, the "Capstar ERISA Group") maintains, or to which Capstar or any member of the Capstar ERISA Group is or has been obligated to contribute (the "Capstar Pension Plans"), did not, as of the respective last annual valuation dates for such Capstar Pension Plans, exceed the value of the assets of such Capstar Pension Plan allocable to such benefits. None of such Capstar Pension Plans subject to Title IV of ERISA or any of their related trusts has been terminated or partially terminated. Neither Capstar or any member of the Capstar ERISA Group has contributed or been obligated to contribute to any 40 47 Multiemployer Plan. Except as set forth on Schedule 3.2(p), neither Capstar nor any member of the Capstar ERISA Group has any Capstar Employee Benefit Plans. With respect to the Capstar Employee Benefit Plans, no event has occurred and, to the Knowledge of Capstar, there exists no condition or set of circumstances in connection with which Capstar or any member of the Capstar ERISA Group could be subject to any liability under the terms of such Capstar Employee Benefit Plans or Applicable Laws, other than any condition or set of circumstances that could not reasonably be expected to have a Material Adverse Affect. (ii) True, correct, and complete copies of each of the Capstar Employee Benefit Plans, and related trusts, if applicable, have been furnished to the SFX Parties, along with the most recent report filed on Form 5500 and summary plan description with respect to each Capstar Employee Benefit Plan required to file Form 5500. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not (i) require Capstar to make a larger contribution or pay greater benefits under any Capstar Employee Benefit Plan or employment agreement or (ii) create or give rise to any additional vested rights or service credits under any Capstar Employee Benefit Plan. (iii) Capstar is not a party to any collective bargaining agreement. Capstar has not agreed to recognize any union or other collective bargaining representative, nor has any union or other collective bargaining representative been certified as the exclusive bargaining representative of any of its employees. Capstar (A) is, and has always been since the Capstar Date, in substantial compliance with all applicable laws regarding labor, employment and employment practices, terms and conditions of employment, equal employment opportunity, employee benefits, affirmative action, wages and hours, plant closing and mass layoff, occupational safety and health, immigration, and workers' compensation, (B) is not engaged, nor has it since the Capstar Date, engaged, in any unfair labor practices, and has no, and has not had since the Capstar Date, any, unfair labor practice charges or complaints before the National Labor Relations Board pending or, to the Knowledge of Capstar threatened against it, (C) has no, and has not had since the Capstar Date, any, grievances, arbitrations, or other proceedings arising or asserted to arise under any collective bargaining agreement, pending or, to the Knowledge of Capstar threatened, against it and (D) has no, and has not had since the Capstar Date, any, charges, complaints, or proceedings before the Equal Employment Opportunity Commission, Department of Labor or any other Governmental Entity responsible for regulating employment practices, pending, or, to Capstar's Knowledge, threatened against it. There is no labor strike, slowdown, work stoppage or lockout pending or, to the Knowledge of Capstar, threatened against or affecting Capstar, and Capstar has not experienced any labor strike, slowdown, work stoppage or lockout since the Capstar Date. To the Knowledge of Capstar, no union organizational campaign or representation petition is currently pending with respect to any of the employees of Capstar. (q) Patents, Trademarks, Etc. Schedule 3.2(q) is a true and complete list of all of the Capstar Intellectual Property. Except as set forth on Schedule 3.2(q), Capstar owns or has the unencumbered right to use pursuant to a valid, binding, and enforceable license agreement or other contract or arrangement all such Capstar Intellectual Property. To the Knowledge of Capstar, 41 48 Capstar is not infringing any such Capstar Intellectual Property, and Capstar is not aware of any infringement by others of any of the Intellectual Property owned by Capstar. (r) Assets. The Capstar Assets and the Capstar Excluded Assets include all assets used or held for use in connection with the business and operations of the Capstar Stations as currently conducted. (s) No Dispositions. Since the Capstar Date, there has not occurred any sale, lease, transfer, assignment, abandonment or other disposition of any of the assets of any Capstar Station other than any disposition of (i) obsolete property, (ii) property in connection with the acquisition of replacement property of equal value, or (iii) assets having, in the aggregate, a value of less than $5,000 disposed of in the ordinary course of business and consistent with past practices. (t) Disclosure. No representation or warranty by Capstar contained in this Agreement or in any certificate furnished pursuant to this Agreement contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact necessary, in light of the circumstances under which it was or will be made, in order to make the statements herein or therein not misleading. ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS 4.1. CONDUCT OF BUSINESS BY THE SFX PARTIES AND CAPSTAR. Each SFX Party hereby agrees that, from the date of this Agreement until the Closing, it will not (except as contemplated by this Agreement or to the extent that Capstar shall otherwise consent in writing), and Capstar hereby agrees that, from the Capstar Date until the Closing, it will not (except as contemplated by this Agreement or to the extent that any SFX Party shall otherwise consent in writing) (for purposes of this Section 4.1 each SFX Party and Capstar each being a "Party"): (a) conduct its business in any manner except in the ordinary course consistent with past practice; (b) fail to use all commercially reasonable efforts to preserve intact the its present business organization and to keep available the services of its present officers, station managerial personnel (including the General Manager, Station Manager, General Sales Manager, Local Sales Manager, Programming Director, and Business Manager, or persons performing comparable duties, of each of its stations (collectively, the "Station Management")) and over-the-air employees or independent contractors and preserve its relationships with customers, suppliers and others having business dealings with it; (c) fail to use commercially reasonable efforts to maintain the Capstar Assets or SFX Assets, as applicable, in their current condition, except for ordinary wear and tear and damage by casualty governed by Section 7.9 or Section 7.10, as applicable; 42 49 (d) fail to use all commercially reasonable efforts to maintain the present format of the Capstar Stations or SFX Stations, as applicable, and with programming consistent with past practices; (e) except for amendments, terminations (without payment of penalty or damages), renewals, or failures to renew (without payment of penalty or damages) of employment agreements with over-the-air personnel in the ordinary course of business and consistent with past practice (subject to prior consultation with the other Party reasonably in advance thereof), materially amend, terminate, or fail to use all commercially reasonable efforts to renew any material SFX Contract or Capstar Contract, as applicable (i.e., a contract or agreement of the type required to be described in Schedule 3.1(o) or Schedule 3.2(o)) (provided that a Party shall not be required to renew any material SFX Contract or material Capstar Contract, as applicable, on terms that are less favorable to such Party), or default in any material respect (or take or omit to take any action that, with or without the giving notice or passage of time, would constitute a material default) under any material SFX Contract or material Capstar Contract, as applicable, or enter into any new material SFX Contract or material Capstar Contract, as applicable; (f) except for a merger or consolidation, with or into an Affiliate, merge or consolidate with or into any other legal entity, dissolve, or liquidate; (g) except as required by the terms and provisions of written contracts between a Party and an employee thereof as in existence on the date of this Agreement for each SFX Party and the Capstar Date for Capstar, adopt or amend any Employee Benefit Plan or collective bargaining agreement, or increase in any manner the compensation or fringe benefits of any Station Manager, officer, director, or employee or other station and broadcast personnel (whether employees or independent contractors), except as required by law; (h) terminate any employee of any of the SFX Stations or Capstar Stations, as applicable, without prior consultation with the other Party regarding the basis for such termination; (i) acquire (including, without limitation, by merger, consolidation, or the acquisition of any equity interest or assets) or sell (whether by merger, consolidation, or the sale of an equity interest or assets), lease, or dispose of any SFX Assets or Capstar Assets, as applicable, except in the ordinary course of business and consistent with past practice or, even if in the ordinary course of business and consistent with past practices (other than sales of surplus or obsolete equipment), whether in one or more transactions, in no event involving an Capstar Asset or SFX Asset, as applicable, or Capstar Assets or SFX Assets, as applicable, having an aggregate fair market value in excess of $50,000; (j) mortgage, pledge, or subject to any material SFX Lien or material Capstar Lien, as applicable, other than SFX Permitted Liens or Capstar Permitted Liens, as applicable, any of the SFX Assets or Capstar Assets, as applicable; 43 50 (k) except as required by GAAP, applicable law, or circumstances which did not exist as of the SFX Balance Sheet Date or Capstar Date, as applicable, change any of the material accounting principles or practices used by it; (l) change in any material respect its existing practices and procedures with respect to the collection of accounts receivable of the SFX Stations or Capstar Station, as applicable, and, except with respect to good faith attempts consistent with past practice to obtain payment of a past due receivable, or except in accordance with existing practices, a contested receivable, offer to discount the amount of any outstanding receivable or extend any other incentive (whether to the account debtor or any employee or third party responsible for the collection of receivables) to accelerate the collection thereof; (m) change any SFX Station's or Capstar Station's, as applicable, advertising rates or policies, procedures or methods in connection with the sale of advertising time in a manner expected to accelerate the receipt of cash payments or fail to incur annual advertising and promotional department expenses in cash and trade other than as budgeted for 1997; (n) enter into, or enter into negotiations or discussions regarding the SFX Stations or the Capstar Stations, as applicable, with any person other than the other Party with respect to any local marketing agreement, time brokerage agreement, joint sales agreement, or any other similar agreement; or (o) agree to or make any commitment, orally or in writing, to take any actions prohibited by this Agreement; provided, however, that Capstar hereby agrees that, from the date of this Agreement until the Closing, it will not take any actions prohibited by Sections 4.1(a), 4.1(f), and 4.1(o). 4.2. NEGATIVE TRADE BALANCE. (a) Each SFX Party shall use commercially reasonable efforts to ensure that the SFX Negative Trade Balance, as defined below, of the SFX Stations, taken as a whole, does not exceed $25,000 in the aggregate at the Closing Date, provided that such excess will be a pre-Closing Date operating expense of the SFX Parties that shall serve as an adjustment in favor of Capstar under Section 2.7. "SFX Negative Trade Balance" means the difference, if negative, between the value of time owed under barter agreements to which any of the SFX Stations is a party or by which any of them is bound and the value of the goods and services to be received under such agreements. (b) Capstar shall use commercially reasonable efforts to ensure that the Capstar Negative Trade Balance, as defined below, of the Capstar Stations, taken as a whole, does not exceed $25,000 in the aggregate at the Closing Date, provided that such excess will be a pre-Closing Date operating expense of Capstar that shall serve as an adjustment in favor of the SFX Parties under Section 2.7. "Capstar Negative Trade Balance" means the difference, if negative, between the value of time owed under barter agreements to which any of the Capstar Stations is a party or by which any of them is bound and the value of the goods and services to be received under such agreements. 44 51 4.3. ENVIRONMENTAL SITE ASSESSMENTS. (a) If Capstar or its lenders or other financing sources require Phase I or Phase II ESAs, each SFX Party covenants and agrees that, upon written notice from Capstar to any SFX Party identifying the locations at which such ESAs are required: (i) if such SFX Party has previously performed an ESA on such location, such SFX Party will provide copies of such Existing ESAs to Capstar and (ii) if such SFX Party has not previously performed an ESA on such location, such SFX Party shall cause to be performed by a nationally recognized and duly qualified environmental consultant reasonably acceptable to Capstar and such SFX Party an ESA at such location. The ESAs which are to be conducted for the benefit of Capstar shall be performed in a manner that at a minimum satisfies the requirements of ASTM Practice E 1527-94. Each SFX Party covenants and agrees that, upon receipt of the notice referred to above, it shall diligently pursue the performance of the requisite ESAs to their completion, with final copies of the Phase I ESA reports (and, if applicable, Phase II ESA reports) made available to Capstar by no later than 45 days following the date on which such SFX Party receives the notice referred to above. The cost of any Phase I or Phase II ESA shall be borne by Capstar. (b) If any SFX Party or its lenders or other financing sources require Phase I or Phase II ESAs, Capstar covenants and agrees that, upon written notice from such SFX Party to Capstar identifying the locations at which such ESAs are required: (i) if Capstar has previously performed an ESA on such location, Capstar will provide copies of such Existing ESAs to the SFX Parties, and (ii) if Capstar has not previously performed an ESA on such location, Capstar shall cause to be performed by a nationally recognized and duly qualified environmental consultant reasonably acceptable to such SFX Party and Capstar an ESA at such location. The ESAs which are to be conducted for the benefit of such SFX Party shall be performed in a manner that at a minimum satisfies the requirements of ASTM Practice E 1527-94. Capstar covenants and agrees that, upon receipt of the notice referred to above, it shall diligently pursue the performance of the requisite ESAs to their completion, with final copies of the Phase I ESA reports (and, if applicable, Phase II ESA reports) made available to such SFX Party by no later than 45 days following the date on which Capstar receives the notice referred to above. The cost of any Phase I or Phase II ESA shall be borne by the SFX Parties. 4.4. BROADCAST TRANSMISSION INTERRUPTION. (a) If after the Capstar Date and before the Closing the regular broadcast transmission of any Capstar Station in the normal and usual manner is interrupted for a period of two (2) consecutive hours or more, excluding normal and routine maintenance, Capstar shall give prompt written notice thereof to the SFX Parties. (b) If before the Closing the regular broadcast transmission of any SFX Station in the normal and usual manner is interrupted for a period of two (2) consecutive hours or more, excluding normal and routine maintenance, the SFX Parties shall give prompt written notice thereof to Capstar. 45 52 ARTICLE V COVENANTS OF THE SFX PARTIES 5.1. NO SOLICITATION OF TRANSACTIONS. No SFX Party shall, directly or indirectly, through any officer, director, stockholder, employee, agent, financial advisor, banker or other representative, or otherwise, solicit, initiate, or encourage the submission of any proposal or offer from any person relating to any acquisition or purchase of all or any material portion of the SFX Assets or any equity interest in any of the SFX Parties or any merger, consolidation, share exchange, business combination, or other similar transaction with any SFX Party or participate in any negotiations regarding, or furnish to any other person any information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate, or encourage, any effort or attempt by any other person to do or seek any of the foregoing. Each SFX Party shall immediately communicate to Capstar the material terms of any such proposal (and the identity of the party making such proposal) which it may receive and, if such proposal is in writing, such SFX Party shall promptly deliver a copy of such proposal to Capstar. Each SFX Party agrees not to release any third party from, or waive any provision of, any confidentiality or standstill agreement to which such SFX Party is a party. Each SFX Party immediately shall cease and cause to be terminated all existing discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. 5.2. ASSISTANCE. If Capstar requests, each SFX Party will cooperate, and will cause its accountants to cooperate, in all reasonable respects with any financing efforts of Capstar or its Affiliates (including providing assistance in the preparation of one or more registration statements or other offering documents relating to debt and/or equity financing) and any other filings that may be made by Capstar or its Affiliates with the SEC, all at the sole expense of Capstar. Each SFX Party (a) shall furnish to its independent accountants (or, if requested by Capstar to Capstar's independent public accountants), such customary management representation letters as its accountants may require of such SFX Party as a condition to its execution of any required accountants' consents necessary in connection with the delivery of any "comfort" letters requested by financing sources of Capstar or its Affiliates and (b) shall furnish to Capstar all financial statements (audited and unaudited) and other information in the possession of such SFX Party or its representatives or agents as Capstar shall reasonably determine is necessary or appropriate in connection with such financing. Capstar will indemnify and hold harmless each SFX Party and its, officers, directors, and controlling persons against any and all claims, losses, liabilities, damages, costs, or expenses (including reasonable attorneys' fees and expenses) that may arise out of or with respect to the financing efforts by Capstar or its Affiliates, including any registration statement, prospectus, offering documents, and other filings related thereto; provided, however, that subject to the limitations and provisions of this Agreement, nothing herein shall prevent Capstar from asserting any claim for breach of representation or warranty under this Agreement. 5.3. COMPLIANCE WITH STATION LICENSES. Each SFX Party shall cause the SFX Stations to be operated in accordance with the SFX Station Licenses and all applicable rules and regulations of the FCC and in compliance with all other applicable laws, regulations, rules, and orders. Each SFX Party shall use all commercially reasonable efforts not to cause or permit any of the SFX Station Licenses to expire or be surrendered, adversely modified, or terminated. Each SFX Party 46 53 shall file or cause to be filed with the FCC all applications (including license renewals) or other documents required to be filed in connection with the operation of the SFX Stations. In addition, if requested by Capstar and at Capstar's sole expense, such SFX Party shall file or cause to be filed with the FCC modification applications and applications for new, specifically identified frequencies that may be useful in connection with the operation of the SFX Stations. Should the FCC institute any proceedings for the suspension, revocation or adverse modification of any of the SFX Station Licenses or any forfeiture proceedings, each SFX Party will use all commercially reasonable efforts to promptly contest such proceedings and to seek to have such proceedings terminated in a manner that is favorable to the SFX Stations. Each SFX Party will use all commercially reasonable efforts to maintain the FCC construction permits (if any) listed in Schedule 3.1(f) in effect until the applicable construction projects are timely completed and to diligently prosecute all pending FCC applications listed in Schedule 3.1(f). If any SFX Party (or its FCC counsel) receives an administrative or other order or notification relating to any violation or claimed violation of the rules and regulations of the FCC, or of any other Governmental Entity, or should any SFX Party (or its FCC counsel) become aware of any fact relating to the qualifications of Capstar that reasonably could be expected to cause the FCC to withhold its consent to the assignment of the SFX Station Licenses, such SFX Party shall promptly notify Capstar in writing and use its commercially reasonable efforts to take such steps as may be necessary to remove any such impediment to the transactions contemplated by this Agreement. 5.4. THIRD PARTY CONSENTS. After the date hereof and prior to the Closing, each SFX Party shall use all commercially reasonable efforts to obtain the written consent from any party to an agreement or instrument identified in Schedule 3.1(o) or any other SFX Assumed Contract which is required to permit the consummation of the transactions contemplated hereby. 5.5. EMPLOYEE MATTERS. Each SFX Party will use its reasonable efforts to determine at least ten days prior to the Closing Date those employees of Capstar whom they desire to extend offers of employment. Any offers so extended by such SFX Party shall be on such terms and conditions that such SFX Party shall determine in its sole discretion. Each SFX Party will give Capstar prompt notice of the names of any employee of Capstar who such SFX Party has determined not to extend an offer of employment. Capstar waives any claims against the SFX Parties and any of Capstar's employees who are extended an offer of employment by a SFX Party arising from such employment by such SFX Party including any claims arising under any employment agreement or non-competition agreement between such person and Capstar. ARTICLE VI COVENANTS OF CAPSTAR 6.1. NO SOLICITATION OF TRANSACTIONS. Capstar shall not, directly or indirectly, through any officer, director, stockholder, employee, agent, financial advisor, banker or other representative, or otherwise, solicit, initiate, or encourage the submission of any proposal or offer from any person relating to any acquisition or purchase of all or any material portion of the Capstar Assets or any equity interest in Capstar or any merger, consolidation, share exchange, business combination, or other similar transaction with Capstar or participate in any negotiations regarding, or furnish to any 47 54 other person any information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate, or encourage, any effort or attempt by any other person to do or seek any of the foregoing. Capstar shall immediately communicate to the SFX Parties the material terms of any such proposal (and the identity of the party making such proposal) which it may receive and, if such proposal is in writing, Capstar shall promptly deliver a copy of such proposal to the SFX Parties. Capstar agrees not to release any third party from, or waive any provision of, any confidentiality or standstill agreement to which Capstar is a party. Capstar immediately shall cease and cause to be terminated all existing discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. 6.2. ASSISTANCE. If a SFX Party requests, Capstar will cooperate, and will cause its accountants to cooperate, in all reasonable respects with any financing efforts of such SFX Party or its Affiliates (including providing assistance in the preparation of one or more registration statements or other offering documents relating to debt and/or equity financing) and any other filings that may be made by such SFX Party or its Affiliates with the SEC, all at the sole expense of such SFX Party. Capstar (a) shall furnish to its independent accountants (or, if requested by a SFX Party to such SFX Party's independent public accountants), such customary management representation letters as its accountants may require of Capstar as a condition to its execution of any required accountants' consents necessary in connection with the delivery of any "comfort" letters requested by financing sources of such SFX Party or its Affiliates and (b) shall furnish to such SFX Party all financial statements (audited and unaudited) and other information in the possession of Capstar or its representatives or agents as such SFX Party shall reasonably determine is necessary or appropriate in connection with such financing. Each SFX Party will indemnify and hold harmless Capstar and its, officers, directors, and controlling persons against any and all claims, losses, liabilities, damages, costs, or expenses (including reasonable attorneys' fees and expenses) that may arise out of or with respect to the financing efforts by such SFX Party or its Affiliates, including any registration statement, prospectus, offering documents, and other filings related thereto; provided, however, that subject to the limitations and provisions of this Agreement, nothing herein shall prevent the SFX Parties from asserting any claim for breach of representation or warranty under this Agreement. Nothing in this Section 6.2 shall require Capstar to breach any confidentiality agreement made in connection with the Benchmark Acquisition. 6.3. COMPLIANCE WITH STATION LICENSES. Capstar shall cause the Capstar Stations to be operated in accordance with the Capstar Station Licenses and all applicable rules and regulations of the FCC and in compliance with all other applicable laws, regulations, rules, and orders. Capstar shall use all commercially reasonable efforts not to cause or permit any of the Capstar Station Licenses to expire or be surrendered, adversely modified, or terminated. Capstar shall file or cause to be filed with the FCC all applications (including license renewals) or other documents required to be filed in connection with the operation of the Capstar Stations. In addition, if requested by the SFX Parties and at the SFX Parties' sole expense, Capstar shall file or cause to be filed with the FCC modification applications and applications for new, specifically identified frequencies that may be useful in connection with the operation of the Capstar Stations. Should the FCC institute any proceedings for the suspension, revocation or adverse modification of any of the Capstar Station Licenses or any forfeiture proceedings, Capstar will use all commercially reasonable efforts to promptly contest such proceedings and to seek to have such proceedings terminated in a manner that 48 55 is favorable to the Capstar Stations. Capstar will use all commercially reasonable efforts to maintain the FCC construction permits (if any) listed in Schedule 3.2(f) in effect until the applicable construction projects are timely completed and to diligently prosecute all pending FCC applications listed in Schedule 3.2(f). If Capstar (or its FCC counsel) receives an administrative or other order or notification relating to any violation or claimed violation of the rules and regulations of the FCC, or of any other Governmental Entity, or should Capstar (or its FCC counsel) become aware of any fact relating to the qualifications of any SFX Party that reasonably could be expected to cause the FCC to withhold its consent to the assignment of the Capstar Station Licenses, Capstar shall promptly notify such SFX Party in writing and use its commercially reasonable efforts to take such steps as may be necessary to remove any such impediment to the transactions contemplated by this Agreement. This Section 6.3 shall apply only after the Capstar Date. 6.4. THIRD PARTY CONSENTS. After the Capstar Date and prior to the Closing, Capstar shall use all commercially reasonable efforts to obtain the written consent from any party to an agreement or instrument identified in Schedule 3.2(o) or any other Capstar Assumed Contract which is required to permit the consummation of the transactions contemplated hereby. 6.5. EMPLOYEE MATTERS. Capstar will use its reasonable efforts to determine at least ten days prior to the Closing Date those employees of each SFX Party whom it desires to extend offers of employment. Any offers so extended by Capstar shall be on such terms and conditions that Capstar shall determine in its sole discretion. Capstar will give each SFX Party prompt notice of the names of any employee of such SFX Party who Capstar has determined not to extend an offer of employment. Each SFX Party waives any claims against Capstar and any of such SFX Party's employees who are extended an offer of employment by Capstar arising from such employment by Capstar including any claims arising under any employment agreement or non-competition agreement between such person and any SFX Party. 6.6. BENCHMARK ACQUISITION INDEMNIFICATION. If requested by the SFX Parties, Capstar shall use reasonable efforts to enforce its right to indemnification with respect to the Capstar Stations under the Benchmark Agreement. Capstar shall cooperate with the SFX Parties in any lawful and economically feasible arrangement to provide that the SFX Parties shall receive the benefits from any recovery under the Benchmark Agreement with respect to the Capstar Stations, provided, however, that the SFX Parties shall undertake to pay or satisfy any and all expenses for the enjoyment of such benefit. ARTICLE VII MUTUAL COVENANTS 7.1. ACCESS AND INFORMATION. (a) Until the Closing, subject only to applicable rules and regulations of the FCC, each SFX Party and Capstar, as the case may be, shall afford the other and its representatives (including accountants and counsel) full access, during normal business hours, upon reasonable notice and in such manner as will not unreasonably interfere with the conduct of the business, to all 49 56 its properties, books, records, and all other information with respect to its business, together with the opportunity to make copies of such books, records, and other documents and to discuss its business with such of its officers, directors, station managerial personnel (including the Station Management of each Capstar Station or SFX Station, as applicable), accountants, consultants, and counsel as the other deems reasonably necessary or appropriate for the purposes of familiarizing itself with the SFX Stations or Capstar Stations, as appropriate, including the right to visit the SFX Stations or the Capstar Stations, as applicable. In furtherance of the foregoing, each SFX Party and Capstar shall authorize and instruct their respective independent public accountants to meet with each other to discuss the business and accounts of each SFX Party and Capstar and to make available (with the opportunity to make copies) to either the SFX Parties or Capstar and their representatives, including their independent public accountants, all the work papers of their respective accountants related to the audit of the consolidated financial statements of SFX Broadcasting, Inc. or Capstar, as applicable. (b) Within 30 days after the end of each calendar month, each SFX Party and Capstar shall deliver to each other, for each of the Capstar Stations or SFX Stations, as applicable, and for each other as a whole, monthly operating statements (in a form consistent with the monthly operating statements previously supplied to each other) prepared in the ordinary course of business for internal purposes. In addition, within 45 days after the end of each calendar quarter, each SFX Party and Capstar, for each of the Capstar Stations or SFX Stations, as applicable, quarterly statements prepared in the ordinary course for internal purposes containing a detailed listing of all trade and barter agreements of each Capstar Station or SFX Station, as applicable, showing the status of all such agreements as of the end of the quarter. Each SFX Party and Capstar shall deliver to each other the rating books and such other ratings information subscribed to by each party including, without limitation, Arbitrends, Accuratings or any other written information reflective of the quantitative or qualitative nature of the audiences of the Capstar Stations or SFX Stations, as applicable, for each of the Capstar Stations or SFX Stations, as applicable, upon receipt of the same by any officer or director of either party. Each SFX Party and Capstar shall instruct its respective Station Management to provide such information and reports to each other's corporate officers promptly upon receipt by such Station Management. In addition, as soon as the same are distributed to each parties' officers or directors, each SFX Party and Capstar will provide each other with copies of each Capstar Station's or SFX Station's, as applicable, weekly sales pacing reports. (c) Without duplication of Section 7.1(b), at such time as either party provides the same to its lenders, they shall provide the other party with copies of the financial statements and other information delivered by such party to such lenders. (d) Capstar and each SFX Party acknowledge that the confidential information and data obtained or possessed by each of them, including the information gathered under this Section 7.1, concerning the business affairs of the SFX Stations and Capstar Stations, as applicable, (the "Confidential Information") is, until Closing, the property of the SFX Parties and Capstar, respectively. Therefore, Capstar and each SFX Party agree that they will not disclose to any person or use for their own account any of the Confidential Information unless and to the extent that such Confidential Information (a) is required to be disclosed by law or pursuant to a judicial order or decree, or (b) becomes generally known to and available for use by the public other than as a result of the act or omission to act of Capstar or any SFX Party, as applicable. Capstar and each SFX 50 57 Party, as applicable, agree to deliver to the other, at any time before the Closing, all memoranda, notes, plan, records, reports, and other documents (and copies thereof) relating to the conduct of the SFX Stations and Capstar Stations, as applicable, of which they may then possess or have under their control. (e) Notwithstanding the foregoing, Sections 7.1(a), 7.1(b), and 7.1(c) shall apply to Capstar only after the Capstar Date. 7.2. NOTIFICATION OF CERTAIN MATTERS. (a) Each SFX Party and Capstar shall give prompt written notice to each other of (i) the occurrence, or failure to occur, of any event of which it becomes aware that has caused or that would be likely to cause any representation or warranty of such party contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date hereof to the Closing Date, (ii) the failure of such party, or any officer, director, employee, or agent of such party, to comply with or satisfy in any material respect any covenant, condition, or agreement to be complied with or satisfied by it hereunder, (iii) the occurrence of a Station Event (as defined in Section 9.1), and (iv) the occurrence of any threat made to such party by any General Manager, Station Manager, General Sales Manager, Programming Director, or on- air talent of a Capstar Station or SFX Station, as applicable, to resign or otherwise terminate their employment or independent contractor relationship with such party. No such notification shall affect the representations or warranties of the parties or the conditions to their respective obligations hereunder. Notwithstanding the foregoing, Section 7.2(a)(iii) and 7.2(a)(iv) shall apply to Capstar only after the Capstar Date. (b) If any SFX Party or Capstar (or their respective FCC counsel) receive an administrative or other order or notification relating to any violation or claimed violation of the rules and regulations of the FCC, or of any Governmental Entity, that could affect such party's ability to consummate the transactions contemplated hereby, such party shall promptly notify the other party thereof and shall use its commercially reasonable efforts to take such steps as may be necessary to remove any such impediment to the transactions contemplated by this Agreement; provided, however, that no party shall be required pursuant to this Section 7.2(b) to divest itself or cause any Affiliate thereof to divest itself of any media business or interest therein. 7.3. APPLICATION FOR FCC CONSENTS. By the tenth business day after the Capstar Date, each SFX Party will, and will cause all necessary persons or entities to join in one or more applications filed with the FCC requesting the FCC's written consent to the assignment of the SFX FCC Licenses, pursuant to this Agreement (the "SFX Applications"), and Capstar will, and will cause all necessary persons or entities to join in one or more applications filed with the FCC requesting the FCC's written consent to the assignment of the Capstar FCC Licenses, pursuant to this Agreement (the "Capstar Applications" and together with the SFX Applications, the "Applications"). The parties will take all proper steps reasonably necessary (a) to diligently prosecute the Applications and (b) to obtain the Capstar FCC Consents and SFX FCC Consents. The failure by any party to timely file or diligently prosecute its portion of any Application shall be a material breach of this 51 58 Agreement; provided, however, that no party shall be required pursuant to this Section 7.3 to divest itself or cause any Affiliate thereof to divest itself of any media business or interest therein. 7.4. CONTROL OF STATIONS. This Agreement shall not be consummated until after the Capstar FCC Consents and the SFX FCC Consents with respect to the Applications referred to in Section 7.3 are granted and have become Capstar Final Orders and SFX Final Orders unless Capstar or any SFX Party, as applicable, waives the SFX Final Orders or the Capstar Final Orders, as applicable. Between the date of this Agreement and the Closing Date, Capstar will not directly or indirectly control, supervise or direct the operation of the SFX Stations. Further, between the date of this Agreement and the Closing Date, the SFX Parties shall, directly or indirectly, supervise and control the operation of the SFX Stations. Such operation shall be the sole responsibility of the SFX Parties. In addition, between the date of this Agreement and the Closing Date, the SFX Parties will not directly or indirectly control, supervise or direct the operation of the Capstar Stations. Further, between the Capstar Date and the Closing Date, Capstar shall, directly or indirectly, supervise and control the operation of the Capstar Stations. Such operation shall be the sole responsibility of Capstar. 7.5. OTHER GOVERNMENTAL CONSENTS. Promptly following the execution of this Agreement, the parties shall proceed to prepare and file with the appropriate Governmental Entities (other than the FCC) such requests, reports, or notifications as may be required in connection with this Agreement and shall diligently and expeditiously prosecute, and shall cooperate fully with each other in the prosecution of, such matters. Without limiting the foregoing, promptly following the execution of this Agreement, the parties shall (a) file with the Federal Trade Commission and the Antitrust Division of the Department of Justice the notifications and other information (if any) required to be filed under the HSR Act with respect to the transactions contemplated hereby and shall use their commercially reasonable efforts to cause all applicable waiting periods under the HSR Act to expire or be terminated as of the earliest possible date and (b) make all necessary filings and, thereafter, make any other required submissions with respect to the transactions contemplated hereby under the Securities Act and the rules and regulations thereunder and any other applicable federal or state securities laws. Nothing in this Section 7.5 shall require any party to divest itself or to cause any Affiliate thereof to divest itself of any media business or interest therein. 7.6. BROKERS OR FINDERS. Each SFX Party, jointly and severally, and Capstar represents and warrants that it has not engaged an agent, broker, investment banker, or other person who will be entitled to any broker's or finder's fee or any commission or similar fee payable by the other party in connection with any of the transactions contemplated by this Agreement. 7.7. BULK SALES LAW. (a) Capstar agrees to waive compliance by each SFX Party with the requirements of any bulk sales or fraudulent conveyance statute, and each SFX Party agrees to indemnify and hold Capstar harmless against any claim made against Capstar by any creditor of any SFX Party as a result of a failure to comply with any such statute. 52 59 (b) Each SFX Party agrees to waive compliance by Capstar with the requirements of any bulk sales or fraudulent conveyance statute, and Capstar agrees to indemnify and hold each SFX Party harmless against any claim made against such SFX Party by any creditor of Capstar as a result of a failure to comply with any such statute. 7.8. RISK OF LOSS - SFX ASSETS. (a) The risk of any loss, damage, impairment, confiscation, or condemnation of any of the SFX Assets from any cause whatsoever shall be borne by the SFX Parties at all times prior to the Closing. In the event of any such loss, damage, impairment, confiscation, or condemnation, whether or not covered by insurance, each SFX Party shall promptly notify Capstar of such loss, damage, impairment, confiscation, or condemnation. (b) If the SFX Parties, at their expense, repair, replace, or restore such SFX Assets to their prior condition to the satisfaction of Capstar before the Closing, the SFX Parties shall be entitled to all insurance proceeds and condemnation awards, if any, by reason of such award or loss. (c) If the SFX Parties do not or cannot restore or replace lost, damaged, impaired, confiscated or condemned SFX Assets having a replacement cost in excess of $100,000 in the aggregate or informs Capstar that they do not intend to restore or replace such SFX Assets, Capstar may at its option: (i) terminate this Agreement by notice forthwith without any further obligation hereunder; or (ii) proceed to the Closing of this Agreement without the SFX Parties completing the restoration and replacement of such SFX Assets, provided that each SFX Party shall assign all rights under applicable insurance policies and condemnation awards, if any, to Capstar; and in such event, each SFX Party shall have no further liability with respect to the condition of the SFX Assets directly attributable to the loss, damage, impairment, confiscation, or condemnation. (d) Capstar will notify each SFX Party of a decision under the options described in Section 7.8(c)(i) or (ii) above within ten business days after any SFX Party's notice to Capstar of the damage or destruction of SFX Assets and the estimate of the costs to repair or replace; provided, however, that if such SFX Party states that it intends to restore the damaged SFX Assets and if such SFX Party has not restored such damaged SFX Assets immediately prior to the Closing Date, notwithstanding Capstar's prior delivery of a notice to proceed pursuant to this Section 7.8(d), Capstar shall have the right to either postpone the Closing or terminate this Agreement by notice forthwith. 7.9. RISK OF LOSS - CAPSTAR ASSETS. (a) The risk of any loss, damage, impairment, confiscation, or condemnation of any of the Capstar Assets from any cause whatsoever shall be borne by Capstar at all times prior to 53 60 the Closing. In the event of any such loss, damage, impairment, confiscation, or condemnation, whether or not covered by insurance, Capstar shall promptly notify a SFX Party of such loss, damage, impairment, confiscation, or condemnation. (b) If Capstar, at its expense, repairs, replaces, or restores such Capstar Assets to their prior condition to the satisfaction of a SFX Party before the Closing, Capstar shall be entitled to all insurance proceeds and condemnation awards, if any, by reason of such award or loss. (c) If Capstar does not or cannot restore or replace lost, damaged, impaired, confiscated or condemned Capstar Assets having a replacement cost in excess of $100,000 in the aggregate or informs a SFX Party that it does not intend to restore or replace such Capstar Assets, the SFX Parties may at their option: (i) terminate this Agreement by notice forthwith without any further obligation hereunder; or (ii) proceed to the Closing of this Agreement without Capstar completing the restoration and replacement of such Capstar Assets, provided that Capstar shall assign all rights under applicable insurance policies and condemnation awards, if any, to the SFX Parties; and in such event, Capstar shall have no further liability with respect to the condition of the Capstar Assets directly attributable to the loss, damage, impairment, confiscation, or condemnation. (d) The SFX Parties will notify Capstar of a decision under the options described in Section 7.9(c)(i) or (ii) above within ten business days after Capstar's notice to a SFX Party of the damage or destruction of Capstar Assets and the estimate of the costs to repair or replace; provided, however, that if Capstar states that it intends to restore the damaged Capstar Assets and if Capstar has not restored such damaged Capstar Assets immediately prior to the Closing Date, notwithstanding the SFX Parties' prior delivery of a notice to proceed pursuant to this Section 7.9(d), the SFX Parties shall have the right to either postpone the Closing or terminate this Agreement by notice forthwith. 7.10. ADDITIONAL AGREEMENTS. (a) Subject to the terms and conditions of this Agreement, each of the parties hereto will use its commercially reasonable efforts to do, or cause to be taken all action and to do, or cause to be done, all things necessary, proper, or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. If at any time after the Closing Date, any further action is necessary or desirable to carry out the purposes of this Agreement, the parties to this Agreement and their duly authorized representatives shall take all such action. (b) Without limiting the generality of the foregoing Section 7.10(a), if, after the Closing Date, any SFX Party seeks indemnification or recovery from one or more other parties to a Capstar Assumed Contract, or otherwise seeks to enforce such Capstar Assumed Contract, and, 54 61 in order to obtain such indemnification, recovery or enforcement, it is necessary for Capstar to initiate a suit, participate in any enforcement proceeding or otherwise provide assistance to such SFX Party, then, at the request and the sole expense of such SFX Party, Capstar shall take such action as such SFX Party may reasonably request in connection with such SFX Party's efforts to obtain such indemnification, recovery or enforcement. (c) Without limiting the generality of the foregoing Section 7.10(a), if, after the Closing Date, Capstar seeks indemnification or recovery from one or more other parties to a SFX Assumed Contract, or otherwise seeks to enforce such SFX Assumed Contract, and, in order to obtain such indemnification, recovery or enforcement, it is necessary for any SFX Party to initiate a suit, participate in any enforcement proceeding or otherwise provide assistance to Capstar, then, at the request and the sole expense of Capstar, such SFX Party shall take such action as Capstar may reasonably request in connection with Capstar's efforts to obtain such indemnification, recovery or enforcement. 7.11. ACCOUNTS RECEIVABLE. (a) All SFX Accounts Receivable shall remain the property of the SFX Parties. Each SFX Party hereby authorizes Capstar, however, to collect such receivables for a period of 120 days after the Closing. Each SFX Party shall deliver to Capstar a complete and detailed statement of each account within three days after Closing and Capstar shall use its reasonable efforts, consistent with its customary collection practices for its own accounts receivable, without compensation, to collect each SFX Account Receivable during such 120 days. During that period Capstar shall provide to each SFX Party a detailed bi-monthly statement of the SFX Accounts Receivable showing amounts collected to the date, and amounts outstanding as of the same date, and, within 15 days of the end of the period covered by such statement, deliver to a SFX Party the SFX Accounts Receivable report and a check for the amounts collected during such period. All payments received by Capstar during the 120-day period following the Closing Date from a person obligated with respect to a SFX Account Receivable shall be applied first to the SFX Parties' account and, only after full satisfaction thereof, to Capstar's account; provided, however, that if such person has, in the reasonable opinion of Capstar, a legitimate dispute with respect to such SFX Account Receivable and Capstar also has an account receivable from such person, Capstar shall notify the SFX Party of such dispute. If after 30 days following notification of such SFX Party, no resolution to the dispute has been reached by such person and such SFX Party, the payment shall be applied first to Capstar's account and only after the earlier to occur of full satisfaction of Capstar's account or resolution of such dispute, to such SFX Party's account. Capstar shall not be required to refer any SFX Account Receivable to a collection agency or an attorney for collection, nor shall it compromise, settle, or adjust any SFX Account Receivable having a value in excess of $5,000 without receiving the approval of any SFX Party. Each SFX Party shall take no action with respect to the SFX Accounts Receivable, such as litigation, until the expiration of such 120-day period. Following the expiration of said 120-day period, each SFX Party shall be free to take such action as such SFX Party may in its sole discretion determine to collect any SFX Accounts Receivable then outstanding. (b) All Capstar Accounts Receivable shall remain the property of Capstar. Capstar hereby authorizes each SFX Party, however, to collect such receivables for a period of 120 55 62 days after the Closing. Capstar shall deliver to a SFX Party a complete and detailed statement of each account within three days after Closing and such SFX Party shall use its reasonable efforts, consistent with their customary collection practices for their own accounts receivable, without compensation, to collect each Capstar Account Receivable during such 120 days. During that period such SFX Party shall provide to Capstar a detailed bi-monthly statement of the Capstar Accounts Receivable showing amounts collected to the date, and amounts outstanding as of the same date, and, within 15 days of the end of the period covered by such statement, deliver to Capstar the Capstar Accounts Receivable report and a check for the amounts collected during such period. All payments received by such SFX Party during the 120-day period following the Closing Date from a person obligated with respect to a Capstar Account Receivable shall be applied first to Capstar's account and, only after full satisfaction thereof, to such SFX Party's account; provided, however, that if such person has, in the reasonable opinion of such SFX Party, a legitimate dispute with respect to such Capstar Account Receivable and such SFX Party also has an account receivable from such person, such SFX Party shall notify Capstar of such dispute. If after 30 days following notification of Capstar, no resolution to the dispute has been reached by such person and Capstar, the payment shall be applied first to such SFX Party's account and only after the earlier to occur of full satisfaction of such SFX Party's account or resolution of such dispute, to Capstar's account. Such SFX Party shall not be required to refer any Capstar Account Receivable to a collection agency or an attorney for collection, nor shall they compromise, settle, or adjust any Capstar Account Receivable having a value in excess of $5,000 without receiving the approval of Capstar. Capstar shall take no action with respect to the Capstar Accounts Receivable, such as litigation, until the expiration of such 120-day period. Following the expiration of said 120-day period, Capstar shall be free to take such action as Capstar may in its sole discretion determine to collect any Capstar Accounts Receivable then outstanding. ARTICLE VIII CONDITIONS PRECEDENT 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION. The respective obligations of Capstar and each SFX Party to effect the transactions contemplated hereby are subject to the satisfaction (or, in the case of the conditions specified in the last two sentences of Section 8.l(a), the waiver by Capstar and the SFX Parties, respectively) on or prior to the Closing Date of the following conditions: (a) Consents and Approvals. All authorizations, consents, orders, or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any Governmental Entity necessary for the consummation of the transactions contemplated by this Agreement shall have been filed, occurred, or been obtained. The SFX FCC Consents shall have become SFX Final Orders and shall be in form and substance satisfactory to Capstar. The Capstar FCC Consents shall have become Capstar Final Orders and shall be in form and substance satisfactory to each SFX Party. (b) No Injunctions or Restraints. No temporary restraining order, preliminary or permanent injunction, or other order issued by any court of competent jurisdiction or other legal 56 63 restraint or prohibition preventing the consummation of the transactions contemplated hereby shall be in effect. (c) No Action. No action shall have been taken nor any statute, rule, or regulation shall have been enacted by any Governmental Entity that makes the consummation of the transactions contemplated hereby illegal. (d) Benchmark Acquisition. The Benchmark Acquisition shall have been consummated and all of the conditions to closing such acquisition shall have been satisfied. 8.2. CONDITIONS TO OBLIGATION OF CAPSTAR. The obligation of Capstar to effect the transactions contemplated hereby is subject to the satisfaction of the following conditions unless waived, in whole or in part, by Capstar: (a) Representations and Warranties. The representations and warranties of each SFX Party set forth in this Agreement shall be true and correct in all material respects (provided that any representation or warranty of each SFX Party contained herein that is qualified by a materiality standard shall not be further qualified hereby) as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date except to the extent that any inaccuracies in such representations or warranties (without regard to materiality (including Material Adverse Effect) qualifications) do not and would not reasonably be expected to, have a Material Adverse Effect on each SFX Party taken as a whole. In addition, Capstar shall have received a certificate to such effect signed on behalf of each SFX Party by the chief executive officer or by the chief financial officer of each SFX Party. (b) Performance of Obligations. Each SFX Party shall have performed in all material respects all obligations required to be performed by it under this Agreement prior to the Closing Date, and Capstar shall have received a certificate to such effect signed on behalf of each SFX Party by the chief executive officer or by the chief financial officer of each SFX Party. (c) Consents Under Agreements. Capstar shall have been furnished with evidence reasonably satisfactory to it of the consent or approval of each person that is a party to a SFX Contract identified in Schedule 3.1(o) whose consent or approval shall be required in order to permit the consummation of the transactions contemplated hereby and such consent or approval shall be in form and substance satisfactory to Capstar. (d) Legal Opinions. Capstar shall have received from Richard A. Liese, counsel for the SFX Parties, such opinions dated the Closing Date, in substantially the form attached as Exhibit G hereto, which opinions, if requested by Capstar, shall expressly provide that they may be relied upon by Capstar's lenders, underwriters, or other sources of financing with respect to the transactions contemplated hereby. Capstar shall have received from Fisher, Wayland, Cooper, Leader & Zaragoza L.L.P., FCC counsel to the SFX Parties, an opinion relating to FCC matters, dated the Closing Date, in substantially the form as Exhibit H hereto, which opinions, if requested by Capstar shall expressly provide that they may be relied upon by Capstar's lenders, underwriters, or other sources of financing with respect to the transactions contemplated hereby. 57 64 (e) Real Estate Title Commitment. Within 30 days after the date of this Agreement, each SFX Party, at Capstar's sole cost and expense, shall have obtained a preliminary report on title to the SFX Owned Real Property covering a date subsequent to the date of this Agreement, issued by the Title Company, which preliminary report shall contain a commitment (the "SFX Title Commitments") of the Title Company to issue an owner's title insurance policy at Capstar's cost as Capstar may reasonably require (the "SFX Title Policy") insuring the fee simple absolute interest of Capstar in the SFX Owned Real Property. The SFX Title Commitments shall be in the amount set forth in Schedule 8.2(e) and shall be subject only to the standard printed exceptions and: (i) liens of current state and local property taxes which are not delinquent or subject to penalty; (ii) unviolated zoning regulations and restrictive covenants and easements of record which do not detract from the value of the SFX Owned Real Property and do not materially and adversely affect, impair or interfere with the use of any property affected thereby as heretofore used by each SFX Party or the SFX Stations; (iii) public utility easements of record, in customary form, to serve the SFX Owned Real Property; and (iv) SFX Permitted Encumbrances. Such title policy shall be issued on the Closing Date. (f) Survey. If requested by Capstar, each SFX Party, at Capstar's sole cost and expense, shall have obtained a survey of the SFX Owned Real Property as of a date subsequent to the date hereof which shall: (i) be prepared by a registered land surveyor reasonably acceptable to Capstar; (ii) be certified to the Title Company and to Capstar; and (iii) show with respect to the SFX Owned Real Property: (A) the legal description of the SFX Owned Real Property (which shall be the same as the SFX Title Policy pertaining thereto); (B) all buildings, structures and improvements thereon and all restrictions of record and other restrictions that have been established by an applicable zoning or building code or ordinance and all easements or rights of way across or serving the SFX Owned Real Property (including any off-site easements affecting or appurtenant thereto); (C) no encroachments upon the SFX Owned Real Property or adjoining parcels by buildings, structures or improvements and no other survey defects; (D) access to such parcel from a public street; and (E) a flood certification reasonably satisfactory to Capstar to the effect that no portion of the SFX Owned Real Property is located within a flood hazard area. (g) Fairness Opinion. Capstar shall have received a written opinion from an independent investment banking firm of nationally recognized standing that the transactions contemplated by this Agreement are fair to Capstar from a financial point of view. (h) Closing Deliveries. All documents, instruments, certificates or other items required to be delivered by each SFX Party pursuant to Section 9.2 shall have been delivered. 8.3. CONDITIONS TO OBLIGATION OF THE SFX PARTIES. The obligation of the SFX Parties to effect the transactions contemplated hereby is subject to the satisfaction of the following conditions unless waived, in whole or in part, by any SFX Party: (a) Representations and Warranties. The representations and warranties of Capstar set forth in this Agreement shall be true and correct in all material respects (provided that any representation or warranty of Capstar contained herein that is qualified by a materiality standard shall not be further qualified hereby) as of the date of this Agreement (unless otherwise limited to 58 65 events, acts or omissions occurring or conditions coming into existence on or after the closing of the Benchmark Acquisition) and as of the Closing Date as though made on and as of the Closing Date except to the extent that any inaccuracies in such representations or warranties (without regard to materiality (including Material Adverse Effect) qualifications) do not and would not reasonably be expected to, have a Material Adverse Effect on Capstar taken as a whole. In addition, the SFX Parties shall have received a certificate to such effect signed on behalf of Capstar by the chief executive officer or by the chief financial officer of Capstar. (b) Performance of Obligations. Capstar shall have performed in all material respects all obligations required to be performed by it under this Agreement prior to the Closing Date, and the SFX Parties shall have received a certificate to such effect signed on behalf of Capstar by the chief executive officer or by the chief financial officer of Capstar. (c) Consents Under Agreements. The SFX Parties shall have been furnished with evidence reasonably satisfactory to them of the consent or approval of each person that is a party to a Capstar Contract identified in Schedule 3.2(o) whose consent or approval shall be required in order to permit the consummation of the transactions contemplated hereby and such consent or approval shall be in form and substance satisfactory to the SFX Parties. (d) Legal Opinions. The SFX Parties shall have received from Vinson & Elkins L.L.P., counsel to Capstar, an opinion, dated the Closing Date, in substantially the form attached as Exhibit E hereto, which opinions, if requested by the SFX Parties, shall expressly provide that they may be relied upon by the SFX Parties' lenders, underwriters, or other sources of financing with respect to the transactions contemplated hereby. The SFX Parties shall have received from Leibowitz & Associates, P.A., FCC counsel to Capstar, an opinion relating to FCC matters, dated the Closing Date, in substantially the form as Exhibit F hereto, which opinions, if requested by the SFX Parties shall expressly provide that they may be relied upon by the SFX Parties' lenders, underwriters, or other sources of financing with respect to the transactions contemplated hereby. (e) Real Estate Title Commitment. Within 30 days after the Capstar Date, Capstar, at the SFX Parties' sole cost and expense, shall have obtained a preliminary report on title to the Capstar Owned Real Property covering a date subsequent to the date of this Agreement, issued by the Title Company, which preliminary report shall contain a commitment (the "Capstar Title Commitment") of the Title Company to issue an owner's title insurance policy at the SFX Parties' cost as the SFX Parties may reasonably require (the "Capstar Title Policy") insuring the fee simple absolute interest of a SFX Party in the Capstar Owned Real Property. The Capstar Title Commitment shall be in the amount set forth in Schedule 8.3(e) and shall be subject only to the standard printed exceptions and: (i) liens of current state and local property taxes which are not delinquent or subject to penalty; (ii) unviolated zoning regulations and restrictive covenants and easements of record which do not detract from the value of the Capstar Owned Real Property and do not materially and adversely affect, impair or interfere with the use of any property affected thereby as heretofore used by Capstar or the Capstar Stations; (iii) public utility easements of record, in customary form, to serve the Capstar Owned Real Property; and (iv) Capstar Permitted Encumbrances. Such title policy shall be issued on the Closing Date. 59 66 (f) Survey. If requested by the SFX Parties, Capstar, at the SFX Parties' sole cost and expense, shall have obtained a survey of the Capstar Owned Real Property as of a date subsequent to the Capstar Date which shall: (i) be prepared by a registered land surveyor reasonably acceptable to the SFX Parties; (ii) be certified to the Title Company and to the SFX Parties; and (iii) show with respect to the Capstar Owned Real Property: (A) the legal description of the Capstar Owned Real Property (which shall be the same as the Capstar Title Policy pertaining thereto); (B) all buildings, structures and improvements thereon and all restrictions of record and other restrictions that have been established by an applicable zoning or building code or ordinance and all easements or rights of way across or serving the Capstar Owned Real Property (including any off-site easements affecting or appurtenant thereto); (C) no encroachments upon the Capstar Owned Real Property or adjoining parcels by buildings, structures or improvements and no other survey defects; (D) access to such parcel from a public street; and (E) a flood certification reasonably satisfactory to the SFX Parties to the effect that no portion of the Capstar Owned Real Property is located within a flood hazard area. (g) Closing Deliveries. All documents, instruments, certificates or other items required to be delivered by Capstar pursuant to Section 9.2 shall have been delivered. ARTICLE IX CLOSING 9.1. CLOSING. Subject to the satisfaction or waiver of the conditions set forth in Article VIII, or at such other place and time as any SFX Party and Capstar may agree, the Closing will take place at the offices of Vinson & Elkins L.L.P., Dallas, Texas, at 10:00 a.m., local time, on the 10th business day after the latest to occur of the day on which (i) the SFX FCC Consents have been granted by SFX Final Order or (ii) the Capstar FCC Consents have been granted by Capstar Final Order (the "Closing Date"). Notwithstanding the foregoing: (a) In the case of a Capstar Station Event (as defined below), (i) if the Cessation Date (as defined below) is 60 days or less after the Event Date (as defined below), the SFX Parties, in their discretion, may extend the Closing Date to a date not later than the 30th day after the Cessation Date, (ii) if the Cessation Date is more than 60, but less than 90, days after the Event Date, the SFX Parties, in their discretion, shall elect on the first to occur of the 10th business day after the Cessation Date or the 90th day (or, if not a business day, the next business day) after the Event Date (the "SFX Election Date") to either (A) close the transactions contemplated by this Agreement on the later to occur of the fifth business day after the SFX Election Date or the 90th day (or, if not a business day, the next business day) after the Event Date or (B) terminate this Agreement, or (iii) if the Cessation Date has not occurred by the 90th day after the Event Date, then on the 90th day (or, if not a business day, the next business day) after the Event Date, the SFX Parties, in their discretion, shall elect to close the transactions contemplated by this Agreement on the fifth business day thereafter or terminate this Agreement; 60 67 (b) In the case of a SFX Station Event (as defined below), (i) if the Cessation Date (as defined below) is 60 days or less after the Event Date (as defined below), Capstar, in its discretion, may extend the Closing Date to a date not later than the 30th day after the Cessation Date, (ii) if the Cessation Date is more than 60, but less than 90, days after the Event Date, Capstar, in its discretion, shall elect on the first to occur of the 10th business day after the Cessation Date or the 90th day (or, if not a business day, the next business day) after the Event Date (the "Capstar Election Date") to either (A) close the transactions contemplated by this Agreement on the later to occur of the fifth business day after the Capstar Election Date or the 90th day (or, if not a business day, the next business day) after the Event Date or (B) terminate this Agreement, or (iii) if the Cessation Date has not occurred by the 90th day after the Event Date, then on the 90th day (or, if not a business day, the next business day) after the Event Date, Capstar, in its discretion, shall elect to close the transactions contemplated by this Agreement on the fifth business day thereafter or terminate this Agreement; (c) If a Cure Period (as defined in Sections 10.1(c)(i) and 10.1(d)(1)) has not ended on or before the Closing Date, the Closing Date shall be extended to the end of the Cure Period; and (d) If the Closing does not occur within 80 days after the date of both the SFX Final Order and the Capstar Final Order, the parties shall request approval from the FCC to extend the Closing so that the Closing contemplated hereunder will not violate any FCC rules or regulations. For purposes of this Agreement, a "Capstar Station Event" shall mean any act of nature (including fires, floods, earthquakes, and storms), calamity, casualty or condemnation or the act or omission to act of any state or federal regulatory agency having jurisdiction over the Capstar Stations that has caused one or more Capstar Station(s) not to be operating in a manner substantially consistent with the operations conducted before such act, omission, calamity, casualty, condemnation or agency action occurred or not in compliance with the respective Capstar Station License(s); a "SFX Station Event" shall mean any act of nature (including fires, floods, earthquakes, and storms), calamity, casualty or condemnation or the act or omission to act of any state or federal regulatory agency having jurisdiction over any SFX Station that has caused one or more SFX Station(s) not to be operating in a manner substantially consistent with the operations conducted before such act, omission, calamity, casualty, condemnation or agency action occurred or not in compliance with the respective SFX Station License(s); an "Event Date" shall mean the date on which a Capstar Station Event or SFX Station Event, as applicable, occurs; and a "Cessation Date" shall mean the date on which a Capstar Station Event or SFX Station Event, as applicable, ends. 9.2. ACTIONS TO OCCUR AT CLOSING. (a) At the Closing, the SFX Parties shall deliver to Capstar the following: (i) Certificates. The certificates referred to in Section 8.2(a) and (b); (ii) Assumption Agreements. A counterpart of the SFX Assumption Agreement and the Capstar Assumption Agreement executed by each SFX Party; 61 68 (iii) Legal Opinions. The opinions of counsel referred to in Section 8.2(d); (iv) Transfer Documents. The duly executed SFX Bill of Sale and Assignment, together with any other assignments and other transfer documents as requested by Capstar; (v) Consents; Acknowledgments. The original of each Consent; (vi) Estoppel Certificates. Estoppel certificates from the lessor(s) of the SFX Leased Real Property in a form and substance satisfactory to Capstar and its lenders or other financing sources; (vii) Licenses, Contracts, Business Records, Etc. To the extent they are in the possession of any SFX Party, copies of all SFX Licenses, SFX Assumed Contracts, blueprints, schematics, working drawings, plans, projections, statistics, engineering records and all files and records used by each SFX Party in connection with a SFX Station's business and operations, which copies shall be available at the Closing or at a SFX Station's principal business offices; (viii) SFX Warranty Deed. A SFX Warranty Deed executed by each SFX Party conveying fee simple title to the SFX Owned Real Property to Capstar, subject only to the SFX Permitted Encumbrances, in proper statutory form for recording together with documentary stamps affixed thereto; (ix) No-Lien Affidavit. A standard No-Lien Affidavit executed by each SFX Party, which shall be in the recordable form and otherwise satisfactory to the Title Company in order to delete the standard printed exceptions relating to mechanics' liens and parties-in-possession; (x) GAP Affidavit. An affidavit, if requested by the Title Company, as may be necessary to insure the gap between the effective date of the SFX Title Commitment to and through the date of the recordation of the deed to the SFX Owned Real Property; (xi) Title Requirements. Such other documents as shall be reasonably required by the Title Company as called for or required under the terms of any title policy obtained or issued to Capstar; (xii) Section 1445(b)(2) Affidavit. Capstar shall receive from the chief executive officer or chief financial officer of each SFX Party a non-foreign affidavit within the meaning of section 1445(b)(2) of the Code; and (xiii) Organizational Documents. True and complete copies of their Articles of Incorporation, Bylaws, certificate of limited partnership, or limited partnership agreement, as applicable, as in effect on the Closing Date. (b) At the Closing, Capstar shall deliver to the SFX Parties the following: 62 69 (i) Certificates. The certificates described in Section 8.3(a) and (b); (ii) Assumption Agreements. A counterpart of the Capstar Assumption Agreement and the SFX Assumption Agreement executed by Capstar; (iii) Legal Opinions. The opinions of counsel referred to in Section 8.3(d); (iv) Transfer Documents. The duly executed Capstar Bill of Sale and Assignment, together with any other assignments and other transfer documents as requested by the SFX Parties; (v) Consents; Acknowledgments. The original of each Consent; (vi) Estoppel Certificates. Estoppel certificates from the lessor(s) of the Capstar Leased Real Property in a form and substance satisfactory to the SFX Parties and their lenders or other financing sources; (vii) Licenses, Contracts, Business Records, Etc. To the extent they are in the possession of Capstar, copies of all Capstar Licenses, Capstar Assumed Contracts, blueprints, schematics, working drawings, plans, projections, statistics, engineering records and all files and records used by Capstar in connection with a Capstar Station's business and operations, which copies shall be available at the Closing or at a Capstar Station's principal business offices; (viii) Capstar Warranty Deed. A Capstar Warranty Deed executed by Capstar conveying fee simple title to the Capstar Owned Real Property to the SFX Parties, subject only to the Capstar Permitted Encumbrances, in proper statutory form for recording together with documentary stamps affixed thereto; (ix) No-Lien Affidavit. A standard No-Lien Affidavit executed by Capstar, which shall be in the recordable form and otherwise satisfactory to the Title Company in order to delete the standard printed exceptions relating to mechanics' liens and parties-in-possession; (x) GAP Affidavit. An affidavit, if requested by the Title Company, as may be necessary to insure the gap between the effective date of the Capstar Title Commitment to and through the date of the recordation of the deed to the Capstar Owned Real Property; (xi) Title Requirements. Such other documents as shall be reasonably required by the Title Company as called for or required under the terms of any title policy obtained or issued to the SFX Parties; (xii) Section 1445(b)(2) Affidavit. The SFX Parties shall receive from the chief executive officer or chief financial officer of Capstar a non-foreign affidavit within the meaning of section 1445(b)(2) of the Code; and 63 70 (xiii) Articles of Incorporation and Bylaws. True and complete copies of its Articles of Incorporation and Bylaws, as in effect on the Closing Date. ARTICLE X TERMINATION, AMENDMENT AND WAIVER 10.1. TERMINATION. This Agreement may be terminated prior to the Closing: (a) by mutual consent of Capstar and each SFX Party; or (b) by either Capstar or the SFX Parties: (i) if a court of competent jurisdiction or other Governmental Entity shall have issued an order, decree, or ruling or taken any other action (which order, decree or ruling the parties hereto shall use their best efforts to lift), in each case permanently restraining, enjoining, or otherwise prohibiting the transactions contemplated by this Agreement, and such order, decree, ruling, or other action shall have become final and nonappealable; (ii) if, for any reason, the FCC denies or dismisses any of the Capstar Applications or SFX Applications and the time for reconsideration or court review under the Communications Act with respect to such denial or dismissal has expired and there is not pending with respect thereto a timely filed petition for reconsideration or request for review; (iii) if, for any reason, any of the Capstar Applications or SFX Applications is designated for an evidentiary hearing by the FCC; (iv) if the Closing shall not have occurred by the later of May 1, 1998, or the date to which the Closing Date is extended pursuant to the second sentence of Section 9.1; provided, however, that the right to terminate this Agreement under this clause (iv) shall not be available to any party whose breach of this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date; or (c) by Capstar: (i) if there shall have been any material breach (which breach shall not have been cured within 20 days (the "Cure Period") following receipt by an SFX Party of written notice of such breach) on the part of any SFX Party of (A) any representation or warranty set forth in this Agreement (provided that any representation or warranty of a party contained herein that is qualified by a materiality standard or a Material Adverse Effect qualification shall not be further qualified hereby), which breach or breaches, when aggregated with any other such breaches, has or would reasonably be expected to have a Material Adverse Effect on the SFX Assets or on Capstar's ability to operate the SFX Stations in substantially the same manner as they are presently operated by each SFX Party or (B) any covenant or agreement; 64 71 (ii) pursuant to the provisions of Section 7.8; (iii) with respect to a SFX Station Event, at its option, as provided in the second sentence of Section 9.1; (iv) if the FCC grants any of the SFX Applications with any adverse conditions not generally imposed on grants of such applications and the time for reconsideration or court review under the Communications Act with respect to such adverse conditions has expired and there is not pending with respect thereto a timely filed petition for reconsideration or request for review; (v) If within twenty (20) days after the receipt from the SFX Parties of the Schedules, the Existing SFX ESAs, and underlying documentation, as contemplated by this Agreement, Capstar in its sole and absolute discretion is not satisfied with the information contained therein; or (d) by the SFX Parties: (i) if there shall have been any material breach (which breach shall not have been cured within 20 days (the "Cure Period") following receipt by Capstar of written notice of such breach) on the part of Capstar of (A) any representation or warranty set forth in this Agreement (provided that any representation or warranty of a party contained herein that is qualified by a materiality standard or a Material Adverse Effect qualification shall not be further qualified hereby), which breach or breaches, when aggregated with any other such breaches, has or would reasonably be expected to have a Material Adverse Effect on the Capstar Assets or on the SFX Parties' ability to operate the Capstar Stations in substantially the same manner as they shall be operated by Capstar after the Capstar Date or (B) any covenant or agreement; (ii) pursuant to the provisions of Section 7.9; (iii) with respect to a Capstar Station Event, at its option, as provided in the second sentence of Section 9.1; (iv) if the FCC grants any of the Capstar Applications with any adverse conditions not generally imposed on grants of such applications and the time for reconsideration or court review under the Communications Act with respect to such adverse conditions has expired and there is not pending with respect thereto a timely filed petition for reconsideration or request for review; (v) if within twenty (20) days after the receipt from Capstar the Schedules, the Existing Capstar ESAs, and underlying documentation, as contemplated by this Agreement, the SFX Parties in their sole and absolute discretion are not satisfied with the information contained therein. 65 72 For purposes of subsections 10.1(c)(iv) and 10.1(d)(iv), the parties acknowledge and agree that the FCC's imposition of Equal Employment Opportunity reporting conditions shall not be deemed to constitute "adverse conditions" within the meaning of such subsection. The right of any party hereto to terminate this Agreement pursuant to this Section 10.1 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any party hereto, any person controlling any such party or any of their respective officers, directors, employees, accountants, consultants, legal counsel, agents, or other representatives whether prior to or after the execution of this Agreement. Notwithstanding anything in the foregoing to the contrary, no party that is in material breach of this Agreement shall be entitled to terminate this Agreement except with the consent of the other party. 10.2. EFFECT OF TERMINATION. (a) In the event of a termination of this Agreement by any SFX Party or Capstar as provided above, there shall be no liability on the part of Capstar or any SFX Party, except for liability arising out of a breach of this Agreement. (b) If this Agreement is terminated by the SFX Parties pursuant to Section 10.1(d)(i), the parties agree and acknowledge that the SFX Parties will suffer damages that are not practicable to ascertain. Accordingly, in such event and if within 10 business days after termination of this Agreement by the SFX Parties pursuant to Section 10.1(d)(i), each SFX Party delivers to Capstar a written demand for liquidated damages, subject to Capstar's receipt of a counterpart of the Release executed by each of the SFX Parties, the SFX Parties shall be entitled to the sum of $2,000,000 as liquidated damages payable by Capstar within 10 business days after receipt of the SFX Parties' written demand. The parties agree that the foregoing liquidated damages are reasonable considering all the circumstances existing as of the date hereof and constitute the parties' good faith estimate of the actual damages reasonably expected to result from the termination of this Agreement by the SFX Parties pursuant to Section 10.1(d)(i). Each SFX Party agrees that, to the fullest extent permitted by law, such SFX Party's right to payment of such liquidated damages as provided in this Section 10.2(b) shall be its sole and exclusive remedy if the Closing does not occur with respect to any damages whatsoever that such SFX Party may suffer or allege to suffer as a result of any claim or cause of action asserted by the SFX Parties relating to or arising from breaches of the representations, warranties or covenants of Capstar contained in this Agreement and to be made or performed at or prior to the Closing. (c) If this Agreement is terminated by Capstar pursuant to Section 10.1(c)(i), the parties agree and acknowledge that Capstar will suffer damages that are not practicable to ascertain. Accordingly, in such event and if within 10 business days after termination of this Agreement by Capstar pursuant to Section 10.1(c)(i), Capstar delivers to any SFX Party a written demand for liquidated damages, subject to such SFX Party's receipt of a counterpart of the Release executed by Capstar, Capstar shall be entitled to the sum of $2,000,000 as liquidated damages payable by the SFX Parties within 10 business days after receipt of Capstar's written demand. The parties agree that the foregoing liquidated damages are reasonable considering all the circumstances existing as of the date hereof and constitute the parties' good faith estimate of the actual damages reasonably expected to result from the termination of this Agreement by Capstar pursuant to Section 10.1(c)(i). Capstar 66 73 agrees that, to the fullest extent permitted by law, Capstar's right to payment of such liquidated damages as provided in this Section 10.2(d) shall be its sole and exclusive remedy if the Closing does not occur with respect to any damages whatsoever that Capstar may suffer or allege to suffer as a result of any claim or cause of action asserted by Capstar relating to or arising from breaches of the representations, warranties or covenants of any SFX Party contained in this Agreement and to be made or performed at or prior to the Closing. ARTICLE XI INDEMNIFICATION 11.1. INDEMNIFICATION OF CAPSTAR. Subject to the provisions of this Article XI, each SFX Party, jointly and severally, agrees to indemnify and hold harmless the Capstar Indemnified Parties from and against any and all Capstar Indemnified Costs. 11.2. INDEMNIFICATION OF THE SFX PARTIES. Subject to the provisions of this Article XI, Capstar agrees to indemnify and hold harmless the SFX Indemnified Parties from and against any and all SFX Indemnified Costs. 11.3. DEFENSE OF THIRD-PARTY CLAIMS. An Indemnified Party shall give prompt written notice to any entity or person who is obligated to provide indemnification hereunder (an "Indemnifying Party") of the commencement or assertion of any action, proceeding, demand, or claim by a third party (collectively, a "third-party action") in respect of which such Indemnified Party shall seek indemnification hereunder. Any failure so to notify an Indemnifying Party shall not relieve such Indemnifying Party from any liability that it, he, or she may have to such Indemnified Party under this Article XI unless the failure to give such notice materially and adversely prejudices such Indemnifying Party. The Indemnifying Party shall have the right to assume control of the defense of, settle, or otherwise dispose of such third-party action on such terms as they deem appropriate; provided, however, that: (a) The Indemnified Party shall be entitled, at its own expense, to participate in the defense of such third-party action (provided, however, that the Indemnifying Party shall pay the attorneys' fees of the Indemnified Party if (i) the employment of separate counsel shall have been authorized in writing by any such Indemnifying Party in connection with the defense of such third-party action, (ii) the Indemnifying Party shall not have employed counsel reasonably satisfactory to the Indemnified Party to have charge of such third-party action, (iii) the Indemnified Party shall have reasonably concluded that there may be defenses available to such Indemnified Party that are different from or additional to those available to the Indemnifying Party, or (iv) the Indemnified Party's counsel shall have advised the Indemnified Party in writing, with a copy delivered to the Indemnifying Party, that there is a conflict of interest that could make it inappropriate under applicable standards of professional conduct to have common counsel); (b) The Indemnifying Party shall obtain the prior written approval of the Indemnified Party before entering into or making any settlement, compromise, admission, or 67 74 acknowledgment of the validity of such third-party action or any liability in respect thereof if, pursuant to or as a result of such settlement, compromise, admission, or acknowledgment, injunctive or other equitable relief would be imposed against the Indemnified Party or if, in the opinion of the Indemnified Party, such settlement, compromise, admission, or acknowledgment could have an adverse effect on its business; (c) No Indemnifying Party shall consent to the entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by each claimant or plaintiff to each Indemnified Party of a release from all liability in respect of such third- party action; and (d) The Indemnifying Party shall not be entitled to control (but shall be entitled to participate at its own expense in the defense of), and the Indemnified Party shall be entitled to have sole control over, the defense or settlement, compromise, admission, or acknowledgment of any third- party action (i) as to which the Indemnifying Party fails to assume the defense within a reasonable length of time or (ii) to the extent the third-party action seeks an order, injunction, or other equitable relief against the Indemnified Party which, if successful, would materially adversely affect the business, operations, assets, or financial condition of the Indemnified Party; provided, however, that the Indemnified Party shall make no settlement, compromise, admission, or acknowledgment that would give rise to liability on the part of any Indemnifying Party without the prior written consent of such Indemnifying Party. The parties hereto shall extend reasonable cooperation in connection with the defense of any third-party action pursuant to this Article XI and, in connection therewith, shall furnish such records, information, and testimony and attend such conferences, discovery proceedings, hearings, trials, and appeals as may be reasonably requested. 11.4. DIRECT CLAIMS. In any case in which an Indemnified Party seeks indemnification hereunder which is not subject to Section 11.3 because no third-party action is involved, the Indemnified Party shall notify the Indemnifying Party in writing of any Indemnified Costs which such Indemnified Party claims are subject to indemnification under the terms hereof. The failure of the Indemnified Party to exercise promptness in such notification shall not amount to a waiver of such claim unless the resulting delay materially prejudices the position of the Indemnifying Party with respect to such claim. 11.5. LIMITATIONS. Subject to Section 12.17 hereof, the following provisions of this Section 11.5 shall be applicable after the time of the Closing: (a) Minimum Loss. No Indemnifying Party shall be required to indemnify an Indemnified Party for Indemnified Representation Costs unless and until the aggregate amount of such Indemnified Representation Costs for which the Indemnified Party is otherwise entitled to indemnification pursuant to this Article XI exceeds $100,000 (the "Minimum Loss"). After the Minimum Loss is exceeded, the Indemnified Party shall be entitled to be paid the entire amount of its Indemnified Representation Costs, subject to the limitations on recovery and recourse set forth in this Section 11.5 and subject to the exception contained in Section 12.17. For purposes of 68 75 determining the aggregate amount of Minimum Loss suffered by an Indemnified Party, each representation and warranty contained in this Agreement for which indemnification can be or is sought hereunder shall be read (including for purposes of determining whether a breach of such representation or warranty has occurred) without regard to materiality (including Material Adverse Effect) qualifications that may be contained therein. In addition, in determining whether an Indemnifying Party shall be required to indemnify an Indemnified Party under this Article XI, once the Minimum Loss requirement set forth in this clause (a) has been satisfied, each representation and warranty contained in this Agreement for which indemnification can be or is sought hereunder shall be read (including for purposes of determining whether a breach of such representation or warranty has occurred) without regard to materiality (including Material Adverse Effect) qualifications that may be contained therein. (b) Limitation as to Time. No Indemnifying Party shall be liable for any Indemnified Representation Costs pursuant to this Article XI unless a written claim for indemnification in accordance with Section 11.3 or 11.4 is given by the Indemnified Party to the Indemnifying Party with respect thereto on or before the first anniversary of the Closing Date, except that this time limitation shall not apply to any claims contemplated by Section 12.17. (c) Limitation as to Amount. Subject to Section 12.17 hereof, no Indemnifying Party shall be liable for any Indemnified Representation Costs pursuant to this Article XI in excess of $1,000,000. (d) Other Indemnified Costs. The provisions of this Section 11.5 shall only be applicable to Indemnified Representation Costs and shall not be applicable to any other Indemnified Costs. ARTICLE XII GENERAL PROVISIONS 12.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. Regardless of any investigation at any time made by or on behalf of any party hereto or of any information any party may have in respect thereof, each of the representations and warranties made hereunder or pursuant hereto or in connection with the transactions contemplated hereby shall survive the Closing. Except as otherwise provided in the next two sentences, the representations and warranties set forth in this Agreement shall terminate on the first anniversary of the Closing Date. Following the date of termination of a representation or warranty, no claim can be brought with respect to a breach of such representation or warranty, but no such termination shall affect any claim for a breach of a representation or warranty that was asserted before the date of termination. To the extent that such are performable after the Closing, each of the covenants and agreements contained in each of the Transaction documents shall survive the Closing indefinitely. Article I, Article X, Article XI, this Article XII, Section 7.1(d), Section 7.8, and Section 7.9 shall survive the termination of this Agreement. 69 76 12.2. FURTHER ACTIONS. After the Closing Date, each party shall execute and deliver such other certificates, agreements, conveyances, and other documents, and take such other action, as may be reasonably requested by the other party in order to transfer and assign to, and vest in, such party the SFX Assets or the Capstar Assets, as the case may be, pursuant to the terms of this Agreement. 12.3. AMENDMENT AND MODIFICATION. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. 12.4. WAIVER OF COMPLIANCE. Any failure of Capstar on the one hand, or any SFX Party, on the other hand, to comply with any obligation, covenant, agreement, or condition contained herein may be waived only if set forth in an instrument in writing signed by the party or parties to be bound thereby, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any other failure. 12.5. SPECIFIC PERFORMANCE. The parties recognize that in the event one party should refuse to perform under the provisions of this Agreement, monetary damages alone will not be adequate. The other party shall therefore be entitled, in addition to any other remedies which may be available, including money damages, to obtain specific performance of the terms of this Agreement. In the event of any action to enforce this Agreement specifically, both parties hereby waive the defense that there is an adequate remedy at law. 12.6. SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of applicable law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated herein are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated herein are consummated as originally contemplated to the fullest extent possible. 12.7. EXPENSES AND OBLIGATIONS. Except as otherwise expressly provided in this Agreement or as provided by law, all costs and expenses incurred by the parties hereto in connection with the consummation of the transactions contemplated hereby shall be borne solely and entirely by the party which has incurred such expenses. Notwithstanding the foregoing, (a) all sales taxes relating to the transfer of the Capstar Assets from Capstar to the SFX Parties shall be paid by Capstar and (b) all sales taxes relating to the transfer of the SFX Assets from each SFX Party to Capstar shall be paid by the SFX Parties. In the event of a dispute between the parties in connection with this Agreement and the transactions contemplated hereby, each of the parties hereto hereby agrees that the prevailing party shall be entitled to reimbursement by the other party of reasonable legal fees and expenses incurred in connection with any action or proceeding. 12.8. PARTIES IN INTEREST. This Agreement shall be binding upon and, except as provided below, inure solely to the benefit of each party hereto and their successors and assigns, and nothing in this Agreement, except as set forth below, express or implied, is intended to confer upon any other 70 77 person (other than the Indemnified Parties as provided in Article XI) any rights or remedies of any nature whatsoever under or by reason of this Agreement. 12.9. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) If to Capstar, to Capstar Acquisition Company, Inc. 200 Crescent Court, Suite 1600 Dallas, Texas 75201 Attn: Lawrence D. Stuart, Jr. Facsimile: (214) 740-7313 with copies to Vinson & Elkins L.L.P. 3700 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 Attn: Michael D. Wortley Facsimile: (214) 220-7716 Capstar Broadcasting Partners 600 Congress Avenue, Suite 1400 Austin, Texas 78701 Attn: William S. Banowsky, Jr. Facsimile: (512) 404-6850 Leibowitz & Associates, P.A. Suntrust International Center One Southeast Third Avenue, Suite 1450 Miami, Florida 33131-1715 Attn: Matt L. Leibowitz Facsimile: (305) 530-9417 71 78 (b) If to the SFX Parties, to SFX Broadcasting, Inc. 150 East 58th Street New York, New York 10155 Attn: Richard A. Liese Facsimile: (212) 407-9191 12.10. COUNTERPARTS. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 12.11. ENTIRE AGREEMENT. This Agreement (which term shall be deemed to include the exhibits and schedules hereto and the other certificates, documents and instruments delivered hereunder) constitutes the entire agreement of the parties hereto and supersedes all prior agreements, letters of intent and understandings, both written and oral, among the parties with respect to the subject matter hereof. There are no representations or warranties, agreements, or covenants other than those expressly set forth in this Agreement. 12.12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. 12.13. PUBLIC ANNOUNCEMENTS. Except as required by law, the SFX Parties and Capstar shall consult with each other before issuing any press release or otherwise making any public statements with respect to this Agreement or the transactions contemplated hereby and shall not issue any such press release or make any such public statement prior to such consultation. Prior to the Closing, neither the SFX Parties nor Capstar will issue any other press release or otherwise make any public statements regarding their business, except as may be required by applicable law. A report filed with a governmental agency shall not be a public statement. 12.14. ASSIGNMENT. (a) Neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned by any of the parties hereto, whether by operation of law or otherwise. (b) Notwithstanding subsection (a) of this Section 12.14, (i) upon notice to the SFX Parties, Capstar may assign or delegate any or all of its rights or obligations under this Agreement to any Affiliate of Capstar, (ii) nothing in this Agreement shall limit Capstar's ability to make a collateral assignment of its rights under this Agreement, without the consent of any SFX Party, to any institutional lender that provides funds to Capstar, 72 79 (iii) upon notice to the Capstar, each SFX Party may assign or delegate any or all of its rights or obligations under this Agreement to any Affiliate of any SFX Party, and (iv) nothing in this Agreement shall limit any SFX Party's ability to make a collateral assignment of its rights under this Agreement, without the consent of Capstar, to any institutional lender that provides funds to such SFX Party. Once an assignment and assumption occurs pursuant to Section 12.14(b)(i) above, such Affiliate shall assume all liabilities and obligations of Capstar Acquisition Company, Inc. under this Agreement, and Capstar Acquisition Company, Inc. shall be released from all liabilities and obligations pursuant to this Agreement. Once an assignment and assumption occurs pursuant to Section 12.14(b)(iii) above, such Affiliate shall assume all liabilities and obligations of each SFX Party under this Agreement, and each SFX Party shall be released from all liabilities and obligations pursuant to this Agreement. Each party shall execute an acknowledgment of such assignment(s) and collateral assignments in such forms as the other party or its institutional lenders may from time to time reasonably request; provided, however, that unless written notice is given to such party that any such collateral assignment has been foreclosed upon, such party shall be entitled to deal exclusively with the other party as to any matters arising under this Agreement or any of the other agreements delivered pursuant hereto. In the event of such an assignment, the provisions of this Agreement shall inure to the benefit of and be binding on Capstar's or each of the SFX Parties' assigns. 12.15. DIRECTOR AND OFFICER LIABILITY. (a) The directors, officers, and stockholders of Capstar and its Affiliates shall not have any personal liability or obligation arising under this Agreement (including any claims that any SFX Party may assert) other than as an assignee of this Agreement. (b) The directors, officers, and stockholders of each SFX Party and its Affiliates shall not have any personal liability or obligation arising under this Agreement (including any claims that Capstar may assert) other than as an assignee of this Agreement. 12.16. NO REVERSIONARY INTEREST. The parties expressly agree, pursuant to Section 73.1150 of the FCC's rules, that no SFX Party retains any right to reassignment of any of the SFX FCC Licenses in the future, or to operate or use the facilities of the SFX Stations for any period beyond the Closing Date, and that Capstar does not retain any right to reassignment of any of the Capstar FCC Licenses in the future, or to operate or use the facilities of the Capstar Stations for any period beyond the Closing Date. 12.17. NO WAIVER RELATING TO CLAIMS FOR FRAUD. The liability of any party under Article XI shall be in addition to, and not exclusive of any other liability that such party may have at law or equity based on such party's fraudulent acts or omissions. None of the provisions set forth in this Agreement, including but not limited to the provisions set forth in Section 11.5(a) (relating to Minimum Loss), 11.5(b) (relating to limitations on the period of time during which a claim for indemnification may be brought), or 11.5(c) (relating to limitations on the amount of indemnification costs), shall be deemed a waiver by any party to this Agreement of any right or remedy which such 73 80 party may have at law or equity based on any other party's fraudulent acts or omissions, nor shall any such provisions limit, or be deemed to limit, (i) the amounts of recovery sought or awarded in any such claim for fraud, (ii) the time period during which a claim for fraud may be brought, or (iii) the recourse which any such party may seek against another party with respect to a claim for fraud; provided, that with respect to such rights and remedies at law or equity, the parties further acknowledge and agree that none of the provisions of this Section 12.17, nor any reference to this Section 12.17 throughout this Agreement, shall be deemed a waiver of any defenses which may be available in respect of actions or claims for fraud, including but not limited to, defenses of statutes of limitations or limitations of damages. 74 81 IN WITNESS WHEREOF, each of the SFX Parties and Capstar have caused this Agreement to be signed, all as of the date first written above. SFX BROADCASTING, INC. By: /S/ Richard A. Liese ------------------------------------------- Name: Richard A. Liese ----------------------------------------- Title: Vice President ---------------------------------------- SFX BROADCASTING OF KANSAS, INC. By: /S/ Richard A. Liese ------------------------------------------- Name: Richard A. Liese ----------------------------------------- Title: Vice President ---------------------------------------- SFXKS LIMITED PARTNERSHIP By: SFX GP, Inc. Its General Partner By: /S/ Richard A. Liese ------------------------------------------- Name: Richard A. Liese ----------------------------------------- Title: Vice President ---------------------------------------- SFX BROADCASTING OF FLORIDA, INC. By: /S/ Richard A. Liese ------------------------------------------- Name: Richard A. Liese ----------------------------------------- Title: Vice President ---------------------------------------- SOUTHERN STARR LIMITED PARTNERSHIP By: Southern Starr Communications, Inc. Its General Partner By: /S/ Richard A. Liese ------------------------------------------- Name: Richard A. Liese ----------------------------------------- Title: Vice President ---------------------------------------- S-1 82 CAPSTAR ACQUISITION COMPANY, INC. By: /S/ William S. Banowsky, Jr.R --------------------------------------------------- Name: William S. Banowsky, Jr. ------------------------------------------------- Its: Vice President -------------------------------------------------- S-2 83 ANNEX A THE SFX STATIONS
CALL LETTERS LOCATION ------------ -------- KKRD-FM WICHITA, KANSAS KRZZ-FM WICHITA, KANSAS KNSS-AM WICHITA, KANSAS WGNE-FM DAYTONA, FLORIDA
84 ANNEX B THE CAPSTAR STATIONS
CALL LETTERS LOCATION ------------ -------- WFSC-FM GREENVILLE - SPARTANBURG, SOUTH CAROLINA WFNQ-FM GREENVILLE - SPARTANBURG, SOUTH CAROLINA WESC-AM GREENVILLE - SPARTANBURG, SOUTH CAROLINA
EX-10.33 28 AGREEMENT AND PLAN OF MERGER 1 EXHIBIT 10.33 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of June 17, 1997, is made by and among GulfStar Communications, Inc., a Delaware corporation ("Gulfstar"), Capstar Broadcasting Corporation, a Delaware corporation ("Capstar"), CBC-GulfStar Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Capstar ("Sub"), and each of the persons listed on Schedule I (the "Gulfstar Securityholders"). Gulfstar and Sub are hereinafter collectively referred to as the "Constituent Corporations". PRELIMINARY STATEMENTS A. Each Gulfstar Securityholder identified on Schedule II (collectively, the "Gulfstar Stockholders") owns the number of shares of Gulfstar Capital Stock (hereinafter defined) set forth opposite such Gulfstar Stockholder's name on Schedule II. Each Gulfstar Securityholder identified on Schedule III (collectively, the "Gulfstar Option Holders") holds options to purchase the number of shares of Gulfstar Common Stock (hereinafter defined) set forth opposite such Gulfstar Option Holder's name on Schedule III. B. The respective Boards of Directors of Gulfstar and Sub have approved the merger of Gulfstar with and into Sub, with Sub being the surviving corporation (the "Merger"). The respective Boards of Directors of Capstar, Gulfstar and Sub have determined that it is in the best interests of their respective stockholders for the Merger to be effected upon the terms and subject to the conditions set forth in this Agreement. C. For federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"), and this Agreement is intended to be and is adopted as a plan of reorganization within the meaning of Treasury Regulation Section 1.368-1(c). D. In connection with the Merger, Gulfstar, Capstar, Sub and the Gulfstar Securityholders desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger. AGREEMENTS NOW, THEREFORE, in consideration of the respective representations, warranties, covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: 2 ARTICLE I. CERTAIN DEFINED TERMS As used in this Agreement, the following terms have the meanings set forth below: "Aggregate Preferred Merger Consideration" means an amount of cash equal to the product obtained when the Preferred Merger Consideration is multiplied by the number of shares of Gulfstar Preferred Stock issued and outstanding immediately prior to the Effective Time. "BT" means BT Capital Partners, Inc. "BT Exercise Price" means an amount equal to $80.98. "BT Registration Rights Agreement" shall mean the Registration Rights Agreement dated as of July 25, 1996 between Gulfstar and BT. "BT Warrant" means the Stock Purchase Warrant issued on July 25, 1996 by Gulfstar to BT, pursuant to which BT was granted the right, under certain circumstances, to purchase the BT Warrant Shares. "BT Warrant Shares" means 8,098 shares of Gulfstar Class B Common Stock which may be issued by Gulfstar to BT at the Closing pursuant to the terms of the BT Warrant and Section 4.2 of this Agreement. "Class A Common Stock" means the Class A Voting Common Stock, par value $0.01 per share, of Capstar. "Class B Common Stock" means the Class B Nonvoting Common Stock, par value $0.01 per share, of Capstar. "Class C Common Stock" means the Class C Voting Common Stock, par value $0.01 per share, of Capstar. "Common Stock" means the collective reference to the Class A Common Stock, Class B Common Stock and Class C Common Stock. "Conversion Number" means 1,187.947. "Effective Time" has the meaning set forth in Section 2.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Gulfstar Capital Stock" means the collective reference to Gulfstar Common Stock, Gulfstar Class A Common Stock, Gulfstar Class B Common Stock, Gulfstar Class C Common Stock and Gulfstar Preferred Stock. 2 3 "Gulfstar Certificate of Designation" means the Gulfstar Communications, Inc. Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of 12% Redeemable Preferred Stock and Qualifications, Limitations and Restrictions Thereof filed by Gulfstar with the Delaware Secretary of State. "Gulfstar Class A Common Stock" means the Class A Nonvoting Common Stock, par value $0.01 per share, of Gulfstar. "Gulfstar Class B Common Stock" means the Class B Nonvoting Common Stock, par value $0.01 per share, of Gulfstar. "Gulfstar Class C Common Stock" means the Class C Voting Common Stock, par value $0.01 per share, of Gulfstar. "Gulfstar Common Stock" means the Common Stock, par value $0.01 per share, of Gulfstar. "Gulfstar Common Stock Equivalents" means, without duplication with any other Gulfstar Common Stock or Gulfstar 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, Gulfstar Common Stock or securities exercisable for or convertible or exchangeable into Gulfstar Common Stock, whether at the time of issuance or upon the passage of time or the occurrence of some future event. "Gulfstar Preferred Stock" means the 12% Redeemable Preferred Stock, par value $0.01 per share, of Gulfstar. "Gulfstar Stock" means Gulfstar Class A Common Stock, Gulfstar Class B Common Stock, Gulfstar Class C Common Stock, and Gulfstar Common Stock. "Gulfstar Stock Option" has the meaning set forth in Section 3.1(h). "Material Adverse Effect" means, with respect to any Person, the occurrence of any event, condition, circumstance or fact that has had, or could reasonably be expected to have, a material adverse effect on the business, operations, properties, conditions, results of operations, assets or liabilities of such Person and its Subsidiaries, if any, taken as a whole. "Merger" has the meaning set forth in the first Preliminary Statement of this Agreement. "Person" or "person" means any individual, corporation, limited liability company, partnership, limited partnership, syndicate, person (including, without limitation, a "person" as defined in Section 13(d)(3) of the Exchange Act), trust, association or other legal entity or government, political subdivision, agency or instrumentality of a government. "Preferred Merger Consideration" shall mean an amount of cash equal to the liquidation preference (including accumulated dividends) that would be payable with respect to one share of Gulfstar Preferred Stock if a liquidation, dissolution or winding-up of Gulfstar's affairs were deemed 3 4 to occur immediately prior to the Effective Time, as determined pursuant to Section (d) of the Gulfstar Certificate of Designation. "Subsidiary" means, with respect to any Person, any corporation or other organization, whether incorporated or unincorporated, of which: (i) such Person or any other Subsidiary of such Person is a general partner; or (ii) at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation or other organization is, directly or indirectly, owned or controlled by such Person or by any one or more of such Person's Subsidiaries. "Voting Debt," with respect to any Person, means any bonds, debentures, notes or other indebtedness issued or outstanding having the right to vote on any matters on which holders of capital stock of such Person may vote. ARTICLE II. THE MERGER; CLOSING; OTHER ACTIONS TO BE TAKEN AT THE CLOSING Section 2.1 Merger. Subject to the terms and conditions of this Agreement, at the Effective Time Gulfstar shall be merged with and into Sub in accordance with the applicable provisions of the Delaware General Corporation Law (the "DGCL"). As soon as practicable at or after the closing of the Merger (the "Closing"), a certificate of merger, prepared and executed in accordance with the relevant provisions of the DGCL (the "Certificate of Merger"), shall be filed with the Delaware Secretary of State. The Merger shall become effective at such time as is provided in the Certificate of Merger, which time shall be on the date of Closing (the "Effective Time"). Section 2.2 Closing. The Closing shall take place at 10:00 a.m. on a date to be specified by the parties, which shall be no later than the fifth business day after satisfaction (or waiver in accordance with this Agreement) of the latest to occur of the conditions set forth in Article VI (the "Closing Date"), at the offices of Vinson & Elkins L.L.P., 2001 Ross Avenue, Suite 3800, Dallas, Texas 75201, unless another date or place is agreed to by Capstar and Gulfstar. Section 2.3 Effects of the Merger. (a) At the Effective Time: (i) Gulfstar shall be merged with and into Sub, the separate existence of Gulfstar shall cease and Sub shall continue as the surviving corporation (for periods occurring after the Effective Time, Sub is sometimes referred to herein as the "Surviving Corporation"); (ii) the Certificate of Incorporation of Sub as in effect immediately prior to the Effective Time shall be the Certificate of Incorporation of Surviving Corporation except that the Certificate of Merger shall amend and restate Article First of the Certificate of Incorporation of Sub to read in its entirety as follows: 4 5 "FIRST: The name of the corporation is GulfStar Communications, Inc.; and (iii) the Bylaws of Sub as in effect immediately prior to the Effective Time shall be the Bylaws of Surviving Corporation. (b) The directors and officers of Sub at the Effective Time shall, from and after the Effective Time, be the initial directors and officers, respectively, of Surviving Corporation, and such directors and officers shall serve until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with Surviving Corporation's Certificate of Incorporation and Bylaws. Section 2.4 Further Assurances. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of either of the Constituent Corporations acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger, or otherwise to carry out this Agreement, the officers and directors of the Surviving Corporation shall be authorized to execute and deliver, in the name and on behalf of each of the Constituent Corporations, or otherwise, all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of each of the Constituent Corporations or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out this Agreement. ARTICLE III. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES Section 3.1 Effect of Merger on Capital Stock. At the Effective Time, by virtue of the Merger and without any further action on the part of any holder of any shares of Gulfstar Capital Stock or any shares of capital stock of Sub: (a) Capital Stock of Sub. Each issued and outstanding share of the capital stock of Sub shall not be converted or otherwise affected by the Merger and shall remain outstanding after the Merger as one fully paid and nonassessable share of common stock, par value $0.01 per share, of Surviving Corporation. (b) Cancellation of Gulfstar Treasury Stock and Capstar-Owned Gulfstar Stock. Each share of Gulfstar Capital Stock that is owned by Gulfstar as treasury stock and any shares of Gulfstar Capital Stock owned by Capstar, Sub or any other wholly owned Subsidiary of Gulfstar or Capstar shall be canceled and retired and shall cease to exist and no stock of Capstar or Surviving Corporation or other consideration shall be delivered or deliverable in exchange therefor. 5 6 (c) Gulfstar Common Stock. Subject to the provisions of Section 3.2(e) hereof, each share of Gulfstar Common Stock issued and outstanding immediately prior to the Effective Time (other than shares to be canceled in accordance with Section 3.1(b)) shall be converted into the right to receive a number of shares of Class A Common Stock equal to the Conversion Number. All such shares of Gulfstar Common Stock, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the shares of Class A Common Stock to be issued in consideration therefor upon the surrender of such certificate in accordance with Section 3.2, without interest. (d) Gulfstar Class A Common Stock. Subject to the provisions of Section 3.2(e) hereof: (i) each share of Gulfstar Class A Common Stock issued, outstanding and held by either of Thomas O. Hicks or R. Steven Hicks immediately prior to the Effective Time shall be converted into the right to receive a number of shares of Class C Common Stock equal to the Conversion Number. All such shares of Gulfstar Class A Common Stock, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the shares of Class C Common Stock to be issued in consideration therefor upon surrender of such certificate in accordance with Section 3.2, without interest; and (ii) each share of Gulfstar Class A Common Stock issued, outstanding and held by any Person other than Thomas O. Hicks or R. Steven Hicks immediately prior to the Effective Time (other than shares to be canceled in accordance with Section 3.1(b)) shall be converted into the right to receive a number of shares of Class A Common Stock equal to the Conversion Number. All such shares of Gulfstar Class A Common Stock, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the shares of Class A Common Stock to be issued in consideration therefor upon the surrender of such certificate in accordance with Section 3.2, without interest. (e) Gulfstar Class B Common Stock. Subject to the provisions of Section 3.2(e) hereof, each share of Gulfstar Class B Common Stock issued and outstanding immediately prior to the Effective Time (other than shares to be canceled in accordance with Section 3.1(b)) shall be converted into the right to receive a number of shares of Class B Common Stock equal to the Conversion Number. All such shares of Gulfstar Class B Common Stock, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the shares of 6 7 Class B Common Stock to be issued in consideration therefor upon the surrender of such certificate in accordance with Section 3.2, without interest. (f) Gulfstar Class C Common Stock. Subject to the provisions of Section 3.2(e) hereof: (i) each share of Gulfstar Class C Common Stock issued, outstanding and held by either of Thomas O. Hicks or R. Steven Hicks immediately prior to the Effective Time shall be converted into the right to receive a number of shares of Class C Common Stock equal to the Conversion Number. All such shares of Gulfstar Class C Common Stock, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the shares of Class C Common Stock to be issued in consideration therefor upon surrender of such certificate in accordance with Section 3.2, without interest; and (ii) each share of Gulfstar Class C Common Stock issued, outstanding and held by any Person other than Thomas O. Hicks or R. Steven Hicks immediately prior to the Effective Time (other than shares to be canceled in accordance with Section 3.1(b)) shall be converted into the right to receive a number of shares of Class A Common Stock equal to the Conversion Number. All such shares of Gulfstar Class C Common Stock, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the shares of Class A Common Stock to be issued in consideration therefor upon the surrender of such certificate in accordance with Section 3.2, without interest. (g) Gulfstar Preferred Stock. Each share of Gulfstar Preferred Stock issued and outstanding immediately prior to the Effective Time (other than shares to be canceled in accordance with Section 3.1(b)) shall be converted into the right to receive an amount equal to the Preferred Merger Consideration. All such shares of Gulfstar Preferred Stock, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the Preferred Merger Consideration to be paid in consideration therefor upon the surrender of such certificate in accordance with Section 3.2. (h) Stock Options. At the Effective Time, (i) each outstanding option to purchase Gulfstar Common Stock referenced on Schedule III (the "Gulfstar Stock Options"), whether vested or unvested, shall be assumed by Capstar. Each such option shall be deemed to constitute an option to acquire, on the same terms and conditions as were applicable under such Gulfstar Stock Option, a number of shares of Class A Common Stock equal to the number of shares of Gulfstar Common Stock purchasable pursuant to such Gulfstar Stock Option multiplied by the Conversion Number, at a price per share equal to the per-share 7 8 exercise price for the shares of Gulfstar Common Stock purchasable pursuant to such Gulfstar Stock Option divided by the Conversion Number; provided, however, that in the case of any option to which Section 421 of the Code applies by reason of its qualification under any of Sections 422-424 of the Code, the option price, the number of shares purchasable pursuant to such option and the terms and conditions of exercise of such option shall be determined in order to comply with Section 424(a) of the Code; and provided further, that, unless otherwise provided in the applicable Gulfstar Stock Option, the number of shares of Class A Common Stock that may be purchased upon exercise of such Gulfstar Stock Option shall not include any fractional share; and (ii) Capstar shall take all corporate action necessary to reserve for issuance a sufficient number of shares of Class A Common Stock for delivery upon exercise of the Gulfstar Stock Options assumed in accordance with this Section 3.1(h). (i) No Additional Rights. Except as set forth in Sections 3.1(h) and 4.2 or as otherwise agreed to by the parties, (i) the provisions of any plan, program, undertaking, agreement or arrangement providing for the issuance or grant of any other interest in respect of Gulfstar Capital Stock shall become null and void, and (ii) Gulfstar, Sub, Capstar and, from and after the Effective Time, Surviving Corporation, shall use their respective best efforts to ensure that, following the Effective Time, no holder of Gulfstar Common Stock Equivalents or any participant in any plan, program or arrangement shall have any right thereunder to acquire any equity securities of Gulfstar, Sub, Capstar or any direct or indirect Subsidiary thereof. Section 3.2 Exchange of Certificates. (a) Exchange Agent. As of the Effective Time, Surviving Corporation shall hold, for the benefit of the holders of shares Gulfstar Capital Stock, the Aggregate Preferred Merger Consideration payable and certificates representing the shares of Common Stock issuable at the Effective Time pursuant to Section 3.1 in exchange for outstanding shares of Gulfstar Capital Stock (the Aggregate Preferred Merger Consideration and such shares of Common Stock, together with any dividends or distributions with respect thereto, being hereinafter referred to as the "Exchange Fund"). Surviving Corporation shall deliver the Aggregate Preferred Merger Consideration and the Common Stock contemplated to be issued pursuant to Section 3.1 out of the Exchange Fund. The Exchange Fund shall not be used for any other purpose. (b) Exchange Procedures. Delivery of each certificate which, immediately prior to the Effective Time, represented outstanding shares of Gulfstar Capital Stock (each, a "Certificate"), shall be effected, and risk of loss and title to such Certificate shall pass, only upon surrender of the Certificate to Surviving Corporation for cancellation. Upon surrender of a Certificate for cancellation to Surviving Corporation, or to such other agent or agents as may be appointed by Surviving Corporation, together with any other documents of transfer reasonably required by Surviving Corporation, (1) the holder of the Certificate shall be entitled to receive, as applicable, either the Preferred Merger Consideration or a certificate representing that number of whole shares of Common Stock which such holder has the right to receive pursuant to the provisions of this Article III, and any unpaid dividends and distributions that such holder has the right to receive pursuant to Section 3.2(c); and (2) the Certificate so surrendered shall forthwith be canceled. In the 8 9 event of a transfer of ownership of Gulfstar Stock which is not registered in the transfer records of Gulfstar, a certificate representing the appropriate number of whole shares of Common Stock may be issued to a transferee if the Certificate representing such Gulfstar Stock is presented to Surviving Corporation accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid. If any shares of Gulfstar Stock have been pledged to Gulfstar by the holder thereof to secure the repayment by such holder of any obligation owed to Gulfstar, a certificate representing the appropriate number of whole shares of Common Stock may be issued if the Certificate representing such pledged shares of Gulfstar Stock is presented to the Surviving Corporation accompanied by all documents which the Surviving Company requires to evidence the Surviving Corporation's continued security interest in the shares of Common Stock to be issued in exchange for such Gulfstar Stock, and the Certificate so issued shall be pledged to the Surviving Corporation. Until surrendered as contemplated by this Section 3.2, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender, as applicable, the Preferred Merger Consideration or a certificate representing whole shares of Common Stock (and any unpaid dividends and distributions that such holder has the right to receive pursuant to Section 3.2(c)). Surviving Corporation shall not be entitled to vote or exercise any rights of ownership with respect to the Common Stock held by it from time to time hereunder, except that it shall receive and hold all dividends or other distributions paid or distributed with respect thereto for the account of persons entitled thereto. (c) Distributions with Respect to Unexchanged Shares. No dividends or other distributions with respect to Common Stock declared or made after the Effective Time with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Common Stock the right to receive which is represented thereby until the holder of such Certificate surrenders such Certificate. Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to the holder thereof, without interest: (i) at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of Common Stock; and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to such surrender and a payment date subsequent to such surrender payable with respect to such whole shares of Common Stock. (d) No Further Ownership Rights. The Preferred Merger Consideration to be paid, and all shares of Common Stock to be issued, upon the surrender for exchange of Certificates representing shares of Gulfstar Capital Stock, as applicable, in accordance with the terms hereof shall be deemed to have been paid or issued, as the case may be, in full satisfaction of all rights pertaining to such shares of Gulfstar Capital Stock, subject to the Surviving Corporation's obligation to pay any dividends or make any other distributions with a record date prior to the date hereof and which remain unpaid at the Effective Time. From and after the Effective Time there shall be no further registration of transfers on the stock transfer books of Surviving Corporation of the shares of Gulfstar Capital Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article III. (e) No Fractional Shares. No certificates or scrip representing fractional shares of Common Stock shall be issued upon the surrender for exchange of Certificates pursuant to this 9 10 Article III, and no dividend or other distribution, stock split, interest or other right shall relate to any such fractional security, and such fractional interests shall not entitle the owner thereof to vote or to any rights of a security holder of Surviving Corporation or Capstar. (f) No Liability. None of Capstar, Sub, Gulfstar or Surviving Corporation shall be liable to any holder of shares of Gulfstar Capital Stock for such portion of the Aggregate Gulfstar Preferred Merger Consideration or such shares of Common Stock (or dividends or distributions with respect thereto) delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. Any amounts remaining unclaimed by holders of any such shares at such date as is immediately prior to the time at which such amounts would otherwise escheat to or become property of any governmental entity shall, to the extent permitted by applicable law, become the property of Surviving Corporation, free and clear of any claims or interest of any such holders or their successors, assigns or personal representatives previously entitled thereto. (g) Lost, Stolen, or Destroyed Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by Surviving Corporation, the posting by such person of a bond in such reasonable amount as Surviving Corporation, may direct as indemnity against any claim that may be made against it with respect to such Certificate, Surviving Corporation shall issue in exchange for such lost, stolen or destroyed Certificate the certificate representing that number of whole shares of Common Stock which such holder has the right to receive pursuant to the provisions of this Article III, and any unpaid dividends and distributions that such holder has the right to receive pursuant to Section 3.2(c). Section 3.3 Appraisal Rights. If, by reason of the Merger, any holder of securities of Gulfstar shall be entitled to be paid the "fair value" of such holder's securities of Gulfstar, as provided in Section 262 of the DGCL, Gulfstar shall give Capstar notice thereof and Capstar shall have the right to participate in all negotiations and proceedings with respect to any such demands. Neither Gulfstar nor the Surviving Corporation shall, except with the prior written consent of Capstar, voluntarily make any payment with respect to, or settle or offer to settle, any such demand for payment. By his, her or its execution and delivery of this Agreement, each Gulfstar Stockholder hereby irrevocably waives any rights such Gulfstar Stockholder may have to be paid the "fair value" of such Gulfstar Stockholder's Gulfstar Capital Stock, as provided in Section 262 of DGCL, and hereby further agrees that such Gulfstar Stockholder shall not attempt to perfect any such right pursuant to the terms of the DGCL. Section 3.4 Stock Transfer Books. At and after the Effective Time, transfers of shares of Gulfstar Capital Stock outstanding prior to the Effective Time, other than shares of Gulfstar Capital Stock owned by Capstar or any of its Subsidiaries, shall not be made on the stock transfer books of the Surviving Corporation. 10 11 ARTICLE IV. OTHER ACTIONS TO BE TAKEN IN CONNECTION WITH THE MERGER Section 4.1 Stockholder Consent. By his, her or its execution and delivery of this Agreement, each Gulfstar Stockholder hereby consents (in his, her or its capacity as a stockholder of Gulfstar) to the approval of the Merger and the Merger Agreement, and agrees that such Gulfstar Stockholder will not withdraw, revoke, rescind or alter such consent in any way without the prior written consent of Capstar. By its execution and delivery of this Agreement, Capstar hereby consents (in its capacity as the sole stockholder of Sub) to the approval of the Merger and to the Merger Agreement, and agrees that it will not withdraw, revoke, rescind or alter such consent in any way without the prior written consent of Gulfstar. Section 4.2 Exercise of BT Warrant and Conversion of the BT Warrant Shares. (a) Upon the terms and subject to the conditions set forth herein, Gulfstar and BT hereby covenant and agree with Capstar that, notwithstanding any of the terms or provisions set forth in the BT Warrant, BT shall have the right to, and BT shall, exercise the BT Warrant at the Closing pursuant to Section 1B of the BT Warrant. Upon the terms and subject to the conditions set forth herein, Gulfstar and BT further hereby covenant and agree that, notwithstanding the definition of "Warrant Shares" set forth in Section 2 of the BT Warrant, upon the exercise of the BT Warrant at Closing, BT shall be entitled to receive, and Gulfstar shall be obligated to issue, 8,098 shares of Gulfstar Class B Common Stock. (b) Upon the terms and subject to the conditions set forth herein, BT hereby covenants and agrees with Gulfstar and Capstar that at the Closing BT will (i) pay the BT Exercise Price by wire transfer of immediately available funds to an account of Gulfstar designated in writing to BT prior to the Closing Date, (ii) execute and deliver to Gulfstar a completed "Exercise Agreement" (as described in Section 1C of the BT Warrant), and (iii) deliver to Gulfstar the originally executed BT Warrant. Gulfstar hereby covenants and agrees with BT and Capstar that, upon receipt by Gulfstar of (i) the BT Exercise Price, (ii) a completed Exercise Agreement, and (iii) the originally executed BT Warrant, Gulfstar will be obligated to issue the BT Warrant Shares in the name of BT. (c) BT and Gulfstar hereby covenant and agree with Capstar that the exercise of the BT Warrant as described in paragraph 4.2(b) shall occur, and be deemed to occur, immediately prior to the Effective Time, and that at the Effective Time the BT Warrant Shares shall be converted into the right to receive shares of Class B Common Stock as described in Section 3.1(e). Section 4.3 Conversion of Gulfstar Class C Common Stock Owned by Thomas O. Hicks. (a) Upon the terms and subject to the conditions set forth herein, Thomas O. Hicks, Gulfstar, and Capstar hereby covenant and agree that (i) Thomas O. Hicks hereby elects to convert 10,102 shares of Gulfstar Class C Common Stock held by him into 10,102 shares of Gulfstar Common Stock at the Closing in accordance with Article III(e) of Gulfstar's Certificate of Incorporation, and (ii) Thomas O. Hicks hereby elects to convert such shares of Gulfstar Common Stock into 10,102 shares of Gulfstar Class B Common Stock in accordance with Article III(e) of Gulfstar's Certificate of Incorporation immediately following the conversion described in the preceding clause (i). 11 12 (b) Thomas O. Hicks and Gulfstar hereby covenant and agree with Capstar that the conversion of shares of Gulfstar Class C Common Stock held by Thomas O. Hicks and the conversion of shares of Gulfstar Common Stock to be issued to Thomas O. Hicks, all as described in subsection 4.3(a), shall occur, and be deemed to occur, immediately prior to the Effective Time, and that at the Effective Time the shares of Gulfstar Class B Common Stock issued upon the conversion of such shares of Gulfstar Common Stock shall be converted into the right to receive shares of Class B Common Stock as described in Section 3.1(e). Section 4.4 Stockholders Agreement. Upon the terms and subject to the conditions set forth herein, Capstar and each of the Gulfstar Securityholders hereby covenant and agree with each other that at Closing they shall execute, deliver and enter into a Stockholders Agreement substantially in the form attached hereto as Exhibit A (the "Stockholders Agreement"). Section 4.5 Termination Agreement. Upon the terms and subject to the conditions set forth herein, Gulfstar and BT hereby covenant and agree with Capstar that at the Closing Gulfstar and BT shall execute, deliver and enter into a Termination Agreement substantially in the form attached hereto as Exhibit B (the "Termination Agreement"). ARTICLE V. REPRESENTATIONS AND WARRANTIES Section 5.1 Representations and Warranties of Capstar and Sub. Capstar and Sub hereby jointly and severally represent and warrant to Gulfstar as follows: (a) Organization, Standing and Power. Each of Capstar and Sub is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is in good standing as a foreign corporation in each jurisdiction where the properties owned, leased or operated, or the business conducted, by it require such qualification and where failure to so qualify or be in good standing, either singly or in the aggregate, would have a Material Adverse Effect with respect to Capstar. Each of Capstar and Sub has the corporate power to carry on its business as it is now being conducted. (b) Capitalization. At the time of execution of this Agreement, the authorized capital stock of Capstar consists of 250,000,000 shares of Class A Common Stock, par value $0.01 per share, 50,000,000 shares of Class B Common Stock, par value $0.01 per share, 50,000,000 shares of Class C Common Stock, par value $0.01 per share, and 50,000,000 shares of Preferred Stock, par value $0.01 per share. At the Effective Time, the number of issued and outstanding shares of capital stock of Capstar will be as described in the Offering Memorandum of Capstar Radio Broadcasting Partners, Inc., dated June 10, 1997 regarding its 9 1/4% Senior Subordinated Notes due 2007, and all of such issued and outstanding shares will be duly authorized, validly issued, fully paid and nonassessable and will not have been issued in violation of any preemptive or similar rights. All of the issued and outstanding shares of capital stock of each Subsidiary of Capstar are duly authorized, validly issued, fully paid and nonassessable and have not been issued in violation of any preemptive or similar rights. 12 13 (c) Authority. Each of Capstar and Sub has all requisite corporate power and authority to enter into this Agreement and each other agreement, document and instrument required to be executed by it in accordance herewith, including, without limitation, each of the documents the forms of which are attached as Exhibits hereto (collectively, including this Agreement, the "Transaction Documents"), and to consummate the transactions contemplated hereby or thereby. The execution and delivery by Capstar and Sub of this Agreement and the other Transaction Documents to which they are to be parties, and the consummation by Capstar and Sub of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action on the part of Capstar and Sub. This Agreement has been, and at Closing each of the other Transaction Documents to which Capstar or Sub is to be a party will be, duly executed and delivered by Capstar and Sub, and this Agreement constitutes, and upon execution and delivery thereof by Capstar and Sub, the other Transaction Documents to which Capstar or Sub is to be a party will constitute, the valid and binding obligations of each of Capstar and Sub, enforceable against it in accordance with its respective terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). (d) No Conflict; Required Filings and Consents. The execution and delivery by Capstar and Sub of this Agreement and the other Transaction Documents to which they are parties do not, and the performance by Capstar and Sub, as applicable, of the transactions contemplated hereby or thereby will not, subject to making the filings and obtaining the consents, approvals, authorizations and permits described below, (i) violate, conflict with, or result in any breach of any provision of the certificates of incorporation or bylaws, in each case as amended or restated, of Capstar or Sub, (ii) violate, conflict with, or result in a violation or breach of, or constitute a default (with or without due notice or lapse of time or both) under, or permit the termination of, or result in the acceleration of, or entitle any party to accelerate any obligation, or result in the loss of any benefit, or give any person the right to require any security to be repurchased, or give rise to the creation of any lien, charge, security interest or encumbrance upon any of the properties or assets of Capstar or any of its Subsidiaries under, any of the terms, conditions, or provisions of, any loan or credit agreement, note, bond, mortgage, indenture or deed of trust, or any license, lease, agreement or other instrument or obligation to which any of them is a party or by which any of them or any of their properties or assets may be bound or subject, except for such violations, conflicts, breaches, defaults, terminations, accelerations, losses or other such events as have not had, or could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect with respect to Capstar, or (iii) violate any order, writ, judgment, injunction, decree, statute, rule or regulation of any court or any federal, state or local administrative agency or commission or other governmental authority or instrumentality (a "Governmental Entity") applicable to Capstar or any of its Subsidiaries or by which or to which any of their respective properties or assets is bound or subject ("Applicable Laws"), except for such violations as have not had, or could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect with respect to Capstar. No consent, approval, order, or authorization of, or registration, declaration, or filing with, any 13 14 Governmental Entity is required by or with respect to Capstar or Sub in connection with the execution and delivery of this Agreement or any of the other Transaction Documents by Capstar or Sub or the consummation of the transactions contemplated hereby or thereby, except for (1) the filing of a premerger notification report under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (2) applicable requirements, if any, of the rules and regulations of the Federal Communications Commission (the "FCC") and (3) applicable requirements, if any, of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and state securities or blue sky laws. Section 5.2 Representations and Warranties of Gulfstar. Gulfstar hereby represents and warrants to Capstar that: (a) Organization, Standing and Power. Gulfstar is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is in good standing as a foreign corporation in each jurisdiction where the properties owned, leased or operated, or the business conducted, by it require such qualification and where failure to so qualify or be in good standing, either singly or in the aggregate, would have a Material Adverse Effect with respect to Gulfstar. Gulfstar has the corporate power to carry on its business as it is now being conducted. (b) Capitalization. The authorized capital stock of Gulfstar consists of (i) 100,000 shares of Gulfstar Common Stock, par value $0.01 per share, (ii) 60,000 shares of Gulfstar Class A Common Stock, par value $0.01 per share, (iii) 10,000 shares of Gulfstar Class B Common Stock, par value $0.01 per share, (iv) 100,000 shares of Gulfstar Class C Common Stock, par $0.01 value per share and (v) 500,000 shares of Gulfstar Preferred Stock, par value $0.01 per share. As of the date hereof, 11,342 shares of Gulfstar Common Stock, 10,000 shares of Gulfstar Class A Common Stock, no shares of Gulfstar Class B Common Stock, 42,205 shares of Gulfstar Class C Voting Common Stock and 500,000 shares of Gulfstar Preferred Stock were issued and outstanding. All of the outstanding shares of Gulfstar Capital Stock have been validly issued and are fully paid and nonassessable. No shares of capital stock of Gulfstar are reserved for issuance other than 8,098 shares of Gulfstar Common Stock reserved for issuance upon exercise of the BT Warrant and 1,000 shares of Gulfstar Common Stock reserved for issuance upon exercise of the Gulfstar Stock Options. Except for the BT Warrant and the Gulfstar Stock Options, there are no options, warrants, calls, rights, commitments or agreements of any character to which Gulfstar or any of its Subsidiaries is a party or by which any of them is bound obligating Gulfstar or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or any Voting Debt of Gulfstar or any of its Subsidiaries, or obligating Gulfstar or any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, right, commitment or agreement. Except as disclosed on Schedule 5.2(b), there are no outstanding contractual rights or obligations of Gulfstar or any Subsidiary to repurchase, redeem or otherwise acquire capital stock of, or any equity interest in, Gulfstar or any of its Subsidiaries. All of the issued and outstanding shares of capital stock of each Subsidiary of Gulfstar are duly authorized, validly issued, fully paid and nonassessable and have not been issued in violation of any preemptive or similar rights. 14 15 (c) Authority. Gulfstar has all requisite corporate power and authority to enter into this Agreement and each of the other Transaction Documents to be executed by it in accordance herewith, and to consummate the transactions contemplated hereby or thereby. The execution and delivery by Gulfstar of this Agreement and the other Transaction Documents to which Gulfstar is to be a party, and the consummation by Gulfstar of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action on the part of Gulfstar. This Agreement has been, and at Closing each of the other Transaction Documents to which Gulfstar is to be a party will be, duly executed and delivered by Gulfstar, and this Agreement constitutes, and upon execution and delivery thereof by Gulfstar, the other Transaction Documents to which Gulfstar is to be a party will constitute, the valid and binding obligation of Gulfstar, enforceable against it in accordance with its respective terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). (d) No Conflict; Required Filings and Consents. Except as disclosed on Schedule 5.2(d), the execution and delivery by Gulfstar of this Agreement and the other Transaction Documents do not, and the performance by Gulfstar of the transactions contemplated hereby or thereby will not, subject to making the filings and obtaining the consents, approvals, authorizations and permits described below, (i) violate, conflict with, or result in any breach of any provision of the certificate of incorporation or bylaws, in each case as amended or restated, of Gulfstar, (ii) violate, conflict with, or result in a violation or breach of, or constitute a default (with or without due notice or lapse of time or both) under, or permit the termination of, or result in the acceleration of, or entitle any party to accelerate any obligation, or result in the loss of any benefit, or give any person the right to require any security to be repurchased, or give rise to the creation of any lien, charge, security interest or encumbrance upon any of the properties or assets of Gulfstar or any of its Subsidiaries under, any of the terms, conditions, or provisions of, any loan or credit agreement, note, bond, mortgage, indenture or deed of trust, or any license, lease, agreement or other instrument or obligation to which any of them is a party or by which any of them or any of their properties or assets may be bound or subject, except for such violations, conflicts, breaches, defaults, terminations, accelerations, losses or other such events as have not had, or could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect with respect to Gulfstar, or (iii) violate any Applicable Laws, except for such violations as have not had, or could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect with respect to Gulfstar. No consent, approval, order, or authorization of, or registration, declaration, or filing with, any Governmental Entity is required by or with respect to Gulfstar in connection with the execution and delivery of this Agreement or any of the other Transaction Documents by Gulfstar or the consummation of the transactions contemplated hereby or thereby, except for (1) the filing of a premerger notification report under the HSR Act, (2) applicable requirements, if any, of the rules and regulations of the FCC and (3) applicable requirements, if any, of the Securities Act, the Exchange Act, and state securities or blue sky laws. 15 16 (e) Severance Agreements. Neither Gulfstar nor any Subsidiary is a party to any agreement providing for severance or termination payments to, or any employment agreement with, any executive officer or director of Gulfstar or such Subsidiary, other than as set forth on Schedule 5.2(e) hereto. Section 5.3 Representations, Warranties and Agreements of the Gulfstar Securityholders. Each Gulfstar Securityholder represents and warrants to and agrees with Capstar as follows: (a) Investment Intent. Such Gulfstar Securityholder represents and warrants to Capstar that the shares of Common Stock to be acquired by such Gulfstar Stockholder hereunder or upon exercise of the Gulfstar Stock Options are being and will be acquired for such Gulfstar Securityholder's own account for investment and with no intention of distributing or reselling such shares or any part thereof or interest therein in any transaction which would be in violation of the securities laws of the United States of America or any state or any foreign country or jurisdiction. (b) Transfer Restrictions. If such Gulfstar Securityholder should decide to dispose of any of the shares of Common Stock, such Gulfstar Securityholder understands and agrees that he may do so only pursuant to an effective registration statement under the Securities Act or pursuant to an exemption from registration under the Securities Act. In connection with any offer, resale, pledge or other transfer (individually and collectively, a "Transfer") of any shares of Common Stock other than pursuant to an effective registration statement, Capstar may require that the transferor of such shares provide to Capstar an opinion of counsel which opinion shall be reasonably satisfactory in form and substance to Capstar, to the effect that such Transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and any state or foreign securities laws. Such Gulfstar Securityholder agrees to the imprinting, so long as appropriate, of substantially the following legend on certificates representing the shares of Common Stock: THE SHARES OF COMMON STOCK (THE "SHARES") EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER AGREES THAT IT WILL NOT OFFER, RESELL, PLEDGE OR OTHERWISE TRANSFER (INDIVIDUALLY AND COLLECTIVELY, A "TRANSFER") THE SHARES EVIDENCED HEREBY, EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT SUCH AS THE EXEMPTION SET FORTH IN RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE). IF THE PROPOSED TRANSFER IS TO BE MADE OTHER THAN PURSUANT TO CLAUSE (A) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY AND THE TRANSFER AGENT SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THEY MAY 16 17 REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR ANY STATE OR FOREIGN SECURITIES LAW. The legend set forth above may be removed if and when the shares of Common Stock represented by such certificate are disposed of pursuant to an effective registration statement under the Securities Act or the opinion of counsel referred to above has been provided to Capstar. Such Gulfstar Securityholder agrees that, in connection with any Transfer of shares of Common Stock by him pursuant to an effective registration statement under the Securities Act, such Gulfstar Securityholder will comply with all prospectus delivery requirements of the Securities Act. Capstar makes no representation, warranty or agreement as to the availability of any exemption from registration under the Securities Act with respect to any resale of shares of Common Stock. (c) Stop Transfer Instruction. Such Gulfstar Securityholder agrees that Capstar shall be entitled to make a notation on its records and give instructions to any transfer agent for the shares of Common Stock in order to implement the restrictions on transfer set forth in this Agreement. (d) Status. Such Gulfstar Securityholder represents and warrants to, and covenants and agrees with, Capstar that (i) at the time it was offered the shares of Common Stock, it had, (ii) at the date hereof, it has, and (iii) at the Closing Date, it will have, such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating Capstar and an investment in the shares of Common Stock, and is able to bear the economic risk of such investment. (e) Authority. Each such Gulfstar Securityholder that is an entity represents and warrants to Capstar that (i) as of the Closing Date, the acquisition of the shares of Common Stock to be acquired by such Gulfstar Securityholder hereunder has been duly and properly authorized, and this Agreement has been duly executed and delivered by it or on its behalf and constitutes the valid and legally binding obligation of such Gulfstar Securityholder, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity); (ii) the acquisition of the shares of Common Stock to be acquired by such Gulfstar Securityholder hereunder does not conflict with or violate (A) its charter, by-laws or similar constituent documents or (B) any law applicable to it in a manner that could materially hinder or impair the completion of the Merger and the other transactions contemplated hereby; and (iii) the acquisition of shares of Common Stock to be acquired by such Gulfstar Securityholder hereunder does not impose any penalty or other onerous condition on such Gulfstar Securityholder that could materially hinder or impact the completion of the Merger and the other transactions contemplated hereby. 17 18 (f) Access to Information. Such Gulfstar Securityholder acknowledges as of the Closing Date that such Gulfstar Securityholder has been afforded (i) the opportunity to ask such questions as such Gulfstar Securityholder has deemed necessary of, and to receive answers from, representatives of Capstar concerning the terms and conditions of the offering of the shares of Common Stock hereunder and the merits and risks of investing in the shares of Common Stock; (ii) access to information about Capstar, Capstar's financial condition, results of operations, business properties, management and prospects sufficient to enable such Gulfstar Securityholder to evaluate an investment in the shares of Common Stock; (iii) the opportunity to obtain such additional information which Capstar possesses or can acquire without unreasonable effort or expense that is necessary to verify the accuracy and completeness of the information provided; and (iv) the opportunity to receive and review (x) the Offering Memorandum of Capstar Radio Broadcasting Partners, Inc., dated June 10, 1997 regarding its 9 1/4% Senior Subordinated Notes due 2007 and (y) the Offering Memorandum of Capstar Broadcasting Partners, Inc., dated June 10, 1997 regarding its 12% Senior Exchangeable Preferred Stock. (g) Reliance. Such Gulfstar Securityholder also understands and acknowledges that (i) the shares of Common Stock are being offered hereunder without registration under the Securities Act in a transaction that is exempt from the registration provisions of the Securities Act and (ii) the availability of such exemption depends in part upon, and that Capstar will rely upon, the accuracy and truthfulness of the foregoing representations and warranties, and such Gulfstar Securityholder hereby consents to such reliance. ARTICLE VI. CONDITIONS PRECEDENT Section 6.1 Conditions to Each Party's Obligation. The respective obligations of each party to effect the transactions contemplated hereby are subject to the satisfaction on or prior to the Closing Date of the following conditions: (a) Consents and Approvals. All authorizations, consents, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any Governmental Entity necessary for the consummation of the transactions contemplated by this Agreement shall have been filed, occurred or been obtained, including, without limitation, those required by the HSR Act, the Securities Act, the Exchange Act and the rules and regulations promulgated by the FCC. (b) No Injunctions or Restraints. No temporary restraining order, preliminary or permanent injunction, or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated by this Agreement shall be in effect. (c) No Action. No action shall have been taken nor any statute, rule or regulation shall have been enacted by any Governmental Entity that makes the consummation of the transactions contemplated by this Agreement illegal. 18 19 (d) Private Placements. (i) The private placement of 12% Senior Exchangeable Preferred Stock of Capstar Broadcasting Partners, Inc., and (ii) the private placement of 9 1/4% Senior Subordinated Notes of Capstar Radio Broadcasting Partners, Inc. shall each have been consummated simultaneously with or prior to the Merger. Section 6.2 Conditions to Obligation of Gulfstar. The obligation of Gulfstar to effect the Merger and the other transactions contemplated by this Agreement is subject to the satisfaction of the following conditions unless waived, in whole or in part, by Gulfstar: (a) Representations and Warranties. The representations and warranties of Capstar and Sub set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except as contemplated or permitted by this Agreement. (b) Performance of Obligations. Each of Capstar and Sub shall have performed in all material respects all obligations required to be performed by them under this Agreement prior to the Closing Date. (c) Closing Deliveries. All documents and instruments required to be delivered, and all actions required to be taken, by the parties hereto other than Gulfstar pursuant to Article IV shall have been delivered or taken. (d) Interest in Capstar Broadcasting Partners, Inc. Capstar shall have become the owner of all of the issued and outstanding shares of common stock of Capstar Broadcasting Partners, Inc. Section 6.3 Conditions to Obligations of Capstar and Sub. The obligation of Capstar and Sub to effect the Merger and the other transactions contemplated by this Agreement is subject to the satisfaction of the following conditions unless waived, in whole or in part, by Capstar and Sub. (a) Representations and Warranties. The representations and warranties of Gulfstar set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except as contemplated or permitted by this Agreement. (b) Performance of Obligations. Gulfstar shall have performed in all material respects all obligations required to be performed by it under this Agreement prior to the Closing Date. (c) Closing Deliveries. All documents and instruments required to be delivered, and all actions required to be taken, by the parties hereto other than Capstar or Sub pursuant to Article IV shall have been delivered or taken. (d) Interest in Capstar Broadcasting Partners, Inc. Capstar shall have become the owner of all of the issued and outstanding shares of common stock of Capstar Broadcasting Partners, Inc. 19 20 (e) Advisory Committee Approval. The transactions contemplated in this Agreement shall have been approved by Advisory Committee to Hicks, Muse, Tate & Furst Equity Fund III, L.P. ARTICLE VII. TERMINATION, AMENDMENT AND WAIVER Section 7.1 Termination. This Agreement may be terminated prior to the Closing: (a) by mutual consent of Capstar and Gulfstar; (b) by either of Capstar or Gulfstar; (i) if a court of competent jurisdiction or other Governmental Entity shall have issued an order, decree or ruling or taken any other action (which order, decree or ruling the parties hereto shall use their best efforts to lift), in each case permanently restraining, enjoining or otherwise prohibiting the Merger or any of the other transactions contemplated by this Agreement, and such order, decree, ruling or other action shall have become final and nonappealable; (ii) if the Closing shall not have occurred by 5:00 p.m., Dallas, Texas time on December 31, 1997; provided, however, that the right to terminate this Agreement under this clause (ii) shall not be available to any party whose breach of this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date; or (c) by Capstar: (i) if there shall have been any material breach of any representation or warranty or any material breach of any covenant or agreement set forth in this Agreement on the part of any other party to this Agreement, which breach shall not have been cured within 20 days following receipt by the breaching party of written notice of such breach; or (ii) if any other party to this Agreement other than Sub shall fail to perform any of their respective obligations set forth in Article IV; or (d) by Gulfstar: (i) if there shall have been any material breach of any representation or warranty or any material breach of any covenant or agreement set forth in this Agreement on the part of any other party to this Agreement, which breach shall not have been cured within 20 days following receipt by the breaching party of written notice of such breach; or (ii) if any other party to this Agreement shall fail to perform any of their respective obligations set forth in Article IV. 20 21 The right of any party hereto to terminate this Agreement pursuant to this Section 7.1 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any party hereto, any person controlling any such party, or any of their respective officers, directors, employees, accountants, consultants, legal counsel, agents or other representatives whether prior to or after the execution of this Agreement. Notwithstanding anything in the foregoing to the contrary, no party that is in material breach of this Agreement shall be entitled to terminate this Agreement except with the consent of the other parties hereto who have the right to terminate this Agreement. Section 7.2 Effect of Termination. In the event of a termination of this Agreement as provided above, there shall be no liability on the part of any of the parties hereto (or any of their respective directors or officers), except for liability arising out of a breach of this Agreement. ARTICLE VIII. MISCELLANEOUS AND GENERAL Section 8.1 Payment of Expenses. Whether or not the Merger shall be consummated, each party hereto shall pay its own expenses incident to preparing for, entering into and carrying out this Agreement and the consummation of the Merger. Section 8.2 Amendment and Modification. This Agreement may not be amended except by an instrument in writing signed by the parties hereto; provided, however, that any of the provisions of this Agreement other than those contained in Articles III or IV may be amended by an instrument in writing signed by both Capstar and Gulfstar, and such amendment shall be binding on the other parties hereto. Section 8.3 Waiver of Compliance. Any failure by any party to this Agreement to comply with any obligation, covenant, agreement, or condition contained herein may be waived only if set forth in an instrument in writing signed by the party or parties to be bound thereby, but such waiver or failure to insist upon strict compliance with such obligation, covenant, Agreement or condition shall not operate as a waiver of, or estoppel with respect to, any other failure. Section 8.4 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of applicable law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated herein is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible. Section 8.5 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): 21 22 (a) If to Capstar, to Capstar Broadcasting Corporation 600 Congress Avenue, Suite 1270 Austin, Texas 78701 Attn: R. Steven Hicks Facsimile: (512) 404-6850 (b) If to the Gulfstar, to Gulfstar Communications, Inc. 600 Congress Avenue, Suite 1270 Austin, Texas 78701 Attn: John Cullen Facsimile: (512) 404-6850 (c) If to a Gulfstar Stockholder, to the address set forth below such Gulfstar Stockholder's name on Schedule I. Section 8.6 Interpretation. All references in this Agreement to Exhibits, Schedules, Articles, Sections, subsections and other subdivisions refer to the corresponding Exhibits, Schedules, Articles, Sections, subsections and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any Articles, Sections, subsections or other subdivisions of this Agreement are for convenience only, do not constitute any part of such Articles, Sections, subsections or other subdivisions, and shall be disregarded in construing the language contained therein. The words "this Agreement," "herein," "hereby," "hereunder," and "hereof," and words of similar import, refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The words "this Section" and "this subsection" and words of similar import, refer only to the Sections or subsections hereof in which such words occur. The word "or" is not exclusive, and the word "including" (in its various forms) means "including without limitation." Pronouns in masculine, feminine, or neuter genders shall be construed to state and include any other gender and words, terms and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise expressly requires. Unless the context otherwise requires, all defined terms contained herein shall include the singular and plural and the conjunctive and disjunctive forms of such defined terms. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 8.7 Counterparts. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart; provided, that in the sole discretion and at the sole option of Capstar, this Agreement shall become effective when one or more such counterparts have been signed by Capstar, Sub, Gulfstar and Gulfstar Securityholders holding shares of Gulfstar Capital Stock having not less than the minimum number of votes that would be necessary under applicable law and Gulfstar's 22 23 Certificate of Incorporation and Bylaws to approve the Merger and this Agreement at a meeting at which all shares of Gulfstar Capital Stock entitled to vote thereon were present and voted. Section 8.8 Entire Agreement. This Agreement (which term shall be deemed to include the exhibits and schedules hereto and the other certificates, documents and instruments delivered hereunder) constitutes the entire agreement of the parties hereto and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. There are no representations or warranties, agreements or covenants other than those expressly set forth in this Agreement. Section 8.9 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE. Section 8.10 Further Actions. Subject to the terms and conditions of this Agreement, each of the parties hereto will use its commercially reasonable efforts to take, or cause to be taken all action and to do, or cause to be done, all things necessary, proper or advisable under Applicable Laws to consummate and make effective the transactions contemplated by this Agreement. If at any time after the Closing Date any further action is necessary to carry out the purposes of this Agreement, the parties to this Agreement and their duly authorized representatives shall take all such actions. Section 8.11 Specific Performance. The parties acknowledge and agree that the breach of the provisions of this Agreement by Capstar or Sub on the one hand, or Gulfstar or any of the Gulfstar Stockholders on the other hand, could not be adequately compensated with monetary damages and would irreparably damage the other party or parties hereto, and, accordingly, that injunctive relief and specific performance shall be appropriate remedies to enforce the provisions of this Agreement and each of the parties hereto hereby waive any claim or defense that there is an adequate remedy at law for such breach; provided, however, that nothing herein shall limit the remedies, legal or equitable, otherwise available and all remedies herein are in addition to any remedies available at law or otherwise. Section 8.12 Survival of Representations, Warranties, and Covenants. Regardless of any investigation at any time made by or on behalf of any party in respect thereof, each of the representations and warranties made hereunder or pursuant hereto or in connection with the transactions contemplated hereby shall terminate on the Closing Date. Following the date of termination of a representation or warranty, no claim can be brought with respect to a breach of such representation or warranty, but no such termination shall affect any claim for a breach of a representation or warranty that was asserted before the date of termination. To the extent that such are performable after the Closing, each of the covenants and agreements contained in this Agreement shall surviving the Closing indefinitely. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK] 23 24 IN WITNESS HEREOF, this Agreement has been duly executed and delivered by the parties hereto or by their duly authorized officers on the date first hereinabove written. GULFSTAR COMMUNICATIONS, INC. By: /s/ Bill Schwartz ------------------------------------------- Name: Bill Schwartz Title: ---------------------------------------- CAPSTAR BROADCASTING CORPORATION By: /s/ Paul D. Stone ------------------------------------------ Name: Paul D. Stone Title: Executive Vice President CBC-GULFSTAR MERGER SUB, INC. By: /s/ Paul D. Stone ------------------------------------------ Name: Paul D. Stone Title: Executive Vice President GULFSTAR STOCKHOLDERS /s/ Thomas O. Hicks ---------------------------------------------- Thomas O. Hicks /s/ R. Steven Hicks ---------------------------------------------- R. Steven Hicks /s/ D. Geoff Armstrong ---------------------------------------------- D. Geoff Armstrong /s/ Paul D. Stone ---------------------------------------------- Paul D. Stone /s/ Rebecca A. McConnell ---------------------------------------------- Rebecca A. McConnell S-1 25 /s/ Lawrence D. Stuart, Jr. ---------------------------------------------- Lawrence D. Stuart, Jr. /s/ John W. Barger ---------------------------------------------- John W. Barger /s/ William R. Hicks ---------------------------------------------- William R. Hicks /s/ Ben Downs ---------------------------------------------- Ben Downs /s/ James F. Stansell, Jr. ---------------------------------------------- James F. Stansell, Jr. /s/ John Cullen ---------------------------------------------- John Cullen /s/ Kim Borron ---------------------------------------------- Kim Borron /s/ William Schwartz ---------------------------------------------- William Schwartz ERIC C. NEUMAN SPECIAL TRUST By: /s/ Reed W. Neuman ------------------------------------------- Name: Reed W. Neuman Title: Trustee STANSELL COMMUNICATIONS, INC. By: /s/ James I. Stansell, Jr. ------------------------------------------- Name: James I. Stansell, Jr. Title: President S-2 26 BT CAPITAL PARTNERS, INC. By: /s/ Joseph T. Wood ------------------------------------------- Name: Joseph T. Wood Title: Senior Managing Director GULFSTAR OPTION HOLDERS /s/ Michael T. Gatons ---------------------------------------------- Michael T. Gatons /s/ Jimmy L. Ray ---------------------------------------------- Jimmy L. Ray S-3 27 SCHEDULE I GULFSTAR SECURITYHOLDERS - --------------------------------------------------------------------------------------------- Thomas O. Hicks John W. Barger Hicks, Muse, Tate & Furst Incorporated 7800 NW I-10 #330 200 Crescent Court, Suite 1600 San Antonio, Texas 78230 Dallas, Texas 75201 - --------------------------------------------------------------------------------------------- R. Steven Hicks William R. Hicks Capstar Broadcasting Partners, Inc. 4305 Newcastle Court 600 Congress Avenue, Suite 1400 Bryan, Texas 77802 Austin, Texas 78701 - --------------------------------------------------------------------------------------------- D. Geoffrey Armstrong Ben Downs 4115 First View Drive 1716 Briarcrest Drive #601 Austin, Texas 78731 Bryan, Texas 77805 Eric C. Neuman Special Trust James I. Stansell, Jr. 200 Crescent Court, Suite 1600 6315 Westchester Dallas, Texas 75201 Dallas, Texas 75205 - --------------------------------------------------------------------------------------------- Paul D. Stone Stansell Communications, Inc. 2129 Country Club Drive 6315 Westchester Plano, Texas 75704 Dallas, Texas 75205 - --------------------------------------------------------------------------------------------- Rebecca A. McConnell John Cullen Hicks, Muse, Tate & Furst Incorporated GulfStar Communications, Inc. 200 Crescent Court, Suite 1600 600 Congress Avenue, Suite 1400 Dallas, Texas 75201 Austin, Texas 78701 - --------------------------------------------------------------------------------------------- Lawrence D. Stuart, Jr. Kim Borron Hicks, Muse, Tate & Furst Incorporated 103 Bluff Park 200 Crescent Court, Suite 1600 Austin, Texas 78746 Dallas, Texas 75201 - --------------------------------------------------------------------------------------------- William Schwartz BT Capital Partners, Inc. GulfStar Communications, Inc. 130 Liberty Street, 25th Floor 600 Congress Avenue, Suite 1400 New York, New York 10006 Austin, Texas 78701 Attn: Heide Silverstein - --------------------------------------------------------------------------------------------- Jimmy L. Ray Michael T. Gatons GulfStar Communications, Inc. GulfStar Communications, Inc. 2885 I-10 East 3810 Brookside Drive Beaumont, Texas 77702 Tyler, Texas 75701 - ---------------------------------------------------------------------------------------------
I-1 28 SCHEDULE II GULFSTAR STOCKHOLDERS
SHARES OF GULFSTAR CAPITAL STOCK OWNED AS OF THE DATE OF THE NAME AGREEMENT ---- ----------------------------- PART 1. COMMON STOCK a. Gulfstar Common Stock D. Geoff Armstrong 2,500 Eric C. Neuman Special Trust 2,105 Paul D. Stone 1,912 Rebecca A. McConnell 93 Lawrence D. Stuart, Jr. 537 John W. Barger 564 James I. Stansell, Jr. 16 Stansell Communications, Inc. 141 John Cullen 2,772 Kim Borron 346 Bill Schwartz 356 ------ Total 11,342 b. Gulfstar Class A Common R. Steven Hicks 10,000 Stock ------ Total 10,000 c. Gulfstar Class B Common -0- Stock d. Gulfstar Class C Common Thomas O. Hicks 39,033 Stock William R. Hicks 3,064 Ben Downs 108 --------- Total 42,205 PART 2. GULFSTAR PREFERRED STOCK BT Securities Corporation 500,000
II-1 29 SCHEDULE III GULFSTAR OPTION HOLDERS
SHARES OF GULFSTAR COMMON STOCK NAME UNDERLYING OPTION ---- ----------------- Jimmy L. Ray 392 Michael T. Gatons 608
III-1 EX-12.1 29 DEFICIENCY OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.1 CAPSTAR BROADCASTING PARTNERS, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
THREE MONTHS ENDED YEAR ENDED MARCH 31 DECEMBER 31, ------------------ 1996 1996 1997 ------------ ------- ------- (DOLLARS IN THOUSANDS) Fixed Charges: Interest expense.......................................... $ 5,035 $ 2,452 $ 6,792 Implicit interest expense in rent......................... 190 48 55 ------- ------- ------- Total fixed charges............................... $ 5,225 $ 2,500 $ 6,847 ======= ======= ======= Earnings: Earnings before provision for income taxes................ (3,756) (1,409) (6,827) Fixed charges............................................. 5,225 2,500 6,847 ------- ------- ------- Earnings, as defined...................................... 1,469 1,091 20 ======= ======= ======= Deficiency of earnings to fixed charges..................... $ 3,756 $ 1,409 $ 6,827 ======= ======= =======
EX-12.2 30 PRO FORMA DEFICIENCY OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.2 CAPSTAR BROADCASTING PARTNERS, INC. COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS AND ACCRETION UNAUDITED PRO FORMA
THREE MONTHS ENDED YEAR ENDED MARCH 31 DECEMBER 31, -------------------- 1996 1996 1997 ------------ -------- -------- (DOLLARS IN THOUSANDS) Fixed Charges: Interest expense........................................ $ 64,889 $ 16,224 $ 16,224 Implicit interest expense in rent....................... 1,505 376 463 -------- -------- -------- Total fixed charges............................. 66,394 16,600 16,687 Preferred stock dividends and accretion................. 21,210 5,073 5,701 -------- -------- -------- Combined fixed charges and preferred stock dividends and accretion....................... $ 87,604 $ 21,673 $ 22,388 ======== ======== ======== Earnings: Earnings before provision for income taxes.............. (26,169) (12,075) (13,475) Combined fixed charges and preferred stock dividends and accretion............................................ 87,604 21,673 22,388 -------- -------- -------- Earnings, as defined.................................... 61,435 9,598 8,913 ======== ======== ======== Deficiency of earnings to combined fixed charges and preferred stock dividends and accretion................. $ 47,379 $ 17,148 $ 19,176 ======== ======== ========
EX-21.1 31 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. Capstar Radio Broadcasting Partners, Inc., a Delaware corporation. b. Point Madison Acquisition Company, Inc., a Delaware corporation. c. Capstar Broadcasting Florida, Inc., a Delaware corporation. 2. Atlantic Star Communications, Inc., a Delaware corporation, is a wholly-owned subsidiary of Capstar Radio Broadcasting Partners, 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 Capstar Radio Broadcasting Partners, 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. j. Dixie Broadcasting, Inc., an Alabama corporation. k. Radio WBHP, Inc., an Alabama 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. Dixie Broadcasting, Inc. and Radio WBHP, Inc. each own a 50% interest in the following entity: a. Mountain Lakes Broadcasting, L.L.C., an Alabama limited liability company. 12. 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. 13. GulfStar Communications, Inc., a Delaware corporation, is a wholly-owned subsidiary of Capstar Radio Broadcasting Partners, Inc. 3 14. GulfStar Communications Holdings, Inc., a Delaware corporation, is a wholly-owned subsidiary of GulfStar Communications, Inc. 15. The following entities are wholly-owned subsidiaries of GulfStar Communications Holdings, Inc.: a. GulfStar Communications Beaumont, Inc., a Delaware corporation. b. GulfStar Communications Port Arthur, Inc., a Delaware corporation. c. GulfStar Communications Lufkin, Inc., a Delaware corporation. d. GulfStar Communications Victoria, Inc., a Delaware corporation. e. GulfStar Communications Tyler, Inc., a Delaware corporation. f. Bryan Broadcasting Operating Company, Inc., a Delaware corporation. g. Sonance Waco Operating Company, Inc., a Delaware corporation. h. GulfStar Communications Management, Inc., a Delaware corporation. i. GulfStar Communications Baton Rouge, Inc., a Delaware corporation. j. GulfStar Communications Texarkana, Inc., a Delaware corporation. k. GulfStar Communications New Mexico, Inc., a Delaware corporation. l. GulfStar Communications Arkansas, Inc., a Delaware corporation. m. GulfStar Communications Corpus Christi, Inc., a Delaware corporation. n. GulfStar Communications Waco, Inc., a Delaware corporation. o. GulfStar Communications Lubbock, Inc., a Delaware corporation. p. GulfStar Communications Killeen, Inc., a Delaware corporation. q. GulfStar Communications Oklahoma, Inc., a Delaware corporation. 16. GulfStar Communications Beaumont Licensee, Inc., a Texas corporation, is a wholly owned subsidiary of GulfStar Communications Beaumont, Inc. 17. GulfStar Communications Port Arthur Licensee, Inc., a Texas corporation, is a wholly owned subsidiary of GulfStar Communications Port Arthur, Inc. 18. GulfStar Communications Lufkin Licensee, Inc., a Texas corporation, is a wholly owned subsidiary of GulfStar Communications Lufkin, Inc. 19. GulfStar Communications Victoria Licensee, Inc., a Texas corporation, is a wholly owned subsidiary of GulfStar Communications Victoria, Inc. 20. GulfStar Communications Tyler Licensee, Inc., a Texas corporation, is a wholly owned subsidiary of GulfStar Communications Tyler, Inc. 21. Bryan Broadcasting License Subsidiary, Inc., a Delaware corporation, is a wholly owned subsidiary of Bryan Broadcasting Operating Company, Inc. 22. Sonance Waco License Subsidiary, Inc., a Delaware corporation, is a wholly owned subsidiary of Sonance Waco Operating Company, Inc. 4 23. Baton Rouge Broadcasting Company, Inc., a Louisiana corporation, and GulfStar Communications Baton Rouge Licensee, Inc., a Louisiana corporation, are wholly owned subsidiaries of GulfStar Communications Baton Rouge, Inc. 24. GulfStar Communications Texarkana Licensee, Inc., a Texas corporation, is a wholly owned subsidiary of GulfStar Communications Texarkana, Inc. 25. GulfStar Communications New Mexico Licensee, Inc., a New Mexico corporation, is a wholly owned subsidiary of GulfStar Communications New Mexico, Inc. 26. GulfStar Communications Arkansas Licensee, Inc., a Arkansas corporation, is a wholly owned subsidiary of GulfStar Communications Arkansas, Inc. 27. GulfStar Communications Corpus Christi Licensee, Inc., a Texas corporation, is a wholly owned subsidiary of GulfStar Communications Corpus Christi, Inc. 28. GulfStar Communications Waco Licensee, Inc., a Texas corporation, is a wholly owned subsidiary of GulfStar Communications Waco, Inc. 29. GulfStar Communications Lubbock Licensee, Inc., a Delaware corporation, is a wholly owned subsidiary of GulfStar Communications Lubbock, Inc. 30. GulfStar Communications Killeen Licensee, Inc., a Delaware corporation, is a wholly owned subsidiary of GulfStar Communications Killeen, Inc. 31. Capstar Acquisition Company, Inc., a Delaware corporation, Pacific Star Communications, Inc., a Delaware corporation, and Central Star Communications, Inc., a Delaware corporation, are wholly-owned subsidiaries of Capstar Radio Broadcasting Partners, Inc. EX-23.2 32 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-4 (File No. 333-25683) of our report dated February 14, 1997, on our audits of the consolidated financial statements and financial statement schedules of Capstar Broadcasting Partners, Inc. We also consent to the references to our firm under the captions "Experts". COOPERS & LYBRAND L.L.P. Austin, Texas July 2, 1997 EX-23.3 33 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 Capstar Radio Broadcasting Partners, Inc. and Subsidiaries, the Predecessor Company of Capstar Broadcasting Partners, Inc. and Subsidiaries, and formerly known as Commodore Media, Inc. and Subsidiaries, (ii) February 3, 1997 with respect to the consolidated financial statements of Southern Star Communications, Inc., formerly known as Osborn Communications Corporation, and (iii) February 16, 1997 with respect to the combined financial statements of Mountain Lakes Broadcasting, L.L.C., all included in Amendment No. 1 to the Registration Statement (Form S-4) and related Prospectus of Capstar Broadcasting Partners, Inc. for the registration of $277,000,000 of 12 3/4% Senior Discount Notes due 2009. ERNST & YOUNG LLP New York, New York July 1, 1997 EX-23.4 34 CONSENT OF COOPERS & LYBRAND LLP 1 EXHIBIT 23.4 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 (File No. 333-25683) of our report dated April 4, 1997, on our audits of the consolidated financial statements and financial statement schedules of GulfStar Communications, Inc. We also consent to the references to our firm under the captions "Experts". COOPERS & LYBRAND L.L.P. Austin, Texas July 2, 1997 EX-23.5 35 CONSENT OF COOPERS & LYBRAND LLP 1 EXHIBIT 23.5 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 (File No. 333-25683) of our report dated February 8, 1997, on our audits of the consolidated financial statements and financial statement schedules of Benchmark Communications Radio Limited Partnership. We also consent to the references to our firm under the captions "Experts". COOPERS & LYBRAND L.L.P. Dallas, Texas July 2, 1997 EX-23.6 36 CONSENT OF COOPERS & LYBRAND LLP 1 EXHIBIT 23.6 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 (File No. 333-25683) of our report dated February 3, 1997, on our audit of the consolidated financial statements of Midcontinent Broadcasting Co. of Wisconsin, Inc. We also consent to the references to our firm under the captions "Experts". COOPERS & LYBRAND L.L.P. Milwaukee, Wisconsin July 2, 1997 EX-23.7 37 CONSENT OF COOPERS & LYBRAND LLP 1 EXHIBIT 23.7 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 (File No. 333-25683) of our report dated February 3, 1997, on our audit of the consolidated financial statements of Point Communications Limited Partnership. We also consent to the references to our firm under the captions "Experts". COOPERS & LYBRAND L.L.P. Milwaukee, Wisconsin July 2, 1997 EX-23.8 38 CONSENT OF COOPERS & LYBRAND LLP 1 EXHIBIT 23.8 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 (File No. 333-25683) of our report dated February 13, 1997, on our audit of the consolidated financial statements of Community Pacific Broadcasting Company L.P. We also consent to the references to our firm under the captions "Experts". COOPERS & LYBRAND L.L.P. San Jose, California July 2, 1997 EX-23.9 39 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.9 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 (File No. 333-25683) of our report dated February 28, 1997 (except with respect to the matter discussed in Note 13 to the consolidated financial statements, as to which the date is April 16, 1997) on our audits of the consolidated financial statements of Patterson Broadcasting, Inc. We also consent to the references to our firm under the captions "Experts". ARTHUR ANDERSEN LLP New York, New York July 2, 1997 EX-23.10 40 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.10 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report (and to all references to our firm) included in or made a part of Registration Statement No. 333-25683. ARTHUR ANDERSEN LLP St. Louis, Missouri July 1, 1997 EX-23.11 41 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.11 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated May 8, 1997 on the combined financial statements of Knight Quality Stations included in or made a part of this registration statement. ARTHUR ANDERSEN LLP Boston, Massachusetts July 1, 1997 EX-23.12 42 CONSENT OF MCGLADREY & PULLEN LLP 1 EXHIBIT 23.12 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this registration statement on Form S-4 (File No. 333-25683) of our report dated February 20, 1997, except for Note 6, as to which the date is June 12, 1997, relating to the financial statements of Quass Broadcasting Company, and to the reference to our Firm under the caption "Experts" in the Prospectus. McGLADREY & PULLEN, LLP Cedar Rapids, Iowa July 2, 1997 EX-23.13 43 CONSENT OF HOLTZ RUBENSTEIN & CO. LLP 1 EXHIBIT 23.13 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 (File No. 333-25683) of our report dated February 12, 1996 on our audits of the consolidated financial statements of Q Broadcasting, Inc. We also consent to the references to our firm under the captions "Experts". Holtz Rubenstein & Co., LLP Melville, New York July 2, 1997 EX-23.14 44 CONSENT OF PANETH, HABER & ZIMMERMAN LLP 1 EXHIBIT 23.14 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 (File No. 333-25683) of our report dated August 18, 1995 on our audit of the Statements of Operations and Accumulated Deficit and Cash Flows of Danbury Broadcasting, Inc. We also consent to the references to our firm under the captions "Experts". Paneth, Haber & Zimmerman LLP New York, NY July 2, 1997 EX-23.15 45 CONSENT OF BROWN, EDWARD & CO., LLP 1 EXHIBIT 23.15 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 (File No. 333-25683) 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 references to our firm under the captions "Experts". Brown, Edwards & Company LLP Bluefield, West Virginia July 2, 1997 -----END PRIVACY-ENHANCED MESSAGE-----